Accounting and financial process management can be time-consuming and stressful.
They involve intensive manual work like mining and uncovering financial details, which is tedious and resource-intensive. Accountants can spend a lot of time dealing with databases and numbers and often burn out from long workdays.
Wasting your finance team's time and effort on cumbersome manual processes makes no sense when automation can make their lives easier. If you or your team still manually copy and paste data between Excel spreadsheets, you're stuck in the 90s, and better fast forward sooner than later.
We have officially entered the era of “automatic civilization”. To operate effectively, businesses need to bring data-driven insights and advanced analytics into their autonomous financial systems instead of engaging in time-consuming, repetitive tasks.
What is autonomous finance?
Autonomous finance is a data-driven or algorithm-driven process that employs software to automate financial operations and management.
In today's dynamic and competitive environment, unconventional business practices overtake traditional methods. To keep pace and improve their workflows, businesses need to be more agile and forward-thinking. Since finance is one of the most time-consuming and tricky departments in any business, you can save a lot of hassle by automating your finance processes.
of the activities individuals are paid to perform can be automated by adopting the correct technologies.
Source: McKinsey & Company
Using the right technology helps your team handle tedious tasks like bookkeeping, expense management, and bank reconciliation with minimal human intervention. This frees employees' time to focus on strengthening their organizations and influencing overall transformation and growth.
But, before diving deeper into autonomous finance, let’s understand the areas within your department where you can use it successfully. Just like you wouldn't want to start strength training without knowing the difference between a dumbbell and a barbell, you shouldn't dive headlong into autonomous finance without understanding the areas you can automate.
Which finance processes should you prioritize automating?
Finance handles numerous processes and most directly impact a business' bottom line. Here are the key financial processes in an organization.
Accounts payable (AP) is the money an organization owes its suppliers for goods or services purchased on credit. It includes receiving the sales orders, reviewing and reconciling order details, routing them for approval, negotiating terms, processing payments, and ensuring vendors are paid on time. Failure to make payments on time can result in late charges and ruin your relationship with your vendors.
Receivables are the outstanding payments that your customers owe your company. Accounts receivable include sending and tracking invoices, reminding customers of payments, and ensuring the open accounts are closed in time. Collecting timely payments and maintaining an accounts receivable report is crucial to avoid negatively affecting your organization's cash flow. A Days Sales Outstanding (DSO) of less than 45 days is healthy for most industries.
Account reconciliations include all activities performed at the end of the month and during the year-end closing. Simply put, it compares general ledger accounts to sub-ledgers and third-party data like bank statements and other underlying transaction details. If the balances don’t match, accountants investigate the cause of the discrepancies and make adjustments to correct the errors or missing transactions.
Since the reconciliation process directly affects a company's profits and cash flow, finance managers should prioritize automating it. Let's look at the Compound Annual Growth Rate (CAGR) for automation solutions associated with each financial process.
- The accounts payable automation market is expected to grow at a CAGR of 12.5%, from $2.6 billion in 2021 to $7.5 billion in 2030.
- The market size for receivables automation is expected to grow from $3.3 billion in 2022 to $6.5 billion in 2027, at a CAGR of 12.1% over the forecast period.
- The global account reconciliation software market size was estimated at $1.82 billion in 2019 and is projected to grow at a CAGR of 14.6% between 2020 and 2027 to reach $5.38 billion by 2027.
The statistics above underscore the speed at which the three financial processes are being automated. So, the chances that your competitors have already implemented the necessary autonomous financial systems are pretty high.
When should you prioritize finance automation?
If you’re experiencing all or some of the issues listed below, it’s time to transform your existing processes and digitally transform your finance department.
- A high volume of repetitive tasks
- Too many people involved in everyday tasks
- Delayed workflows
- Significant negative impact on other processes and systems
- Discrepancies in compliance and audit trails
Why existing financial processes may not work
The traditional financial model was based entirely on manual processes. Accountants handled the financial tasks from start to finish, and most of their time was spent on low-value tasks like preparing invoices, sending correspondence, and aggregating remittances.
In addition to many trivial tasks, merging documents such as invoices and bank receipts was challenging. Accountants often had to gather the required information from multiple locations because the data was stored in numerous databases rather than in a central repository.
Moreover, processes that require information or input from different entities slow down due to the dependency on multiple stakeholders. For example, the whole process gets stuck if a stakeholder is on vacation or sick. These hurdles increase the risk of missing deadlines or not complying with regulations.
What are the benefits of autonomous finance?
Autonomous finance offers various advantages to companies. Here are seven top reasons why financial leaders are investing in autonomous finance, and you should too!
- Saves time. Manual tasks such as remittance aggregation and reconciliation are time-consuming. You can save your employees time and effort by automating such redundant tasks.
- Reduces human error. Performing financial and accounting functions manually often leads to human error. With finance automation tools, you can reduce manual intervention and the likelihood of such errors.
- Improves consistency. Automating financial processes based on industry-specific best practices standardizes processes. Each employee has their way of working, and standardization may cause inconsistencies in collecting data or sharing information.
- Data security. Storing sensitive financial data in spreadsheets and other formats often shared across teams is a bad security practice. This often results in data breaches that can prove disastrous for an organization. An ideal automation solution can restrict data access to only relevant stakeholders.
