Encumbrance Management

In not-for-profit organizations, staying within budget is complicated by the need to track encumbrances—purchase orders or other commitments for goods that have not yet been provided, or for services that have not been performed.

Simplify the process: Automate it

Encumbrance management applications help you analyze expenditures against budgets and track encumbrances at any time. With an automated financial system, managers can easily set aside funds for future contracts, as well as plan and stay on track for utilizing the appropriation.

Typically, encumbrances are recorded in the general ledger as reductions to the budgetary accounts. Budgetary accounting combined with encumbrance accounting helps to ensure total actual expenditures plus related commitments do not exceed appropriations. Without encumbering these funds, subsequent purchases could result in overspending funds in an account. With automated systems, you can set up automatic messages to alert local officials a particular purchase order would result in the over commitment of a certain line item.

Automating encumbrances tracking helps reduce the risk of overlooking providing a report on specific expenses during the year, helping avoid problems and extra work during year-end processes. Budget systems further enable proper control over expenditures by reducing the risk of overspending, a key piece in a financial system.

Take a look at these benefits of automated encumbrance tracking:

• Helps ensure funds will be available when payment is due.
• Reduces the time it takes to track expenses, freeing more time for careful budget allocation and management.
• Uses encumbrance accounting as an aid to fund managers in budgetary control.
• Provides immediate tracing upon entering transactions.
• Can help avoid overspending of specific accounts with automated messages.
• Facilitates effective cash planning and control.

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