What is the financial close process, and how do I improve it?

The financial close process consists of a series of steps that accounting departments take to finalize a company's financial records for a specific period. During this process, teams reconcile accounts to ensure internal records match external statements. They investigate any discrepancies between what the company's books show and what banks, suppliers, or customers report. Accountants post journal entries to correct errors or record transactions that span multiple periods. The end result is a set of financial statements, including the income statement, balance sheet, and cash flow statement, which accurately reflect the company's financial position.

This process ensures that every transaction from the period has been recorded and reviewed according to accounting standards. Without a proper close, companies cannot produce reliable financial statements. Leadership teams need these statements to understand how the business performed. Investors require them to make investment decisions. Regulators and auditors demand them for compliance purposes.

Companies typically close their books monthly, with more extensive processes at quarter-end and year-end. This regular schedule allows organizations to identify problems early. An invoice that went unrecorded in January becomes harder to track down in December. A pricing error caught in the monthly close prevents larger issues in the annual audit. The routine nature of the close creates financial discipline throughout the organization.

Finance teams are at the heart of the financial close process, serving as the guardians of a company’s fiscal integrity. The close process involves a series of critical steps, recording all financial transactions, reconciling accounts, and preparing financial statements, that require meticulous attention to detail and a deep understanding of financial data. Finance teams must ensure that every transaction is accurately captured and that all accounts are up-to-date, laying the groundwork for reliable financial reporting.

To manage the complexity and volume of tasks involved, effective finance teams often leverage financial management software and automation tools. These technologies help streamline the close process, reduce errors from manual data entry, and improve the efficiency of financial reporting. By automating routine accounting tasks and centralizing financial data, finance teams can focus on higher-value activities such as analysis and strategic planning. Ultimately, the finance team’s diligence and expertise ensure that the financial statements produced at the end of each close process are both accurate and timely, supporting informed decision-making across the organization.

Closing the books promptly delivers value beyond simple compliance with reporting deadlines. Companies that master the close process gain three distinct advantages that strengthen their competitive position and operational efficiency.

Relevance of speed

Financial statements lose their value when they arrive too late. A CFO reviewing October's results in December faces a different business environment than one reviewing them in early November. Market conditions change. Competitors make moves. Customer behaviors shift. When the close process drags on for weeks, executives make decisions based on outdated information. They present quarterly earnings using numbers that are stale by the time shareholders hear them. Companies need current financial data to respond to market changes and make informed strategic decisions.

Trust and accuracy

A fast close that produces reliable numbers builds trust throughout the organization. Board members gain confidence when they consistently receive accurate financial reports without last-minute revisions. Investors appreciate companies that deliver their earnings on schedule without subsequent restatements. Auditors work more efficiently with clients who maintain clean, well-documented closes. Each month that passes without surprises or corrections reinforces the finance team's credibility. This trust translates into smoother board meetings, stronger investor relations, and more efficient audit processes.

Strategic insight

When done well, the close process provides strategic business insights. CFOs who receive timely, accurate financial statements can identify trends while they still matter. They spot margin compression before it becomes critical. They notice inventory buildups when there's still time to adjust production and purchasing. They see cash flow patterns that inform financing decisions. A consistent, efficient close transforms raw financial data into actionable intelligence. The finance team shifts from simply reporting what happened to helping shape what happens next.

The financial close follows a structured sequence of activities that build upon each other to produce accurate financial statements. Each step requires completion before the next can begin, creating a methodical progression from raw transactions to polished reports that stakeholders can trust.

Record all transactions

The close begins with capturing every financial transaction from the period. Sales orders, expense reports, supplier invoices, and cash receipts must all enter the accounting system, regardless of their source. These transactions are recorded as raw accounting entries, including all sources of incoming cash such as invoice payments and loans. Some transactions arrive through automated feeds from point-of-sale systems or banking platforms. Others require manual entry from paper documents or emails. Finance teams often discover missing transactions at this stage, particularly expenses submitted late or sales recorded in the wrong period. This foundational step determines the quality of everything that follows, as missing or incorrect transactions will distort the final statements.

