Closing the financial books is a crucial task for all businesses. It ensures that the accounting records are accurate and that everything is reported correctly. But the financial close process can be time-consuming and error-prone, especially for global businesses and businesses that receive lots of invoices. According to the Trintech 2022 Financial Close Survey, 51 percent of financial professionals say meeting deadlines/time pressures is their biggest challenge in closing the books.
Businesses need a better, faster way to close their books.
Invoice-to-pay automation is one way that businesses can streamline the financial closing process.
This blog entry shows you how.
Importance of Financial Close
A financial close is the process of compiling, verifying, and finalizing financial statements, reconciling accounts, and ensuring compliance at the end of a financial reporting period.
CFO reports that the median time it takes to close the books at month’s end is 6.4 days.
The stakes are high for businesses to get the financial close process right.
- Financial reporting accuracy. Accurate financial statements are essential for informed decision-making, regulatory compliance, and maintaining investor and shareholder trust.
- Compliance and governance. Publicly traded companies must adhere to regulatory requirements like the Sarbanes-Oxley Act (SOX). The financial close ensures compliance with these regulations, reducing the risk of legal and financial penalties.
- Performance evaluation. Whether a financial close is done monthly, quarterly or at some other interval, it enables businesses to evaluate their performance during a specific period, helping them identify areas of improvement and make strategic decisions for the future.
- Investor confidence. Timely and accurate financial reporting enhances investor and shareholder confidence and can lead to better access to capital and lower borrowing costs.
No wonder that finance departments put so much time and effort into closing their books.
Financial Close Challenges
Closing the books is no small feat for the accounts payable (AP) teams at most businesses.
The bigger and more geographically dispersed the business, the more complicated a financial close is likely to be. Here are some of the challenges that businesses face when closing their books.
- Manual data entry. Forty-four percent of businesses say they must manually manipulate data in spreadsheets to close their books, per MicroAccounting’s 2021 Close the Books Survey. Relying on accounts payable staff to manually re-key financial information consumes lots of time and increases the likelihood of errors. A single typo or transposed number in the invoice entry process can create big headaches in closing the financial books.
- Burdensome reconciliation. Manually reconciling invoices and verifying payments with bank statements can be paperwork-intensive processes that are open to human error. Forty-three percent of businesses say they must deal with reconciliation issues when closing their books, according to the Sage Intacct 2021 Close the Books Survey.
- Inefficient processes. Poorly designed invoice and payment approval workflows can result in bottlenecks that delay the financial closing process. A single invoice exception can result in days or weeks of back-and-forth telephone calls and emails to sort things out.
- Poor visibility. In a manual AP environment, data is not captured, information is not accurate, data is not timely, information is poorly organized, and systems are fragmented. As a result, decision-makers don’t have access to the key variables that they need.
These challenges make it difficult for businesses to close their books.
Invoice-to-Pay Automation
Invoice-to-pay automation – technology that digitizes and simplifies the receipt, processing, posting, and payment of invoices submitted by suppliers – helps businesses close their books faster.
Invoice-to-pay automation can reduce the time to close the books by up to 50 percent, according to the Trintech 2022 Financial Close Survey. Here’s how invoice-to-pay automation helps:
- Faster invoice entry. Invoice-to-pay platforms automate the collection and entry of paper and electronic invoices, enabling businesses to post invoices to their enterprise resource planning (ERP) application or accounting software package quickly and efficiently.
- Fewer errors. Automating the capture of invoice header and line-item details reduces the possibility of typos and transposed numbers that cause downstream errors and delay the financial close. Some invoice-to-pay solutions also assist with general ledger (GL) coding. In fact, the Association of Financial Professionals (AFP) found in its 2021 Payments Fraud & Control Survey that accounts payable automation can help prevent errors.
- Streamlined reconciliations. Invoice-to-pay platforms match invoices with POs and receipts in the buyer’s ERP or accounting software. Matched invoices are posted directly to an ERP or accounting software package, without the need for re-keying. Unmatched invoices or invoices that require review – such as invoices from a strategic supplier – are digitally routed to the appropriate individual or department based on pre-configured business rules.
- Effortless payments. A single file uploaded from the buyer’s ERP or accounting software package is all it takes to pay suppliers in their preferred method, whether it’s via virtual card, ghost card, Automated Clearing House (ACH), payment network, or check. As payments settle, they are automatically reconciled with the buyer’s ERP or accounting software.
- Enhanced visibility. Invoice-to-pay platforms track the status of all invoices, payments, and approvals. And invoice data is stored in a centralized cloud repository, enabling authorized users to instantly retrieve information from any location, at any time, using any device.
These are some of the reasons that more businesses are automating their invoice-to-pay process.
Accelerate Your Financial Close
Closing the financial books is crucial for any business. But a financial close can be a complex and time-consuming task. By digitizing and simplifying processes and enhancing visibility into invoice data, invoice-to-pay automation can help any business accelerate the financial closing process.
