Investing in the finance basics post-Covid

Tasks relating to operational finance, including the critical activities associated with procure to pay, order to cash, fixed assets, close, consolidation, and reporting, have suffered additional stresses throughout 2020. In addition to having to close companies’ books remotely, for example, finance teams have been asked to continuously plan and forecast for largely unprecedented events, while providing the insight crucial to informing some extraordinarily complex business decisions.

Now that “normality” in a new form is coming to the fore, finance professionals have an opportunity to reflect over a tumultuous six months and to use their learnings to enhance their existing working practices. But, in the face of a future that remains far from certain, leaders would be advised to tread with care when investing in new approaches to operational finance.

There is a wealth of solutions available that claim to be able to improve a finance team’s workload in these trying times. However, by working with siloed data alongside an array of custom-built spreadsheets, finance teams can often find that their work has only become more labour-intensive and time-consuming.

To help you avoid this additional burden, and make sure you’re investing in the right areas, here are a few tips you can use when re-evaluating the basics of your organisation’s operational finance ecosystem and ensure best practice workflows are set up.

1 – Optimise accounts receivable procedures

Effective accounts receivable (AR) procedures are crucial to ensuring an organisation’s smooth running, enabling it to avoid operational disruption and cashflow issues. And, by finely tuning their AR reporting capabilities, organisations can enjoy greater financial stability and predictability which, given this year’s level of uncertainty, can only offer welcome assurance. Improving AR without understanding its current performance is impossible, though.

While it’s essential to know what’s working and what isn’t, it isn’t always practical to track AR in any depth. The job of collating and analysing the necessary data can be huge, for one thing, and can draw finance professionals away from other tasks. What’s more, the number of different metrics available to measure an organisation’s AR capabilities can be overwhelming, although this needn’t be the case. Focusing only on the four or five metrics most important to a finance team, such as days sales outstanding, average days delinquent, collections effectiveness index, or turnover ratio, can make things much more manageable.

It’s important to consider the frequency of AR reporting, too. Reporting on a monthly or quarterly basis may once have been sufficient, but it’s far too slow for today’s needs. Continuous reporting, on the other hand, where real-time information is presented on easy-to-read dashboards, means finance teams have the latest figures available, whenever they’re needed. This requires moving away from exporting AR data into static spreadsheets and adopting tools to support a more automated reporting process.

2 – Minimise month-end inefficiencies

The majority of operational finance activities are driven by the month end and ledger close. These usually comprise a multitude of steps that include transaction processing, reconciliation, journal entry capture, and the preparation of financial statements.

Although automated ERP solutions will do much of the work here, analysis by Deloitte reveals they don’t automate the “full, end-to-end close, consolidate, and report process”, often resulting in “a fragmented, manual, and inefficient close, as well as … inefficiencies throughout the accounting period”.

Inefficiencies can also arise when using modern business intelligence (BI) tools. Report data is often at least a day old when it arrives in the tool, or at too high a level of aggregation, meaning finance teams are unable to obtain a complete view of the numbers at critical points of the close cycle.

Using a real-time reporting solution can help overcome these inefficiencies and frustrations, by automating a number of the unproductive and redundant steps involved in the reporting process and delivering results in a format familiar to finance teams.

Consistency and collaboration are key. A finance team will be much more efficient with all its members working from the same real-time information, using a single source of truth, rather than creating their own individual spreadsheets. And, by eliminating disjointed, manual processes, the risk of errors will be significantly reduced.

3 – Don’t overlook operational data

Business decisions today rely upon insight provided by data analytics. And, in the current climate of uncertainty, with organisations everywhere seeking to understand the status of their supply chains, inventories, and customer orders, operational – or non-financial – data now plays a vital role in informing these decisions.

Allowing CFOs to look further out and manage costs, predict future demands for good and services, or reforecast inbound delivery schedules, operational data has never been more important to decision-making. Indeed, according to a study by FSN, businesses that made better use of non-financial data were more than twice as likely to be able to forecast beyond the 12-month time horizon than those that didn’t.

Despite this, a separate FSN study revealed that many organisations don’t actually report against operational data today.

Given its obvious benefits, organisations shouldn’t overlook sources of operational data as a means of supporting business decisions. Instead, they should consider investing in specialist analytics applications that will manage operational data as well as financial data, increasing its value by providing them with the meaningful insights they need to improve their operational and strategic decision-making.

The impact of COVID-19 has meant that finance leaders and their teams have had to adapt to an entirely new set of circumstances. Although it’s important to invest in process changes, technologies, and best practices that will support their teams, it’s also important that they do so without causing any further disruption.

Getting the basics right today will put finance leaders in a better position to handle any complications that may arise and help position their company for future growth. At a time when it’s important not to overreach or cause too much disruption, basic can be best.

Richard Sampson is SVP of EMEA at insightsoftware, a global provider of financial reporting solutions with more than 25,000 customers worldwide.

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