The first wave of automation in finance happened in the 90s, with the popularization of enterprise resource planning systems or ERPs. The finance function has since evolved, with the COVID-19 global pandemic speeding up the transformation of this landscape. Some three decades later, automation is once again the buzzword in finance teams.
From processing payments to generating invoices and reconciling them with purchase orders and receipts, finance is a complex, time-consuming function, which is the center of all businesses, from mom-and-pop shops to multinationals. Automating finance functions can help businesses streamline their financial processes, reduce manual tasks, and help decision makers take informed decisions based on data.
From reducing the risk of errors, improving collaboration, to enabling data-driven decision-making and providing a clear and updated audit trail, automation has the power to transform the finance department of any business. In this blog, we’ll delve deeper into the benefits of automation in finance and why it is a necessity in today’s fast-paced business environment.
What does finance automation involve?
Finance automation encompasses the utilization of technology to perform tasks with limited or no human involvement. This does not mean that it substitutes human workers with robots, but rather it involves the use of automation to tackle monotonous, time-consuming manual tasks.
Technologies such as artificial intelligence (AI), robotic process automation (RPA), advanced OCR, IoT (Internet of Things), and more together significantly reduce the manual intervention required in day to day finance operations enabling finance departments and leaders to channelize their efforts into creating value and formulating strategies.The main objective of finance automation is to increase the efficiency of processes by reducing or eliminating repetitive tasks that do not contribute value. Additionally, automation is a crucial factor in attaining business process excellence.
4 Areas of Finance Automation
Corporate finance operations more than often slow down because of using manual and outdated methods, obsolete tools, and a strong resistance to change from finance teams. Implementation of new technologies in finance operations is therefore a huge challenge.
However, being open to new technologies and automating finance operations that are repetitive and mundane in nature can make processes streamlined for both individuals and an organization. By automating finance workflow automation, it is possible to reduce labor costs, improve cash management, speed up closures, and ultimately make the company more profitable. The following are some of the financial processes that can be automated:
- Accounts Payable and Accounts Receivable: A business’ traditional accounts payable and accounts receivable processes are plagued by inconsistencies and a lack of standardization in invoicing and collecting payments. Automating AP and AR processes significantly reduce errors and inefficiencies, ensuring seamless cash flow management.
- Tax Accounting: Tax accounting activities are typically manual, repetitive, and time-consuming. Automation of the tax accounting process enhances the accuracy and speed of processing tax claims.
- Fraud Detection: Manual finance processes are vulnerable to duplicate or extraneous claim submissions. Automating the claim submission process standardizes submissions and prevents duplicates and oversights.
- Invoice and Budget Approvals: Approving vendor invoices or expense claims can be a cumbersome process that requires close examination and validation of data. Automating the approval process shortens the approval cycle and eliminates bottlenecks and delays.
Why is automation crucial now?
Effective financial processing is the foundation of a financially stable organization. Automating financial processes helps organizations save time and resources. It is doubly significant in the post-Covid world where digitisation became a race, with many organizations reaping the benefits of being early adopters of financial automation and digitisation. Here are some reasons why finance process automation is important today:
- Enhanced visibility into financial status: An automated finance function provides a comprehensive view of the organization’s financial status, allowing top management to make informed business decisions based on data insights.
- Increased accuracy: Automated processes are designed to be precise and efficient, reducing the chances of errors and omissions. Automation also helps to standardize the financial process, which in turn minimizes the occurrence of duplicates and overrated claims. This results in a more accurate and reliable financial system, providing the organization with a clearer understanding of its financial status. This information can be used to make informed business decisions and improve the overall financial health of the organization.
- Centralized control and access to finance operations: A centralized automated finance processing system provides centralized control and access to finance operations, streamlining and optimizing communication within the finance department and with other departments.
- Enhanced data security: Automated financial processes enhance the security of sensitive financial data. By eliminating manual handling and reducing the number of individuals with access to confidential information, organizations can minimize the risk of data breaches and unauthorized access to sensitive information.
- Optimized resource utilization: An automated finance processing system intuitively manages resource allocation, making the best use of available resources and improving overall efficiency.
- Cross-functional collaboration: By integrating finance processes and systems with other areas of the organization, such as supply chain, marketing, sales, and human resources, executives across the organization can access consistent, accurate data sets.
- Risk management: Automated finance processes provide finance executives with real-time access to data, enabling them to assess potential risks and opportunities by running scenarios with different sets of variables.
- Advanced key performance indicators: Organizations that have successfully automated standard finance functions can move beyond traditional metrics to focus on more sophisticated and forward-looking KPIs, such as customer satisfaction or treating data as capital.
- Global expansion: Automated finance functions help organizations comply with regulations in different countries, providing multi-language and multi-currency support and automatically supporting accounts from local subsidiaries.
- Improved discount terms: Incorporating automation technologies, such as machine learning, can improve net liquidity by generating better discount terms on settlement dates, increasing the immediate liquidity of the organization.
Automation is a necessary and inevitable step in the modern era of finance. With advancements in technology and increasing demands for efficiency, automation offers numerous benefits to financial organizations such as reduced operational costs, improved accuracy and efficiency, and enhanced security. However, it’s important to note that automation should not be considered a silver bullet for all financial problems and should be implemented in a thoughtful manner.
In short, automation in finance is necessary but must be done with caution and consideration to ensure that it serves its intended purpose and leads to improved outcomes for all stakeholders involved Kredx is a reliable cash management solution that facilitates the integration of automation into financial operations in a way that complements and enhances the human element rather than replace it.