Top Four Ways to Avoid Accounting Errors in 2021
October 22, 2020
Estimated reading time: 6 minutes
In 2018, paint-making giant PPG Industries fired its financial controller after uncovering a series of accounting errors dating back to 2016. Almost US$1.4 million in company expenses were miscalculated and another US$5 million incorrectly accrued. But PPG isn’t alone. Accounting mistakes have caused significant losses for companies of all sizes. Uber came under fire for underpaying their New York City drivers for years because of an overcalculation, costing them US$45 million. A London Olympics employee accidentally inserted “20,000” instead of “10,000” tickets in a spreadsheet, making the committee sell an extra 10,000 seats that didn’t even exist. Even more worrying might be Bank of America discovering they had US$4 billion less than what their accountants reported – all down to inaccurate number-crunching. Without proper tools and controls, even mature establishments can become victims of financial flubs.
The good news is, recent innovations ensure the mistakes described above remain in the past. Here are four technology solutions your company can implement now to avoid the most common accounting errors.
Accounts payable automation: minimize workflow disruption
The biggest time-wasters in accounts payable (AP) are manual data entry and inefficient processes. Teams spend more than half of their time hunting down data and fixing inaccuracies. Whether it’s purchase order matching, invoice processing, expense management, or paying a vendor – there’s a lot of information that needs to be carefully entered and processed. AP becomes more vulnerable to errors when these workflows are detached, for example, email for approvals, DropBox for storage, or checks for payments. Without proper visibility and access to real-time reports, 87% of organizations fail to identify business performance issues.
Ten years ago, ensuring vendors were paid on time was an AP team’s top priority. Today, not only do they have to find cost-saving opportunities, but AP teams must also stay vigilant against risks such as false billing, phishing scams, and employee expense fraud.
Beanworks’ AP automation software reduces manual, error-prone tasks and cuts the cost of processing invoices by up to 86%. All four of the key processes in AP (purchase orders, invoices, expenses, and payments) are managed through a single, cloud-based platform, making it easier to access information and generate reports. Processes are completed with minimal human interaction, reducing the risk of errors in data entry, coding, etc. When it comes to cost savings, automation cuts down the invoice processing lifecycle, meaning businesses can make payments before the deadline and capture an early payment discount. Most companies miss these opportunities on 20% of their invoices.
Accounts receivable automation: optimize day sales outstanding
Cash flow management is critical for any business, especially during an economic crisis. The biggest roadblock in maintaining healthy cash flow is a high day sales outstanding (DSO) number. Many companies still use manual, paper-based accounts receivable (AR) processes, where poor billing and collection leads to lost revenue or a high DSO. The average DSO is 64 days, with one out of four companies waiting 88 days or longer to get paid. The common theme in companies lagging behind is the absence of a payment contract. Are you offering customers the flexibility to pay electronically? Can your customers receive an early discount for settling invoices in 15-20 days?
By adding contract terms, businesses can accelerate the speed of receivables by 80%. And by integrating them with AR software, the DSO cycle can be reduced by 30%, giving finance teams a stronger handle over cash flow. Automating these processes means you can easily check the status of receivables, generate digital payment reminders, and eliminate the most time-consuming tasks such as inputting data into spreadsheets. And by enabling electronic receiving, you also alleviate the pain of sending invoices and checks through the mail.
Remote audits: gain online access to financial data
The impact of COVID-19 has forced businesses to re-engineer the way they perform audits. While it was feasible (albeit time-consuming) to dig through a paper trail in normal times, it’s no longer practical. About 54% of auditors say pushback from businesses is their biggest challenge. They need to engage with multiple departments to complete an audit, but face constraints such as lack of time and access to the resources and data stored in physical offices. The challenge isn’t unique to the pandemic-imposed crisis. Finance departments are notorious for being manual and paper-heavy; COVID-19 has only magnified the problem.
Online audits can slash down the time it takes to finish the task. With a few clicks, audits can be completed within hours, instead of days. For example, if all your AP data and processes are stored on one central platform such as Beanworks, the auditor can simply log in to the system and track data going back at least 7 years. Audit management software is easier to navigate and saves up to 40% of an auditor’s time.
Payroll software: make the cloud count
85% of organizations have fewer than 10 payroll employees and surprisingly, some even operate on just one. What isn’t shocking is that this sole individual winds up spending almost three weeks per year calculating salary, filing, payroll taxes, and a lot more on outdated systems and spreadsheets. Now that remote work is part of our reality, businesses say they are failing to pay employees correctly or on time.
Moving payroll to the cloud with the shift to remote work is getting the attention of businesses across the globe. Payroll software replaces monotonous tasks such as writing checks and calculating payments, with electronic transfers, and eliminating human errors.
Benefits, vacation time, and other details are easily traceable on the online dashboard for both the employer and employees. What better way to improve employee satisfaction on something that benefits them personally.
What does a top-performing accounting team look like?
There are significant differences between accounting teams that have automated versus those running on disjointed systems. Let’s take cost as a benchmark. In an APQC survey of 623 firms, the lowest performers were spending at least USD $158,718 per FTE in finance, while the top performers spent USD $82,544. The good news is, CFOs are starting to realize the savings in time, cost, and security with automation. PwC reports, one-third of CFOs are already on-board for tech-driven solutions.
When evaluating an accounting automation software, see how it integrates with your financial system and what workflows it automates. Within AP, a software such as Beanworks can give you a 360 degree automation experience – PO’s, invoices, expenses, and payments. See all the benefits here.
We’ve compiled real business examples of digital transformation failures in accounting. Watch this webinar to find out why fixing accounting mishaps with spreadsheets or document management systems fails, and what solution drives results.
2020’s Biggest Accounting Fails – And What We Can Learn From Them
Despite last year’s shocking headlines, accounting failures continued to happen – and we were taking notes. How many do you remember?
85% of Employees Admit to Sometimes Lying About Expense Claims
Filing expense reports aren't just dreadful for employees. They could be costing businesses a pretty hefty figure. Fraud and expense abuse by employees can cost companies up to 5% of their annual revenue.
Top 5 Key Performance Indicators for Accounts Payable Departments
It can take up to 25 days for invoices to be approved. However, organizations with more mature AP processes are able to shrink this time down to 3-5 days.
Straight To Your Inbox
Stay up-to-date on top accounting and finance trends
Sign up for our newsletter and receive our latest resources, news and insights.
Learn More About Beanworks
Discover how AP automation can free your accounting team from manual data entry, delays, and paper-based processes.