accounts receivable

This is a blog post from our partner BlackLine, sharing nine best practices for streamlining your account reconciliation process.

According to the Federal Reserve’s 2024 Survey of Salient Risks to Financial Stability, financial risks are expected to increase over the next 12 months, largely fueled by elevated asset valuations and a high-interest rate environment. This is not just a US issue; on the other side of the Atlantic, the Bank of England’s July 2024 Financial Stability Report has revealed that parts of the global financial system remain vulnerable to financial stresses, with a challenging risk environment here to stay.

The adjustment to the higher interest rate environment is continuing globally, and important vulnerabilities in market-based finance have yet to be addressed. This means businesses must now crucially consider and evaluate their areas of highest exposure.

Considering these conditions, organizations must be aware of and prioritize the key areas of concern to successfully emerge from the other side.

The Financial Risk of Credit Extension

One of the fundamental business risks, particularly regarding credit management, is non-payments. When a business extends credit to a customer, it typically involves issuing an invoice with payment terms ranging from 30 to 90 days – assuming the customer will settle the invoice within the agreed period.

The issue arises when the payment is delayed or, in the worst-case scenario, not made at all.

Any delayed payments lead businesses to face outstanding debt. Over time, that debt goes old, becomes aged debt, and most likely becomes a provision on the balance sheet, meaning it’s money that your business isn’t recouping.

This will ultimately affect your business’s cash flow. Businesses that don’t see this as a top priority in risk management run the risk of limiting their growth and placing significant strain on their financial obligations.

Managing Risks in Diverse Jurisdictions

Managing financial risk becomes even more complex for multinational businesses due to the varying regulatory environments across different countries.

Millions of payments are made across borders daily, and each jurisdiction has unique invoicing requirements, tax mandates, and compliance standards that businesses must meet to be financially compliant.

Globally, there is no set framework, with each country or region having its own system to comply with tax laws and government standards. For example, some countries have mandatory e-invoicing requirements, whereas others do not.

Latvia, for instance, plans to make e-invoicing mandatory for all business-to-business (B2B) and business-to-government (B2G) transactions by 2025.

This is in stark contrast to Hungary, which does not mandate e-invoicing for B2B and B2G transactions, instead opting for a real-time invoice reporting system for native companies and foreign companies with branch offices within the country.

Additionally, compliance with regulatory requirements such as the US’s Sarbanes-Oxley Act (SOX) is crucial for financial reporting and risk management. However, complying with SOX presents significant financial risk challenges to organizations, primarily due to its stringent requirements for internal controls and financial reporting.

Public companies view SOX compliance as a routine checklist of tasks to be completed. They may skip the part where their business should carefully consider the specific risks that could impact the accuracy and integrity of their financial reporting.

In simpler terms, this means that the organization does not thoroughly analyze potential risks and does not establish control measures to address those risks effectively. Without a risk-based approach to SOX, organizations may find it challenging to identify and monitor emerging risks most effectively, leaving them vulnerable to compliance breaches and financial misstatements.

Strengthening Controls Through Automation

Fortunately, we live in an era where businesses can mitigate risk by leveraging automation to strengthen controls over their financial processes.

Modern technology is playing an increasingly important role in alleviating challenges for F&A and credit management teams, giving them tighter control over a range of activities and simple risk flags like changes to the bank account a payment is made into.   

Adding an automation element to risk management arms businesses with the tools to process data in real-time. Traditional methods, mainly from the invoicing side, rely on periodic data analysis, often leaving businesses to react to overdue payments rather than anticipate them.

Modern, automated systems can flag potential risks as soon as they emerge, allowing businesses to react more efficiently to them.

An example would be if a customer has a County Court Judgement (CCJ) issued against them in the UK or a Civil Judgement in the US. Rather than waiting for them to miss the payment or the invoice due date, automated systems allow businesses to take corrective actions – such as contacting the customer or adjusting credit terms –before any payment issues escalate.

Navigating the role of human error is another aspect to consider when considering risk management strategies. Anytime humans are involved in practices such as data entry or evaluation, simple mistakes can creep in whereby a one becomes a two or a nine becomes a zero and suddenly you run the risk of misrepresenting figures.

Modern automation reduces this risk, eliminating the need for manual spreadsheet entries, enhancing both the accuracy of data and reducing the risk of non-compliance.

The human element is particularly important when considering compliance with regulations such as SOX in the US. These regulations require stringent controls to ensure accurate financial reporting and automated systems help facilitate adherence to these regulations by ensuring consistent and accurate data processing throughout.

Automation streamlines and strengthens the compliance process and provides clear documentation of financial transactions, which is essential for audits and regulatory reviews.

What About AI?

Naturally, Artificial Intelligence (AI) is starting to creep into conversations around financial risk management. BlackLine’s research of over 1,300 global C-Suite and F&A leaders revealed that they see generative AI (78%) and new kinds of AI (76%) as essential for improving business resiliency in the face of future disruption.

