Crises are a catalyst for change. Though digitisation was an ongoing trend pre-pandemic, the past 15 months have accelerated this trend and will be one of the long-lasting consequences in Europe and North America.
Cash visibility and liquidity management are still the top priorities for treasury and the wider finance department. And even with the increasingly optimistic economic outlook, they will remain a priority for some time as variables like inflation stir uncertainty.
“How much money do I have in my back pocket? This is the key question for CFOs and finance teams to be able to ensure liquidity for an organisation,” said Christoph Dubies, chief operating officer at the global B2B software fintech Serrala. “Liquidity management and optimisation is crucial for every company at all times.”
As comprehensive, real-time and faster data are key enablers for improving a corporate’s ability to manage liquidity there are numerous challenges that prevent a firm from fully utilising that information. Difficulties in accessing bank data, insufficient standardisation and numerous manual processes are just some of the challenges corporates are facing, Dubies pointed out.
One way to efficiently overcome these challenges is the automation of accounts receivable (AR) and accounts payable (AP) functions. Firms have seen success over the past years with robotic process automation (RPA) which improves visibility of the cash coming in and leaving the business.
“RPA accelerates processes and data availability, which enhances cash visibility,” said Dubies.
He gave an example of a medical firm that received over 30,000 AP invoices a month, but only had the capacity to process 23,000 – a backlog began to form and grew every month. However, through the use of an RPA, up to 90 percent of digital invoices were processed automatically which accounted for half of the invoices they received. Beyond simply lowering the cost of processing, the firm had real-time metrics of their AP invoices.
While automation and faster access to data helps to create a finance department that is more responsive to changes in a business, often integrating that data is where many corporates face challenges. “System integration is in fact essential to get data from A to B fast and securely,” said Dubies. For automated solutions, he added, many tech vendors have been embedding their software to interface directly with large ERP providers.
“In some cases, [automated solutions] can be fully embedded within the central ERP which is the most seamless, smooth and secure way of integrating payments with the ERP system. This enables the complete synchronisation of data. In many cases, however, organizations have inherited multiple legacy systems which cannot be directly embedded.
“They need ERP-agnostic solutions to bring all systems under one umbrella. Native cloud solutions can be a useful option to bridge the gap, deliver innovation, and form a hybrid model for maximizing central cash visibility and control.”
Automation of payments also goes beyond better data and helps firms manage both their compliance and fraud risks.
“When outbound payment processes are standardised and automated along a pre-defined and configured set of criteria, risks of pushing payments past authorisations are eliminated,” said Dubies. “Automating the process enables consistent processes, limits the opportunities for fraud attempts to a minimum and ensures compliance, because all payment processes follow predefined steps, changes are logged, and related data and documents are automatically stored to ensure compliance.”
As payments coalesce around the ISO 20022 standard, Dubies said adopting a standardised format both optimises and simplifies payment processing.
“Whatever increases the efficiency of payment automation enables faster and more reliable data for cash forecasting,” he said. “Companies can also benefit from additional, enriched, consistent data within the payment instruction, as it increases the reliability of payment data, ensures that data can be reconciled automatically, and reduces the need for exception handling as data are more consistent and complete.”
But given the differences between ISO messaging and older messaging standards, Dubies said some legacy systems might not be able handle the more comprehensive data coming from an ISO 20022 message. He added however, an automated solution can help address this issue: “Managed automation services for payments take that burden away by automatically transforming, enriching, and handling any payment format.”
Some corporates are also reluctant to introduce automation because of the impact it would have on their business processes. A common concern is of a “big switch” where all processes are digitised or automated in one single move. Dubies said automation is not an all or nothing approach.
“Our advice or better guiding principle is simple. ‘Only automate processes which are clearly defined’. Automation will not make bad processes better but will bring a maximum of efficiency to good processes. Companies need to evaluate and understand how the different processes work and which rules and criteria they apply in their manual processes. Such rules and criteria should then be defined and standardised across an organisation to get the most out of automation.”
To find out more about how embracing new payment technologies can help your organisation deliver complete transparency, centralised payments, and prevent fraud, register for Serrala’s Finance Compass Virtual Expert Forum