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
What can you do to improve?
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
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
Implement the cash management module to speed up the bank
Identify transactions and process scenarios that cause out of balance
conditions or transaction errors. Leverage workflow and alerts to
identify, notify and fix.
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
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.
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