by Robert D. Kugel CFA |
4/23/2008 | Article ID: V08-16 | Article Type: VentanaView
Summary
Midsize companies today have more options for automating finance activities than ever before. The continually declining costs of computing power have made IT systems once designed exclusively for Global 2000 corporations affordable for them. What once required a dedicated IT staff to manage and maintain can now be handled by a bookkeeper. Increasingly, these sorts of capabilities require no up-front investment in hardware and software but can be procured as a monthly service. When it comes to buying things or handling travel and entertainment expenses, Ventana Research recommends that midsize companies look into software that automates the management of purchases. It can reduce time spent on manual tasks, increase visibility of cash flow and improve control of spending.
View
One of the most important developments in business computing over the past decade has been the increasing scope of automation in financial processes for midsize companies. What were once major investments for global corporations are now accessible to organizations with between 100 and 1,000 employees. By “accessible,” we mean that these systems can be implemented and operated with very limited IT resources and at a total cost of ownership that is well within the means of businesses in this size range.
There are three main sources of value in using IT automation for midsize companies. One is time. Unlike large corporations, midsize ones typically assign to employees multiple tasks, and they often don’t have time to do them all well. Automation saves time by eliminating manual tasks, reducing the number of errors that take time to fix and cutting the amount of time needed for “downstream” activities such as reconciliations, reporting and auditing. Second, automation can improve visibility – the ability of executives and managers to understand their current business situation more accurately. Third, especially in finance department processes, automation can improve control. It is a way of building into systems policies and procedures that support faster, more consistent execution and are far easier to audit.
One area where we believe automation can be of particular value to midsize companies is sometimes called “spend management.” This phrase includes any process in which goods or services are requisitioned, a purchase order is generated (or not) and an invoice is paid on receipt of the goods and/or services. Typically, this capability is not built into a midsize company’s accounting system. A key benefit of automating this task for the CFO and controller of a midsize organization is that it gives them greater insight into the spending commitments that goes beyond the accounts payable information they can get out of their general ledger system. They can get a better appreciation for their total cash commitments, going out many more weeks in greater detail. This look ahead can be especially valuable to companies that need to tightly manage their cash flows, especially when business conditions become challenging. Properly designed, these sorts of systems also enable those who have budget authority to see whether they have money in their budget for this type of item, and for those reviewing the requisition to confirm that they do before approving the purchase. Spend management also covers travel and entertainment expenses. A best practice here is to have individuals requisition a trip with details about expected costs, have this approved and then submit the expense report electronically.
Some systems allow a company to automate the management of the paperwork associated with purchases. One important capability is to scan paper documents such as invoices and receipts into the system using a scanner or a fax machine. This ensures that records are available quickly for anyone (including an auditor) who need to look at them. It simplifies the routing of documents so that it takes less time to process them. The systems also can incorporate data feeds from credit card companies. In cases where employees use a company card for travel, they can quickly classify the expense and associate it with a requisition. Since the credit card payment code is valid for tax purposes, no paper receipts are needed. Almost any finance department can save a lot of time by eliminating the need for handling and moving documents on paper.
Assessment
Our research into the challenges facing the finance departments of midsize companies shows that a majority of executives and senior managers in these organizations want their CFO to play a more strategic role in their company. Yet because of resource constraints, these CFOs find themselves forced to devote more of their resources to processing transactions than they should and spending too much of their time in a “shirtsleeves” role instead of managing the finance organization more effectively. Ventana Research recommends that midsize companies take greater advantage of the process automation capabilities that are now within their financial reach. Software that manages the requisition-to-pay cycle can free up time so that finance departments can play more a more effective role in helping the company succeed. Moreover, it is a capability that can have a rapid payoff.
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