How often have you heard the phrase "Time is Money"? 

This expression takes on a special meaning for accounting and finance personnel, especially during the first week or two of each month, as there’s an ever-increasing need to get the latest information about their organization to management as soon as possible. Management is looking for timely and accurate information—both financial and non-financial—to make decisions before opportunities vanish. 

Because of this “need for speed,” many companies have compressed their monthly financial statement closing process, moving away from the traditional hard month-end close. These companies have implemented new methods to accumulate and distribute financial information more quickly and efficiently without compromising the quality of the information. 

The month-end close has traditionally been a time-consuming process: first, gathering data from a number of different systems; second, performing detailed analysis; third, making corrections; and finally, reformatting the data into any number of management reports. 

In some cases, the resulting management reports have been prepared month after month or year after year without a current evaluation of their relevance. 

A number of medium-to-large companies have redesigned their closing cycles as part of a total finance function re-engineering process. They’ve transitioned first by improving the traditional hard close, moving to a soft close, and then to a “virtual” close. The hard close focuses on total and complete accuracy, resulting in GAAP/SEC financial statements. The focus of a soft close is the material accuracy of information. Organizations who have implemented the “virtual” close have developed systems and processes that allow them to produce vital management reporting on demand. 

Suppose, however, that you’re a smaller organization looking for ways to speed up your closing process. Instead of embarking on a complete process redesign, consider taking these steps to accelerate your company’s closing process. 

Eliminate
First, identify the true users of the reports generated from the month-end close. Users can be internal or external and include owners, shareholders, government agencies, taxing authorities, financing/funding sources, and grantors and/or managers. Remember that certain reports might be valuable to one user but not to others. 

Ask internal users about their business unit goals and how those goals can be objectively measured. What information is useful for measurement? How often and when is it needed? Based on the answers to these questions, non-essential reporting can be eliminated. 

Simplify
Analyze existing processes. What’s cumbersome? Are there bottle-necks? Are there outdated policies that can be reevaluated? 

For example, perhaps you have a policy requiring more than one approval for vendor payments. Consider setting dollar thresholds in order to eliminate an additional approval for smaller payments. 

If sales cut-off typically causes a delay, consider using a morning deadline on the last day of the month to encourage earlier sales-order entry. 

Leverage Technology
There are a growing number of technology solutions available to businesses of all sizes and industries. Look at the processes that are currently performed manually. What can be automated? 

For example, consider the bank reconciliation process. There are software programs that download both the bank and the general ledger data into an electronic spreadsheet and then match them automatically, eliminating the time-consuming and error-prone process of manually matching cleared checks to the general ledger detail. 

Pull Closing Activities Forward
The ultimate goal is to speed up the closing process without compromising the quality of information reported to management. Therefore, having the ability to perform some closing activities prior to month end is important. Consider all of the reconciliations that are performed at month end. Which accounts could be monitored during the month in order to reduce last-minute reconciliation efforts? The bank reconciliation provides a good example of a process that can be moved to an earlier date on the closing calendar. 

The Internet can be used to access bank account information at any time during the month. Consider advancing the closing date for the bank reconciliation; include estimates of bank fees and other automatic charges in recur-ring monthly journal entries. Another option is to reconcile the bank statement on a weekly basis. 

Combine Related Activities
Instead of thinking about closing activities as a list of individual tasks to be executed sequentially, consider whether there are efficiencies that could be gained by logically grouping related tasks together. For example, entry of hours worked during the last period of the month; accrue wages, salaries, and payroll taxes; and close the payroll module. 

Establish Accountability
Another consideration in an accelerated close effort is ensuring that each member of the accounting and finance team is clear on the specifics and timing of their role in the process. The following best practices are recommended: 

• Assign closing responsibilities.
• Document the closing schedule.
• Document the process.
• Provide a tickler calendar for each staff member.
• Provide cross-training for critical activities .
• Create a policy and procedure manual.
• Engage staff in making the process faster, better, cheaper, and celebrate improvement.

The End Result
A thoughtful and well-executed effort to streamline the reporting process requires balancing the need for speed with accurate reporting of financial data and lowering the cost of the closing process. Time, as they say, is money. In the end, the benefits of streamlining the reporting cycle are well worth the effort. 

Did You Know That Exception Invoices In Your AP Process Can Cost Almost 10 Times as Much as an Invoice That Matches and Processes Straight Through. 

