How to Leverage Your ERP to Shorten the Month End Close Cycle
Written by Grant Fitzwilliam, Managing Director at 3c InSight

The most sophisticated companies can close their books in 1 – 2 business days.   This is not an achievable goal for most companies but closing in 5 business days or less is achievable.  This allows all operational reporting to be generated no later than the evening of business day 5.

Why is a fast close important?

1.    It gets decision making information into the hands of management faster
2.    It frees up time for the Finance department to focus on value added activities
3.    It enables faster reporting to investors and shareholders

Strategic Improvements

If you have more than one production ERP instance, drive towards a single instance.  Many companies are in the process of consolidating ERP instances because their initial implementation allowed country or business unit specific ERP’s.  A single instance will not only reduce IT support costs, it also drives standardized business processes and standardized internal controls.

Expand the footprint of your ERP.  Evaluate all bolt-on applications or feeder systems and determine whether your ERP has modules that can be implemented to replace legacy/niche systems.

The above two recommendations will require significant time and capital investments, but the business benefits are tangible and the reduction in systems complexity will help shorten the month end close cycle time.


Leverage the functionality of your ERP

Oracle and other ERP’s have matured to the point where they are filled with functionality that if used properly, will automate transactions and reduce cycle times.

Here are some examples that can have a material impact on the month end close cycle time:

Automate the posting of all subledgers to the general ledger (including the posting of the journal entry/entries).  Data collected from our clients show that the average posting cycle time for an automated journal entry is 2.4 days.  It should be zero days.  Once the subledger journal entry is created by the system, it should automatically post.

Post from the subledgers to the general ledger in summary (versus in detail).  This will improve the overall performance of your system and reduce the time required to run reports out of the general ledger.   Also post from the subledgers to the general ledger at least weekly.  At month end, all subledgers should be closed no later than end of business day 2.

Evaluate the frequency, timing and error handling processes for all inbound interfaces.  Compare how frequently the interface could run versus how often it does run.  For example an interface from a custom order management system that could be run daily but is scheduled to run monthly, should be reexamined.  Increasing the frequency will shorten the cycle time to fix any interface errors and reduce the volume of errors that have to be dealt with at month end.  In addition, the error handling process should be automated to the extent possible using alerts and workflows to route the errors to the appropriate person and enable error correction.

Automate journal entry creation to the extent possible using ADI, mass allocations, auto-reversing, and recurring journal entry functionality.  Use workflow to automate journal entry approval and posting instead of using security rules to separate journal entry creation from journal entry posting.

Evaluate the materiality threshold for manual journal entries.  Reduce the volume of manual journal entries by eliminating journal entries below the threshold.

Assess your intercompany accounting setup.  There are a variety of features to automate the creating of intercompany transactions and prevent out of balance situations particularly in multi-currency environments.

Implement the cash management module to speed up the bank reconciliation process.

Identify transactions and process scenarios that cause out of balance conditions or transaction errors.  Leverage workflow and alerts to identify, notify and fix.


Governance Processes

Companies that have the fastest closes not only take full advantage of their ERP’s, they all adhere to the following principles.  These principles create the right level of discipline and structure to not only shorten the close, but also keep it short.

• Maintain a detailed close time table with tasks, start times, end times and owners (consider a close process automation tool like “Blackline”)
• Designate a person to monitor the close timetable
• Measure the performance of each close.  Identify and track relevant KPI’s that measure the critical components of the close.  For example, close time for each subledger, number of manual journal entries, percentage of manual journal entries posted before and after the period end date.
• Conduct a post mortem meeting after each close to identify issues and bottlenecks, revise the close timetable, prioritize improvement initiatives and prevent problems from becoming bigger or recurring in nature.
• Create financial incentives for accounting personnel to meet or exceed close targets and KPI’s
  
  

Because the close occurs 12 times a year, it is vitally important to not only have accurate numbers each time, but also close fast.  Getting these two things right will increase the level of respect for a finance department and make for a pleasant work environment for finance personnel. 

Grant Fitzwilliam works with companies to help them understand the 3c solution and to assist them in incorporating it as part of their ongoing operational management processes. He also oversees 3c InSight’s administrative functions.

Prior to 3c InSight, Grant spent 10 years at a benchmarking and consulting firm in a variety of corporate and client facing roles including Chief Financial Officer, Managing Director – Finance Transformation and Managing Director – Oracle Practice. 

He worked with a wide spectrum of clients including General Electric, Mattel, Emerson Electric and Harvard University providing solutions including benchmarking, process improvement, organizational design, ERP implementation and program management. Mr. Fitzwillam also spent 7 years as a consultant and auditor at KPMG, one of the Big 4 accounting firms.  He has an Accounting degree from the University of South Florida.