Streamline your month-end close process

Month-end close, also known as financial close, is a protocol to maintain and finalize your company’s financial records for the month. Documentation, team reviews and reconciliation of all financial transactions in that time period are processed, which can be both tedious and time-consuming because of its importance.

Why it matters: Analyzing financial activity is essential for company leaders, CFOs and auditors to see trends in accounting periods and budgets to make strategic decisions.

• As a credit manager preparing for month-end close, you don’t want to wait until the last day to see that there are discrepancies in cash.

By the numbers: 40% of credit professionals occasionally encounter discrepancies that need correcting during month-end close, according to a recent eNews poll. 31% rarelyencounter discrepancies, followed by 17% who frequentlyencounter them and 13% who alwaysencounter discrepancies.

• The most common discrepancies include mistakes in internal records, uncleared checks, suspicious transactions and bank charges.

Some of the main credit department-focused tasks leading up to month-end close include:

• Payment entry
• Cash application
• Finance charge write-offs
• In-house loan processing and management
• Small balance write-offs or reconciliations on accounts receivable accounts
• Identifying accounts in policy to add to bad debt write-off listing

The exact month-end close process varies across businesses because every company has its own set of closing operations. However, these five precautionary steps can help credit managers mitigate discrepancies before month-end closes:

#1 Set goals. To help meet deadlines, set daily and weekly goals for your team to complete. This way, all your major responsibilities do not pile up and become overwhelming.

#2 Use a checklist. Checklists can help with strategy, organization and standardized operations to save time. Working with a checklist throughout the month helps keep a focus on month end.

#3 Track your transactions. It is important to track all business transactions to ensure accuracy in records and reduce the chance of fraud. For example, attention to detail and accuracy is key to cash application. It creates the bulk of your company’s financial records—and if it is applied to the wrong account or the wrong amount is on an invoice, this can have a significant impact.

#4 Keep track of cash. Stay up to date on small cash expenses by keeping records of total dollar amounts spent and needed for the month. Some credit professionals use a reporting package alongside their calendars.

#5 Share financial reports. Once the month-end process is complete, financial reports can be shared with accounting teams, the CFO and the board. Some of these financial reports can include but are not limited to: cash received, invoices, all accounts reconciled, items shipped but not billed yet and consignment billings, all up to and after closing.

Prioritize accuracy. Accuracy will always trump speed. Closing quickly to get it out of the way makes mistakes more likely to show up. Month-end aging, cash forecasts, metrics and management reports demand exactness and accuracy.

What they’re saying: “Our month-end close process is primarily performed by our corporate accounting department,” said Sheila Oates, manager of credit operations at ALCIVIA (Cottage Grove, WI). “We take great measures to ensure that there are controls in place where the credit department is not the one reconciling the AR, because the credit team is responsible for managing the risk attached to the AR, which could be a conflict of interest.”

One way to alleviate mistakes in month-end processes is to do a “soft close” the week before it takes place. Like a fire drill, this allows you and your team to get a feel for how much needs to be done and provides a cushion for any mistakes. “During the actual month-end process, there are rarely issues that need to be fixed,” Oates said. “Billing disputes or fixes are brought to our attention after AR is closed for the month and the customer has received their statement. The accounting department often researches the issue and reaches out to our ERP vendor for support.”

Credit departments can also use adjusting entries or month-end accruals, which are written entries of a transaction record that an accounting system didn’t automatically capture during the month. These entries include revenues or expenses incurred but not yet received or paid.

“I usually run everything on the 20th of each month, so if there are any issues going on, I’m aware 10 days before month-end hits,” said Yazmin Miller, CBF, CCRA, CICP, corporate credit manager at Feralloy Corporation (Chicago, IL). “I have a meeting every month with my team and we go division by division reviewing their financial statements and metrics. When the DSO metric comes up, I must explain, especially if the DSO increases. In that regard, I consider what the sales have been for the last two to three months to understand the trend and also what the delinquency is.”

The bottom line: Month-end close does not have to be a stressful process. Taking proactive steps helps with a smooth transition and can serve as a guideline to improve monthly.