How to Make Your Month End Close 3x Faster (Full Guide)

When month-end process comes along, many finance teams are busy closing the month, that is chasing invoices that are not in the system yet and trying to kind of get a handle on what they actually spent that month. At my company Procuredesk, we have helped hundreds of companies automate their procurement and AP processes and help them cut their month-end process significantly. So that's why in this video I'm going to give you a step-by-step process to streamline your procurement and AP process so that you can close your month-end by up to maybe 3x faster. And even if your current process feels like chaos, us today. So let's dive in. The first step is to understand why the month-end process takes so long. And in our experience, the process starts much before the month-end, right? It's when the money is spent. So most of the times, companies are spending time figuring out where did they spend the money, coding the invoices, capturing all the invoices from different sources, reaching out to different stakeholders to figure out where the invoices and so on. So most of the time is spent in that, and then you gotta code it, get it approved, put it into the accounting system, and so on. And there are 3 main things that we see most finance teams spending a lot of time. Number one is chasing all the invoices. So making sure that it hits the right budget, where was it spent, for what purpose, trying to really understand because the spend has maybe already happened. You just received the invoice and you now trying to decipher what exactly this is, right? Even though the spend was approved before, but you probably don't know. The second thing is playing detective. So spend that is not pre-approved. Spent, that approvals are sitting in Slack messages, emails, and so on. AP team doesn't know, right? So AP clerk is receiving the invoice. Now you gotta figure out why did we spend the money, where it was spent, and so on. And the third thing which we see very common is controllers are actually spending time going to their accounting system or ERP system and reclassifying the invoices because the AP clerk took either an educated guess at understanding where the invoice should go and they coded it because they're not involved in day-to-day process. They don't know which project it should hit, which department it should hit, and so on, right? They're going with the history. And if you do not have an upfront process to capture like where the cost is going to hit before the invoice gets approved, you're playing guess game. So somebody needs to kind of go validate, and that is where companies spend a lot of time. So these are the real reasons why the month-end process takes so long. So if you're gonna change or speed up this process, you have to do things fundamentally different than what you're doing today. And that is what we're going to talk about, is how do you change your procurement and AP process to speed up the entire process we just talked about, and hence the month-end process kind of becomes a formality and validation exercises rather than, geez, we got to go figure out where those invoices are. So let's jump into a step-by-step process to figure out how do we speed this up. So number 1 is capturing the spend before it happens. This is number 1 reason why the finance teams have to spend a lot of time figuring out where the spending is happening or which budget it is hitting because they don't know. So how do you kind of go about setting a process where you kind of know where people are going to spend the money before they actually spend the money, right? So that could be through a requisition process. Instead of don't do it on emails or Slack, which are very hard to track, you do this on your requisition process or a system like ProcureDesk, and that way everything is electronic. The important thing to do here is to make sure that your end users have visibility into their budget so they can see how much money they have left in the budget before they actually spend the money. The second aspect of this is because you now have committed spend, you have complete visibility into what you are planning to spend, even though you do not have an invoice today from the vendor, or you might not have received the product or service. So having Having committed spend into one single place allows you to build your accruals and build a better cash flow plan because now you know what is going to hit when, or at least at a high level, what is out there in terms of spending that is not yet invoiced, right? So that's kind of step number 1. Step number 2 is setting up an approval process to make sure that the right people are looking into the spending before a purchase order is issued to the vendor. So what does it look like in real life? So today, if you have any sort of approvals, we typically see in growing companies that's a very ad hoc process, which means somebody is texting somebody, sending a message on Slack, emails, you name it. We've seen that. Eventually they try to kind of capture everything into one place like a spreadsheet, but that doesn't scale. Instead, what you want to do is set up an approval process in a system so that the request can be routed to the right person at the right time. There are a couple of things you want to think about from an approval standpoint. Number one is, are we routing it to the right set of people, right? So it needs to probably go to a department manager. It needs to go to finance to to review, you know, if there is budget for that, or maybe you do proactive budget approvals. Number 3, it might need to go to a senior manager or, you know, CFO, depending upon the amount. Those are the 3 basic steps in an approval process. The way I recommend you look at that, and what we have seen working with most of our clients, they do a Pareto principle, like the 80/20 of the spend. So they look at like a, what is the top 20% of my transaction that contributes to 80% of my spend? And that way now we can effectively look at it and say, all right, what is the threshold for that? Oh, okay, it's $10,000 $10,000. All right, great. Now I'm going to make sure that anything more than $10,000 can go to like, you know, CFO or anybody who is responsible for kind of tracking the overall budget, right, across the company. So that's kind of one way to think about that. And the second is, for example, maybe you want an IT person to be involved in reviewing any IT spend. You probably have a standard around what kind of laptop, for example, you want to buy, what kind of keyboards employees can buy. I'm just giving you simple examples, right? But those are the things you factor in to figure out, okay, do we need to send it to like an IT? Maybe you need a data security to be involved. You know, you— let's say you're a software company and you have a new vendor who's going to access customer data. So things like data security, information security becomes important. So those are things you should consider while setting up the approval workflow. It's not always about money, it's about the risk that is involved in how you're spending and how to make sure that this is vetted before you go to the next step. By the way, if you need help with implementing all what we have talked about so far, we have