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Financial Close & Consolidation: The Vital Need for Automating Accounting

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This is a guest post from our partner BlackLine, detailing a recent PwC report that highlights the need to automate accounts receivable. 

Are corporations that need to protect working capital prepared for the coming financial headwinds?

In today’s world of accounting management, uncertainty and market volatility have become the norm. Ongoing financial and political upheavals have led CFOs and accounting teams, seeking to protect net working capital (NWC), to make decisions in a crisis-to-crisis fashion.

Corporations should therefore pay close attention to the most recent PwC report. “Working Capital Study 22/23” provides an all-too-real overview of how corporations are trying to navigate market uncertainties and why they should consider making adjustments to their financial strategies.

At the outset, the report highlights a few positive NWC ratio indicators. Since 2020, there has been a 2.5% fall in annual NWC day (a five-year low), a €0.8 trillion increase in working capital, and continued recovery from the heightened levels of the pandemic.

But the report also warns about “trouble brewing under the surface.” It speaks to impending financial “headwinds” that include rising inflation, supply chain disruptions, and the war in Ukraine and characterizes companies around the world as being unprepared for what’s to come: 

PWC writes, “So is this the cue for high fives all round and a sigh of relief for having weathered the storm? Unfortunately, the short answer is no. The working capital ratios set out in the last annual financial statements show some signs of recovery. But, when we dig into the details, there are still some worrying trends and untapped opportunities to boost capital efficiency.”

To properly and sustainably protect NWC and manage accounting processes, it’s critical that companies ask some key questions:

  • How are we currently reacting to post-pandemic market curveballs?
  • How do these behaviors fit into our long-term business strategies?
  • Could these reactions be negatively impacting NWC?
  • Do we have untapped resources that could help develop more sustainable strategies to combat unpredictable market volatility?

Let’s take a look at what corporations are currently doing to try to guard against economic “turbulence” and how they can develop better long-term financial strategies to combat today’s market uncertainties.

“Just-in-Case” Approaches

The overall picture of cash position as laid out in the PwC report—declining by 10% in 2021 from 70 to 63 days—is encouraging and indicates that companies are operating with a “cash buffer to withstand uncertainties.”

Yet the report raises the concern that there is a “lag” that may lead to “a false sense of security.” Furthermore, as corporations try to stay ahead of unrelenting supply chain disruption, they adopt “just-in-case” approaches, such as:

  • Over-ordering, which can lead to inventory levels that fail to match market demand
  • High stock write-offs
  • Increased allocation planning driven by shortfalls and constrained capacity

Reactionary approaches might provide some salve, but they also exponentially increase “the risks of future obsolescence by extending the response time to dips in demand, as well as increased capital consumption from running at higher safety stock levels.”

The report states that corporations seem to be missing the fact that inventory performance has remained largely static. “Improvements in the working capital ratio have stalled,” the report notes. “And while it is still better than before the pandemic, we’re starting to see more signs of supply chain disruption filtering through to working capital performance.”

These issues are exacerbated by rising inflation (which the report predicts will continue for the next two years) and less access to borrowing due to rising interest rates. With central banks increasing interest rates to combat inflation around the world, corporate cash flows are coming under intense pressure.  The result of this “lending squeeze” will mean that both funding and working capital will become more costly.

Driving Efficiency & Financial Resilience

With predictions of slow and weak growth, stubborn inflationary pressure, and high financing costs, the report encourages corporations wanting to protect working capital, steer through economic turbulence, and boost growth to ask themselves some key strategic questions. For example: 

  • What is the optimal level of working capital for their businesses?
  • What adverse economic developments could jeopardize their working capital position?
  • How can they uncover and release cash that’s tied up?
  • Are operational processes ready to react to future disruption and proactively protect cash flow?

It’s worth zeroing in on that last question about readiness. It underscores the need for companies to adopt automated AR processes to free up working capital not available to treasury and lines of credit. This allows customers to keep spending and minimizes risk, bad debt, and revenue being backed out of the business.

By expanding team capacity and improving decision intelligence, organizations will be able to optimize working capital, brace for ongoing market shifts and volatility, and strengthen sustainable planning and growth efforts.

Improve Resiliency by Optimizing Working Capital

With “wider economic and liquidity headwinds looming” and debt funding becoming more expensive, the PwC report indicates that companies should “rethink” the way they approach working capital and stock reduction write-downs.

“The pressure on liquidity is steadily increasing,” states the report. “This makes it more important than ever to sharpen your focus on cash flow management and drive working capital optimization.”

But just how to get there? Is there a way for companies to achieve accounts receivable excellence in order to mitigate the evolving pressures on working capital?

