Read any finance automation software service provider’s website or finance thought leadership content and you’ll see the call for transforming financial administration into a strategic partner for business. We also say that and we firmly believe in it. But it is easier said than done.
Financial administration is often a unit where there is no time and resources to start even thinking about that transformation. This is usually because the current processes and ways of working hinder business’ work. But the good news is that you can figure out where your processes are not performing as well as they could when you identify the most typical symptoms that those bottlenecks create.
In this article, we have listed the four most typical symptoms and how you can identify and fix them. The four symptoms are:
- Symptom 1: Administrative and manual work takes along time in both business units and financial administration
- Symptom 2: Purchase to pay processing times are long
- Symptom 3: Posting quality is poor
- Symptom 4: Financial administration is viewed and measured as administrative cost
Symptom 1: Administrative and manual work takes along time in both business units and financial administration
Most finance units still have a ton of manual work in their processes. The most time-consuming tasks are the manual routing of purchase invoices to the invoice reviewer and approver, as well as the manual posting of purchase invoices for different dimensions.
Every step of this process is done by hand, which means that every purchase invoice takes several minutes to be processed. If your company receives tens of thousands or hundreds of thousands of invoices a year, manual handling takes away huge chunks of time.
How does this symptom appear in business units?
- People in business units have less time for their core work. The work they have to put in to handle invoices is always time away from doing business.
- Manual work eats away at people’s mental capacity. There is the understanding that handling those invoices is not valuable work. People feel that handling invoices is a necessary evil that has to be done but does not take them towards reaching their goals.
- Manual handling results in a constant back-and-forth communication between business and financial administration, because business people might not have enough information about how to post invoices correctly and they often have to do it without proper onboarding.
How does this symptom appear in financial administration?
- There is a lot of repetitive work in finance units. Routing invoices is kind of like a telephone switchboard. You are mostly just directing invoices to the right people.
- There is even a lot of manual work before invoices get into the system, for example checking the invoices, adding new contractors etc.
- Pampering business. When business units post invoices incorrectly, they ask financial admins what they need to know and how and when to do it and finance answers the same questions over and over again. There is a lot of repetitive communication as well as teaching business and fixing incorrect postings.
- When months change, finance admins are the busiest because they are trying to make accounting accurate. On top of their normal work at the end of the month, they usually have to pester business for the invoices they have not reviewed and posted.
Reasons behind the symptom and solutions
There are at least two clear reasons behind the situation we just described: lack of automation and the requirements for 100% accuracy.
Let's start with automation.
Reason 1: Lack of or minimal automation
If you don’t have any automation or you are reliant on minimal automation rules, it generally results in the whole process taking a long time. You have to create and maintain a huge number of automation rules, as every invoice is handled with a specific rule. The more complex invoices are, the more steps the process takes.
Solution: Implement automation technology to help with your process
- If you don’t have any technology to automate yet, this is the time to implement it. You can start with a rule-based automation and fix the low hanging fruits from the process.
- If you’re already using rule-based automation, then you can add artificial intelligence as a partner to your current system to increase the level of automation in your system. Ruled-based and AI-based automation work well together.
Reason 2: legislative requirements lead financial administrators to be absolute about the quality of information.
Financial admins tend to consider accuracy from the point of view of legal requirements. For them, only 100 % accuracy is good enough. Absolute accuracy trumps over what is adequate and practical.
Solution: mental acceptance. Changing finance’s point of view from only accepting absolute accuracy to a more merciful stance of what is accurate enough.
- Understanding that neither humans or technology are perfect. Both makes mistakes. It is more important to accept that mistakes happen and think about how to fix those mistakes.
- This usually means accepting a reduction in the accuracy of information. Define in your company and unit what is acceptable level of accuracy.
- Understanding that getting to 100% accuracy usually costs you a lot of time. Does it really matter if accuracy of information is 98 % or 99 % instead of 100 %?
Symptom 2: Purchase invoice posting and routing times are long
Manual work stretches the time spent on routing and posting invoices. Usually the process goes like this: purchase invoices are pre-processed in the accounts payable, from where they are routed to the business units to be reviewed. Someone in the business unit reviews, posts and approves, after which the invoices are returned to the account payable for payment and to be booked.
In addition, the invoice reviewers and approvers in the business units are usually managers or directors. In other words: they are some of the busiest people in the company. They often tend to move handling invoices further to the future for when they have time to handle them.
How does this show up in business units?
- As handling the invoices is usually not a pleasant task to do, people easily postpone doing them and then the invoices keep piling up.
- Moving handling invoices results in - once again - increased communication between business and financial admins towards the end of the month because invoices are piling up and business does not always know how to post the invoices they have waiting for their review.
How does this show up in financial administration?