- Intelligent analytics. Autonomous finance solutions provide robust analytics and reporting capabilities for greater insight into an organization's finance functions. This improves decision-making and risk assessment.
- Scalability. Automation solutions enable companies to scale without additional employees and keep up with their growth. This, in turn, reduces overhead and increases working capital.
- Optimized resource utilization. You can free up your employees' time to focus more on value-adding tasks. This also allows finance leaders to focus on pressing business challenges.
What technologies are used in autonomous finance?
Here are some common technologies that are part of autonomous finance.
Robotic process automation
Robotic process automation (RPA) automates repetitive, high-volume business functions to free human resources for more high-value tasks. It enables companies to accelerate digital transformation initiatives and increase return on investment (ROI).
Because RPA is rules-based automation, it's ideal for tackling mundane, repetitive tasks without human intervention. Many popular use cases of RPA, such as billing and cash handling automation, have made RPA popular among mid-sized businesses.
RPA solutions can also automate critical tasks such as remittance aggregation. Instead of manually logging in and extracting remittance details uploaded by customers on web portals, the solution uses web bots to obtain the required information automatically. In this case, the time spent extracting remittance details from web portals is drastically reduced.
While RPA is an extremely important technology, it shouldn't be your only focus. It’s difficult to handle complex scenarios with only RPA. For example, RPA can extract remittance information from emails, but it cannot verify the authenticity of the information nor fill or predict the missing gaps in it. So, it’s better to think of RPA as more of a “do” technology.
You provide RPA bots with structured data and clear rules on what to do with the data, and it gets the job done perfectly. But when dealing with unstructured data, it doesn't bring the desired results.
Artificial intelligence (AI)
Since RPA has limitations and cannot handle everything independently, AI comes into play. Once routine processes are automated with RPA, you can apply AI to simulate human-like intelligence for the bot-driven automation process, extract the data you need, and quickly make business decisions.
AI boosts RPA’s power by preventing the bots from failing when underlying rules change on external websites. AI also helps with predictive analysis and finding patterns in historical data to identify the most relevant information for informed decision-making.
Best-in-class RPA solutions leverage AI for better exception handling. For example, they can predict missing parts in remittances.
Machine learning (ML)
Machine learning technology enables automated financial solutions to predict outcomes more accurately without being explicitly programmed. Machine learning algorithms take historical data as input and predict new output values based on the information provided.
Many top finance automation tools use ML to drive proactive collections. Studying past customer payment dates also helps predict future customer payment dates and allows collectors to take more proactive dunning approaches.
How to automate financial processes
Ready to get started? Here are some ways you can automate your financial processes.
Outline your financial processes
The first step to standardizing your financial process is understanding its current status. The second step is to document the existing processes and highlight areas to automate.
Writing the narratives through flowcharts, diagrams, or workflow sketches quickly uncovers gaps and dependencies between processes. This can help you make appropriate changes and streamline tasks. It's also important to talk to stakeholders to get their perspectives on the changes needed to improve the process.
Once you've outlined your needs, you can evaluate financial management tools to create a digital version of the financial processes you want to automate.
Integrate with other software
After identifying the financial processes to automate, ensure your systems can communicate and share information seamlessly. Choose tools that can be easily integrated and are system-agnostic.
Test the process
Start with a test environment and evaluate the process on a small scale to see how the solutions work. Measure the results against your goals. Identify the gaps and make the necessary adjustments.
What are the challenges in automating financial processes?
Businesses any day prefer a simple, effective, and efficient financial process to traditional and complex systems. Although automation can help with virtually any tedious task, some companies remain concerned about installing new software due to various factors.
Businesses conducting all of their financial operations manually for years find it difficult to adapt to the nuances of an automated system. The most common excuse companies give for reluctance to integrate automation is that they may lack the technical knowledge to operate sophisticated software.
Employees may need to invest their time in understanding how the various financial processes run in the automated software to use the program. The need to get used to the program hampers automating processes.
The large capital investment required to switch from a manual to an automated financial process is another reason companies prefer to continue with manual practices.
Decision makers often worry about spending money on subpar software. It’s impossible to determine which software will integrate flawlessly with their current manual processes. Most companies want their processes to be repeatable, but not all software vendors can deliver this, making it difficult for business leaders to trust and implement automated financial processes fully.
All companies ultimately strive for a positive return on their investments. The number one reason people fear automating procedures is for ROI. Businesses need to detail how automation could benefit them as key decision-makers worry that the high capital outlay to automate the process may not be worth it.
Make smart choices
Finance leaders can transform their financial processes by implementing either a standalone RPA system or intelligent automation (a combination of AI and ML) to bring a higher level of finesse to their end-to-end processes. Autonomous financing not only helps in process optimization but is also necessary to remain competitive in the market.
Choosing your automation solution wisely will simplify the task for everyone on the team. Automation eliminates bottlenecks, improves the ROI, ensures quality results, saves resources, and brings transparency to all processes.
It's high time finance leaders embrace new technology and automate mundane back-office finance functions to focus their resources on higher-value tasks better.
See how digital procurement helps your business automate the software procurement process and save costs.