Who it's for: SaaS and tech finance teams deciding how much of the close to do each month, and anyone who's been told "it's only a soft close" and wasn't sure what that meant.
What you'll get: what soft and hard closes are, a side-by-side table of what each includes, what to add at quarter-end, a worked true-up example, and a key risks and controls box.
Reading time: about 10 minutes. Softer than a hard close, firmer than a soft one.
Why the difference matters
Doing every step of the close every month takes time that many small teams don't have. Skipping steps without a plan creates errors that pile up until quarter-end or the audit. A clear soft close / hard close split lets you do the essential work monthly, the deeper work quarterly, and know exactly which is which.
It also sets expectations. Leadership knows monthly numbers are reliable but include some estimates, and quarter-end numbers are fully checked.
Key terms
- Soft close: a lighter monthly close. High-risk areas are done fully; some lower-risk items are estimated or rolled forward, by an agreed rule.
- Hard close: a full close. Every account is reconciled with evidence, estimates are trued up to actuals, and the period is locked. Typical at quarter-end and year-end.
- True-up: an adjustment that replaces an estimate with the actual figure once it's known.
- Roll forward: carrying a balance or schedule into the next month with only expected movements, rather than rebuilding it from scratch.
- Provision: an amount set aside for a likely cost or loss where the exact amount or timing isn't certain, such as bad debts.
Soft close vs hard close, side by side
There's no single rulebook for this. The table shows a common split for a single-entity SaaS company. Many teams adjust it to fit their risks.
| Area | Soft close (most months) | Hard close (quarter-end and year-end) |
|---|---|---|
| Bank and payment processor reconciliations | Full | Full |
| Revenue and deferred revenue | Full roll-forward, agreed to billing and the ledger | Full, plus review of contract changes and unusual terms |
| Payroll | Full journal from the payroll report | Full, plus bonus and holiday pay accrual review |
| Accruals | Large items accrued; small recurring items estimated | All items reviewed; estimates trued up to actual invoices |
| Prepayments and depreciation | Recurring journals checked | Schedules reconciled to the ledger in full |
| Balance sheet reconciliations | High-risk accounts | Every account, with evidence and sign-off |
| Bad debt provision | Rolled forward unless a big change | Recalculated from the aged debtors |
| Intercompany and FX | Material balances | All balances agreed on both sides; full revaluation |
| Commission and development cost capitalisation | Rolled forward from the schedule | Schedules rebuilt and reviewed |
| Flux analysis | P&L vs last month and budget | P&L and balance sheet, plus quarter vs quarter |
| Period lock | Yes | Yes, with a stricter rule for reopening |
AI shortcut: give an approved AI tool your close checklist and a short note on your company's risks (for example, "annual billing, one entity, two currencies"). Ask it to propose a soft/hard split with a one-line reason for each task. Then review it with your finance lead. The reasons are what make the split defensible.
How to set up your soft close, step by step
| Step | What "done" looks like | |
|---|---|---|
| ☐ | Mark each close task as high or low risk | Revenue, bank, payroll, VAT and manual journals marked high |
| ☐ | Decide which low-risk tasks can be estimated or rolled forward monthly | A written list, with the method for each (for example, "average of last three months") |
| ☐ | Set a threshold for when a soft-close item gets the full treatment anyway | For example, any single item above an agreed amount is accrued exactly |
| ☐ | Agree the split with your finance lead, and with the auditors if you have them | The approach is documented and approved |
| ☐ | Add a "soft" or "hard" column to the close checklist | Everyone can see what applies this month |
| ☐ | Track the size of quarter-end true-ups | A short log of estimate vs actual for each soft-close item |
The last step is the one that keeps the soft close honest. If true-ups are consistently large, the estimate method needs work, or the item belongs in the monthly full close.
What changes at quarter-end
On top of the hard close tasks above, quarter-end usually brings extra work that monthly closes don't.
| Task | What "done" looks like | |
|---|---|---|
| ☐ | True up every soft-close estimate | Estimates replaced with actuals; differences explained |
| ☐ | Reconcile every balance sheet account | Evidence and reviewer sign-off for each |
| ☐ | Reconcile the VAT control account to the return (if your VAT quarter ends now) | Ledger agrees to the VAT return; differences explained |
| ☐ | Review the bad debt provision in full | Provision recalculated from aged debtors and known disputes |
| ☐ | Review contract changes and revenue judgements | Unusual terms, discounts and setup fees checked against policy |
| ☐ | Review fixed assets and capitalised costs | Registers agree to the ledger; anything no longer used written off |
| ☐ | Prepare the quarterly board or investor pack | Quarter-on-quarter view, KPIs and covenant tests if you have debt |
| ☐ | Update the forecast for the rest of the year | Reforecast based on actuals to date |
As at October 2026, UK VAT returns on the standard quarterly scheme are typically due, with payment, 1 calendar month and 7 days after the end of the VAT period. VAT quarters don't always line up with calendar quarters, so check your own stagger on your HMRC account. Large companies paying Corporation Tax in quarterly instalments have their own dates; see gov.uk.
AI shortcut: at quarter-end, give AI the estimate-vs-actual log for each soft-close item over the last four quarters. Ask which estimates are consistently high or low and by how much. That tells you which methods to fix. Check the figures it quotes against your log.
