A few weeks ago I posted about some of the biggest concerns that finance leaders have as the UK economy adapts to the changing health and macroeconomic environment. It’s clear that the after-effects of Brexit and COVID will impact British businesses for many years to come, so what actions can finance leaders take to minimise the negative effects that these may have on both their teams and also their organisations’ overall financial health? Whether organisations remain cash-constrained or are able to adapt to the economy more successfully, controlling spend will continue to be a key factor in maintaining their financial health.
Here are four straightforward ways that CFOs and their teams can achieve this:
Automate manual processes
Digitisation has been a key initiative for many corporate departments over the last decade. While many finance teams have lagged behind, the research highlighted in my previous post clearly showed that it’s a pressing initiative in many businesses. The need for finance teams to work from home in the wake of COVID further necessitated the haste for CFOs to move their teams away from manual, paper-based processes.
There are several major benefits that automation offers. On the low end of the spectrum, the clearest benefit is elimination of manual data entry for the finance team. Whether this is expense, invoice, GL or bank data, the time saving and risk reduction by eliminating data rekeying can often pay for the software investment in itself. With many companies looking to make home-based workforces permanent, it’s simply not feasible to continue posting invoices and expense claims to the head office and expect prompt turnaround.
In addition to these logistical and time-saving improvements, the real benefits of automation come from what companies can do as a result of digitising previously manual processes.
Deepen visibility into spend
The key to effective cash flow management is visibility into spend. This could include knowing what invoices are due for processing in the coming weeks and days, if there are pockets of out-of-policy spend being made by employees, or if travellers are using approved vendors and their negotiated discounts to minimise spend.
However, a key challenge that many companies face is that finding useful insights and patterns amongst the vast quantities of data that invoices and expense claims contain can be impossible. Data stored on spreadsheets can be almost impenetrable, and even with an idea of the type of information someone is looking for, it can require countless hours of poring over thousands of lines of data to glean any meaningful insight.
One of the biggest benefits of automating processes such as accounts payable and employee expenses is that it enables data to be categorised and stored in a way that enables accurate and timely analysis. What invoices are due in the next 30 days? How much are we spending in key areas? Is spend compliant, and if not, are there any pockets of non-compliance that can be identified and addressed? Using analytics solutions that can give a holistic view of spend or pinpoint trends and anomalies in real time can make it far easier for finance teams to make smarter, timely decisions that can have a meaningful impact on cash flow
Speed up invoice processing
A knock-on impact of digitising manual financial processes is the ability to rapidly approve invoices. With data extracted automatically from paper and electronic invoices, rules-based policy verifications, and real-time notifications of pending approvals, what could previously have been a week-long process can now be achieved in a matter of hours.
While many CFOs may wish to hold on to cash as long as possible, rather than paying invoices promptly, rapid approvals give two major benefits. First is the ability to take advantage of early payment discounts. Using standard 2/10 net 30 terms, cash-rich companies can use these discounts to get an equivalent 36% return, at zero risk. Even for companies that don’t wish to use early payment discounts, having a clear and timely view into when invoices are coming due makes it far easier to plan payments and minimise cash crunches.
Move corporate spend to cards
Many finance leaders have traditionally shied away from widespread corporate card issuance due to the potential exposure to unchecked spending. The emergence of virtual, single-use and policy-backed cards over the past few years significantly changed the landscape for corporate cards.
For employee expenses such as business travel (remember that? It’ll be back one day), employers can tie a corporate card directly into the company’s expense policy. This means that instead of hoping a traveller books their flights and hotels through approved channels, cards can be restricted through criteria such as merchant, date and amount, so that employees are unable to use non-approved channels, or exceed spend limits.
Taking this a step further, an employee could submit a pre-approval request to their supervisor for an upcoming trip. Once approved, a virtual card could be instantly created and emailed to the employee, with funds only available to be spent in the approved manner. Not only could this reduce potential fraud or inappropriate spend, but it can also vastly streamline the expense reconciliation process.
For many companies, the biggest benefit of migrating spend to cards is the huge potential for cash rebates. With rebates typically in the 1% range, companies which move a significant amount of their spend in this direction can easily see cash back in the hundreds of thousands of pounds per year.
The introduction of virtual and single use cards can also help corporate spend to be shifted from cheques to cards. This can also have wide-ranging benefits for the organisation. Not only are cheques expensive and time-consuming to create and mail, but they present similar potential for risk from fraudulent transactions.
While hese four approaches won’t entirely eliminate the challenges that COVID and Brexit will present to UK businesses in the coming months and years, they will certainly help CFOs to humanise work for their teams, and could have a significant impact on a company’s financial health.