Finance Process Management
Understanding the finance department workflow is primal to improving its efficiency. Sound finance processes are the backbone of a financially viable business. The output of financial processes underlies every business decision, every budget line item, and all major organizational changes. Financial processes are all the methods and procedures that are executed by the finance department. The following processes fall under the scope of the finance department:
- Gathering finance data
- Planning and forecasting
- Financial closure
Well-designed financial processes provide deep and clear insights into the fiscal reality of the organization. The financial data gathered by the finance department provides a 360-degree view of the financial status of the organization, which helps shape the direction in which the organization is headed. Financial process management is all about improving the efficiency of financial processes. Finance process management focuses on:
Unifying financial processes:
unifying disparate financial processes into a centralized system streamlines the financial process workflow.
Maintaining a single version of data:
aggregating financial data into a single source eliminates overlaps, misinterpretation, and inaccuracies in financial data. A single version of the data helps the management make informed business decisions.
eliminating redundant and repetitive steps from the finance process workflow streamlines the process workflow. A streamlined workflow facilitates collaboration between resources and seamless communication between the team.
Challenges in Finance and Accounting Processes
Finance and accounting systems are key business functions that are underutilized because the finance team is bogged down by inefficient processes. Inefficient finance and accounting processes impact the business bottom line. A 2020 Payables insight Report by Levvel Research reveals that 16% of the organizations in the research group admit that manual accounts payable processes are prone to fraud and errors. Identifying the challenges in finance and accounting processes is important for improving operational efficiency.
The common challenges in the Finance department processes are:
outdated and repetitive process workflows bring down the efficiency of finance processes. Conventional finance department process flow is ridden with repetitive and redundant steps. Working on such processes is a tedious and time-consuming ordeal for the finance team. Productive work hours of finance personnel are wasted on mundane activities.
Fraud and duplication:
accuracy and consistency of data are critical for the success of the finance business processes. Even minor discrepancies in data could manifest into a major business threat. Duplicate billing information and unclear manual accounts payable are primary sources of fraud in finance and accounting.
Lack of role clarity:
unclear division of roles and responsibilities within the finance department causes a lot of confusion and a lack of accountability. Finance systems that are largely dependent on manual effort often lack clarity of roles and responsibilities.
finance and accounting functions handle large amounts of data on a daily basis. This data needs to be managed, organized, and stored in a safe and efficient manner. Conventional finance systems lack the ability to manage large data volumes.
Manual data entry:
manual entry of finance data is prone to errors and duplication. The authenticity of manually entered data is questionable. Finance personnel needs to spend several hours validating finance data.
the manual financial process is characterized by delayed approvals. Lack of visibility and transparency in manual processes causes delays in the approval of invoices and purchase orders.
finance processes where document entry and management are done manually are prone to damage or misplacement of documents. It is difficult to keep track of the document trail when handled manually. It is very common for document trails to be temporarily missing or completely lost in a manual finance process.
The Level Research also reveals that the accounts payable department spends 9-20 hours per week on resolving accounts payable issues, which translates to $12,150 to $27,000 annual costs per employee. It is evident from the above discussion that manual finance and accounting processes are time-consuming and costly.
Tips to Improve Finance Processes
The need to revisit and redesign conventional finance and accounting processes is more than ever before. End-to-end revamping of finance processes by adopting technological changes enables businesses to maintain a competitive edge in the market. Here are a few tested ways to improve business processes in financial accounting:
Reviewing existing processes:
the first step to improving any business process is to review the existing process workflow. The strengths and weaknesses of existing systems need to be identified and the existing process workflow needs to be mapped in order to identify any redundancies or bottlenecks. Mapping existing processes help identify areas that can be made more efficient and cost-effective and prioritize issues.
Involve the team:
before making process improvements all the stakeholders need to be informed of the changes and their impact. Support processes need to be built for implementing the changes across the organization.
Training the team:
cross-functional training for all the team members is necessary for the smooth implementation of new process changes. Successful implementation of the changes requires complete coordination of the team members.
Establish clear deadlines:
clear deadlines need to be set for the implementation of new changes. Clarity on the deadlines motivates employees to turn in documentation in a timely manner.
financial operations are not carried out in isolation. They are dependent on other departments for data. Centralizing finance operations improves inter-department collaboration, which in turn improves operational efficiency across the organization.
Automate key financial processes:
automating key financial processes helps reduce employee workload and improves process efficiency. Finance and accounting process improvement can be achieved by automating processes that are labor-intensive and have the highest risk of error. Finance and accounting process improvement examples include purchase order and invoice approvals, travel reimbursements, and data entry that can be effectively automated.
implementation of changes for finance process optimization should be done in a phased manner. Large-scale implementation of changes can be tedious and difficult to pinpoint any flaws during implementation.
Review and feedback:
once the implementation is complete the next step is to review the changes periodically to collect feedback. Process performance parameters or KPIs need to be gathered to monitor and measure the impact of changes.