Reconcile accounts

Finance teams next match their internal records against external documentation to verify accuracy. Bank reconciliations compare the company’s cash records with bank statements to identify deposits in transit or outstanding checks. Reconciling bank records, savings accounts, and prepaid accounts is essential for ensuring the accuracy of accounting records. Using cross-reference statements, such as comparing receipts and other external documents, helps verify financial accuracy and identify discrepancies. The reconciliation process should also include balance sheet accounts, including deferred revenue accounts, to ensure all financial data is properly aligned. For companies with multiple entities, reconciling intercompany transactions is crucial to maintain consistency and accuracy across the organization. Accounts receivable reconciliations match customer balances against aging reports and payment records. Accounts payable reconciliations verify vendor balances against supplier statements. These reconciliations reveal discrepancies that need investigation, such as duplicate payments, unrecorded fees, or timing differences. Teams must resolve each discrepancy before proceeding, either by adjusting the books or obtaining additional documentation.

Post adjusting entries

Accountants make several types of adjustments to ensure the financial statements reflect economic reality. The accounting procedures involved include key accounting procedures such as revenue recognition, managing deferred revenue accounts, and others necessary for accurate and timely reporting. Accrual entries record revenues earned but not yet billed and expenses incurred but not yet paid. Depreciation entries spread the cost of fixed assets over their useful lives. Prepaid expenses get allocated to the periods they benefit. Teams also correct any errors discovered during reconciliation. Modern software can help manage revenue recognition and automate these adjustments, improving efficiency and accuracy. After posting these adjustments, accountants generate an adjusted trial balance to verify that debits equal credits across all accounts. This balanced trial balance forms the foundation for the financial statements.

Review financial statements

The draft financial statements undergo careful scrutiny before finalization. The income statement must accurately reflect revenues and expenses for the period. The balance sheet needs to show the company's financial position with assets equaling liabilities plus equity. The cash flow statement must reconcile net income to actual cash movements. Finance teams check for obvious errors like negative inventory or unusual margin swings. They compare current period results to prior periods and budgets to identify anomalies. Any red flags trigger additional investigation to ensure the statements tell an accurate story.

Consolidate

Companies with multiple subsidiaries or divisions must combine all financial records into consolidated statements. This process requires organizing and managing data from multiple business units and reconciling intercompany transactions. This process requires eliminating transactions between entities to avoid double-counting. A sale from one division to another, for example, disappears in consolidation since no external transaction occurred. Foreign subsidiaries require currency translation at appropriate exchange rates. Minority interests need proper presentation. The consolidation process grows more complex with each entity, particularly when different accounting systems or charts of accounts are involved. The result provides management and investors with a complete picture of the entire organization’s performance.

Close the books

The formal close locks the accounting records for the period. No further entries can affect that period's results. Revenue and expense accounts reset to zero for the new period, with their balances rolling into retained earnings. This prevents accidental or intentional changes to historical records. Many accounting systems enforce this lock through system controls that reject any attempts to post transactions to closed periods. The close is a proverbial line in the sand, separating one period's activity from the next and preserving the integrity of the financial record.

Report to stakeholders

The final step distributes the completed financial statements to those who need them. Executive teams receive management reports with detailed analysis of performance against goals. Board members get specific packages that highlight key metrics and variances. Public companies file reports with the SEC and issue earnings releases to investors. Lenders receive compliance certificates showing adherence to debt covenants. Each stakeholder requires different levels of detail and presentation formats. The reporting package often includes management discussion of results, explanations for significant variances, and forward-looking commentary about business trends.

A successful financial close begins well before the official closing date, with a thorough pre-close review. This proactive step allows finance teams to identify and resolve potential issues before they can impact the accuracy of financial statements. During the pre-close review, finance teams carefully examine financial data, review account balances, and scrutinize transactions for any inconsistencies or missing information.

