In such a dynamic environment, mastering the retail financial close is essential for sustainable growth and resilience. It's also a great way to overcome the challenges of financial management in the retail industry. Here, we will discuss the best practices for a quality financial close and highlight how modern solutions can drive efficiency and profitability.
Mastering the Retail Financial Close
The retail financial close is a process of finalising all accounting activities for a specific period. This is typically done at month-end or year-end and allows retailers to produce accurate financial statements. The whole process ensures all transactions are recorded, reconciliations are completed and discrepancies are resolved.
Let's not forget that the stakes are high for retailers since errors or delays can distort business insights and hinder decision-making. Understandably, retailers face unique complexities such as multiple sales channels, high transaction volumes, seasonal demand and fluctuating inventories. These factors make the financial close more challenging than in other industries.
Financial Management Challenges in Retail
Sometimes, the process becomes complicated due to some financial management issues in retail. Retailers often have to navigate and overcome some challenges that underscore the need for a disciplined and technology-enabled approach to the retail financial close.
- Inventory management and balancing stock levels are of high importance. Overstocking ties up capital, but on the other side, understocking leads to lost sales.
- Extended payment cycles, inventory holding costs and seasonal fluctuations can strain liquidity. Without a well-structured cash flow management, retailers risk operational disruptions and miss growth opportunities.
- It is difficult to consolidate data and gain a holistic view of financial performance when many retailers operate with fragmented systems.
- Managing production costs, labour and overheads is of the highest priority. Inaccurate budgeting or poor cost control can erode margins and destabilise finances.
10 Best Practices for Retail Financial Close
A smooth financial close delivers compliance, as well as timely and accurate insights for strategic decision-making. At the same time, it enhances transparency and supports regulatory requirements. Below are some of the best practices that retailers should keep in mind.
1. Be Present Online and Invest in Scalable Technology
Modern retail demands cloud-based, scalable financial solutions that integrate seamlessly with other business systems. Legacy systems often create bottlenecks, slow down reconciliations and limit visibility.
When retailers migrate processes online, they can automate reconciliations across multiple channels. Retailers get access to real-time data and analytics for faster and more informed decisions. Lastly, they can support remote work and collaboration without compromising security.
Today, retailers are increasingly using AI-driven platforms that automate and predict reconciliation issues before they arise. This, in turn, helps to reduce manual intervention and error rates.
2. Maintain Organised and Centralised Records
Centralised financial data is the core of audit readiness and operational efficiency. Disparate records across departments or platforms lead to delays, errors and compliance risks. This is why best-in-class retailers have a well-developed system.
They store all invoices, receipts and approvals in a secure and central repository. They integrate document management with ERP systems for end-to-end visibility, while ensuring easy retrieval for audits, month-end close and variance analysis. Recently, advanced document management systems use AI to categorise and flag anomalies, streamlining the review and approval process.
3. Record Transactions and Reconcile Accounts Regularly
Daily transaction recording and frequent reconciliations help retailers avoid financial management issues in retail. This approach reduces end-of-period bottlenecks and last-minute adjustments. Retailers can detect discrepancies or fraud early on, but they can also improve cash flow forecasting and working capital management.
The recent novelty is that automation tools now support daily imports and reconciliations, even across high-volume channels like Amazon, Shopify and third-party payment providers. This is to ensure that all merchant, vendor and bank transactions are matched promptly.
4. Standardise and Automate Reconciliations
Manual reconciliations can be time-consuming and prone to error, especially as transaction volumes grow. This is why standardising and automating these processes allows retailers to achieve consistency across locations, channels and teams. Another advantage is that they can reduce manual workload and increase match rates, while simultaneously triggering automatic reconciliations when new data is loaded.
Leading solutions nowadays offer configurability workflows, automated file transfers and seamless integration with payment providers, enabling true end-to-end automation.
5. Implement Strong Internal Controls
Retailers who wish to safeguard their assets and ensure data integrity must enforce rigorous internal controls. Segregation of duties is essential in order to prevent fraud and errors and it can reflect on new risks through regular review and update controls. Use of automated approval workflows and audit trails is also crucial.
Meanwhile, AI-powered monitoring tools are used to flag unusual patterns or unauthorised changes in real time. This is a great way to provide an extra layer of security.
6. Track Key Metrics and KPIs
Continuous improvement is possible only through measuring the effectiveness of your financial close process. The key financial close metrics and KPIs include:
- Days to close (cycle time)
- Number of unreconciled items or late tasks
- Volume and value of post-close adjustments
- Match rates for automated reconciliations
Dashboards now provide real-time visualisation of close metrics, allowing finance leaders to identify bottlenecks and take corrective action immediately.
7. Foster Cross-Department Collaboration
Retail financial close is more than a financial function and requires input from operations, sales, IT and other departments. Effective collaboration is used to improve data accuracy and completeness. It reduces delays from missing or incomplete information while, at the same time, it clarifies roles and responsibilities for each stage of the close.
Modern times require collaboration platforms that are integrated with financial systems to enable real-time communication, document sharing and task management. All this is used to streamline the close process.
8. Embrace Configurability and Custom Exports
Retailers must find solutions that adapt to their unique workflows, reporting requirements and regulatory environments. Configurable platforms allow retailers to quickly adjust processes as business models evolve or new partners are added. This ensures compliance and agility.
To embrace configurability means to:
- Customise reconciliation rules for specific payment providers, channels or regions
- Support complex matching scenarios like three-way matching between POS, delivery services and bank statements
- Creating custom exports to clear open items or outstanding checks from ERP systems
9. Perform Automated Variance Analyses and Fee Management
eCommerce and omnichannel retailing introduce complex merchant fee structures and third-party costs. Automating the identification and recording of daily merchant fees and variances is among the best practices used. Others include maintaining a historical record of fees for auditing and analysis, as well as reconciling invoices from payment providers with actual receipts and bank deposits.
For more accurate financial reporting, automated split transactions and variance tracking tools now provide instant visibility into:
- Fee deduction
- Discrepancies
- Reserves
Eager to learn more? Discover what is variance and why variance monitoring is the key to efficient retail financial close.
10. Using Three-Way Matching for Complex Transaction Flows
Three-way matching is inevitable with the trend of third-party delivery and payment platforms. It involves identifying and resolving variances across multiple data sources, ensuring all funds are received and correctly allocated. Reconciling POS sales, delivery service transactions and bank deposits in a single workflow is also included in the process.
The advanced matching engines can now handle multi-source reconciliations automatically. This will drastically reduce manual intervention and cycle times.
Retail Financial Close: The Final Line
A disciplined retail financial close is the backbone of overcoming financial management issues in retail. Retailers can minimise errors and accelerate reporting by taking advantage of the best practices listed above. A financial close can be efficient and transparent if the retailers track the key metrics and foster collaboration. Investing in scalable, configurable technology further enhances competitiveness and agility.
Are you familiar with Aico's closing task manager and its application in retail? Don't wait: