There’s no one to blame for this. After all, to make the occasional oversight and error is only human, and in such a complicated field, we are only as good as the tools and processes at our disposal.
But with the world changing and developing faster than ever, every industry is looking for ways to utilize the advancements available to minimize risk, reduce mistakes, and simplify their processes simultaneously.
In fast-paced, stressful, and intricately detailed industries like accounting and finance, it’s no surprise to see companies looking for digital solutions to manage their workloads and help staff streamline processes that were once prone to so many unexpected errors.
For this reason, automation has seen a rise in popularity.
What is Accounts Payable Automation?
Accounts payable automation (also commonly referred to as AP automation) is a software system that integrates the online network of a business to connect teams, simplify accounts payable processes, and create a cohesive method of invoice payments and other business financial transactions to reduce the potential for mistakes and oversights.
Processing that’s Prompt, Precise, and Paperless
With AP automation, scanning and e-invoices are used through electronic submissions of forms and other documents to accomplish the needs of a company’s accounts payable processes.
Payroll staff, suppliers, and purchase orders can all exist in unison to speed up administrative tasks, highlight errors before they reach the system, and minimize the amount of physical paperwork required to achieve all of this.
The Main Benefits of Accounts Payable Automation
With new technologies and advancements being introduced to so many different aspects of a business, it’s important to understand exactly what the benefits of accounts payable solutions have to offer your specific business.
To ensure you’re on the right track, here are some of the improvements that your payments departments can expect from AP software.
Efficiency
Approval times, communications, and payments can be achieved with more efficiency and fewer hold-ups with AP automation. The transition between systems isn’t a concern due to the software’s ability to integrate seamlessly with existing systems.
Greater Speed
By eliminating most of the manual processing stages, AP software can speed up all invoice processing and eliminate wasted hours between members of staff in comparison to the time it takes to process a physical invoice.
More Cost-Effective
Automation helps reduce labor expenses and the costs that come with storing and postage of critical accounts data. These considerable cuts in business costs can also lead to saving more time and making better use of your resources.
Better Accuracy
By removing the chance for human errors occurring in your transactions and payments processes, you can benefit from more accuracy and avoid mistakes that could be potentially harmful to your business.
More Trackable and Transparent
Automated accounts payable processes are built with compliances within the system. This allows concerns like fraud and security issues to be tracked faster and more easily prevented. Operating with complete transparency, suspicious transactions and activity can be spotted quicker and are easier to follow.
The Three Main Steps of AP Automation
Accounts payable automation assists a business with unifying its tasks on one digital platform through the following three simple but effective steps.
Invoices and Receipts
Digital invoicing and receipts like PDFs, paper-to-electronic conversions, and B2B connections can be received through a digital supplier portal that facilitates sharing of data and financial information.
These invoices and receipts, whether paper or electronic, are scanned and processed using AI software. Once complete, these documents, dates, and other digital data pieces are stored safely and securely in a cloud.
Matching Data and Simplifying Workflow
That captured and stored data then gets quickly and intricately matched to its designated team or individual responsible for it. Invoices and receipts are paired with their purchase orders before being sent off to the relevant accounting departments for payment.
Secure Archiving and Ease of Access
A digital audit trail of every action, movement, and transaction that was taken for every invoice is then archived. These archives are protected but are easy to access when needed for any financial auditing purposes, allowing a safe but easy-to-locate method of finding older invoices on your database.
What ROI Can you Expect to get from AP Automation?
While many different factors can contribute to your return on investment, there are several ways in which you can expect to get a considerable ROI on your AP investment, including:
● Reduced financial loss due to human error
● Continual on-time payments made
● Reduced time and savings for labor costs
● Decreased staffing costs
● Increased discounts for early payments
● Fewer invoicing processing costs
Aside from the ROI benefits, you can also expect to achieve a more streamlined process, easier auditing, increased employee productivity, and customer satisfaction.
Commonly Asked Questions about Accounts Payable Automation
Inevitably, with so many variables to consider and so much information at stake, businesses will have some questions to confirm, reassure, or clarify their concerns and queries. Below are the most commonly asked ones regarding AP automation.
Will AP automation work with our existing accounting systems?
Yes. AP automation solutions are designed to integrate easily with ERP and other financial systems, facilitating integration and safer data flow in real time.
Can AP automation prevent fraudulent acts and duplicate payments?
Digital checking means that every invoice is scanned, checked, and flagged when duplicates are found. This innovative method means duplicates are prevented earlier instead of after the fact.
With faster and more efficient processes, you’ll be able to pinpoint suspicious activity, identify fraudulent practices, and bolster the security of your company’s financial tasks.
Can my suppliers use this to submit invoices?
Your suppliers will have the ability to interact with these automated systems via their supplier hub. From this portal, they’ll be able to constantly check the status of their invoices, submit new ones, and reduce administrative inquiries.
How can AP automation solutions help with invoice-related communications?
It can quickly help resolve invoice-related queries and concerns by providing you with a detailed and accurate record of all dates, questions, and authorizations regarding all your invoices. These are easily accessible for all parties to get everyone on the same page faster and improve the overall efficiency of your business needs.
Owning and running a small business is no joke. You need to put in a lot of hard work, not to mention a huge amount of time toiling day in and day out in order for your venture to prosper.
Earning money is just one facet of this – you also have to be able to manage it properly. Quite often, a business can be working well, but because the funds are mismanaged, it may seem like you are losing money.
There are many ways to be wise about this. The main tenet is to keep cash on hand at a good level for your operations to continue working smoothly, and to keep your liabilities at the lowest possible level they could be. There are many ways you can practice this as you work in your business. Two key strategies prove especially relevant.
1. Keep Your Fixed Costs to a Minimum
The best way to decrease liabilities is to be prudent with your spending. Keeping your fixed costs as low as possible can help with this. One example of a fixed cost is your rent. Some aspects to consider for this line item are:
- The location of your office. If the size of the office doesn’t have to be too big, but accessibility is important for the daily transactions of the business, then it would be wise to choose a smaller space that’s centrally located.
- The size you need to operate. On the other hand, if the location isn’t really an issue, but the size is of greater importance, then you would usually choose the biggest land area you could afford that is farther from the central business districts. Examples of where this is more applicable are businesses that need warehouses or big facilities to house equipment, machines, or vehicles.
Another fixed cost would be the equipment that you have to buy. If you’re into manufacturing, assess whether it’s more prudent to have your goods manufactured by a third party, or if you are saving more in the long run by buying your own machines. Keep in mind that these assets involve a big amount of cash outlay and that you will have to pay for maintenance as time goes by.
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2. Keep the Cash Flow Steady
A business accrues a lot of operational costs – one example is that you need a steady amount of cash to pay your suppliers in order for you to keep your offerings available. However, your cash may be locked in assets that you purchased, or in your payroll budget, or in receivables from your clients.
One thing you can do in order to keep cash flow steady, instead of taking on a bank loan which accrues interest and consequently increases expenses for you, is to sell the receivables that you already have to financing companies. For example, if you are in the trucking business, you can enroll in freight factoring, where you let a factoring company buy your account's receivables so you get cash for them immediately. No need to wait for the 30- to 90-day period you initially have on contract with your clients before you get the cash you need to continue operating.
These are two of the main strategies to keep in mind in order to manage your finances more wisely. As long as you have these principles in mind as you make your decisions, you should find yourself secure, and your business in a pretty healthy financial state.
Here Ian Smith, GM and Finance Director at Invu puts to rest five of the most common myths about this business critical function.
Myth 1 – Accounts payable doesn’t need investment
Reality – While it is understandable that most businesses will prioritise investment in front office functions, funding back office operations should not be ignored. Business requires accounts payable to deliver customer satisfaction. Failure to invest can result in the function being off the pace and unable to support the business.
Myth 2 – Accounts payable can fund your business
Reality – Funding your business by delaying payments to suppliers can damage your brand and normally ends with a fall. We’ve seen this multiple times in the past year, where the only cash generation was from delayed payments to suppliers who eventually could not take anymore. The late payment of suppliers by large companies has been subject to regulatory overview with the introduction of Reporting on Payment Practices and Performance.
Initial reporting figures show that on average 31% of invoices are not being paid on time.
Myth 3 – The accounts payable department knows everything going on in the business – even if you don’t tell them
Reality – The consequences of keeping the accounts payable department in the dark, by failing to provide the information required to resolve issues, can be harmful both to supplier relationships and management accounts due to delayed processing of transactions. Accounts payable and those responsible for the approval of invoices require transactional visibility and an audit trail to ensure effective processing.
Myth 4 – Accounts payable is the department of “no”
Reality – The perception of accounts payable as a department staffed by variations of the Little Britain character Carol Beer – “computer says no” – mis-states the role, which is to support budget holders in the delivery of outcomes and maintain a positive relationship with suppliers.
Myth 5 – Accounts payable just happens and requires no skill
Reality – There’s an expectation that accounts payable will be seen and not heard, be error free, and always on time. When this is not the case there is often an assignment of blame rather than an appreciation that this is an exception to the normal success rate.
The brave new world of accounts payable requires systems that automate data entry, provide approval workflows and requires skilled staff who can deal with exceptions, helping provide efficiency, visibility, and control over the payables process.
This is why banks are lining up to convince business owners they are the right bank for them – however, according to Steve Morgan, Senior Director of Financial Services at Pega, there are several key factors to consider when choosing a bank for your business accounts.
In a recent Pega survey of 340 UK businesses who use credit and lending services, traditional banks continue to lead the way in terms of who organisations would choose if they were to switch providers. This is despite the rise of challenger banks like Tide, who have just recently announced that they have signed up 100,000 customers for its app-based business accounts.
However, there are businesses who are keen to switch, and the emergence of technology is making it easier. Two thirds of large organisations considered changing providers and nearly a quarter (22%) have changed their main bank in the last year. Over half of medium sized organisations are similarly placed for switching. The main reason why businesses find themselves changing providers is because of high charges, plus a requirement for better online banking facilities and improved service.
When asked about what technology innovations they would like to see from a bank, businesses said they would like to see greater use of AI for more personalised, tailored and timely offers. According to a report by Business Insider Intelligence, AI is being used by banks to improve customer identification and authentication, as well as providing personalised recommendations and insights, but there is clearly a way to go.
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Another concern that British businesses voiced when it came to choosing a bank was the idea of transparency; the extent to which a corporation’s actions are visible to the customer. During the onboarding processes businesses said they would prioritise transparency, consistency and automation when choosing a new banking partner. They also want to see improved speed of service, confirmation texts/e-mails, and a greater understanding of customer needs to deliver the right products and services.
The traditional larger banks might feel comfortable when hearing that they are still leading the way in terms of customer preference, but that would be a mistake. The Pegasystems study suggests business customers like the idea of improved use of technology and AI in their banking service. This is going to be a critical competitive comparison point for the future of business banking. Switching looks to be increasing in business banking and both the technology and options for clients are improving.
Clients expect AI to be used to help identify needs better, so that more personalised products and services can be offered, and so banks can predict the client needs when they switch or take out a new product. This is the time to make a great impression.
The banking provider that a business chooses will depend on the organisational structure of the business itself. An organisation is likely to form a partnership with a bank if that bank can demonstrate their exceptional capabilities and understanding of the business’ strategic goals. Customers tend to be loyal if they believe that their needs are being met by their financial services provider. Therefore, it is important for banks to make sure that their customers are satisfied by their services. This ultimately comes down to the banking provider being well informed about the business, as well as providing outstanding service through their channels.