BlackLine answers that question with a resounding yes. We’re accustomed to working with organizations needing to protect working capital so they can optimize AR business performance and soften the impact of inflation pressures, interest rate hikes, and supply chain bottlenecks.

We do this through the adoption of next-generation, intelligent AR automation, an approach that gains efficiencies across processes, departments, and global entities, saving many hours of staff time and, even more importantly, strengthening organizations’ ability to navigate unpredictable, volatile market changes.

By replacing inefficient, manual AR processes, companies can increase working capital. They are also better able to manage behavioral changes of customers facing cash crises, work through supply chain disruptions, and quickly prioritize payment processes, effectively reducing days sales outstanding (DSO) lag time.

Accounts receivable optimization helps to offset the problems created by operating in “just-in-case” mode and address issues in holistic, sustainable ways, such as:

  • Optimizing business performance. Increases working capital and availability of cash that are critical to a company’s success; collects more cash and significantly reduces DSO by increasing overall productivity and prioritizing the actions that have the highest impact.
  • Maximizing AR team capacity and efficiency. Improves productivity and morale while reducing costs by eliminating manual and error-prone processes; elevates control, gains visibility, and measures all parts of the process while achieving global standardization.
  • Elevating AR intelligence and data-driven decisions. Improves clarity and real-time decision intelligence by providing the most accurate, up-to-date data that’s critical for sales, operations, and treasury departments.
  • Improving customer and business relationships. Better communication and operational efficiency allow companies to become more reliable, trusted business partners, which could not be more important in challenging times.

According to the report, companies trying to protect working capital are sitting on unused resources. In fact, PwC estimates that companies have on their balance sheets €1.49 trillion in excess working capital, “money that could be put to much more productive uses.” One effective use of this surplus would be to automate AR systems. 

This blog post was originally published on the BlackLine blog.

Read more about Modern Accounting:

Modern Accounting: Adjusting Journal Entries

Modern Accounting: Highlights from Beyond the Black 2022

Modern Accounting: Does Your Accounting Team Have SMART Goals?

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Modern Accounting: The Impact of Investing in Accounts Receivable

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This is a guest blog post from our partner BlackLine, explaining how to gain confidence cash flow.

Historically, accounts receivable (AR) has been the victim of a lack of investment from a technological perspective. Primarily, this lack of investment in AR is the result of something simple: a misunderstanding.

AR is largely regarded as a necessary but transactional back-office function and not something that creates a “value-add” for the business. Unlike the core accounting of bookkeeping, AR’s reputation is that of a kind of conveyor belt. Necessary, but low impact in the grand scheme of things. As a result, AR is the victim of fundamental misunderstandings regarding how it can be optimized—and the business impact that the right optimization can have.

When finance professionals think about how to streamline or optimize AR, typically it has been viewed as something that may be better offshored or that the ERP already handles. This is due to it being largely manual, time-consuming, and often transactional. But this simply moves the problem elsewhere, rather than solving the underlying issue.

Investing in technology that automates the accounts receivable function grants you complete visibility over the flow of cash into your business, in real-time. The data, intelligence, and real-time oversight of working capital that optimized AR offers to businesses are invaluable, for several key reasons.

Unlocking Working Capital

Applying customer payments to customer accounts quickly and accurately is the cornerstone of successful AR. However, manual processes lead to significant delays in unlocking crucial cash flow.

Money owed by customers is one of the largest assets on any balance sheet. A recent report by PwC estimated that the amount of working capital held hostage in this way is an enormous €1.2 trillion globally. According to PwC, releasing this cash would be enough for global companies to boost their capital investment by 55%, without the need to look externally for funding or put their cash flow under unnecessary pressure. With interest rates as they are right now, never mind what might be on the horizon, looking internally to find opportunities to streamline cash flow and payment processes is a no-brainer.

Let me give you an example: on average, organizations are paid on day 50-55. For a business with $500m revenue, each day is worth $2m. By automating and optimizing payment processes, businesses can potentially release a significant amount of cash into the bottom line that can then be put to work in the business.

Releasing cash from receivables is the quickest and cheapest way to more working capital, yet organizations continue to rely on manual processes which don’t provide proper visibility and tie up cash for far longer than necessary. Investing in AR frees up more working capital, which means stronger business resilience and enables more effective decision-making. Put simply, it puts much more power in your hands and leaves much less up to guesswork.

Maintaining Lasting Customer Relationships

Credit controllers used to be a lot more persistent. This was clear in the terminology they used. They looked at customers as “debtors.” This sounds more akin to something you’d read in a Dickens novel than the way a business refers to its trusted partners.