Here are a few examples as to why:

An AP clerk enters a PO invoice in the ERP system, matches the information on the invoice to the information that the buyer entered on the purchase order. The system applies invoice controls to the invoice. If the information on the invoice does not match the information on the purchase order, an invoice exception occurs.

The AP clerk then sends the invoice to the buyer for resolution when the invoicing process is interrupted by an invoice exception. Often times the invoice is sent via interoffice mail as paper of scanned and emailed. Either way these steps occur outside of the controlled accounting environment.

Now the AP clerk cannot finish processing the invoice until the buyer has resolved the exception and sent the invoice back to the AP clerk. This process may take some time and the result may be a delay in payment to the vendor.

There are two types of invoice exceptions: 

Invoice Header Exceptions
An invoice header exception occurs when the information on the invoice header does not match the information on the PO header. 

Common header exceptions occur because:

• The vendor numbers on the PO and the invoice are not the same.

• The invoice has charges that the AP clerk is not authorized to pay, such as sales tax, freight or additional charges.

Invoice Line Exceptions
Invoice line exceptions occur when the invoice line information does not match the PO line information. 

Common line exceptions occur because:

• The invoice line's unit price exceeds the unit price tolerance range.

• The invoice line's extended value exceeds the extended value tolerance range. Because the extended value equals the quantity multiplied by the unit price for that line, an extended value tolerance occurs under either or both of the following conditions: 

• • The invoice line quantity differs from the PO line quantity. 
  • The invoice line unit price differs from the PO line unit price, but the difference does not exceed the unit price tolerance range.
  • The invoice line has charges that the AP clerk is not authorized to pay, such as sales tax, freight or additional charges.

In a recent study of 200 companies using purchase orders it was found that on average 1-in-3 supplier invoices had a matching issue which resulted in an exception which required manual intervention.

One of the most effective ways of handling invoices exceptions is by utilizing an e-invoicing platform that is designed to apply rules based matching that minimizes and in many cases eliminates the manual tasks associated with processing exception invoices. 

The problem starts with the fact that invoices are often not sent to the Accounts Payable (AP) department. They are frequently sent to the person who purchased the product or service and may sit on that person’s desk for days or even weeks. Then there’s more time and effort forwarding the invoice to AP before it can be entered into the accounting system. 

Sometimes departmental procedures are methodical, but create even more paper – one study found that invoices were being copied and filed up to nine times. 

But plenty of challenges exist within the AP department as well. Whether received directly from the supplier or forwarded from elsewhere in the organisation, invoice processing is very labour intensive. Besides the obvious mail handling and data entry activity, invoices must somehow be coded with appropriate purchase categories and GL accounts. That alone may require a lot of time-consuming research by AP personnel. 

In order to make sure the charges are valid, invoices need to be compared to one or more POs or a contract, and receipt of the goods or service needs to be confirmed. That takes more time. If the information isn’t available or the invoice doesn’t match the information AP has access to, the invoice needs to be sent to an appropriate person for review and approval. That takes more time. 

The more this is done with paper, the more time it takes and the more cost it accumulates. 

There is no question that paper invoice handling is the enemy of efficiency in the AP department. Scanning invoices into a document management system can help, but by no means solves the entire problem. 

Receiving invoices electronically helps more, but only if the rest of the process is set up to really use the information in an automated fashion. 

The “mail latency”, “desk float” and “information chase” associated with manual invoice processing results in a number of problems: 
• Management does not have visibility of outstanding liabilities 
• Invoices are beyond the discount period before they even enter the AP system 
• The potential for paying duplicate invoices increases as suppliers send second copies 
• The inclination to “just pay it” becomes greater when the validation process is too cumbersome 
• AP personnel spend a high percentage of their time answering inquiries from suppliers about payment status 
• Suppliers may stop delivering inventory or services when invoices are not paid on time 
• Audits become long, costly and problematic 

And that is all in addition to the direct cost of invoice processing – primarily Accounts Payable personnel and departmental operating costs. In their 2011 Benchmark study, Aberdeen Group found that the industry average cost to process an invoice was $15.61. “Laggard” companies (bottom 30%) ) had an even larger average cost of $38.77, while “Best-in-Class” companies (top 20%) had an average cost of just $3.09.