Consolidation – financial consolidation is the process of combining financial data from several departments or business entities within an organization for reporting purposes. Consolidation includes importing data, mapping general ledgers into a single chart of accounts, normalizing consolidated data, and producing reports called financial statements. The main tasks in financial process consolidation are 1- collecting trial balance data from multiple ledger systems and mapping to a centralized chart of accounts, 2- consolidating the data as per specific financial accounting rules and guidelines, and 3- Reporting the results to internal and external stakeholders.
Financial reporting – financial reporting may be defined as the process of recording and representing a company’s financial data. Financial reporting in the accounting business process flow refers to the process of producing statements that disclose the financial status of the business to management, investors, and government agencies. Key stakeholders like investors, shareholders, financiers, and government regulatory agencies rely on financial reports for making important decisions. Main reports that are needed to run a business include external financial statements (mainly the income statement, statement of comprehensive income, balance sheet, cash flow statement, and statement of stockholder’s equity), notes to financial statements, communication regarding quarterly earnings, quarterly and annual reports to stakeholders, financial information posted on the business website, financial reports to government agencies, and documentation on the issuance of common stock and other securities.
Well-designed and streamlined finance processes provide deep and clear insights into the fiscal reality of the organization. Technology-driven financial processes ensure optimal function of financial function and optimal resource utilization.
Key Processes in the Finance Function
The finance function is made up of numerous processes, most of which have a direct impact on the business’s bottom line. Here is a gist of the main finance process in an organization:
Budgeting: This process involves planning for future activities based on historical financial data. Each department presents its budget to Finance for approval. Apart from individual department budgets, the Finance department also prepares a consolidated budget that is approved by the CFO.
Billing and Approval: Payments from customers and other entities are collected after appropriate approval of the expense requests. Manual request approvals may be the pain points here, causing endless waiting for both parties and process bottlenecks.
Accounts Payable: The vendor and other entities are paid their dues after the invoices are approved by the department heads and finance personnel. Here again, manual approvals may be delayed and result in process bottlenecks.
Planning and Forecasting: Financial planning is done with future business growth in mind. Forecasting future expenses is done based on historical data gathered from previous transactions.
Bookkeeping and Financial Closure: Closing of finance books at the end of the financial year is referred to as closure. Bookkeeping in finance is the recording of all the financial transactions that the organization undertook during the financial year. The accounts are tallied during the financial closure process.
Auditing: The financial transactions and records are verified for compliance with the company’s policies and regulations during financial audits.
Data Collection and Reporting: All data pertaining to financial transactions are recorded. This data is published in the form of reports as frequently as the business decides to do so.
Common Challenges in the Finance Function
One thing common in the list of finance processes is the need for accuracy and consistency. Even a small mistake or overlook in financial operations can result in huge losses and throw the business out of gear. There are several challenges in finance and accounting business processes on a daily basis. Let us take a brief look at some of these challenges:
Inefficient processes –
outdated systems result in information silos that increase the complexity of finance processes. Manual finance processes take a toll on the productivity of the finance team by eating up on their work hours. Finance teams spend way too much time on verifying and matching finance data when working with inefficient manual processes. Financial reporting is a tedious process that requires several rounds of review and validation. Slogging on manual financial reporting may subject intelligent and highly qualified finance personnel to undue stress and frustration. Not only does manual processing encourage employee burnout, but it also prevents finance personnel from engaging in productive and strategic activities that foster business growth.
Lack of clarity of roles –
manual finance processes do not have a clear-cut definition of the role played by team members. When the division of roles and responsibilities is not clear in a team, it leads to confusion and slipping of tasks through the cracks. Team members do not know who is responsible for which tasks and who should approve which request. This lack of ownership and accountability can result in process redundancy or tasks going undone. Credibility and trust issues arise when accountability is lacking in a team.
Fraud and duplication –
financial fraud can have severe consequences in any business. However, fraud is an ever-present threat for which businesses need to have preventive measures in place. Fraudulent billing or duplicate invoicing or questionable manual accounts payable systems increase the financial risk in an organization. Manual finance systems are prone to information tampering or overlooking or duplication. Implementing a solid approval process that prevents finance personnel from tampering with data or submitting duplicate invoices or wrong approvals is a must to ensure the sound financial health of an organization.
Inefficient information management –
finance and accounting function thrives on data. They need to handle mountains of financial data on a daily basis. Handling such huge volumes of data can be overwhelming for finance teams via manual finance processes. Proper management, storage, tracking, and organization of data is a challenge for businesses using manual finance systems. In addition to data management, these documents need to be easily locatable and accessible to management and financial audit teams. Moreover, receiving and processing paper documents is prone to physical damage and misplacement.
Manual data entry –
even minor mistakes in data entry can cascade into serious financial issues for the organization. Manual data entry is a highly inefficient process that is time-consuming and resource-intensive. Manual methods for data management are prone to errors and inconsistencies that make the business vulnerable to serious financial repercussions. Simple overlooks can result in underpaid or overpaid invoices and a number of errors that can cause trouble further down the road.