By addressing discrepancies early, finance teams can make necessary adjustments and ensure that all financial data is complete and accurate. This not only streamlines the close process but also enhances the reliability of financial reporting. A robust pre-close review reduces the risk of last-minute surprises and helps finance teams deliver financial statements that stakeholders can trust. In essence, the pre-close review sets the stage for a smooth and efficient financial close, reinforcing the company’s commitment to transparency and accuracy in financial reporting.

The month-end and year-end close processes are essential for maintaining accurate financial records, but they differ significantly in scope and complexity. The month-end close is a recurring process that focuses on preparing financial statements and reconciling accounts for a particular accounting period.

The quarter-end close similarly requires the timely preparation of financial statements and reconciliations. However, it carries heightened scrutiny because quarterly results are often shared with investors, lenders, and the board. This adds pressure for accuracy, consistency, and a clear narrative around performance so that quarterly numbers withstand external review while keeping the reporting process efficient.

The year-end close is a more comprehensive undertaking. It involves not only the standard accounting procedures of the month-end close but also additional steps such as preparing audited financial statements and fulfilling regulatory reporting requirements. The year-end close often requires more detailed analysis, extensive reconciliations, and coordination with external auditors to ensure compliance with accounting standards and regulatory agencies.

Finance teams must be mindful of these differences and plan accordingly. The year-end close typically demands more resources, time, and attention to detail, as it sets the foundation for the company’s annual financial reporting. By understanding the unique requirements of each close process and implementing best practices, finance teams can ensure both month-end and year-end closes are completed efficiently and accurately.

Most finance teams face similar obstacles when closing their books, from technology limitations to organizational complexity. These challenges create stress, extend timelines, and increase the risk of errors that can damage credibility with stakeholders.

Time pressure and outdated data

Finance teams race against deadlines every close cycle. Many companies take two to three weeks to close their books, meaning January results might not be ready until late February. By then, management has already made decisions for March without knowing how January actually performed.

The pressure intensifies at quarter-end when external reporting deadlines loom. Teams work overtime to meet earnings release dates, often sacrificing thoroughness for speed. This rush can increase error rates and force last-minute corrections that undermine confidence in the numbers.

Data quality issues

Incomplete or inconsistent data creates significant delays during the close. A missing vendor invoice discovered on day three could halt reconciliation work so the document can be tracked down. Sales recorded with the wrong customer code need correction before revenue reports make sense.

Different departments using different product codes for the same items cause consolidation nightmares. Late expense reports from traveling employees force reopening of expense accruals. Each data quality issue requires investigation, correction, and often rework of downstream processes.

Decentralized teams

Large organizations often have accounting staff spread across multiple locations and time zones. If the timing aligns, this can be an efficient setup with one team finishing one step just in time for another team to pick it up. But that’s not often the case. The accounts payable team in Singapore closes for the day just as the corporate accounting team in New York arrives at work, leaving critical work stalled until the next cycle. Subsidiary controllers in Europe may need approval from US headquarters for journal entries, creating overnight delays.

Different locations also may follow different procedures or interpret accounting policies differently. Communication breaks down when critical information sits in someone's inbox in a different time zone. Coordinating these distributed teams requires careful scheduling and clear communication protocols that many companies lack.

Disparate systems

Many companies operate with a patchwork of accounting solutions that don't communicate well. The sales team uses one system for order management, while manufacturing runs a different solution for inventory. International subsidiaries each have their own local accounting packages.

Consolidating data from these disparate sources requires manual exports, spreadsheet manipulation, and re-entry into the general ledger. Each manual touchpoint introduces risk of error. Version control becomes a nightmare when multiple people update different copies of the same spreadsheet.

Manual processes and human error

Despite their limitations, spreadsheets remain the primary tool for many close activities. One report suggested they are still integral to financial operations in 90% of organizations, and another suggests nearly 70% of auditors still spend half their time in spreadsheets. The problem is that accountants have to manually key journal entries based on calculations in Excel. Reconciliations then involve copying and pasting between multiple spreadsheets to match transactions.

These manual processes consume enormous time and create multiple opportunities for error. A misplaced decimal point in a manual entry can distort results. A formula error in a spreadsheet might go unnoticed until the auditors arrive. Automation can streamline tedious tasks, reducing the risk of errors and improving efficiency.

