By Pam Miller, APMD
Any steps that accounts payable can take to whittle away at the time it takes to close will be recognized and appreciated by controllers and CFOs.
To speed up the close process, AP needs to work strategically to complete the invoices that have been received—and provide the information regarding what needs to be accrued.
Manage Your Time Well
The more invoices AP can get into the system before the cut-off, the better. In some organizations, this might mean that AP works overtime the last two or three days before the cut-off. In organizations where overtime is not possible, careful time management can help.
AP vacation policy should address such timing issues. For example, the last few days before the cut-off should be unavailable for vacations or personal days. If everyone understands this policy, they will be able to plan accordingly.
Consider Entering Invoices Into the System With a Default Code
In some cases, the lag time between the date of the invoice and the date of receipt in AP can be substantial. Even if invoices arrive promptly and directly from the suppliers, many of them must be shipped out prior to entering because they require approvals and/or coding.
That means that during the close process, some of the invoices could slip through the cracks and not be accounted for in the proper period. These invoices are probably not a sufficient quantity or dollar amount to be material, but nevertheless, they are a problem.
To address this issue, it may be possible to enter those invoices into the system with a default code and put them on hold prior to sending them out.
Or, AP can use negative assurance/assumed receipt for invoices that require outside participation. AP could enter them into the system with a default code or the code that has been used for that vendor by that buyer in the past. For this to be successful, AP would need to alert approvers that they will receive a copy of the invoice annotated with the default coding and that if they fail to get back to AP within the expected time frame, the invoices will be completed as entered.
Is it possible that you might just be trading journal entries to make corrections in place of accruals? Perhaps, but the truth of the matter is that most invoices are fine—corrections are the exception rather than the rule. If you are not convinced, consider implementing this policy for small dollar invoices—those from reliable vendors whose invoices are rarely incorrect—and avoid using the strategy for particularly large invoices, for those relating to special projects, or for those from vendors or buyers that AP knows from experience often require lots of fixing.
Manage ‘Special’ and Non-Invoice Payment Requests
Processing check requests, rush checks, and special requests are all part of the service AP provides to the organization. Every AP department should have a policy in place concerning rush check requests. Enhance the policy by indicating that on the last day or two days of the month, rush checks will not be processed—or that the fee for processing them will be double the normal fee. This should discourage those requests that are last minute simply because of procrastination on the part of the requester.
Also, consider a rule that checks must be submitted to AP no closer than five days prior to the close. Again, the goal is to discourage late requests.
Of course, there will be emergencies, but the standard process should take into account the requirement to get the period closed. If policies are put in place and people are trained, eventually the desired outcome will be achieved. For the most part, people will learn to submit their requests within the proper time frame.
Reassess Cut-Off Dates
It’s not just check requests that should have an established cut-off date in consideration of the period close. How close to the end of the month are AP’s other cut-off dates? Are T&E reports due on the last day of the month? Two days prior? Five days prior? Why not require that all T&E reports be submitted within three or five days of the traveler’s return? This type of policy could have an additional advantage because it would spread the T&E processing workload across the entire month. It would also help to ensure that the T&E expenses are recorded in the same month as incurred—solving a possible compliance problem as well.
Inevitably, some travelers will still turn in their reports at the end of the month—or will turn in the entire year’s worth in December. But many travelers’ habits will change. If your organization has implemented an automated T&E solution, the transition for the traveler may be less stressful than anticipated.
Weigh the Trade-Offs
According to IOFM surveys, most organizations conduct payment runs once a week. It's probably safe to assume that these organizations conduct their runs on the same day each week.
If that day happens to fall on the last day of the period cut-off, AP might consider performing the payment run on a different day of the week in that situation.
Small Steps Result in Big Time Savings
The savings in time and accruals of all these strategies might not seem as though they would have much effect on the close process. However, the cumulative effects can be considerable. Why not lead the way in cutting a half day's—or even a full day's—time off of the close process?