Businesses are looking for solutions with embedded AI algorithms to evaluate customers’ payment behavior over time and flag deviations from expected patterns to enhance their proactivity.

By continuously learning from new data, AI systems can refine their predictions and improve risk management strategies, providing businesses with a dynamic tool for navigating financial uncertainties into the future and beyond.

Generative AI also has potential in this area. The beauty of generative AI is that you don’t need to be an expert coder to use it – it gives users the ability to query data in natural language – making it more straightforward and intuitive for F&A teams to find the answers they need at a greater speed.

AI functionality will continue to develop as we move through the remainder of 2024 and beyond, but businesses should also consider the technology’s dual potential. While it can enable more proactive risk mitigation strategies, organizations need to ensure the technology does not create risks of its own.

It must be implemented and used within existing compliance frameworks and have its own set of checks and balances.

Ultimately, robust controls are critical for businesses in the current, complex risk landscape. However, this landscape is also set to evolve rapidly going forward, and controls and compliance must keep pace if businesses are to remain resilient in testing times.

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How CFOs Stay Ahead of Rapidly Changing Markets

Industry Analysts’ Take on F&A Priorities

This is a blog post from our partner BlackLine, detailing five considerations for CFOs to thrive during innovation-fueled market disruption.

The rapidly increasing pace of innovation is changing the landscape of financial decision-making. As the financial leaders of their organizations, CFOs play a crucial role in adapting strategies and processes to stay ahead in rapidly changing markets.

The most successful CFOs emphasize transparency in their financial data and collaboration across their organization to unlock analytical narratives that inform critical decisions while achieving timely and accurate financials. Timely, accurate, and transparent financial data are now the core tenets of financial excellence, from strategic decision-making to earning stakeholder trust.  

Let’s examine five factors regarding the importance of precise, timely, and transparent financial data amidst technology-driven disruption.

1. Timely Insights Drive Proactive Decision-Making

In today’s fast-paced and ever-evolving finance and business environment, the adage ‘time is money’ is more relevant than ever. A recent IDC survey on generative AI (GenAI) revealed that 37.4% of organizations anticipate GenAI will disrupt their competitive position.

This clearly indicates that GenAI and other technologies are revolutionizing the speed and quality of data. As a result, CFOs need to be at the forefront of these changes, leveraging technology to accelerate the delivery of timely and actionable data. 

Timely financial statements and detailed analysis provide decision-makers with up-to-date and relevant information, enabling them to respond effectively and efficiently to changes in market conditions, capitalize on opportunities, and mitigate risks before they escalate. In an environment where agility is not only key but also a competitive advantage, the speed of financial insights is a critical determining factor of success. The urgency of this cannot be overstated.

2. Accuracy as the Cornerstone of Reliability

Accurate financial statements and accompanying fluctuation commentary are the bedrock of reliability in financial reporting. Precision in data collection, recording, and analysis is the key to building trust with stakeholders. However, a Gartner study found that 59% of finance and accounting teams make multiple errors in their financial data every month. These errors can have serious consequences, underscoring the need for CFOs to prioritize accuracy in their financial data and take steps to reduce these errors.

Inaccuracies compromise decision-making and erode the trust and confidence of investors, creditors, and other stakeholders. Achieving financial goals requires a foundation built on accurate, timely, and reliable financial statements, fully supported by solid explanations of fluctuations.  Additionally, accurate financial statements assist in the journey to compliance with regulatory standards, avoiding legal consequences and reputational damage.

3. Transparency Builds Confidence & Trust

A recent survey by Censuswide found that 42% of finance and accounting leaders do not entirely trust the accuracy of their organization’s financial data.  Clear, open, traceable, and transparent financial statements and analyses demonstrate a commitment to openness and accountability.

Stakeholders—whether the CFO, CAO, investors, employees, auditors, or regulatory bodies—appreciate an organization that is forthcoming with its financial information. Focusing on transparent reporting fosters trust, laying the groundwork for positive relationships and long-term partnerships. For example, well-informed investors are likely to engage positively with organizations that focus on driving trust.

4. Informed Decision-Making for Strategic Excellence

Accurate and transparent financial analysis remains paramount to strategic decision-making. It provides insights into accurately assessing performance and risks and identifying growth opportunities. Gartner found that 76% of CFOs indicated improving financial metrics and insights as a top priority. 

Informed decisions, backed by thorough financial narratives, position organizations to navigate complexities, optimize resources, and stay ahead in a highly competitive and ever-changing landscape.

5. Operational Efficiency & Continuous Improvement

Continuous optimization to deliver efficiency is the lifeblood of successful organizations. Timely financial analysis enables swift and better-informed decision-making and contributes to operational efficiencies. Yet, Accenture found that finance and accounting teams often spend up to 85% of their time on low-value and labor-intensive tasks like preparing data and analysis.

Organizations must look for ways to reallocate capacity and support timely and actionable financial analysis. Detailed and transparent analysis sheds light on operational performance, allowing organizations to identify areas for improvement, optimize processes, and drive continuous enhancements across the organization.