The way you treat your customers not only reflects your efficiency internally but crucially shapes perceptions, both for potential new customers and those who might be on the fence about jumping ship. Chasing a customer for a payment that was made days before, simply because you’re reliant on manual processes that don’t give you proper visibility, could reflect poorly on your organization. Aside from the wasted time and effort, receiving an erroneous demand for payment on a bad day could be the difference between a continued relationship and a swift parting of ways.

Customers provide the value for our organizations. It’s our customers that are going to support us through the tough times. A mindset shift is required here at all levels of business, including the C-suite. Customers should be treated with the same respect when they owe money as when they don’t. Investing in AR creates the visibility over customer payment behaviors that is essential to this.

The right solution can unlock decision intelligence by removing time-consuming and error-prone processes involved in preparing, transforming, and visualizing data. This lets your teams make more informed decisions around credit risk policies, collection strategies, or credit limit increases to create greater value for the business. It can help you gain visibility into customer behavior changes. This could unlock opportunities for you to work with customers to solve payment challenges before they become a major problem, or increase their line of credit and in turn, your revenue. This can improve profitability by reducing the financial risks posed by write-offs and late payments.

Creating greater visibility over real-time payments allows you to leave the war of attrition over unpaid invoices behind. This leads to a more customer-centric approach to credit, collections, and complaints that can help you to maintain good customer relationships.

Retaining Talent for a Competitive Advantage

In an increasingly competitive business environment, the ability to attract and retain top talent is crucial to business success. A recent survey commissioned by BlackLine suggests that one of the first steps finance and accounting needs to take to retain their best workers is to eliminate transactional, mundane work. More than a quarter (28%) of FP&A professionals surveyed said there weren’t opportunities to learn new skills because transactional work takes up so much time, while a similar number (26%) claimed that they had become bored of the mundane, repetitive nature of their jobs. What’s more, a quarter (26%) also claimed not to have time to focus on future career development.

It’s clear that your talent wants to spend their time adding value, regardless of function. Completing a long list of manual tasks, which could be automated, is not adding value. If 80% of your time is spent on routine tasks that can be automated, that’s 80% of your value gone before any major or strategic tasks arise. This wasted energy wastes your employees, which passes on up the chain. 

Automation frees up F&A team members to focus on strategic, more career-focused goals, ensuring their motivation and energy is spent bringing value to your business (and not someone else’s).

Don’t Let Manual Processes Decide Your Fate

Many organizations have now automated processes such as accounts payable, but the prevalence of manual processes in accounts receivable continues to pose serious health issues for businesses. The problem is that automating some processes and not others could ultimately cost you more than you bargained for. If the budget only stretches so far, it’s essential to upgrade the process that will have the biggest impact. Let me explain by way of an analogy.

Imagine you need to dig a hole somewhere in your back garden. You could do it with a shovel, but it needs to be a very large hole, so doing it that way would take a huge amount of time and exhausting effort. So, you hire a contractor with the right equipment. This gets the job done much faster and with much less effort. The problem is, you didn’t know where exactly to dig the hole to begin with and you’ve dug it in the wrong place. Now, not only do you still need to dig the hole, but you need to repair the large area of back garden that is now a building site.

Automating some FP&A processes but leaving AR up to manual processes creates a similarly traumatic scenario. Choosing to invest in accounts receivable opens up a treasure trove of intelligence and profitability that could make the difference between success or failure. When it comes to accounts receivable, investment is no longer a nice-to-have, it is now a must-have for survival.

Read more about Modern Accounting:

Modern Accounting: Driving Sustainability

Modern Accounting: Why Does Intercompany Accounting Crash Your Close?

Modern Accounting: Four Key Ways AR Automations Propel Financial Operations

This blog post was originally published on the BlackLine blog.

https://www.blackline.com/blog/investing-in-ar-essential-for-survival

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Modern Accounting: Driving Sustainability

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As part of our series on ESG reporting, we are featuring guest blog posts from our partners. This post from BlackLine explains how the finance team can take the driver’s seat when it comes to sustainability. 

Consumers are increasingly looking to do business with sustainable organizations, elevating sustainability to a boardroom level. Organizations looking to compete effectively in a challenging and crowded marketplace must be able to demonstrate their environmental bona fides. However, creating sustainable practices is usually the domain of operational lines of business. Many larger enterprises may have a dedicated role for a sustainability officer, or even a team that works across environmental and social corporate responsibility.