Resource constraints

Finance departments often lack sufficient staff or modern tools to handle the close efficiently. The same accountants responsible for daily transaction processing must also handle period-end closing activities. When someone calls in sick during close week, the remaining team often scrambles to cover their responsibilities.

Requests for additional headcount or updated software face budget constraints and competing priorities. Many companies treat the close as a necessary evil rather than a strategic process worthy of investment. This underinvestment in people and technology perpetuates inefficiency and increases burnout among finance staff who work excessive overtime every month.

So how do today’s finance teams reduce close cycle times while maintaining accuracy and control? They combine process improvements with smart technology adoption to transform the close from a monthly scramble into a predictable routine.

Standardize procedures

Every close should follow the same documented steps in the same order. Written standard operating procedures ensure that reconciliations happen consistently, whether the senior accountant or a temporary contractor performs them. Checklists track completion of each task and prevent important steps from being forgotten during busy periods.

Standardization reduces dependency on individual knowledge. When the accounts payable manager goes on vacation, their backup can follow the documented process without guessing. This consistency also makes training new staff easier and reduces errors caused by everyone doing things their own way.

Emphasize accuracy over speed

Rushing to close faster without proper controls leads to restatements and audit findings. Building quality checks into the process catches errors before financial statements go out. Review cycles where managers examine key reconciliations and journal entries add time but prevent embarrassing corrections later.

Some companies implement a “soft close” where preliminary numbers go through a full review before the official close. This approach identifies issues while there's still time to fix them properly. The extra day spent on accuracy saves weeks of cleanup work when auditors find problems months later.

Automate routine tasks

Software can handle repetitive tasks like matching bank transactions or calculating depreciation schedules. Automated account reconciliation tools match thousands of transactions in minutes rather than hours. Interoperable interfaces eliminate manual data entry between different applications.

Enterprise resource planning (ERP) solutions automate and streamline the financial close process by integrating financial data and processes in a single platform. ERPs can also help manage revenue recognition and other key accounting procedures. ERP integration reduces manual effort, minimizes errors, and increases efficiency in financial reporting.

Such automation reduces both time and errors in the close process. Accountants spend less time on data manipulation and more time on analysis and exception investigation. Modern tools can even flag unusual transactions for review, helping catch problems that humans might miss in spreadsheets.

Adopt continuous closing

Instead of saving all close activities for month-end, teams can spread work throughout the period. Bank reconciliations can happen weekly rather than monthly. Accrual calculations can be updated as information becomes available rather than estimated at period-end.

This approach smooths the workload and catches issues earlier. Finding a bank error in week two gives time to resolve it before the month-end. A continuous close process also means most of the work is already done when the period ends, reducing the final push to just a few remaining tasks.

Improve cross-functional collaboration

The close depends on input from departments across the company. Sales must submit their final deals, purchasing needs to record all invoices, and payroll has to complete its processing. Setting earlier deadlines for these contributors ensures finance isn't waiting for critical information at the last minute.

Clear communication about requirements and deadlines prevents delays. Regular meetings during the close keep everyone aligned on progress and issues. Some companies even create service-level agreements between departments that specify when information must be delivered and in what format.

Enhance visibility and accountability

Dashboard tools show the real-time status of every close task. Managers can see which reconciliations are complete, which are in progress, and which haven't started. This visibility allows quick intervention when bottlenecks develop.

Assigning specific ownership for each task creates accountability. When everyone knows who's responsible for the inventory reconciliation, there's no confusion about who should be fixing problems. Modern close management software sends automatic reminders when tasks are overdue, keeping the process on track.

Post-close review

After each close, teams should analyze what went well and what caused problems. Tracking metrics like days to close, number of post-close adjustments, and overtime hours can surface any problematic trends. If inventory reconciliation consistently runs late, perhaps it needs to start earlier or requires additional resources.