But it is the speed at which the technological advancements have reached that has forced traditionally slow-moving financial institutions to heavily invest to remain relevant to their consumers and remain competitive in the marketplace.
Personal
Banking is one of the oldest businesses in the world, going back centuries ago, in fact, the oldest bank in operation today is the Monte dei Paschi di Siena, founded in 1472. The first instance of a non-cash transaction came in the 20th century, when charga-plates were first invented. Considered a predecessor to the credit card, department stores brought these out to select customers and each time a purchase was made, the plates would be pressed and inked onto a sales slip.
Once the sales cycle was over, customers were expected to pay what they were owed to the store, however due to their singular location use, it made them rather limiting, thus paving way for the credit card, where customers that had access to one could apply the same transactional process to multiple stores and stations, all in one place.
Contactless
Leisurely spending has changed that much that we can now pay for items and services from the watches we wear on our wrists, but it wasn’t always this easy. Just over a few decades ago, individuals were expected to physically travel to their nearest bank to pay their bills, and had no choice but to carry around loose change and cash on their person, a practice that is a dying art in today’s society, kept afloat by the reducing population born before technology.
Although the first instances of contactless cards came about in the mid-90’s, the very first contactless cards associated with banking were first brought into circulation by Barclaycard in 2008, with now more than £40 million being issued, despite there being an initial skepticism towards the unfamiliar use of this type of payment method.
Business
Due to the changes in the financial industry leaning heavily towards a more virtual experience, traditional brick and mortar banks where the older generation still go to, to sort out their finances, are now in rapid decline. Banks are closing at a rate of 60 per month nationwide, with some villages, such as Llandysul closing all four of its banks along with a post office leaving it a ghost town.
The elderly residents of the small town were then forced into a 30-mile round trip in order to access her nearest banking services. With technology not for everyone, those that weren’t taught technology at a younger age or at all are feeling the effects most, almost feeling shut out, despite many banks offering day-to-day banking services through more than 11,000 post office branches, offering yet a lifeline for those struggling with the new business model of financial firms.
Future innovations
As the amount of digital natives increases year on year, the demand for a contemporary banking service continues to encourage the banking industries to stay on their toes as far as the newest innovations go.
Pierre Vannineuse, CEO and Founder of Alternative Investment firm Alpha Blue Ocean, gives his comments about the future of banking services, saying: “Artificial intelligence is continuing to brew in the background and will no doubt feature prominently in the years to come. With many automated chatbots and virtual assistants already taking most of the customer service roles, we are bound to see a more prominent role of AI in how transactions are processed from all levels.”
Technology may have taken its time to get to where it is now, but the way in which it adapts and updates in the modern era has allowed it to quicken its own pace so that new processes spring up thick and fast. Technology has given us a sense of instant gratification, either in business or in leisure, we want things done now not in day or a week down the line.
Sources: https://www.sysco-software.com/7-emerging-trends-that-are-changing-finance-1-evolving-cfo-role/ https://www.vox.com/ad/16554798/banking-technology-credit-debit-cards https://transferwise.com/gb/blog/5-ways-technology-has-changed-banking https://www.forbes.com/sites/forbesfinancecouncil/2016/08/30/five-major-changes-that-will-impact-the-finance-industry-in-the-next-two-years/#61cbe952ae3e
After all, hackers are rife on the internet and if you’re not careful then you may find yourself an unsuspecting target. If you want to help yourself then there are a few things that you can do to guarantee your own online security.
Test your Passwords
It doesn’t matter how strong or even clever you think your password is because hackers can use the finest technology to get the edge. One way for you to know for sure if you think your password is strong enough would be for you to use a password analysis site. Sometimes this will give you an estimated time they think it would take for a hacker to guess your password. They even give you hints to improve it too.
