Accurate Management Accounts and Cashflows
To understand the value of full commitment accounting, consider the existing manual purchasing process and the challenges it represents for your staff:
- The finance department is living in the dark: Unless purchasing orders (commitments) are captured and posted on creation into the accounts, the finance department has no sight of the expenditure of the company, usually until a purchase invoice has been received, approved and finally posted to the accounts - weeks or months after the purchase order was raised.
- Month end management accounts and cashflow reports are late: All month end reporting is delayed to allow for purchase invoices to be approved and posted, but many still fail to reach the accounts before the management accounts and cashflow production. The finance department generates an accrual (best guess on expenditure not yet processed) to address this, often by accruing to the budget.
- Month end management accounts and cashflow reports are inaccurate: The management accounts, budget availability for the following periods and the cashflow forecasts are all based on the accuracy of the accrual estimate. As are all the management and purchasing decisions that follow.
Compleat Purchase to Pay software delivers full commitment accounting and delivers many benefits:
- Visibility of financial commitments: The finance department is immediately aware of every financial commitment made at the moment a purchase order is raised and this information is incorporated into the accounting process.
- Automated journals: The commitment are automatically reversed to an accrual and an expense transaction through receipting and invoice approval.
- Timely management reporting: Month end reporting can take place on the first day of each new month, as all the information required is always available and 100% up to date
- Accurate management reporting: Cashflow reporting and management accounts are accurate to the last penny.
As a result, management decisions are more timely and always based on fact.