These reviews drive continuous improvement in the process. Teams that regularly examine their close process often reduce their close time by several days within a year. Small improvements compound over time, gradually transforming a painful process into a manageable one.

Regular reconciliation allows your AP process to become a proactive financial control. Without consistent reviews, errors compound, duplicate payments slip through unnoticed, and your financial statements lose accuracy. Establishing routine reconciliation schedules catches problems while they're still small and manageable.

Monthly accounts payable reconciliation should become a standard practice during your closing process. This involves matching your internal payment records against external documentation. You'll compare invoices, purchase orders, vendor statements, and bank payments to verify that every transaction aligns correctly and to ensure nothing is missing, duplicated, or incorrectly recorded. This verification process confirms that your recorded payables match actual obligations and that payments are properly tracked across all your accounting records.

Be sure to look for duplicate payment detection during these reviews. Duplicate payments represent money simply given away due to processing errors, vendor invoice copies, or coordination failures between departments. AP software can flag potential duplicates automatically by matching invoice numbers, amounts, and vendor information.

Along with looking for duplicate payments, examine discrepancies and investigate them immediately rather than deferring them to later. Common reconciliation differences include unrecorded payments made outside your normal workflow, vendor credits not applied to accounts, or invoices paid but not marked as complete in your tracking method.

As a part of this process, use aging reports to monitor your payment pipeline systematically. These reports organize all outstanding invoices by how long they've been in your workflow, highlighting items approaching due dates or sitting unusually long without resolution. Regular aging report reviews help you spot invoices stuck in approval workflows, identify vendors with recurring billing issues, and prioritize upcoming payment runs.

For high-volume AP departments, weekly or daily reconciliation checks can be worthwhile. While monthly reviews catch most problems, frequent reconciliation makes issues easier to trace and resolve since the transactions are still fresh in everyone's memory. Internal audits can be part of this process, which can identify procedural drift where staff gradually deviate from documented processes. With the right AP automation software, these processes can be automated.

Digital audit trails simplify these reconciliation tasks considerably. Electronic payment records, automated approval workflows, and integrated accounting processes create clear documentation of who did what and when. This transparency makes reconciliation faster and more accurate while providing the documentation needed for external audits or regulatory reviews.

The financial close process remains fundamental to corporate financial management. Companies that master this process gain accurate, timely information that drives better decisions. Those who struggle with inefficient closes face delayed reporting, increased audit risk, and diminished stakeholder confidence.

Finance teams can transform their close process through a combination of standardization, automation, and continuous improvement. The organizations making these investments today are shortening their close cycles from weeks to days. They're reducing errors, eliminating overtime, and freeing their accountants to provide strategic insights rather than chase numbers.

The path forward requires commitment from CFOs and their teams. Standardizing procedures takes discipline. Implementing new technology requires investment and change management. But companies that modernize their close process gain a competitive advantage through better financial visibility and faster response to market changes. The monthly close no longer needs to be a source of stress and uncertainty. With the right approach, it becomes a routine process that delivers reliable results on schedule.

Brex's suite of financial tools addresses many close process pain points through integrated automation. Brex’s accounting automation software eliminates manual data entry by automatically categorizing transactions and syncing with general ledger systems. The spend management platform and automated bill pay features ensure all expenses are captured in real-time, preventing the last-minute scramble for missing invoices. Corporate cards with built-in controls and instant expense coding mean transactions arrive pre-categorized and ready for reconciliation.

Scentbird, a monthly fragrance subscription service, had different brands and global locations that all needed custom accounting codes. This led to errors since they had to code expenses individually correctly. Scentbird VP of Finance Amber Papp credits Brex's automated controls, expense reporting, custom codes, and the Brex-NetSuite integration for accelerating key finance workflows.

“Brex syncs directly with NetSuite,” Amber says. “And if something doesn’t quite reconcile, Brex highlights what’s wrong with the expense and proposes a resolution. We’re completing expenses and accounting twice as fast with Brex.

Companies looking to reduce their close time and improve accuracy should schedule a demo of Brex's accounting automation software to see how integrated financial tools can streamline their month-end process.