Delayed or slow approval –
manual approval processes lack transparency and clarity on roles and responsibilities. As a result, the team is not sure who should approve finance requests. There is an undue delay in approvals in manual finance processes. Moreover, manual approvals result in slow and complicated payment processing. Delayed payment processing in turn leads to late payments and purchase order delays. When purchase orders and invoice payments are delayed, supplier dissatisfaction increases. When supplier payments are delayed it affects business operations as well. Purchase order approval delays result in projects running behind schedule and delayed product rollouts. The far-reaching effects of slow approval in finance are ruining the company’s reputation and a dip in stock prices.
Lack of visibility –
there is an inevitable lack of visibility and oversight due to reliance on paper invoices and other documents. Through manual processing, it is impossible for accountants to know precisely when invoices were issued, when/whether the payments were made, and whether the payment was cleared. Manual tracking or logging of each stage of the account and communicating the status of the transaction to suppliers and other stakeholders involves a lot of admin work. Another disadvantage of manual systems is the lack of oversight which leads to a lack of insight into the trends in the financial operations of the business. Finance personnel is clueless about the spending patterns of the business, productivity levels, and what is the efficiency of financial operations.
Misplaced or missing documents –
when there is already a backlog of documents that need to be processed, it is common for emails or paper documents to be misplaced or missing. For example: in businesses where there are no efficient accounting workflows, lost invoices may result in wasted time in contacting suppliers for duplicate copies of purchase invoices. In situations where duplicate invoices are not available, it creates embarrassment in front of the supplier because you have to explain why there is a delay in payment. Missing or misplaced invoices may result in an inconsistent paper trail at audit time.
The best way to overcome the challenges in finance processes is to adopt technology-driven process management techniques like workflow automation. Cflow is a cloud-based workflow automation software that can automate key business workflows quickly and efficiently. Key processes in finance and accounting can be easily automated with Cflow. Visual form builder from Cflow enables anyone in the finance team to create workflows easily. Key finance processes including reporting and compliance, accounts payable and receivable, strategic planning, and CapEx approvals can be automated with Cflow.
People – the Starting Point of Financial Automation
Finance and accounting business processes are prime for automation. Workflow automation is the best way to modernize finance operations. Organizations must adopt a human-led, tech-powered approach to finance automation. A modern finance workforce can be built by reimagining roles, reskilling staff, and prioritizing data analytics. As the finance function continues to evolve, finance leaders recognize that they will need a workforce with new skills to match the new demands of the clients. According to a survey by PWC, 68% of CFOs are investing in digital transformation over the next 12 months including in technologies like cloud and analytics.
Organizations that focus on honing the skills of their workforce, improving their analytical skills, and turning finance into a strategic business partner are able to drive transformative results across core leadership teams and the entire organization. Progressive finance organizations are investing more in finance upskilling and reskilling. Such organizations are creating and iterating on a workforce transformation that supports productivity, innovation, and growth-enhancing tech innovations.
Technical upskilling of the workforce is vital for the successful execution of tech-based innovations. To be effective, finance leaders must understand their businesses deeply so that they can use the data to present a compelling story. The following methods can be adopted by leaders to improve the effectiveness of finance automation.
On-the-job learning – rotational apprenticeship programs and shadow opportunities give people the opportunity to demonstrate underutilized skills and offer hands-on experience in analytical and technical skills. Business partners can bring insights into improving reporting design and impactful storytelling by integrating finance into the business.
Utilize the right learning technology platform – the majority of the learning technology platforms let businesses create customized learning pathways that foster growth opportunities for employees. Management should look for learning platforms that inspire continuous learning and close skill gaps around data analysis.
Redeploy – management needs to equip employees to shift comfortably between roles. For employees that are not comfortable shifting roles, management must help find roles that are a better fit for their skills.
Although most finance organizations have made significant investments in technology, they have not tapped into the full potential of their employees. According to a PWC survey, 73% of employees say that they are aware of systems or technology that would improve their work productivity. Empowering employees with technological innovations enables them to identify business pain points and learn to create automation. The use of workflow automation tools, digital social hubs, and chat tools makes it easier for people to be productive.
Automating finance processes flattens organizational silos. Recognizing the effects of spans and layers on individual work habits, organizational culture, and employee trust and collaboration is possible by finance automation. The highest potential employees are most often called upon for transformation initiatives. Management must recognize such employees and designate them to drive finance automation initiatives.
Letting employees lead the finance automation implementation helps close the skill gaps and develop the right financial and operational expertise for the organization. The finance department must take the lead to improve operational efficiency and profitability for the organization. There is no scope for doubt that workflow automation can bring tremendous benefits in terms of productivity/efficiency improvements in financial processes.