According to the McKinsey Global Institute’s automation research, financial automation technologies can fully automate 42% of the finance department’s work.
Whether you’re a CFO or part of the finance department, automation in finance will directly affect your role, growth and the evolution of your organization.
Financial automation is not just about automating payroll. It is risk assessment, audit and compliance among many other aspects.
An article from DigitalistMag outlines the capabilities of today’s financial automation services, describing the ability to “gain new insights from existing data to optimize credit decisions and improve financial risk management, automating business processes that previously required manual human intervention and improving the customer experience.”
For instance, businesses that spend an average of 32 to 100 hours processing vendor invoices per month, may want to look at automating them instead.
Taking the first step toward financial automation can seem daunting. However, with more businesses adopting automation into their day-to-day financial practices, it’s clear the power this technology holds.
So, what exactly is financial automation?
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What is financial automation?
Financial automation is the use of technology to automate key finance jobs like book-keeping, expense management, bank reconciliation and so on with minimal human intervention.
Much like automation in any industry or business function, automation in finance allows things to get done faster and more accurately.
Technologies like Artificial intelligence (AI), Optical character recognition (OCR) and Robotic process automation (RPA) among others are making finance automation a reality.
65% of finance leaders are calling finance automation a significant priority, according to an EY study.
Why automate finance
It comes down to time.
Finance is being called on by the C-suite and departments like sales, marketing, HR and operations to provide raw data as well as a sophisticated analysis to make critical business decisions.
Because of this, finance now has a major role to play in driving the direction of the business.
With data flooding in by the terabyte, finance teams can struggle with spreadsheets and manual methods.
Without automation, they spend hours collecting data and ensuring data quality, leaving little time for analysis, reporting and strategic guidance.
Automation, on the other hand, changes everything.
Now these siloed manual finance processes can be replaced with cloud-based platforms that simplify reporting, planning, forecasting and analytics.
Meanwhile, self-service dashboards have given other departments access to the data they need instantly without taking up the finance department’s time and resources.
Finally, artificial intelligence can find patterns across complex data sets to glean insights never before possible.
Benefits of financial automation
Financial automation does most of the heavy lifting for you.
There are critical reasons why industry leaders and leading businesses are opting for finance automation for their day-to-day operations. And you should too.
1. Eliminate manual errors
Even experienced accountants can make basic human errors. These mistakes in accounting can have serious repercussions. Accounting automation eliminates this risk. Finance professionals can do away with manual data entry and balancing accounts as automation software does everything from scanning invoices to reconciliation automatically.
2. Get smarter analysis at your fingertips
A finance automation tool generates powerful business reports automatically which carry critical business information. Using these reports, businesses study their current profitability index, the break-even point of sale, earning per share (EPS), interest expense and make desirable changes.
Such detailed financial analysis empowers finance teams to make faster and smarter business decisions. Plus, with the financial reports being stored on the cloud, they can be accessed anytime, anywhere.
3. Reduce the risk of fraud
Data breach and the risk of fraud by employees or third parties are real. An efficient financial automation software comes with an approval workflow, so you control the access of your business financial data to different stakeholders. The technology helps in detecting and preventing frauds and data breaches.
4. Save time for meaningful work
A typical day of an accountant involves a lot of manual data entry, processing invoices, reimbursements, reconciling accounts payable and receivable and making compliance payments. Automating such tedious tasks helps save time and improve efficiency. Automation in finance and accounting leads to faster financial processes, allowing all stakeholders to spend time on things that matter.
6 automation opportunities in finance
Each of the five major finance functions elaborated in the sections below can achieve significant benefits from implementing RPA.
1. Order-to-cash
Accounts Receivable is responsible for managing processes that include setting up new customer accounts, creating accurate invoices based on incoming sales orders and collecting invoice payments.
This function involves a variety of manual, error-prone tasks, which may typically result in delayed cash inflows and/or lost revenue. RPA can streamline these activities by retrieving information directly from a variety of sources, reconciling amounts to ensure accuracy and automating repetitive tasks.
