In today’s dynamic business landscape, organizations are constantly seeking ways to optimize their financial operations and maximize their return on investment (ROI). One area that often goes overlooked is the lack of automation in finance operations. Streamlining your finance operations can provide a range of benefits, including improved cash flow visibility, reduced manual errors, and enhanced decision-making capabilities. However, many organizations are still hesitant to adopt new features and technology, believing that the cost of implementation outweighs the potential benefits.
In reality, the cost of not automating finance operations can be far greater than the initial investment. Organizations that rely on manual processes and outdated technology are missing out on significant opportunities to improve their financial performance. This blog post will explore the hidden costs of not automating operations and provide a concrete example of how a company can save millions of rupees by transforming its finance operations.
The Untapped Potential
Consider a hypothetical organization with an annual revenue of ₹50,000,000,000.00 and a steady annual growth of 6%. Despite its significant size, this company, like many others, operates without any automation. Let’s break down the numbers to understand the potential benefits left untapped.
Workforce and Operations
The organization has 12 employees dedicated to Accounts Payable, 12 to Accounts Receivable, and 25 collection agents. The employees in the AP and AR departments earn ₹40,000.00 per month, while collection agents receive ₹50,000.00 monthly. With a lack of efficient cash management, the organization faces the risk of missing out on substantial cost savings.
Invoices and Customers
The company deals with 45,000 invoices and serves 2,000 B2B customers. On the vendor side, they manage 700 suppliers and process 10,000 invoices annually. The average collection delay is 20 days, and invoice processing takes an additional 12 days. The agreed payment term with vendors is 30 days.
The Hidden Losses
Without a robust and efficient process in place, the organization stands to lose significantly in three key areas: Days Sales Outstanding (DSO) reduction benefits, dynamic discounting, and employee efficiency benefits.
DSO Reduction Benefits
If the company implements a CMS, it could potentially reduce its DSO by 20 days. With the given revenue and growth rate, this translates to a staggering ₹81,065,866.02 in unexplored DSO reduction benefits.
Dynamic Discounting Benefits
The absence of a CMS also means missing out on dynamic discounting benefits. The organization could save ₹73,972,602.74 by optimizing discount opportunities through timely payments.
Beyond the financial gains, a CMS significantly enhances employee efficiency. With streamlined processes, collection agents could recover ₹4,500,000.00 more, AR teams could secure an additional ₹3,840,000.00, and AP teams could save ₹1,728,000.00 annually.
What Happens When You Automate Finance Operations?
To illustrate the impact, let’s consider a scenario where our hypothetical organization decides to change its operations. With a 20-day reduction in DSO, the company accelerates its cash flow, enabling better-working capital management. Additionally, dynamic discounting ensures optimal cash utilization, creating a win-win scenario for both the company and its vendors.
Furthermore, with efficient processes, the organization can trim down its average invoice processing time by 50%, saving time and resources. This not only improves vendor relationships but also positions the company as a reliable partner in the market.
Moreover, automating these operations empowers employees by automating repetitive tasks, allowing them to focus on strategic activities. Collection agents can prioritize high-priority accounts, reducing the collection cycle and boosting overall productivity. AR and AP teams can reallocate their time to strategic decision-making, fostering a culture of continuous improvement.
In conclusion, the cost of not neglecting automation in finance operations goes beyond the monetary losses reflected in DSO and dynamic discounting benefits. It extends to the untapped potential of employee efficiency and the overall agility of financial operations.
For CFOs, AP managers, AR managers, and treasury heads, the decision to invest in a CMS is not just a financial one; it’s a strategic move that positions the organization for sustained success. In a competitive business environment, where efficiency and agility are paramount, the benefits of automation are too significant to be ignored.
As financial leaders, it is crucial to recognize that embracing technological solutions isn’t just about keeping up with the times; it’s about unlocking the true potential of your organization. The numbers speak for themselves – the cost of not improving your operations is far greater than the investment required to bring one on board. The time to act is now, and the dividends are waiting to be reaped.