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Digital transformation and the financial close – a match made in heaven

Digital transformation and the financial close – a match made in heaven

By  Lars Owe Nyland, Managing Director Europe, Trintech

There’s no denying the thrall of digital transformation. According to analyst firm IDC, across virtually every sector, total investment on digital transformation will reach a whopping $1.18 trillion by the end of this year. That’s not pocket change. According to Harvard Business School, companies leading the way in digital generate better gross margins, earnings and net income than businesses that shy away from digital transformation projects or initiatives.

Lars Owe Nyland

Lars Owe Nyland

Generally speaking, the financial services industry hasn’t turned a blind eye to the promises of positive change, enabled by digital transformation. While regulation and compliance may have prevented companies within the sector from snapping up new tools and technologies as quickly as in other sectors, the future is bright. According to Gartner, one-third of financial services CIOs identified digital as their top business priority for 2019.

However, when we look at the internal workings of an organisation – whether a financial institution or otherwise – it’s not the finance team leading the charge when it comes to evolving best practice and making the most of digital. Sales and marketing teams are boasting some small, but often large and transformative changes to daily operations, enabled by digital technologies. Whether it’s the uptake of free or freemium web-based tools to improve workflows, enhance customer interactions or just make lives easier, it can be argued that it’s these departments that are the testbeds for transformation success.

But what about a department as crucial as the finance and accounts team? Arguably the engine of any organisation, it’s here that the most crucial processes a business has to regularly go through take place – the financial close, a temperature check on profitability and financial health. While salespeople and marketers have been chomping at the bit for new tools to automate processes, accountants havenot been as urgent in their requirements for this new approach.

The appetite for risk in adopting a new approach has always needed a strong belief in the technology identified to drive changes internally. This in turn can provide opportunities within finance and accounting teams to reposition roles within the organisation, influence strategic initiatives, prove digital ‘naysayers’ wrong and fuel the engine of growth for the entire business

The next evolution

The last age of technology in finance came in the form of ERP or CPM systems, often involving major transformation projects, large budgets and a requirement for a change in processes. However, the “last mile of finance” has remained relatively unchanged; manual and spreadsheet heavy. Then came 2016/2017, when there seemed a change amongst finance professionals, as the ‘big four’ firms (most notably EY) started to talk more about the potential of technology and automation in the last mile of finance and the financial close process. This was predominantly due to increasing comfort when using ‘the cloud’, with larger organisations leading the way.

In the UK specifically, technological revolution in the consumer fintech sphere also created a disruptive business environment, which has also opened up the B2B market. Organisations are more curious as to how technology in their personal financial experience can be applied to business, but often not enough to try it. After all it’s one thing to decide what works best for your personal finances but if it’s your businesses money would you do the same thing? But what other factors have also made the finance function in B2B organisations slower to react to digital transformation?


Change isn’t easy

Not long ago, reactive finance and accounts departments were the norm. Driven by rushed close processes and general-purpose spreadsheet software, many companies suffered from unclear routines and poorly documented approvals. Many of these problems still remain. Up until now, there has been a real lack of understanding with respect to what benefits technology can bring to the processes that underpin the financial close. The mantra of the day has been ‘if it ain’t broke, don’t fix it.’ But just because something works, it doesn’t mean it’s the right or most efficient way of doing it.

Accountants have been able to survive for longer with their manual processes. But why just survive? Times are changing for those finance departments. It’s time to usher in a new era of technologically-empowered best practice for the financial close.

So many spreadsheets

The management of the close process at many businesses is still a heavily manual task involving countless spreadsheets and line-by-line matching of transactions. For years, spreadsheets have been the backbone of finance and accounting. However, businesses relying upon spreadsheets too heavily can lose sight of the original purpose of the spreadsheet and make decisions based on erroneous data and complicated formulas. Hoping for organised, coherent information, many in finance develop complicated, multi-level spreadsheet systems for account reconciliation, journal entry, compliance, consolidation and reporting. But organisations quickly find themselves buried in a mountain of spreadsheets, filled in my multiple users, sometimes in different time zones or locations. An inordinate amount of human resources is needed to maintain this highly manual process. Ultimately, there are five key reasons why spreadsheets just don’t work as in the digital era of financial close:

  1. Lack of real-time visibility into processes. By nature, spreadsheets aren’t collaborative. They’re documents that multiple people can feed into, but they don’t offer the ability to monitor the whole transaction matching process and manage it in one place. As a result, finance managers and executives lack confidence and trust in the numbers presented; identifying process inefficiencies also becomes a mammoth task.
  2. Watch out for errorsand faulty macros. Studies have shown that as many as 88% of spreadsheets are materially incorrect, with finance executives unaware of incorrect data until it’s too late. This can quickly lead to far-reaching compound errors.
  3. Lack of control framework for compliance. Spreadsheets lack key functionality for managing compliance initiatives. For companies with subsidiaries, global operations, and multiple legal entities, the problem becomes hugely complex with a lack of standardisation and traceability, i.e. who did what? With no clear audit trail of who changed what, when, why and with whose approval, there’s a risk of non-compliance, fraud, misstatement and associated costs.
  4. Inefficiency and decreased productivity.Ever wanted to edit a spreadsheet to find it locked and currently in use by someone else? The use of spreadsheets to try and manage the close process is incredibly inefficient, as is the time spent emailing, comparing versions, meeting, printing and re-entering data. This means that any single spreadsheet is now ripe for errors and even fraud, but also subjects the team to unnecessary peaks in activity to support the close workload.
  5. Lack of scalability. Spreadsheets cannot efficiently handle the growth of an organisation, whether organic or through M&A activity. Transaction volumes and account numbers are forever compounding as revenues grow and organisations become larger and more complex. M&A activity frequently brings in more sources of data, often from different countries in new currencies and in new formats. And so, the spreadsheet headaches continue.


Automating the norm

Like everything else in business, there is an increasing pressure to deliver more value with fewer resources, whilst also unlocking the full potential of the resources already available. Today, an increasing number of CFOs are thinking about how their departments can have a greater impact on the company-wide business, by swinging the workload pendulum from number crunching to analysis, reporting to strategy, increasing the amount of value-added tasks. Building a high-performing and successful finance department in the digital age comes down to creating efficiencies in mission-critical, time-sensitive processes such as the financial close, and unlocking time and reducing stress within the process – but you have to start somewhere and automation is the first step.

According to Accenture, tomorrow’s high-productivity, low-cost finance departments will become increasingly common. The key to this shift will be automating to achieve a higher degree of efficiency, enabling a major reallocation of the time spent on transactions creating a fast and cost-efficient close process that will make the organisation ultimately more compliant, strategically resilient and future ready.

Manual processes, digital solutions

There’s no good reason why finance professionals should be tearing their hair out, day in day out, biting their nails nervously over a spreadsheet that gets bigger and more error prone. Empowered by structured processes and modern automated financial close software, high performing companies spend far less of their revenue on their finance and accounts department.

By digitally automating your close management, including the task list all the way through to transaction matching you can provide a reliable and repeatable close process that reduces both time to close and financial risk.

As a result this helps with:

  • Visibility into areas for process optimisation
  • Reduction in time to complete and monitor close tasks
  • Reduction in time to prepare for a close
  • Reduction in write-offs
  • Risk mitigation
  • Identification of bottlenecks in the workflow

To safely continue growing as an organisation, your office of finance must be able to not only remove all inefficiencies, especially those that increase risk in the financial statement but increase visibility into all bottlenecks within your process.

Companies save an average of $6.88 million each year, according to an EY survey of large and mid-sized companies. How? By leveraging cloud-based solutions that provide teams with a simple-to-use, digital platform to walk them through the financial close process step-by-step. Here, transaction matching is automated and audit trails are captured by the system (tracking team members actions and allowing supporting evidence to be uploaded to specific transactions), making the process significantly quicker, simpler and more accurate, as well as being fully compliant with current regulation. In no time, accountants are spending less time on transaction matching and controls and checks, and more time spent on analysis and decision making about where to take the business next.

With the highest-performing companies spending just five days or less on their monthly financial closing process, they all started with automation on their path to digital transformation. Start today and imagine where you can be as soon as next month or by the end of the year.

Global Banking & Finance Review


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