2. Procure-to-pay
The Accounts Payable department typically dedicates significant resources to manually setting up new vendor accounts, entering information from invoices, matching billed amounts to purchase orders and authorizing payments. RPA can automate most of these tasks including updating vendor records, extracting invoice information and validating amounts to improve the efficiency of this process and avoid overpayments.
3. Financial operations
Managing the monthly ledger process and generating timely, accurate financial reports is an important responsibility of the finance department. There are still many repetitive, error-prone activities such as performing manual reconciliations, journal entries and external reporting carried out by the finance teams. RPA can intervene to improve operational efficiency, timeliness and accuracy by automating these manual steps.
4. Financial planning and analysis (FP&A)
Budgeting, forecasting and management reporting help an organization make sound business decisions. The FP&A department dedicates a major chunk of its time to sourcing, aggregating and formatting data instead of financial analysis and strategic planning. RPA automates these manual activities, enabling finance teams to shift their focus to more value-added work.
5. Treasury operations
Cash reconciliation and reporting processes give insights into the current cash position by reconciling consolidated bank account balances against cash reported on the balance sheet. RPA automates the manual consolidation and reconciliation process, improving the accuracy and timeliness of cash position reporting and forecasting.
These five core finance functions are essential to all organizations. Each of them is ripe for automation. RPA solutions can greatly enhance the functions, making them more efficient, accurate and regulatory compliant.
6. Payroll
Executing and managing payroll is a time-consuming method. A smart payroll automation software allows end-to-end payroll processing from a single dashboard. Businesses can automate the disbursal of salaries and the payment of statutory dues like PF, PT, ESI and TDS. It also works as a self-service platform for employees by deducting taxes based on their chosen tax regime and gives them access to their payslips.
Getting started with financial automation
When you start your automation process, a few things have to be taken care of.
1. Standardize your financial processes
Before you automate your processes on a digital platform, sketch out the workflow and form. You will be able to see where you need to make changes and streamline tasks. It’s also important to talk to stakeholders to get their perspectives on what needs to change to make the process more efficient.
Once you’ve outlined what your process needs, you can evaluate tools that will help you create a digital version of the finance processes you want to automate.
2. Create a digital form and workflow
Build the perfect form to capture the information you need. You can customize it to make it even more useful for your team. Then, create the finance workflow, keeping in mind conditional tasks, sequencing and how to dynamically assign people to different tasks.
3. Integrate with other software
Once you have automated the different financial processes, you must ensure that your systems are communicating and sharing information with each other. Select tools that can be easily integrated. A third-party application can help you with connecting these different tools.
A note to CFOs
The demise of the finance organization as we know it is not such a bad thing.
As CFOs plan their automated finance futures, there are five key actions that they must take.
1. Define a value proposition
Define and redefine your team and what you deliver. Articulate how the finance department will add value to the business in 2021.
2. Develop a future vision
Develop a vision of what your team will look like if it is not a transaction processor. Every organization will have its own mix of new elements powered by a rich digital foundation.
3. Determine the core capabilities
Identify capabilities that are essential to deliver business value in 2021 and those which can go. Do not be afraid to shed capabilities that no longer serve the new identity.
4. Create an integrated service offering
As a CFO, you should collaborate with other functional leaders to develop integrated services that can improve the value delivered— and the cost to serve.
5. Get the right people in the right place
None of these actions and measures matter if the finance organization does not develop and update the finance talent strategy to ensure that recruiting and training focus on the acquiring and developing of the right skills.
Bots and the future of finance
According to Accenture’s Finance 2020 report, automation will eliminate up to 40% of the accounting work the finance department performs today.
This digital disruption of finance brings competitive advantages for companies that manage it well.
At its core, the finance will continue to protect the integrity of the enterprise and reduce costs. That will never change.
What will change is that finance will become the value creation center of tomorrow’s digital business.
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