Month-End Close

Month-end close is how a lender finishes one month's books and produces a single, approved set of numbers. For a lender, the heart of the close is making two records agree: the loan subledger, which tracks each loan's balance, interest and fees, and the general ledger (GL), which holds the company's accounts.

A typical close runs in this order:

1. Cut off. Set when new activity rolls into next month.
2. Post everything. Record payments, disbursements, fees and returns.
3. Accrue interest. Book the interest borrowers owe but have not yet paid.
4. Reconcile cash. Match loan cash activity to the bank statements.
5. Tie the book to the ledger. Compare subledger and GL totals; explain every difference.
6. Clear exceptions. Work through unapplied cash, suspense items and loans with manual changes.
7. Approve and lock. A named person signs off and the period closes to edits.

Worked example. The subledger shows $10,000,000 in principal outstanding. The GL shows $9,985,000. The $15,000 gap traces to two payments recorded in the GL but still sitting unapplied in servicing. Once applied, the records match.

Why it matters for lenders

Every report a lender sends out starts from the closed book. If the subledger and the GL disagree, an auditor or funder will eventually ask which one is right.

US bank examiners expect loan records to balance with the GL. They also expect suspense accounts, the temporary holding spots for items not yet matched to a loan, to be reconciled regularly, with stale items written off. Auditors test nonbank lenders on the same habits.

Timing creates traps. An ACH return for insufficient funds can arrive a couple of banking days after the payment posted, so a payment taken on the 30th may bounce in the next month. Interest on late loans also needs care, since many lenders stop accruing once a loan is far enough past due.

How it works in practice

A community loan fund closes in the first week of each month. After returns clear, the accountant runs accruals and compares principal, interest receivable and fees between servicing and the GL. Because the fund borrows from a bank and holds restricted grant money, she also ties balances by capital source, so each funder's figures add up.

In spreadsheets, this takes days, and nobody can say why a number moved after a report went out. With general ledger integration, loan activity flows to accounting as it happens, and the close becomes a review of exceptions.

One rule holds either way: never force a difference to zero without a recorded entry and a reason. A locked period and an audit trail let anyone see how each number was reached.