- Finance also feels the stress and rush at the end of the month. Not only do they have their own work to do which is busy enough but then they are also trying to get business to do their part of invoice handling so that everything will be done on time.
- Stress and panic increases from work that has not been done on time.
- If invoices are not handled on time, getting reminder invoices doubles the workload. Missing deadlines for payments also increases costs.
Reasons behind the symptom and solutions
The main reason behind this problem is twofold, but the reasons are essentially two different sides of the same issue.
Reason 1: financial administrators are overworked
This is probably no surprise to anyone in finance. There just is too much work on the shoulders of the finance admins.
Solution: centralize or outsource the invoice handling process
- The most unpopular but at the same time effective solution is to centralize the accounts payable entirely to financial administration. Business only approves pre reviewed invoices.
- Some companies deploy temporary staff to handle invoices at the end of the month. However, this is not a sustainable solution as you have to keep doing it every month.
- Outsource the process to an external partner.
Reason 2: time spent on fixing and guiding businesses’ invoice handling
The more time financial administrators have to spend on guiding and advising business people to handle invoices, the more it congests invoice handling in finance administration adding to the overwork problem.
Solution: educate and automate
- Business needs to be onboarded and trained better in invoice handling. Yes, this also takes time, but focusing on this reduces mistakes and increases the quality of postings.
- Automate reminders for business to post their invoices on time. This potentially reduces the time spent on back-and-forth communication.
Symptom 3: Posting quality is poor
When working with companies, we have noticed that often business units don’t have a clear understanding of the logic about how to post invoices.
How does this show up in business units?
- Frustration in the whole invoice handling process. Resentment towards the work and questions about why is invoice handling their work anyway.
- Generally speaking business units feel that handling purchase invoices is not their job. The whole process raises the question: why is business doing the work? Usually the answer is that in order to get reporting correct. But they feel that they should not own that work.
- This causes a lot of stress when they feel that pressure to finally handle the invoices.
- Invoices are incorrectly posted.
How does this show up in financial administration?
- Extra time is spent on fixing mistakes
- Financial admin cannot use time to develop their role and work
Reasons behind the symptom and solutions
Many of these reasons we have already covered earlier in this blog. Especially two reasons
Reason 1: lack of understanding by business units on how to post invoices
Solution: onboard and train business units
- When new people are recruited in business, onboard them to the invoice handling process.
- Arrange regular training sessions for business based on their questions and needs.
Reason 2: Lack of or minimal automation
We have seen this reason already once before in this blog article, but it also applies to this situation perfectly. As long as there are humans involved in posting invoices, there will be mistakes. Technology is not perfect either, but its accuracy can be very high.
Solution: Increase the level of automation by investing in technology
- With rule-based automation, companies can generally achieve 10-25 % percent automation level. Only on rare occasions we have seen it be 50 %. If you’re strating from scratch, getting to 25 % is a good first step.
- If you already have some automation in place, you can increase that by adding AI to the system. With AI and rule-based automation, you can increase your automation level to 90%
Symptom 4: Financial administration is viewed and measured as an administrative cost
This is the unfortunate truth. Companies try to keep the expense burden of administrative work as low as possible.
How does this show up in business units?
- There is a resentful attitude towards financial administration because it is felt that the burden of administrative work has been shifted onto the business’ shoulders.
- People in business units spend time manually handling invoices, but the cost and time put into this does not show up anywhere
How does this show up in financial administration?
- Too busy to do anything but administrative work
- Current staff does not necessarily have the skills needed to develop the work and processes
Reasons behind the symptom and solutions
Generally speaking this is a resource issue. Finance doesn't get the resources it needs to start doing more valuable work than merely posting and routing invoices. Companies are afraid to invest in experts that could take financial administration to the next level.
But there are other reasons behind the resource problem.
Reason 1: Companies don’t have the time to focus on anything else than the day-to-day work
Many companies are still running their financial administrations as they have been run for decades. And that work takes up the regular working hours of financial administrators. They don’t have the time to envision a different future, let alone start making changes.
Solution 1: Rethink the role of your financial administration
- CFOs need to take responsibility for developing their financial administrations. It is unreasonable to expect that finance units would change on their own. They need a vision and a roadmap from management.
Solution 2: Automate your processes to free your time for the above work
- This is essentially a time issue. Financial administration and management needs more time to focus on other work than running the day-to-day processes. When they don’t have the capacity for anything else, nothing changes. The best way to free-up time is to automate the current processes as much as possible.
- Automating processes does not need to be a time-consuming and a resource-sucking project anymore. For example, AI automation can be implemented easily to work together with the current automation softwares.
How to get started with automation?
We interviewed nine finance experts across different industries about their views on automation in financial administration. They had excellent advice and insights on how to start and what companies need to take into consideration in automation projects. You can read their views on our blog here!
Want to start solving your automation bottlenecks? Watch our webinar!