5 Ways Manual Accounting Processes Multiply Costs

By Cameron John, Regional Vice President EMEA, BlackLine

In the face of inflationary pressures and high interest rates, organisations that want to achieve steady growth need to look internally for ways to drive costs out of the business. One area of the business prone to manual processes, and therefore cost inefficiencies, is finance and accounting (F&A). Manual processes in this department tend to be chaotic and time-consuming, and with so many F&A organisations still working remotely, the challenges are even greater.

Today’s volatile business climate means new assumptions about business impacts, and new considerations for accounting. With more systems, more data, and more reporting and regulatory overhead, it can feel like a losing battle. Throwing people at the problem is no longer sustainable, especially as accounting is increasingly being asked to do much more with the resources they have.

Valuable accounting teams can no longer be buried in transactional accounting. Moving from labour-intensive processes and improving efficiency is long overdue. With this in mind, here are five ways the cost of manual processes is being multiplied in your organisation, and ways for you to start addressing them.

Manual Accounting Is Time-Consuming

When an organisation’s processes are mostly manual, it takes a significant amount of time and resources to close the books. The repetitive work, the endless spreadsheets, and the late nights at month end. Data entry, endless copy-and-paste still seem to rule in tasks like journal entries, reconciliations, reporting, and variances, all of which cause immense frustration for those at the coalface.

Research shows that more than five days typically separate the fastest month-end closers from those that are heavily manual. That translates to an entire working week that accounting could spend identifying exceptions and variances to flush out financial statement integrity issues, identifying risk, or working on meeting new regulatory rules. It also costs Financial Planning and Analysis (FP&A), because they must wait longer to get a set of financial results before they can begin planning, forecasting, analysing, and modelling.

Manual Accounting Is More Expensive

According to APQC, accounting organisations that are inefficient are two to three times costlier to run than their top-performing peers who are doing the same activities. But fortunately, there is a lot of low-hanging fruit to help more manual F&A organisations catch up.

A recent study found that nearly 50% of companies still don’t use any automation for general ledger account reconciliation. And the results of automation can be substantial. For example, one of the world’s biggest multinationals reduced time spent on reconciliations by thousands of hours a month, reallocating the team to activities like metrics, reporting, IT controls, and change governance.

It’s also essential to recognise that many CFOs aren’t taking efficiencies to the bottom line. They’re using it to reallocate from the finance budget: reinvesting those savings to business support for teams and legal entities, analytics, forecasting, and planning – essential support for business during times of economic downturn.

Manual Accounting Is Risky

Manual accounting is highly correlated to financial statement integrity risk. In BlackLine’s ‘Mistrust in the Numbers’ survey of over 1,100 C-level executives and finance professionals worldwide, nearly 70% said they’d made a significant business decision based on inaccurate financials. Of those that didn’t trust the numbers, 41% blamed manual data inputting, and 56% highlighted the issues of no automated controls and checks, labour-intensive data extract processes, and spreadsheet sprawl.

Beyond risks of poor data integrity, manual accounting also raises the risk of fraud, with exposure around creating or altering transactions, updating electronic documents and files, or manually entering journal entries. One study by the American Accounting Association quantified the risk, discovering an 80-90% higher incidence of fraud in companies with material weaknesses.

Manual Accounting Hurts Audit & Compliance

While fees themselves have stabilised somewhat, the increasing amount of accounting time spent meeting audit requests has not. Lack of follow up on aged items, incomplete reconciliations, inability to quickly answer auditor questions, and overall visibility all tie up accounting resources further—which in turn can run up the total cost of an audit.

Manual Accounting Burns Out Talent

Repetitive period-end processes take a toll on your people, causing employee disengagement and lowering the productivity of each employee. It also impacts talent retention and succession planning.

CFO respondents to BlackLine’s ‘Generation Future Finance’ survey say they are more worried about talent acquisition than they are about their company’s longer-term organic or acquisitive growth, adapting to hybrid working models, or meeting environmental, social and governance goals. This comes as more than a quarter (28%) of respondents highlight a lack of opportunities to learn new skills because transactional work takes up so much time. A further 26% say that people become bored with the repetitive nature of their work.

Not only is repetitive, manual work making existing roles unattractive for good candidates, it’s also impacting opportunities for development. This creates two problems: first, a lack of career opportunities may encourage new and old talent alike to look elsewhere; and second, businesses will miss out on opportunities to nurture talent from within.

Ways to Reduce the Costs of Manual Accounting

Fortunately, there are numerous ways for an organisation to tackle labour-intensive tasks. Reconciliation automation can be used to auto-certify up to 85% of accounts each month, without requiring human intervention. Managing the overall close process itself can be moved online, with workflow solutions that centralise close tasks, manage dependencies, and route tasks for review and approval.

Rather than spinning cycles responding to auditor requests, organisations can move to a self-service model, enabling them to log in and access areas like reconciliations, supporting detail, variances, and exceptions— without relying on accounting.

Even high-volume accounts can be automated, using a rules engine to automate detail-heavy recs, such as bank recs, credit card matching, intercompany reconciliations, and invoice-to-PO matching.

Quantifying the Benefits

Fortunately, there are solutions on the market to help F&A teams adapt to this new environment by unifying their data and processes, automating repetitive work, and driving accountability through visibility. This approach enables a virtual close—a process that is collaborative, achievable, and continuous—from wherever you’re working.

Accounting is already starting to realise the benefits of automation. From financial services companies, to healthcare providers, media broadcasters and industrial manufacturers. For a whole host of businesses, automating the most repetitive F&A processes is a tried and tested way to free up time and money, which can be diverted to tasks that support the company’s long-term objectives.