Finance departments must overcome automation doubts

In the first of these two articles, I argued that there are multiple trends nudging companies, even in the mid-market, to move towards financial process automation (FPA).

Many of these trends relate to the general digitalisation of business, but it should be noted that they resolve into some specific business drivers that companies need to consider.

In my experience, companies considering FPA have the following in their sights:

• Reduce costs for the procure-to-pay and order-to-cost processes, while reducing processing times. It’s common to aim to lower the function cost of each of these processes by between 30% and 60%.

• Enable straight-through processing − an automated digital process without any manual intervention. It is most often associated with payments and securities trading. It is now perfectly possible to generate 50%-70% of invoices using this approach. The minimising of manual intervention improves accuracy out of all recognition.

• Support multi-channel document receipt. Typically, finance departments receive documentation in multiple formats − paper, e-mail, PDF, XL, EDI − which have to be inputted into the system. Automating this process saves time and enhances accuracy.

• Gain early-settlement discounts and eliminate late-payment penalties. Cumbersome manual and paper-based processes expose the organisation to the risk of incurring penalties for late payment, or render it unable to benefit from incentives to pay early.

• Improve processes. Digitalisation and automation can and should be combined with streamlining existing processes. In addition, digitalised and automated processes can be controlled and managed much more easily, not least because they are fully transparent, and not hidden in inboxes around the company.

• Align with internal and external service-level agreements and key performance indicators. Because automated processes are consistent and rapid, it is much easier to meet SLAs and KPIs. Complying with regulatory mandates is also much easier.

• Improve supplier and vendor experience. As part of the automation exercise, supplier and vendor portals can be created to allow for self-service, thus driving down enquiries and improving the overall experience.

• Improve employee productivity − a key benefit of FPA. In addition, the more automated the process, the more remote workers using mobile devices can achieve.

An important issue to confront here is the association of automation with job losses. It’s perfectly true that an automated process, by definition, requires fewer people, but in practice, I have seldom seen actual job losses stemming from automation.

Finance departments are typically overstretched, so the individuals released from time-consuming low-level work can be retrained to perform higher value tasks, or deployed elsewhere in the organisation.

The automation journey is just beginning − fully autonomous automation is now on the horizon.

Natural attrition also accounts for a reduction in head count if that is required − old-fashioned, manual finance departments typically have a high proportion of clerks nearing retirement age.

It is always good to look at what benefits real-world companies have been able to achieve via FPA. One good example is Coca-Cola Bottlers Business Services, which processes some 400 000 invoices annually for more than 10 000 vendors across the Philippines, Malaysia and Singapore.

Going the FPA route allowed it to consolidate 23 finance and accounting departments. Manual scanning and validating were reduced, resulting in a reduction in full-time equivalent staff members from 21 to five. The rate of invoice processing increased by 130%, from 6 500 to 15 000 invoices per full-time equivalent.

TransMontaigne, a supplier of essential energy infrastructure, reduced its invoice cycle time (this is the time from receiving the invoice to making it available for payment) from 32 to six days, and improved its credit score by 20 points.

It reduced its monthly accrual by $1 million, and staff overtime by 98% in the first two years. Extraordinarily, it was able to reduce the average cost per transaction by more than 400% − from $30 to less than $7.

To begin with, most companies that buy into the rationale for undertaking FPA are totally bamboozled by all the information swirling around the web.

Should they look at artificial intelligence, robotic process automation or machine learning? (As of November 2022, you may be sure they are wondering whether ChatGPT is going be their next employee.) Do they need a chatbot?

It's at this point that a specialist FPA consultant is worth his or her weight in gold. It is typically best to spend time working out what the company’s needs are, and what outcomes it wants to see. It’s important to establish what the short-, medium- and long-term goals are because automation is (wait for it) a journey.

Once all this is clear, one can identify where to begin the process. Thereafter, choosing the correct automation software is relatively easy.

In many cases, FPA efforts begin with accounts payable because it is usually the most manual and idiosyncratic of the finance processes.

In my experience, the automation process should take around three to four months and would not be very disruptive. Once the FPA has begun to deliver its benefits, one can begin to move onto other processes.

The automation journey is just beginning − fully autonomous automation is now on the horizon and, overall, the pace of digital transformation is on the rise. Suppliers will be looking for faster payment, and hybrid work styles will continue to evolve.

In short, the pressure for finance departments to do better will be unremitting: it’s time to get on the FPA bandwagon.