The importance of timely, accurate, and transparent financial statements and analysis cannot be overstated in the pursuit of financial excellence. These elements are reporting requirements and strategic business partner imperatives that guide decision-making, build trust, and drive operational efficiency. As organizations strive to navigate the complexities of the financial landscape, embracing these pillars becomes a pivotal step toward sustained success, growth, and resilience in an ever-changing business environment.

This blog post was originally published on the BlackLine blog.

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Industry Analysts’ Take on F&A Priorities

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Automation in Accounting and Accounts Receivable Solve Workload and Staffing Shortages

This is a blog post from our partner BlackLine. It highlights a recent podcast featuring Cindy Jacobson, a former credit manager turned senior solutions consultant with BlackLine. The podcast is hosted by the National Association of Credit Management (NACM).

Cindy Jacobson, a former credit manager turned senior solutions consultant with BlackLine, spent the bulk of her career managing order-to-cash and serving as a director of credit. She understands the challenges of today’s credit and finance teams.

In this installment of NACM’s podcast “Extra Credit,” Cindy explains that manual processes are at the root of many of those challenges. Timely invoice delivery and customer payment receipt are both areas that can be negatively affected by slow traditional processes.

In addition, companies often deal with volume fluctuations. For many teams, payments can be processed manually, but suddenly one week, you’re inundated, and it slows everything down. Accurately applying payments to invoices at the invoice level in a timely manner is critical because it impacts your collection activities as well.

Cindy notes that everybody does collections, but the question is: are you contacting everybody that needs to be? In a manual world, there’s a good chance you’re dealing with delays in dispute resolution.

On top of all that, there are month-end activities!

Listen to the podcast here!

Cindy explains, “When I think about the reporting I used to do at the end of the month to provide an assessment of AR and explain: where we’re at, where our challenges are, what our DSO is and why it looks that way, and what customers are a potential risk … that can take hours of data mining in a manual world.

When I think about workload challenges, all those manual tasks add up. We were always expected to do more with less. Most organizations run on a lean team anyway, and when you lose staff, it just makes it even harder. There are a lot of things you touch in AR, and I don’t think people realize how many areas that department is responsible for.”

How Do Staffing Shortages Impact the Efficiency & Effectiveness of Credit Operations?

When you’re in a manual process world, you’re already inefficient. Staffing shortages can make that inefficiency even worse. You become more inefficient because you’re asking folks to step in, pitch in, and do things they may not have done before.

When you have a staffing shortage, you’re increasing the overall workloads of employees you do have. They’re not going to be able to get larger workloads done in the same amount of time. One of the issues with manual processes is individual employees possess a lot of institutional knowledge. They’ve got a lot of valuable insights and expertise in their heads that you can’t easily replace. If someone retires or moves to a new company, you run the risk of your remaining staff suffering burnout. They’re already stressed out, and you’ve added more to their plates, which can lead to MORE burnout and turnover! Combined, this can all negatively affect morale.

What can you do? Let’s talk about some solutions.

What Role Does Automation Play in Addressing Workload & Staffing Shortages Within the Credit Department?

Employees are looking for a place where they can have a decent work-life balance. The lack of balance has become a leading cause of turnover when employees live in manual, mundane processes. They don’t have a chance to advance their careers.

When you leverage automation, you will increase your team’s capacity. You’re taking all that mindless, mundane work out of their hands, and that gives them the opportunity to increase their skillset because they’re going to work on other higher value-added activities. And that’s really important, especially when you look at the younger workforce. They’re very tech-savvy, and they don’t want to work for an organization that they perceive as living in the ‘stone age.’

Employees want to feel like they’re contributing value to the company they work for and that they’re working in a place that will try to advance their careers and provide them with the necessary tools to do that. In a profession like B2B credit, we want the next generation to be excited to become credit managers! We need to use these new tools to make credit management more exciting.

There’s a lot that can be automated in the cycle, such as sending customer invoices. I can remember when we would print out hard-copy invoices, collate, and mail them. It was all manual. Now you can automate that whole invoice process and send invoices via email to the customer. You can even make it easier for your customers to self-service their accounts. Then you can absolutely drive automation in the allocation of the payment processing itself to decrease errors. With automation, you can reduce the manual effort of that piece alone by up to 85%. So you’re really adding a lot of capacity back to the team that’s responsible for getting those funds applied.

Automation can also help reduce manual collection processes; for example, you could utilize some collection automation to create a collector’s work list. Collectors in the manual world spend a lot of their time just trying to determine ‘who do I contact today?’ They spend time trying to determine whose credit they should assess to see if the credit limit needs to be changed and whether that’s an increase or a decrease. If you apply automation and put some risk policies in place, you can let the solution look at customer payment behavior, sales values, all of that information, and bring that to the forefront. Let it tell you where you should be focusing on risk. There are lots of areas where you can drive automation.

This blog post was originally published on the BlackLine blog.

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