Financial Accounts
Hackers tend to target real-money websites more than anything. This can include payment sites or even casinos. If you want to help yourself here then it is so important that you assess the site first, before you go depositing anything. If you want to sign up to an online casino, then check to make sure that the site is reputable, and that it has HTTPS as this will help to protect your data. NetBet casino games are a prime example of this, so you can always rest assured knowing that your data is safe on there. When signing up to a payment provider, check to see how well-used they are, how long they have been in business or even to see if they have any additional security measures that you can implement.
Use a Password Manager
Remembering all of your passwords can be an absolute nightmare. Writing them down is a huge security risk because if you were to be burgled then they would have access to just about anything. Using a password software can be great, as they are super secure and they give you the chance to remember just about anything you need. You will need to set a single master password to get into your account, so it’s suggested that you incorporate letters, numbers and even symbols where possible.
Sensitive Accounts
If you have an online account with any sensitive information, then you may want to double-up with an additional layer of security. This is especially the case if you bank online. Sure, this can make signing in way more frustrating but it’s well worth it if something were to happen. You also need to make sure that the most important accounts have an alternative email address too so that you can gain access to your account should you ever be locked out. This can be a real life-saver and it can also alert you if someone ever does try and hack your account. This can give you an extra level of security and you’d be surprised at how convenient it is for you to do this.
So, keeping your online data safe involves:
- Using a password manager
- Protecting your sensitive accounts
- Changing your passwords regularly
- And always choosing sites with HTTPS over HTTP
We are seeing an unprecedented shift in consumer spending habits. But this rapid growth is introducing new challenges. Fraud is rising, yet merchants are under pressure to deliver the seamless payment experiences that consumers increasingly demand.
Network tokenization is one of many technologies that online merchants are turning to in a bid to strike the right balance between high security and a frictionless buying experience.
But according to Andre Stoorvogel, Director of Product Marketing at Rambus Payments, we should not think of network tokenization as an optional add-on. Rather, it is a foundational technology enabling secure, simple digital commerce.
What is network tokenization?
With network tokenization, the payment networks replace a primary account number (PAN) with a unique payment token that is restricted in its usage, for example, to a specific device, merchant, transaction type or channel.
The question is, how is network tokenization different to existing third-party proprietary tokens?
The main (and crucial) difference is that network tokenization ensures that card details are protected throughout the entire transaction lifecycle. Non-network tokens don’t offer this end-to-end security, introducing weaknesses at various points for fraudsters to exploit.
Network tokenization also introduces improved credential lifecycle management to keep card details current, whereas proprietary tokens do not always have issuer permission to access and manage the underlying account data.
Finally, network tokenization opens opportunities for new, enhanced buying experiences across existing and emerging channels.
What are the benefits of network tokenization for online commerce?
To fully appreciate the unique value that network tokens bring to the payments ecosystem, we need to understand how they can address the key pain points for e-commerce merchants.
- Reducing the cost of fraud
We can’t get away from it. Online commerce has a fraud problem.
E-commerce fraud is growing twice as fast as e-commerce sales, with retailers set to lose $130 billion between 2018 and 2023.
We should not be surprised that one in two US merchants see fraud prevention as ‘an increasingly challenging task’. They are already spending $3.48 to combat every dollar of fraud (and this is set to rise with the global cost of fraud prevention increasing by 4% year-on-year).
And yet, the fraud rates keep on climbing. In a hyper-competitive industry where every cent counts, blindly throwing money at a problem is not a sustainable strategy.
The end-to-end security proposition of network tokenization significantly reduces the risk, and mitigates the impact, of malware, phishing attacks and data breaches. Put simply, tokenized card data is useless if stolen and for this reason, network tokenization should be the foundation on which a layered fraud management approach is built.
- Combatting false declines
Given the scale of the fraud challenge, merchants and issuers are understandably adopting a cautious approach. Transaction approval rates for digital transactions stand at around 85%, compared to 97% for in-store transactions.