Rarely does the finance team get involved in the early stages of sustainability discussions. If anything, the finance team is usually left to manage the implications of business decisions around changing suppliers, operating procedures, and so on.

However, there is an opportunity for the finance team to take the driver’s seat when it comes to sustainability.

The rise of environmental, social, and governance (ESG) reporting has led to an increased focus on these issues from a risk management perspective. Getting these elements right can also lead to increased turnover and an improved ability to attract and retain staff. For example, 90% of consumers prefer to buy sustainable products and 86% of employees prefer to work for companies that care about the same issues they do.

ESG reporting translates these otherwise potentially hard-to-measure areas into financial results, language, and metrics. This is where the finance team shines. Finance also has access to all of the data across the organization that can be affected by ESG practices, such as sales, supply chain, and cost of goods sold.

Where to Start

Developing environmentally sustainable practices and policies can seem overwhelming, especially given the already large workload that falls on the finance team’s shoulders. Managing existing financial management and reporting requirements while adding ESG strategy, measurement, and reporting may not seem feasible for some teams. However, the finance team’s background in risk assessment and mitigation, data analysis and reporting, and strategic direction makes it perfect for this task.

There are four key questions the finance team should start with on the journey towards driving sustainability:

  • What ESG components will affect the business, including stakeholders and customers?
  • What metrics and targets should be managed, monitored, and reported on?
  • How can financial and non-financial data be integrated into reporting?
  • Are specific reporting models required for ESG and, if so, what are they?

While it may seem overwhelming for finance teams to dive straight into ESG and driving sustainability, there are immediate steps that can be taken to improve sustainability. For example, finance teams can make their own practices more sustainable and lead by example.

It may also be worth investigating ways to streamline and automate existing processes to pave the way for increased responsibilities around ESG management and reporting. By automating processes that previously took days or weeks of manual work, finance teams can free up talented professionals to focus on innovation and sustainability. This will also improve the team’s access to real-time data, which can be used to drive sustainable decision-making and, eventually, accurate reporting around ESG activities.

Read more in our series on ESG Reporting:

FP&A Done Right: ESG Reporting Tools

FP&A Done Right: Finance’s Role in ESG Reporting

More from BlackLine:

How Finance & Accounting Can Champion Sustainability in Business

This blog post was originally published on the BlackLine blog.

https://www.blackline.com/blog/driving-sustainability-from-the-finance-seat/

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Modern Accounting: Four Key Ways AR Automations Propel Financial Operations

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This is a guest blog post from our partner BlackLine, explaining four ways AR automation moves financial operations forward.

Due to challenges in recent years, there’s been a shift in the way companies approach people retention—with varying outcomes.

Many organizations now offer hybrid working policies, with employees enjoying more flexibility throughout their weeks, even if it’s just the ability to do laundry at lunchtime.  

On the flip side, the uncertainty and disruption has caused others to become fed up, leading them to move on to new pastures. We’re all aware of The Great Resignation—but what does this mean for AR and finance teams?

Time-consuming manual processes are a significant factor in this fight. With employees struggling to hit targets and respond to customers on time, plus battling siloed systems that don’t provide full visibility into business procedures, it’s easy to see why they’re cutting loose.

It’s clear that to retain staff and streamline operational processes, digital transformation is no longer a nice-to-have—it’s a must-have.

Banish Back-Office Blues with AR Automation

AR automation raises the bar in business performance.

By moving AR to a different beat, businesses can make small changes to their every day that triggers a big change their operational success. Not only that but automating AR can inform more strategic decision-making and drive better financial outcomes—a win-win for both people and business.   

It’s time to MOVE on from manual:

M—making better decisions

O—operational success

V—visibility into the future

E—employee satisfaction

And AR is for automating.

1. Making Better Decisions

Let’s be honest: most manual AR practices don’t lead to effective data utilization. And few companies have the necessary tools to make best use of their available data, or action the insights it gives them.

AR automation can fill this gap. By surfacing critical information that is typically difficult to obtain, finance leaders can improve strategic decision making across all areas of business.

This leads to better business outcomes all around, as well as helping you to identify potential growth areas within your existing customer base.

2. Operational Success

Unnecessary process errors. Duplicated effort. Customer disputes. These are just some of the AR challenges your staff are tasked with that can have a serious company-wide impact.

Automating repetitive tasks results in less complications to deal with. Teams can more promptly resolve customer disputes, building better relationships and elevating business reliability and reputation.

On top of this, teams are not only better placed to hit their targets but are also able to dedicate more of their time and energy into work that really makes a difference.

3. Visibility Into the Future

Senior board members are tasked with, among other things, keeping external shareholders happy. They’re (understandably) mostly concerned about revenue, and that is directly informed by a healthy cash flow.

