Counting the cost of transactional uncertainty

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Ian Smith
Finance director and GM
Invu
Columnist
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CFOs and FDs have a responsibility to keep the business informed of the consequences of its actions. With political uncertainty such as the vote on Brexit, or economic uncertainty like the impact of oil price changes, the need to have real-time information based on knowledge of financial commitments made by the business, without any transactional uncertainty, is higher than ever.

Recent independent research undertaken on behalf of Invu, focusing on financial decision makers in medium sized businesses (50-250 employees) reveals that visibility, efficiency and control remain elusive for many finance departments. Despite continued attempts to impose greater controls over the purchase order process, CFOs and FDs still lack any degree of real-time financial visibility and hence operational control.

Ian Smith, finance director and general manager at Invu, explains that people are a significant part of the solution, and automation projects that do not take account of employee engagement will fail.

Outdated processes

The survey reveals that almost half (47%) of the UK’s medium sized companies are relying wholly on either Microsoft Office (Word and Excel) documents (25%), a manual paper-based process (14%) or a combination of both (8%) to manage the purchase order process (POP), while 45% are using manual processes for accounts payable (AP). Such fragmented processes result in many control points, which contribute to slow processing and a lack of visibility.

50% of UK MBs are also not using budgets proactively. This misses the opportunity to understand the consequences of actions against the financial plan until such time as performance is measured against budget, which would normally be when management accounts are produced.

Slow processing of supplier invoices means that almost a half of UK MBs (44%) have to delay the production of monthly management accounts. This results in a very long blind spot between purchase commitment and the financial consequence, measured against budget. This represents a time lag for any corrective actions arising from variances to budget, as previous financial commitments work their way through the system.

Many control points contribute to transactional uncertainty

The research reveals that 83% of finance departments are uncertain that their POP and AP systems are robust enough to deal with fraud. This suggests that UK MB financial decision makers are lacking absolute control and certainty at most stages of the approval process.

Moving the primary control point to the commitment point (i.e. the approval of a purchase requisition), relating this approval to the budget and then significantly reducing the control points thereafter (by having joined-up systems) should increase the confidence in having control over the whole process.

A big first step in achieving increased visibility and control is to move the process from paper to digital. Digital documents can be shared and traced, particularly if workflow is used to assign tasks related to those documents. Traceability, addressing where the document is and who has the next task, significantly improves visibility and control.

Reduce organisational angst

Delivering financial control while empowering the end user, without introducing unworkable constraints, is the ultimate objective for CFOs and FDs looking to improve their POP and invoice processing.

An easy to use, “employee friendly” end-to-end POP system, with line item level approval, built-in budgetary control and straight-through processing, will provide user compliance through engagement and control over spending, in turn helping eliminate transactional uncertainty. Getting there will involve a lot of disruption and impact many parts of the business. If you, and/or your business, are not ready for this disruption then what are your options?  

A less disruptive approach would be to introduce automated supplier invoice processing first. This helps you to recognise liabilities in good time and then choose when you settle them, enabling finance departments to set the payments agenda rather than react to late payment demands. This significantly reduces transactional uncertainty. The major disruption is focused on the finance department where the roles of staff shift from data entry to transaction review and control.

The prize here, reducing transactional uncertainty, is worth the pain. Choosing the route, whether it be a full POP or a supplier invoicing solution, requires some self and organisational angst. Ensuring success requires choice of the right business partner that extends beyond the software solution itself, professional configuration and implementation services have an important role to play.

Ensure your supplier understands the scale of your business and your specific financial requirements, because changing financial processing is an evolution. However, it is essential for those CFOs and FDs wanting to successfully remove transactional uncertainty.

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Ian Smith also spoke to AccountingWEB at Accountex 2016 about the technology gap facing today's finance department:

About Ian Smith

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22nd Aug 2016 19:15

Great article and gives me something to really put some thought into as I transition into my first Finance Managers role.

Thank you

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