added a link in the description. So click that to schedule some time with one of our product specialists and they can walk you through how you can automate automate your purchasing process and have a requisition process before the money is spent. All right, let's go to the next step now. So now you have invoices coming in from the vendors. So you have upfront requisitions, purchase orders that are being created, right? So you have proactive spend control, but now you have invoices coming in and those invoices needs to be matched to a purchase order and so on. So here are a couple of things that you need to figure out to make sure that you're not overpaying your vendors or you're not paying duplicate invoices. So you need to match your invoice with a purchase order and receipt, right? So Let's say you ordered, I don't know, 10 reams of paper, $35 each. That was on the purchase order. You receive the invoice from the vendor and it says 10 widgets or 10 reams of paper in this case for $40, right? So there are two things that you need to check here. Is the price same as what was on the purchase order? And have you actually received the product? So you don't want to pay for something that you haven't received. That's a big no-no from a control standpoint. That's why the 3-way batch process catch that for you. Or in this case, when I said $35 versus $40, like why there's a price discrepancy and who is going to validate whether AP should pay that invoice or not? Not. So then that is where we get into figuring out what is the discrepancy and who should review it. Now, if you try to do this manually, it takes a lot of time. That's where you should automate this from a process standpoint so that the system kind of identifies those exceptions and only routes those exceptions for further review and approval if there is a problem. Otherwise, if it looks good, you kind of move on to the next step, right? So that's where matching of invoices and purchase order comes into picture. All right, so now we are at this step where we have everything including purchase orders, invoices, everything is matched. So now before you go to the month-end process, it's time to know your commitments beforehand. So if you do not have upfront commitment process or capturing that commitment, you don't know what is coming your way. You are just waiting for an invoice to come in or surprise invoices to come in, and sometimes that ruins your whole cash flow. So now you could just look at your open order report and look at what is invoiced, what is received. And so a couple of things you should look at here. So received but not invoiced and invoiced but not received. So let me explain. This is where you kind of build your accruals, right? So from an accrual standpoint, you want to look at any purchase order that you have issued where the item is delivered. So technically it's a liability, but you haven't received the invoice from the vendor, so you want to accrue for that amount. And the second is reverse of that, where the vendor has sent you an invoice, so you have that as an AP liability, but you haven't paid that because you don't have a receipt in the system. There could be many reasons for that. It could be that nobody has actually confirmed the receipt of that product, or maybe the vendor has shipped but you never got it. It could be many reasons, but you can simply accrue it, or you can have a process where the system is proactively checking frequently with requesters and say, hey, we have an invoice for this, have you received the product, and so on, right? So this turns the month-end process into more from a discovery to a formality, right? You already know what is going to come, you're just validating the information. And most important here is since the invoice is matched to a PO, PO already have the coding. So we talked about, you know, the time controllers spend on, you know, working in terms of reclassifying the invoices. All that is gone because now if you do the classification right, if you have an approval process where you're validating if it is tied to the budget, right chart of account, right department, then really at the invoice level, all you're checking is did we get the product and is the price matching, right? And if everything is done, that's all is required. You really don't need to, you know, kind of go and validate everything, right? So that's kind of the step of figuring out commitments before the month. So now we talk about the final step, which is connecting your purchasing system with your accounting system. If you have a purchase order process where you have committed spend you have invoices coming in, you're matching it and so on. And if that system does not talk to your accounting system, it's the whole process is actually double work, right? Because you're doing this work in two systems. That means every time your purchase order is created in this system, you got to go enter that in your accounting system. Every time an invoice is entered here, you have to enter in your accounting system back and forth. And it just doesn't make the process more seamless. It actually makes it more cumbersome, right? Because you're doing it in two systems, it increases the chance of error by, you know, somebody manually typing in wrong information into any of those systems. So the way to solve for that is make sure if you're managing your procurement and AP or your purchasing system, it is actually talking to your accounting system. Be it, you know, if you're on the, on the smaller side, you're just starting, you're probably using something like QuickBooks or Xero, or if you are like a growing company, you're probably using Microsoft Business Central or Sage Intacct or NetSuite. Those are some of the systems that we commonly see, right? So making sure that the integration is in place and integration is placed in two ways, right? One is it is able to capture all all your cost elements from your accounting system, whether it is project, whether it is chart of account, whether it is class and so on. Second is it is able to push the data back to your accounting system, including the actual documents. That is super important, right? We see a lot of times where our customers come to us and say, well, you've implemented a system, but it only sends the basic record. It doesn't send the attachment. We gotta always come back to go outside the system to figure it out. So you want to make sure that the actual document is going to the accounting system, right? So those are the 5 steps that you can follow to speed up your month-end close process. Now everything I just talked about in terms of capturing committed spend, matching invoices, running accrual reports, and automating the whole process. If you're interested in seeing how a procurement system can help with that, you can do that by simply clicking on the link below in the description and booking some time to talk to one of our product specialists. We recently worked with a customer, Metabolon, and we helped them reduce their cycle time. Like their month-end close process used to be 5 to 6 days. Now it is 3 to 4 days after implementing these these exact steps. So again, click on the link below to schedule some time with us. And if you want to see another video around purchasing and accounts payable, watch it here.