If you report under US GAAP (ASC 606)
The soft/hard close idea is the same. The main difference is reporting pressure: US-listed companies and their subsidiaries often report quarterly under tight deadlines, so quarter-end is closer to a year-end in depth, with more formal review of revenue judgements and controls. Revenue recognition under ASC 606 and IFRS 15 follows the same five-step model, so the revenue tasks in the table don't change much.
Worked example: a soft-close estimate and its quarter-end true-up
MonthEndClub Co Ltd is a fictional UK SaaS company. Its soft close estimates recruitment agency fees from the average of the last three months, because invoices often arrive weeks late. Single fees over £5,000 are accrued exactly.
Monthly estimates
The last three months' fees were £3,200, £2,600 and £3,600. Average: (£3,200 + £2,600 + £3,600) ÷ 3 = £9,400 ÷ 3 = £3,133 (rounded). The team accrues £3,133 a month for July, August and September.
Monthly accrual (July, August and September):
| Account | Dr | Cr |
|---|---|---|
| Recruitment costs | £3,133 | |
| Accruals | £3,133 |
Each month's accrual reverses at the start of the next month, and the real invoices are posted as they arrive.
Quarter-end true-up
At the September hard close, the team checks with the agencies. The real fees for the quarter were £11,800. Of that, £6,900 has been invoiced and posted. The remaining £4,900 hasn't been invoiced yet.
At 30 September, the accrual should be the uninvoiced £4,900, not the £3,133 estimate. The September estimate is topped up to the actual figure:
| Account | Dr | Cr |
|---|---|---|
| Recruitment costs | £1,767 | |
| Accruals | £1,767 |
£4,900 − £3,133 = £1,767. The accrual now stands at £4,900, and the quarter's recruitment cost is £6,900 posted + £4,900 accrued = £11,800, matching the actual fees.
The quarter's estimates had been light. The team logs the difference and notices hiring has picked up, so for Q4 they move to asking hiring managers for expected fees each month instead of using a three-month average.
Common mistakes and audit watch-outs
- Soft close by accident. Steps skipped because time ran out isn't a soft close. A soft close is a documented, agreed choice.
- Estimates never trued up. If quarter-end doesn't replace estimates with actuals, errors quietly build up until year-end.
- Treating high-risk areas as soft. Revenue, bank, payroll and VAT are usually full every month.
- Not telling leadership. If monthly numbers include estimates, the people reading them should know which ones.
- Using AI estimates without a method. "The AI said £3,000" isn't an estimate method. The method is written down; AI can help calculate it.
- Loading payroll or customer data into unapproved AI tools. Only use AI tools your company has approved for that data.
Tools that can help
Accounting software such as Xero, QuickBooks or Sage supports auto-reversing accruals and period locks, which make the soft close cleaner. ERP systems such as NetSuite add task tracking against close days. A simple log in Excel or Google Sheets is enough to track estimate vs actual. Tools make the split easier to run; they don't decide it for you.
Key risks and controls
| Risk | Control | How to evidence it |
|---|---|---|
| Soft-close estimates drift from reality | Quarter-end true-up of every estimate, logged | Estimate vs actual log, reviewed by the controller |
| A large item hidden inside an estimate | Threshold above which items are accrued exactly | Written threshold; accrual list showing large items separately |
| High-risk area left to quarter-end | Agreed list of tasks that are always full, every month | Close checklist with a "soft/hard" column, signed off by the finance lead |
| Leadership misreads monthly numbers | Pack notes which figures are estimates | Standard line in the monthly pack |
| AI-generated estimate used without a method | Written method for every estimate; AI only calculates it; a person reviews | Method note in the working paper and reviewer sign-off |
Rates, thresholds and rules in this guide
Figures were checked against the pages below in October 2026. They change regularly (often each April or at Budget time), and we can't guarantee they're still current or right for your situation. Always check the official page before relying on them.
- Sending a VAT Return: when to do a VAT Return (GOV.UK): VAT return and payment deadline
- Pay Corporation Tax if you're a large company (GOV.UK): quarterly instalment payments
Key takeaways
- A soft close is a planned, documented choice. Skipping steps under pressure isn't one.
- Keep revenue, bank, payroll and VAT in full every month.
- Estimate low-risk items by a written method, with a threshold for exact accruals.
- At quarter-end, true up every estimate and reconcile every account.
- Log estimate vs actual. Large, repeated true-ups mean the method needs fixing.
FAQs
Is a soft close acceptable to auditors?
Auditors typically focus on the year-end numbers and on whether controls are designed and followed. A documented soft close with quarter-end true-ups is common. An undocumented one, where steps are simply missed, is more likely to raise questions.
How often should we do a hard close?
Many SaaS teams do a hard close at each quarter-end and at year-end. Companies with investor or lender reporting, or US parent companies, may need more frequent full closes.
Can AI help decide what goes in the soft close?
It can draft a split and the reasons, and analyse past true-ups to show which estimates are reliable. The decision, and sign-off, sits with the finance lead.
Does a soft close mean we don't lock the period?
No. Most teams still lock each month, so reported numbers don't change without a record. Quarter-end true-ups are booked in the quarter-end month, not by reopening earlier months.
Related guides
- The SaaS Month-End Close Checklist
- Accruals and Prepayments: A Practical Guide with Examples
- Balance Sheet Reconciliations: What Good Looks Like
- Year-End Close Checklist for SaaS Companies
More in Month-End Close guides.
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This guide is general information about common practice. It isn't tailored to any business, and standards, tax rules and figures change. Check your own circumstances, the latest rules and, where needed, a qualified professional before acting.
Last reviewed: October 2026.