This leads to a high prevalence of ‘false declines’, where a valid transaction from an authorized cardholder is rejected by the merchant. Often the cause is something simple, such as an outdated billing address, but the results can be incredibly damaging.
Globally, false declines cost merchants $331 billion. 66% of consumers stop shopping with a retailer after a false decline. Unnecessary declines outstrip actual fraud 13 times over. Most tellingly, US e-commerce merchants are losing a total of $8.6 billion to declines, compared to the $6.5 billion of fraud they are actually preventing.
Network tokens can increase approval rates to reduce instances of false declines. This is because card details are automatically updated and refreshed, making it less likely for an erroneous data point to raise a red flag. Also, tokenized transactions are inherently more secure so less likely to be viewed as risky.
- Enhancing the checkout experience
Despite the huge challenges posed by rising fraud, it is telling that 91% of merchants identify ‘minimizing the amount of friction introduced into the user experience’ as the main priority when evaluating their approach to securing payments.
Introducing additional friction into the checkout process, then, is a no-go. But as network tokenization reduces the value of the underlying sensitive data, it adds an invisible layer of security.
We must also remember that merchants want to focus on payment innovation, not fraud prevention. Network tokenization is more than just a security play, and can be used to enhance the buying experience.
For example, it enables consumers to see a fully branded card when checking out, rather than a mish-mash of starred credentials and the final four digits. This boosts recognition, familiarity and engagement.
It also enables payment details to be instantly refreshed when a card is lost, stolen or expires. Better still, it can enable consumers to keep track of where and when their payment credentials are being used. For example, card details could easily be push provisioned to merchant apps.
What is the industry roadmap for network tokenization?
Given the clear benefits, we are already seeing strong momentum for network tokenization for card-on-file transactions. And with EMV Secure Remote Commerce poised to debut in 2019, we can expect to see network tokenization extend to ‘guest checkout’ experiences.
There are options available for merchants and payment service providers (PSPs) looking to implement network tokenization solutions. For those with significant strategic resource, time and technical capacity, direct integration with the payment systems is an option.
Alternatively, for those looking to move quickly, qualified technology partners offer a fast-track to the immediate benefits of network tokenization (without the potential integration headaches).
According to recent research by IDEX Biometrics, more than half (53%) of cardholders would trust the use of their fingerprint to authenticate payments more than their PIN.
A further 56% of research respondents stated that they would feel more secure conducting purchases with their card, if they were authenticated with their fingerprint. It seems that payment card users are very aware of the limitations of their PIN with almost half (45%) admitting that they never change them. And a third (29%) expressing concerns that PINs cannot be relied on to keep their money secure.
This scepticism around current card security measures also extends to contactless payments with 63% questioning their security and 70% believing that they actually leave them exposed to theft and fraud when used.
It is evident, that as a nation, we are ready for the introduction of biometric fingerprint card authentication. The only area of concern users admitted to, was how their fingerprints would be stored. 45% were worried that criminals could mimic their fingerprint biometric data and a further 51% was concerned about the possibility of it being stored in a bank’s central database - leaving them exposed to identity theft or their personal information being used without their knowledge.
These findings highlight that banks need to provide reassurance that biometric fingerprint authentication can be used in a user-friendly manner. There is no need for this information to be retained centrally and that any fingerprint data is kept with the user on their own cards. Providing customers with the confidence that they can embrace fingerprint biometrics as a more secure and personal method of authentication for their payments.
“Consumers are ready for the use of biometric fingerprint methods of authentication for card payments and it is set to be a reality in 2019, but banks have a responsibility to address security concerns, particularly in relation to how and such data is held. It is ultimately up to the banks and the financial services sector to reassure consumers to drive adoption and ultimately tackle fraud head-on,” comments Dave Orme, SVP at IDEX Biometrics.
