Miniseries – Best Practices for the Month-End Close

• April 21, 2022
• Jeff Roberts

Accounts Payable, Accruals, and Credit Cards

Would you believe me if I said you can and should close accounts payable by the 2^nd business day of the month?  Delays in closing accounts payable is a common problem for nonprofits that often impacts the timely production and distribution of financial statements.  Can you relate to any of the following excuses?

• “I simply must hold accounts payable open until the 10^th of the month to be sure we get everything included.”
• “XYZ vendor won’t bill us any earlier than the 7th of the following month.”
• “Our staff are holding on to bills and we get them late, so we must keep AP open.”
• “The credit card takes too long to get reconciled and posted to the GL.”

The good news is that there are solutions…keep reading!

Accounts payable cutoff

One of the most important practices you can develop is a quick accounts payable cutoff.   Our suggestion is to cutoff payables no later than the 2^nd business day of the month (other authors recommend even earlier).  To make an early cutoff successful, begin by making sure that all available invoices are processed by the last business day of the month.  Here are some guidelines that can help position you to do this effectively:

1. If invoices are being sent to staff, standardize the flow of AP invoices so that vendors send or copy their invoice to a custom AP email address.  This will often require sending vendors a letter and let them know they will be paid faster by using the new AP email address.
2. At least 5 days prior to month-end, review departmental P&L’s in a month-over-month report (at least 5 months of data) and budget-to-actual to identify potential missing invoices.
3. For any material missing expenses identified in step 2, reach out to department leaders and request that they contact key vendors for an invoice or estimated amount.
4. Ensure your AP team enters any bills that come in by the 2^nd business day after month-end.  If you receive any estimates, record those as accruals as noted in the next section below.

Accruals

We recommend that that you develop a checklist of recurring vendors and other standard accruals that can be posted and reversed on the first of the following month – even if it’s just an estimate. Remember, the month-end close is not to be an exercise of absolute preciseness – it needs to prioritize speed.  Should there be a need for more accuracy (i.e., large print run or donor event at end of month) have AP staff reach out to the vendor and obtain an approximate amount of the charges to accrue.  Be sure to set a scope for your accruals as well.  In general, smaller items don’t need to be accrued and can simply be charged to the next period.

ProTip – if your nonprofit has a lot of contracts, have the accounting department review all contracts and add a billing schedule to the accrual reconciliation.  This helps to see what contract bills you should expect each month and can also help with cashflow forecasting.

Corporate Credit cards

Corporate credit card submission is the Achilles heel of many nonprofits (and for-profits as well!).   Managing the corporate card begins with good policies and ends with enforcement of those policies.

• Have an acceptable use policy signed by all cardholders – A good acceptable use policy sets clear expectations for what is considered appropriate use. It also states the conditions in which a card can be revoked for noncompliance.  Just Google “credit card acceptable use policy” and you’ll get many to review.
• Evaluate the “tone at the top” – It’s not uncommon for senior leaders to be the worst offenders for submitting expense reports. If this sounds like your nonprofit, request 15 minutes at the next leaders meeting to discuss the risks of credit card fraud and the importance of leading by example.
• Implement cloud-based expense reporting software –cloud software can reduce friction by allowing staff to use their smartphones to take pictures of receipts and submit reports in the cloud.  Approvals and posting to the GL are then automated (in most cases).
• Change the card statement cutoff date to the 25^th of the month.  The last 5 to 6 days can rollover to the subsequent month except for the last month of your year. This allows for staff to have plenty of time to submit reports and the closing can still be done early.
• Set clear timelines for submission and approval of reports.  Reminder communications should go out a day before the deadline and by 3pm on the day of the deadline.  If a cardholder doesn’t submit on the deadline, follow up with a communication that includes the cardholder’s supervisor.  Communicate with repeat offenders that their card privileges are at risk.

Pick one of these suggestions and make a plan to implement over the next 30 days.   Remember, closing AP quickly can add speed to your closing and enable quicker financial reporting which is critical in our rapidly changing world!

Special thanks to Mona Birchfield and Lisa Stover who contributed suggestions for this post.

Previous posts in the series:

Series Intro and Closing Checklist: Miniseries – Best Practices for the Month-End Close

Tags: accounts payable, accruals, corporate credit cards, fast close, Nonprofit financial statements, Nonprofit reporting | 2 Comments »