AR automation gives you full insight into your cash position, providing you with everything you need to deliver detailed reporting to shareholders.

Not only could this help secure future investment, but it also contributes towards financial resilience. The more you know about your cash position, the more informed decisions you can make to protect your business.  

4. Employee Satisfaction

While WFH has generally gone down a storm, hybrid working can throw up just as many pitfalls as perks. With staff split between home and office, siloed teams may not have full visibility over entire processes, damaging collaboration and significantly hampering productivity.

By implementing AR automation that takes care of admin under one unified platform, staff can take care of adding value elsewhere, putting their expertise to best use: achieving financial goals.

Plus, with staff feeling happier and more supported, they’re less likely to become another ‘Great Resignation’ statistic—and you won’t lose out on all the best talent.

By moving to a different beat with BlackLine, you’re realizing the true potential of AR: as an integral back-office function that contributes significantly to business success.

This blog post was originally published on the BlackLine blog.

Read more Modern Accounting blogs:

Matching Records from Multiple Files in BlackLine

Modern Accounting: Improving Collaboration in Virtual Accounting

Managing your Month-End Checklist in BlackLine

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Modern Accounting: What is Accounting Automation?

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This is a guest blog post from our partner BlackLine. The author, Jason Brisbane, defines accounting automation and details its top five benefits.

What is Accounting Automation?

The need for on-demand visibility and actionable insights to navigate today’s dynamic business environment has never been greater. Technology, specifically accounting automation, can be a foundation to providing fast and continuous information to key stakeholders, supporting the agile decision-making that is required to make critical decisions in a timely manner.

Traditional manual accounting processes introduce risk and consume so much capacity that it prevents effective decision-making. A recent study found that nearly 70% of global business leaders and finance professionals reported that their organization has made a significant business decision based on inaccurate financial data. And over 55% are not completely confident they can identify financial errors before reporting results.

Accounting automation reduces the manual effort required to perform tasks and access information. Configurable rules and workflows, global visibility from anywhere, streamlined reconciliations, and journal entries ensure more time can be spent on actionable analysis and strategy.

Here are the top five benefits of accounting automation.

Benefits of Accounting Automation

1.    Time Savings

The benefit of time-savings that automation delivers cannot be understated. With automation, you can eliminate repetitive tasks, significantly reduce error-prone spreadsheet work, and shift audits to a self-service model. Low-value activities like faxing, copying, and physical storing of documents are eliminated with automation.

With the time savings, accounting staff can be re-deployed to addresses more strategic tasks, and teams can scale to support growth without adding additional headcount.

2.    Higher Productivity

The before-mentioned time savings benefits from automation enables accounting staff with more time to do what they are hired and trained to do—partner with the key stakeholders of the organization to guide the business with meaningful data and input.

Automation also frees accountants to focus their efforts on higher-risk areas, like judgments and estimates, new business models, or complex transactions, and it provides opportunities for talent development which improves retention and helps Accounting avoid costly turnover.

3.    Insights & Analysis

Accounting automation allows you to unify data quickly and continuously. This enables more frequent exploration of trends, exceptions, and insights without having to wait for period-end close. More time for analysis and quality insights means you’re better positioned to support agile decision-making.

Accounting staff can easily build reports and dashboards that can be adjusted to when new revenue streams, cost centers, and other business changes are introduced. Without reliance on IT for maintenance, Accounting and their business partners can engage in new initiatives without the worry of unnecessary bottlenecks.  

4.    Data Security

Manual accounting activities require the use of spreadsheets that have minimal security, lack preventive controls, and increase the risk the for cyber-attacks and errors. Accounting automation reduces the use of spreadsheets that require sending and receiving in favor of a single version of the truth with embedded workflows and segregation of duties.

When needed, auditors can access information securely, in a self-service model, reducing the risk associated with providing audit requests in paper, flash drives, or other less secure means.

5.    Improved KPIs

It’s well-known that what gets measured often gets done. As accounting teams look to modernize their processes, scale forth growth, and provide better insights, accounting automation platforms not only address the underlying processes but also enable tracking.

With a single point of collaboration for accounting, leaders can monitor KPIs like unrecorded adjustments, open tasks, and late journal entries. These metrics not only enable better business decisions, but also can be used to drive accountability and change throughout the accounting organization.

Conclusion

Manual accounting processes are not sustainable to thrive in today’s accelerating pace of modern business. Accounting automation is required to continuously monitor for error and inefficiency before they become misstatements.

This blog post was originally published on the BlackLine blog.

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