What pre-accounting looks like
Traditionally, the accounting process might look something like this: an employee meets a client at a cafe for a work meeting. After paying with their credit card, they hastily stow away the purchase receipt and forget about it for several weeks...until the finance team asks for all their expense receipts in preparation for month-end closing.
It takes the employee several days to find the receipt, crumpled up under piles of other documents in the office. This creates extra work for the accounting team, who need to decipher the receipt’s information, reconcile the payment, and then enter it all into the general ledger.
Now imagine the same scenario, but with pre-accounting optimization. That might look like this: the employee makes a payment at the cafe with their company card. They use a spend management mobile app to snap a photo of the receipt and instantly reconcile their purchase. The transaction’s information is immediately synced with the company’s integrated accounting software, updating the general ledger in real-time.
Both the accounting team and the employee save hours of time, which can be refocused on executing strategic work to grow the company.
How pre-accounting works
Pre-accounting processes can vary depending on elements like company structure, size, and resources.
Small business owners frequently use automated accounting softwares like Quickbooks Online or Xero; tools that are well-suited to solo entrepreneurs and early-stage startups.
Larger companies may opt for more advanced tools like ERP systems that consolidate multiple facets of business operations into one management platform.
Generally, pre-accounting can include any or all of these functions:
All financial activities are consolidated and prepared for clean data entry. This involves tracking all types of company spend and streams of revenue, as well as collecting and tagging the associated documentation for each transaction.
2. Document collection
Business administration and employee reimbursements can be performed more quickly when essential documents like paper receipts are filed earlier, rather than later. Many fintech mobile apps support instant receipt capture, so employees can effortlessly and automatically submit purchase details to finance teams in real-time.
3. Staying audit ready
A shared goal among accountants, bookkeepers, and CPAs is ensuring the company’s financial reporting is as accurate as possible, and ready for audit. Good pre-accounting practices enable finance teams to report accounting data securely, and easily catch if there are any mistakes to be corrected.
4. Expense reports
Paper expense reports for employee reimbursement are tedious and slow to process, and increase the risk of fraud.
Alongside a clear expense policy, pre-accounting can support smarter expense management by eliminating manual reports and digitizing the expense approval process. Instead of sorting through stacks of expense reports every month-end, all purchase details are added to the general ledger in real-time whenever a purchase is made with a company credit card.
5. Processing invoices
Much of the time spent on accounts payable is focused on aligning and matching documentation: invoices against purchase orders, delivery orders, receipts, etc. Smart payment platforms enable finance teams to streamline the entire AP workflow, from receiving and validating invoices, to paying vendors on time.
The benefits of pre-accounting
Today, pre-accounting strategies are fundamental to a healthy and efficient finance function. There are major benefits to implementing financial accounting tools and/or spend management systems in your business.
Time and money saved
By automating slow manual processes like receipt collection, finance teams and team members alike can save days of time every month.
This not only takes pressure off of any employees who make one-off or frequent purchases for work, it also alleviates accountants’ stress of hunting down receipts.
More accurate reporting
Many fintech softwares use OCR (optical character recognition) technology to scan receipts, invoices, and other documents to instantly extract and sync all pertinent details online.
Pre-accounting can eliminate manual data entry and significantly reduces the risk of human error. It also provides businesses with real-time financial data throughout the fiscal year, with a single source of truth for company finances.
Less financial risk
Pre-accounting work supports better decision-making. The more accurate financial data a business has, the more company leadership is able to make smarter investment and business decisions. Pre-accounting helps finance teams optimize their accounting systems, and also helps them inform executives on how to best achieve cost savings, scale growth, and avoid high-risk transactions.