Lean Finance Teams: A Roadblock to Quick Financial Closes?

Can your company close its books in just zero days? Despite technological advancements, only 59% of organizations closed books in six days in 2023.

Welcome to the pulse of financial innovation where the Record-to-Report (R2R) process is not just evolving—it's leading the charge in the digital revolution of finance. This report, fueled by the latest insights from Ventana and APQC (American Productivity & Quality Center), serves as your roadmap through the bustling landscape of financial reporting.

Get ready to dive into the nitty-gritty of emerging trends that are carving out the future of finance, tackle the toughest challenges with confidence, and seize groundbreaking opportunities that promise to redefine the way we close the books.

Our analysis goes beyond the surface, offering a treasure trove of strategies to supercharge efficiency and capitalize on the fast-paced changes sweeping through the financial sector.

Step into the future with us as we guide you through the transformation of R2R processes, where agility meets precision in the quest for unparalleled operational excellence in finance.

Ventana says only 59% close it in 6 days!

Despite aggressive pushes towards digital transformation and continuous improvement efforts, the monthly financial close process appears to be at a standstill. 

In 2023, only 59% of organizations were able to close their books within the ideal six-day period, a negligible improvement from 60% in 2019. 

This stagnation underscores a critical gap between technology adoption and its effective implementation.

Companies may need to re-evaluate their integration of new tools with existing systems, ensuring that their workflows and staff training are aligned to fully capitalize on technological benefits.

What barriers prevent a six-day financial close?

Integration Challenges: Many organizations struggle with integrating diverse financial systems, leading to inefficient data consolidation essential for timely reporting. The challenge is exacerbated when merging legacy systems with modern platforms, often resulting in manual interventions that delay the closing process.

Regulatory Complexity: Increasing regulatory demands and evolving financial reporting standards (like IFRS and US GAAP) add complexity to the compliance process. Ensuring accuracy and detailed disclosures requires extensive checks that can significantly extend the financial close beyond the six-day target.

But the APQC Survey Says it is 4.8 to 10 Days!

The APQC General Accounting Open Standards Benchmarking survey, encompassing 2,300 organizations, reveals substantial variance in the cycle time for monthly financial closures. 

The bottom 25% of companies need 10 or more days to close their books, highlighting inefficiencies. 

In contrast, top-performing firms complete the process in 4.8 days or fewer, nearly half the time of the slower quartile. 

The median close time stands at 6.4 days, indicating room for process optimization in many companies to achieve closer alignment with leading performers.

What are the top factors that influence the speed of financial closing processes?

Technology Utilization: Top-performing firms use advanced automation and software to speed up processes, reduce errors, and shorten closing times, compared to those relying on manual operations.

Data Quality and Integration: Firms with quicker closing times have well-integrated systems that ensure high data quality and accessibility, facilitating faster adjustments and reconciliation. In contrast, companies with longer closing times often face challenges with fragmented systems and inconsistent data.

Quarterly Close Falls Short with 43% Meeting Target

The complexities of quarterly closes, which include more extensive data consolidation and compliance verification, pose significant challenges.

The efficiency of quarterly closings has regressed, with only 43% of organizations meeting the six-day target in 2023, down from 49% in 2019. 

Why did only 43% meet the quarterly close target in 2023?

Manual Processes Impact: The efficiency of quarterly closes dropped to 43% in 2023 from 49% in 2019, highlighting the negative impact of manual processes on meeting the six-day target.

Staffing Reductions: Economic downturns have led to reduced staffing, contributing to the decline. Companies with lower staffing levels struggled more with the complexity of quarterly closes, failing to meet the six-day deadline.

Anomaly Detection Takes 40-60% of Accounting Time

Accountants spend between 40% and 60% of their time during the close process on anomaly detection, identifying errors and omissions in transactions and account balances.

This process primarily focuses on examining patterns inherent in accounting transactions. For instance, vendor invoices and revenue write-offs usually follow specific account segment/account combinations.

The structured nature of accounting transactions makes them ideal candidates for pattern recognition, a crucial aspect of anomaly detection. 

Machine learning, a subset of AI, leverages these patterns to identify deviations that might indicate errors, such as out-of-sequence invoices or unusual transaction timings, which are then flagged for review.

What are the top anomalies and time-consuming processes during month-end close?

Out-of-Sequence Invoices: Invoices not following the expected order, indicating potential errors, require time-consuming verification against transaction dates.

Unusual Transaction Timings: Transactions at unexpected times can signal errors or fraud, demanding extensive cross-checking against standard patterns.

Pattern Recognition and Analysis: Accountants spend 40-60% of their time detecting anomalies by examining transaction patterns, a detailed and time-intensive process.

Manual Verification and Correction: Correcting detected anomalies involves thorough investigation and multiple checks, significantly extending the time required for the month-end close.

Automation Boosts Efficiency by 69% with Full Implementation

Automation emerges as a game-changer in the financial close process, with 69% of organizations that employ high levels of automation successfully closing their books within six days, compared to a mere 29% of those with minimal automation.

The stark contrast highlights automation’s role in minimizing manual efforts, enhancing data accuracy, and expediting the overall process. However, for automation to be truly beneficial, it must be strategically tailored to address the unique challenges and requirements of the finance department.

2024 Targets Over 70% Efficiency in Closures

As we look towards 2024, expectations are set high for further improvements in the R2R process. With a growing emphasis on integrating cutting-edge technologies like artificial intelligence (AI) and machine learning, the finance sector anticipates a notable increase in the number of companies achieving faster close times. 

Advanced predictive analytics and more refined automation capabilities are expected to streamline even the most complex elements of the financial close process, potentially pushing the success rate beyond the 70% threshold.

It’s time to close the book!

The findings from Ventana and APQC Research underscore the transformative potential of automation and optimized workflows in refining the financial close process. As organizations gear up for 2024, the focus should pivot not just toward adopting new technologies but also toward refining operational processes and training teams to utilize these tools. 

Through such strategic enhancements, finance departments can not only expedite their closing processes but also improve their agility and resilience in facing economic challenges and seizing new business opportunities. This strategic approach promises not only enhanced efficiency but a competitive edge in the dynamic business landscape of tomorrow.

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