Road to Digital Finance

The role of finance in an entity is crucial and such a role is changed with the move in the business environment. It has been argued that finance supports cash flow management and therefore a number cruncher but in modern days the role is evolving towards business partnering. Such change needs to be capitalized for business growth and the question pops up how to shift accordingly. Strategists are recommending multiple options and there is no unique way to grab it. However, the transformation towards digital finance could be a game changer for a business to adopt and move toward organic growth.

What is meant by digital finance?

This concept means providing financial services by an entity using digital infrastructure. These services could be provided to internal customers as well as to external customers. The entity could be a large corporation or a small entity, the philosophy of ‘going digital’ is the key to embracing technological changes for shaping core competence for better customer experience.

What are the pillars of digital finance?

In current days, a business should positively invest its financial resources in the following stems to get the toll of digital finance:

1. Cloud-Based Financial Systems:

Cloud finance solutions have emerged as vital tools to optimize the respective financial operations of a business and reap the benefits of streamlining, simplifying, and automating business processes. This could affect the following:

• Flexible General Ledger: Tailor financial processes to your organization’s needs with a flexible general ledger.

• Automated Billing Processes: Streamline billing processes and reduce manual errors with automated billing functionalities.

• Intelligent Analytics: Gain actionable insights with intelligent analytics, providing real-time visibility into financial performance.

Implementing finance solutions would require a comprehensive cost-benefit exercise and it is evident that Return on Investment(ROI) is high for such an initiative due to upfront cost reduction for hardware and software licenses. Moreover, real-time access and flexibility while ensuring a consistent view of critical customer data and processes for users could amplify more value in terms of collaboration and future profitability.

2. Data Analytics Tools:

Big data is a big business. The importance and popularity of analytics have increased exponentially over the past few years as organizations are looking for a better way to make sense of the large volumes of data they collect for grabbing business opportunities. The modern business makes predictive analysis, prescriptive analysis, diagnostic analysis and descriptive analysis to support decision-making, there are several factors while deciding on data analytics tools such as :

• Data volume: The size of data coiling in a business is an important consideration when deciding which data analytics tool makes the best fit.

• Complexity of data: The complexity of data is also a factor to consider. If the data is difficult to understand or analyze, one can benefit from the features of today’s leading analytics solutions.

• Types of analysis: Different types of analytics tools can be useful for different purposes. Hence, the business need should come first to consider an analytics tool.

Finance can use data analytics for business forecasting, measuring employee engagement, engaging internal controls, designing business campaigns & offers, staggering business strategies, safeguarding business risks, etc.

3. Process Automation:

Finance process automation involves automating specific manual tasks, which can be performed more efficiently by onboarding artificial intelligence. Such transformation is about digitizing as many jobs as possible which involves minimum human intervention while still maintaining agility and a high level of quality. Such automation can address various financial pillars and considering these financial services should be highly valuable to a business:

• Accounts Receivable(AR)/Payable(AP): Finance automation can involve the following AR/AP tasks:

• Recurring invoices settlement or customers automatically receive invoices generated on a pre-set schedule.

• Overdue collection or payment reminders when an invoice is past due.

• Aging reporting to provide valuable insight for future cash projection.

• Payroll: An ERP system can automate the payroll and other benefits & perks as per HR policy where the tasks will be digitized that include:
• Adding all employees to the payroll systems along with bank data.
• Set different wages and rates as per employee grade.
• Run payroll with a single click avoiding duplication.
• Auto reconciliation.

• Purchase Order(PO) Solution: Automating procurement processes from purchase requisition(PR) to purchase order(PO) generation and post reconciliation, and spending to facilitate purchase order management will enhance value for money and better resource management.

• Reporting and Analysis: Automated finance analysis tools that offer APIs (application programming interfaces) make it easy for a business to consolidate all critical financial data from their connected apps and systems and generate Management Information Systems(MIS) with real-time data for faster decision making. Set reports can be sent over email at a predefined date and can pluck data for the management dashboard to showcase target versus actual performance.

• Tax Solution: Research shows that tax preparers typically spend up to 80% of their time and effort on data preparation. Automation allows tax preparers to quickly access the information they need instead of spending hours searching for data. Today, there are multiple types of scanning technology to scan invoices or bills, packing slips or inspection reports for future data management and saving time significantly to support tax management.

4. Enforcing Internal Controls:

Setting internal controls would mean the business is safeguarding its resources by reducing or eliminating risks inherent in the business processes. If the process becomes automated, setting controls like Procure to Pay(P2P), Expense to Pay(E2P), Record to Report(R2R), Payroll Management, Fixed Asset Management, and General Computer Control(GCC) would be simple to get activated. The higher the level of control, the lesser the financial risk would be in the business landscape.

5. Risk Management Information System(RMIS):

A risk management system is a computer information system which helps organizations assess risk through available data. It’s meant to be easily accessible from multiple locations and through different devices, allowing key decision-makers to get the information they require whenever necessary. Such a system is flexible and agile, able to allow for the changing needs of a modern workplace. At the same time, it can be tailored to support the identification of business risks, their exposures, protection measures and related risk mitigation plans.

6. Shared Service Centers(SSC):

The introduction of the SSC using the shared services model can transform business processes and shred the rough edges in the operational model for cutting-edge operational excellence with more cost control. Multinational entities are reaping the advantages of SSC by transforming its Accounting, Information Technology(IT), Payroll Services, Treasury, Legal, and Procurement services and thus reducing significant headcount to build a culture of cost leadership.

7. Go Cashless

Activating ‘Go Cashless’ initiatives like leveraging on digital modes such as Mobile Financial Services(MFS) or Digital Banking solutions(DBS) for collection and payments would reduce time, effort and money. To reap the full toll, moving to a paperless initiative supported by an integrated collection and payment process would aid in smooth financial management.

Pre-requisites to shift towards digital finance:

This transformation is not possible overnight. There are certain prescriptions to be followed to set the tone for such a shift, such as:

• Setting a long-term strategy for transformation towards digital finance. Such a strategy should connect the Finance Roadmap to cascade down to the operational level so that there is a collaborative approach with more accountability.

• Empowering the Finance Leader for a transition from operation to strategic mode. Hence hiring the right leader would be a key decision to accommodate the new changes.

• Allocate financial resources to trigger cross-functional projects on innovative and change management stuff led by finance. The specific project should be backed by the business need and industry reference.

• Raising the capacity of the workforce on a regular interval as well as supporting professional development for the same to adopt and foster changes should be a continuous process.

• Develop a culture of storytelling on numbers and compliances for clearer insights and better communication. This should be supported by non-financial factors as well for a concrete picture of the business.

Digital Finance is a need to address the current wave of changes. Hence, cost-benefit analysis with the enforcement of the right leadership can drive this transformation journey for a better tomorrow.

Author:

Mohammad Tanvir Hossain ACCA, ACMA, CGMA
Financial Controller
Upay (UCB Fintech Company Limited)