One accounting procedure that can benefit from financial automation solutions is the financial close cycle. Financial close is the zeroing of a business’ temporary balances at month’s end. If done manually, the financial close can be time-consuming, labor-intensive, inefficient, insecure, and error-prone. However, there are financial close automation solutions that can automate the process with higher accuracy and minimal human intervention.
In this article, we will explain in more detail the benefits and business outcomes of using financial close software.
1. Automated financial close tasks
Financial closing is a time-heavy process. A “moderately” efficient firm is said to spend almost seven calendar days closing its books. The reason behind the lengthy nature of the process is the amount of manual preparation that usually goes into it.
Automated solutions automate the undertaking of different financial close tasks, from preparing a checklist to journal entries and balance sheet reconciliation. One benefit of automation is that it will reduce the workload of highly paid analysts, allowing them to focus on higher-value activities such as process improvements and assimilation of regular acquisitions. And the other benefit is that a close that would have taken a week to finalize could now be done in a quicker time frame.
2. Efficient collaborative work
The financial close process requires inter-departmental collaboration. Intercompany reconciliation, for instance, is a procedure that demands constant communication and approval between the accounting teams and the people responsible for the transactions. If their sources are not accurately established, some intercompany transactions might not be eliminated and will wrongly end up on the general ledger.
Automated close solutions will eliminate the need for traditional means of communication between counterparties, such as emails, phone calls, or IMs. Instead, the solution follows a rule-based framework, whereby every intercompany transaction is flagged as such in real-time after their invoices have been collected from various ERP systems and verified. The entries will then automatically be posted on the journal.
This is very important as it makes collaborative work between teams, and even companies (between parent company and subsidiary, in this example) efficient and productive.
3. On-time execution
Deadlines are often an issue in the close because teams might forget about them, especially if there are lots of postponed tasks that have to be completed in a short time interval. Software applications, just like smart calendars, have the capability of alerting accounting teams ahead of time to give them a heads-up before a deadline’s arrival.
4. Transparent progress status
Once one of the steps is underway, there are visibility dashboards that make it easy to monitor the progress. Because the ETA, as well as the tasks themselves, are automated, all the guesswork is taken out of the process. Teams can then adjust their calendars accordingly with respect to the progress made.
Lastly, if the dashboard shows a bottleneck in the process, the solutions often have built-in BPM software, which the users can leverage to shift priorities or manage processes differently.
5. Improved accuracy of financial entries
There is always a possibility that an error gets made while teams are manually inputting data. They could miss some entries, enter the wrong amount, forget to double-check transactions, or miss reconciliations. Any small error in any stage of the close will have a negative downstream effect on the succeeding steps.
Another issue is the lack of visibility often associated with paper-backed processes, which could incentivize malicious activities. If all the entries are done manually, it could make it easy for a company’s staff to tweak some numbers here and there and cook the books.
The benefit of automated solutions is that once a chain of actions is built, the RPA bots and workload automation software will carry out the task as commanded unless there are coding or technical errors. What this means is that the risk of erroneous entries is minimized. Moreover, because every entry is programmed to be followed by invoice recognition, every amount on the journal or the ledger will reflect the true amount of the transaction.
Accurate reporting will mean that once the financial statements are prepared, there will be no misstatement of financial data or inaccurate reporting, both of which are apprehensible and can tarnish an organization’s reputation.
For more on financial close
If you are curious, we have prepared some other articles regarding the automation of financial close that we’ve written in the past:
- In-Depth Guide to Automating Your Financial Close
- 4 Best Practices to Automate Financial Close
- Increase the Efficiency of Your Journal Entry Process
And if you are looking to adopt a financial close automation solution for your business’s accounting department, we have a data-driven list of vendors.
And we can help you find the right tool for your business:
Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.
Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.
Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.
He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.
Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.
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