“With a resounding 53% of consumers stating they would trust the use of their fingerprint to authenticate payments more than the traditional PIN, this must be where the UK banking industry focuses its attention. Chip and PIN is now 12 years old, and has seen its course. The consumer demand for fingerprint methods of authentication is a reality, with two-thirds (66%) of UK consumers expecting their roll out to authenticate in-store card transactions by 2019,” added Orme.
(Source: IDEX Biometrics)
Three quarters of finance decision makers within UK businesses have admitted that their company could be susceptible to fraud because of poor accounts payable systems, according to a new report.
And 70% of finance decision makers also admitted that a failure to implement robust purchase order processing within their company was also putting them at severe risk from fraud.
In fact according to the ‘Changing trends in the purchasing processes of UK businesses’ report commissioned by document managing, accounts payable and purchasing solution provider Invu, less than a quarter (24%) of decision makers are ‘completely confident’ that they could prevent or detect fraud with their current systems.
The risk from fraud is also not limited by company size, according to the research, with 25% of large businesses and 30% of small companies harbouring some concerns about fraud due to weak processes and checks.
“Although we’ve seen a slight reduction in the amount of financial decision makers concerned about fraud, it is clear that concerns remain high within Britain’s business community and that not enough is being done to protect companies from becoming victims of fraud,” said Ian Smith, GM and Finance Director at Invu.
“Fraud is a huge problem for any business, with the results being potentially fatal. Automated processes, which can monitor purchase and payment processes, go a long way to prevent and detect these issues, but they are clearly not being deployed enough within UK businesses.”
(Source: Invu)
Kristo Kaarmann, TransferWise Ltd. chief executive officer, discusses the company's new multicurrency online account and the growing demand for its services. He speaks with Bloomberg's Selina Wang on "Bloomberg Technology."
Budging and correcting your forecast should come as a benchmark practice. Below Finance Monthly hears from Chris Howard, Vice President of Customer Experience at Centage Corporation, on the growing importance of forecasting.
On January 1, a new set of tax cuts went into effect designed to stimulate growth in the small to mid-size business sector. I speak to a lot of CEOs who oversee companies with revenues in the $50 to $150 million range, and they’re approaching the start of the New Year with cautious optimism.
In addition to the tax breaks, there’s a lot to be optimistic about: low unemployment and inflation, coupled with steady growth in the GDP and stock markets. But there’s also plenty of reasons to be cautious as well. What happens if the tax cuts hit middle income families in states with high local and state taxes? Will they be able to afford their mortgages? If not, what’s the impact on the economy if many default on their mortgages?
Many CEOs tell me they’d feel more confident if they could keep better tabs on their financials. They’ve put their plans into place based on economic and market assumptions made a few months back, but will they hold up?
My message to them is always the same: forecast Quarterly, or even monthly. As one CEO of a manufacturing company who updates all of his forecasts weekly told me: “I try to analyze actual results against my forecasts on a weekly basis, because it gives my organization 52 chances a year to make corrections.”
Forecasting is a critical endeavor in times of cautious optimism. By treating your budget as a valuable asset that you consult regularly, you give your management team the opportunity to course correct as conditions change or new trends emerge.
To a certain extent, forecasts represent a best guess of what lies ahead. Predicting unforeseen trends and opportunities 12 or 18 months in advance is difficult in the best cases, and nearly impossible when the economy or specific industry experiences uncertainty or volatility. For this reason, it’s worth considering a shift to a rolling forecast (aka rolling planning system).
A rolling financial forecast allows financial teams to project out as the year progresses in order to accommodate trends that affect key business drivers. Typically, with a quarterly rolling forecast, businesses project out approximately four to six quarters ahead, irrespective of the calendar date or year. Of course, successful rolling forecasts depend on knowing a company’s key business drivers, so that the team can watch them for unplanned surprises.
I’ve also become an advocate for balance sheet forecasts. Few CFOs take the time to forecast their balance sheets, preferring to rely on their P&Ls to monitor their cash levels. Granted, forecasting a balance sheet is a difficult task, and nearly impossible to do in Excel. But I’ve seen how valuable the process is, given the critical details often missed when relying on the P&L.
