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Increased investments in financial close automation appears to have enabled organizations to cope with the challenges they've been facing over the past two years, especially in the monthly close
BEND, OR, July 07, 2022 /24-7PressRelease/ -- Ventana Research today released its latest market research on the smart financial close. We undertook this research to determine the current state of the financial close process and to gain insights into how organizations can shorten the process and the benefits they are looking to achieve by doing so. Completing the financial close quickly has long been an objective for finance and accounting departments. A faster close enables them to respond more rapidly to changing business and economic conditions, providing more time to analyze results, address costs as needed and free up personnel for other duties. However, in more than a decade of tracking this metric, our research has found slow progress in departments' performance.
There has been general agreement since at least the 1990s that organizations should be able to perform this task within a business week. Our research on the financial close has consistently shown that companies with very similar characteristics (measured in terms of revenue, number of employees, location and industry) vary considerably in the number of days it takes them to complete their accounting cycle. The lack of connection between the structural conditions of a corporation and the time it takes to close the books suggests that the obstacles to a faster close are not innate but the result of poor process design and execution, insufficient automation of the process as well as choices made by finance executives. One of those choices is deciding — for whatever reason — not to close sooner.
The key finding of the research is the lack of progress in accelerating the monthly close and the retrogression in the time it takes to complete the quarterly close compared to research conducted in 2019. This suggests that although finance and accounting departments were able to rise to the challenge of disruptions and have been investing in digital transformation, the impacts of those investments have yet to be reflected in how soon they perform their monthly close. We find that 59% of participants are able to complete their monthly close within six business days compared to the 60% that we recorded in our Office of Finance Benchmark Research in 2019, a statistically insignificant difference. At the same time, the research also shows a smaller percentage of organizations are able to complete their quarterly close within six business days: 43% in 2022 versus 49% in 2019. This metric is in line with our previous Benchmark Research finding in 2014. The quarterly close is more rigorous and requires a broader set of processes, and it is likely that many departments that depend on manual processes found their close takes longer when people are not working in face-to-face conditions.
"Increased investments in financial close automation appears to have enabled organizations to cope with the challenges they've been facing over the past two years, especially in the monthly close," observes Robert Kugel, Senior Vice President and Research Director at Ventana Research. "The lengthening of the quarterly close average is similar to what happened in the last recession, where departments that relied heavily on manual processes and cut staff found their close took longer. And the data clearly shows a strong correlation between closing faster and using the right software to manage the process."
Our research again confirms the importance of reducing the amount of manual tasks in the close process and finds the use of automation is correlated with closing sooner. The use of automation is correlated with closing sooner. For example, 69% of organizations where most or all of the processes are automated are able to complete their quarter-end close within six business days compared to just 29% that apply some or no automation. Using workflows to guide process execution helps because it ensures that all necessary steps are performed, all phases are executed consistently across an organization and the hand-offs between those doing the work are coordinated. Unsurprisingly, only 14% of heavy users of workflows find waiting for others to complete their work is an issue compared to 40% where workflows are largely or completely absent." Similarly, 72% of those that automate most or all of their reconciliations finish within six days compared to 25% where just some or none of that work is automated.
If you are interested in learning more about this dynamic insights research, in partnership with FloQast, you can view a summary of the report here. For information on how to use this research in your organization, or to purchase a copy of the research report, please click here.
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