For instance, let’s assume a company has earned $1 million in revenue in March, and incurred $800K in expenses. The P&L would indicate that the company has $200K in cash on hand when in fact, that may not be the case at all if the sales team offered unusually long payment terms for a client. That means the company won’t realize a chunk of revenue until some point in the future. And although it has incurred $800K in expenses, its own payment terms may mean it doesn’t need to pay an invoice immediately or all at once. Deferred revenue and liabilities are the kinds of details that the balance sheet alone can capture, which is why forecasting it monthly is the only way a CFO will know how much cash the company will have in the months and quarters ahead.
Any company seeking growth in 2018 would be wise to include sensitivity analysis as part of the balance sheet forecast. There are many ways to book actuals and financial teams may want to spend some time determining the optimal process for their company. For instance, experiment with sales and expenses within the P&L to see how they flow through to the balance sheet. This exercise will help the management team make better and more accurate decisions.
The largest part of a budget for many companies is workforce expenses. Salaries, hourly, overtime, taxes (employee and employer), 401(k) contributions, insurance, employee stock purchases, garnishments, pre-tax items, post-tax items, holiday pay, sick day pay and vacation pay, are just a few of the items that make it complex. And that complexity will only increase as a company grows and adds headcount. The more detail entered into the workforce expense forecast, the more accurate it will be.
Getting There
Earlier I noted that many CFOs want to forecast regularly, but don’t do so. Coordinating data to analyze, report, and predict performance simply requires too much time and effort, but that’s changing for two reasons. First, new budgeting platforms streamline the process, applying intelligence to ensure inputs are applied accurately and automatically.
Second, critical business systems, such as CRM and HR platforms, generate robust data that can be entered into the budget modeling software, enabling CFOs to create highly detailed forecasts. When combined, these two trends allow financial teams to quickly identify where, when and why actuals differ from plan, and inform the management team so it can take appropriate action.
Every employee of a company has a part to play in meeting the business plan set forth in the year ahead. One of the best things a CFO can do is to jettison Excel, and replace it with an automated platform.
Brexit, Trump and the chaos in Catalonia are driving demand for multi-currency accounts – and within 10 years they will be the norm, affirms the boss of one of the world’s largest independent financial advisory organisations.
The comments from Nigel Green, founder and CEO of deVere Group, come as deVere E-Money’s global money app, deVere Vault, which has 27 different currency wallets, reveals that it expects to surpass 40,000 downloads and users by the end of the year.
Mr Green asserts: “We’re living in an increasingly uncertain world. Serious, far-reaching and ongoing geopolitical developments are driving internationally-minded people to concentrate on political risk and currency risk.
“Issues such as the deadlocked Brexit talks and what the post-Brexit era will look like, the unpredictability of the Trump presidency, and the chaos in Catalonia as it potentially moves towards independence from Spain, amongst many other geopolitical factors, present huge and sobering questions marks.
“This uncertainty is resulting in more and more people beginning to look at the possible impact such issues have on their wealth and how they can mitigate this risk. Understandably, this is spiking huge interest in and demand for accounts in which you can hold money in different currencies.”
He continues: “Ever since the major and sustained drop in the pound immediately after the Brexit referendum, people have become more focused that they could have currency risk.
“It was a wake-up call to many across the world; it was a watershed moment.”
The deVere CEO concludes: “Multi-currency accounts will be the norm within 10 years – most people within a decade will have the ability to access, use and manage their money in different currencies - for three main reasons.
“First, people have woken up to the fact that even ‘remote’ political risks can be linked to currency risk.
“Second, each year there are more and more expatriates and internationally-mobile people and businesses.
“Third, holidaymakers are increasingly aware of and unwilling to accept the rip-off charges their traditional banks impose on them for using their own money overseas.”
(Source: deVere group)
