Operational Finance in the Age of Covid-19: Time to Change the Basics?

Covid-19 has had a hugely disruptive impact on operational finance. The term ‘operational finance’ encapsulates the critical activities associated with order to cash, procure to pay, fixed assets, close, consolidation, and reporting. Invariably, these activities have seen added stress in 2020. Not only have finance teams had to close companies’ books remotely, but they’ve also been required to provide the insight and information needed for some extremely complex decision-making, and continuously plan and forecast for events with little or no historical context. As some sense of normality returns, finance teams can afford a period of reflection, applying what they’ve learnt to enhance existing workflows, while looking ahead to a future that still remains unclear. But there’s a balance to be struck. There are many solutions on the market that profess to lighten a finance team’s workload under the current circumstances. Often, though, working with a combination of different solutions and an organisation’s own custom spreadsheets can result in more time-consuming and labour-intensive work. If you are re-evaluating the basics of operational finance, here are a few tips to help you achieve the best return on your investment, ensuring best practice workflows are set up.

Tip 1: Overcoming month-end inefficiencies

Most operational finance activities are driven by the month end and ledger close, typically involving a web of steps including transaction processing, reconciliation, journal entry capture, and financial statement preparation. However, while automated enterprise resource planning (ERP) solutions might handle much of the heavy lifting, they don’t, according to Deloitte’s analysis, automate the “full, end-to-end close, consolidate and report process”. This can lead to “a fragmented, manual, and inefficient close, as well as to inefficiencies throughout the accounting period”. Modern business intelligence (BI) tools can result in inefficiencies too. Report data can often be at least a day old when it arrives in the tool, or are at too high a level of aggregation, preventing finance teams from obtaining a complete view of the numbers at crucial intervals during the close cycle. A real-time reporting solution, on the other hand, can help overcome these inefficiencies and frustrations by automating many of the unproductive and redundant steps in the reporting process, and providing finance teams with a familiar interface such as Excel. Getting all finance team members working with the same real-time reporting software, and out of the habit of creating individual spreadsheets, puts you into a much more collaborative and efficient position than before. It also decreases the risk of errors by eliminating disjointed, manual processes.

Tip 2: Improving accounts receivable procedures

Critical for avoiding cash flow issues and operational disruptions, effective accounts receivable (AR) procedures are essential to an organisation’s smooth running. By finely tuning its AR reporting capabilities, a business can enjoy greater financial stability and predictability – something much needed in the current climate. But it’s impossible to improve AR without understanding its current performance; knowing what’s working and what isn’t. Tracking AR in depth can be hugely impractical, however. Analysing the necessary data is a massive undertaking, and one that can draw finance professionals away from other tasks. And it’s possible to become lost in the minutiae of the many different metrics available to measure an organisation’s AR capabilities. This can be avoided by focusing only on the five metrics most important to a particular finance team, such as turnover ratio, days sales outstanding, collections effectiveness index, or average days delinquent. Reporting frequency should also be a consideration. Traditional monthly or quarterly AR reporting may be too slow, especially given the pace of change in the current climate. Instead, continuous reporting, in which information is updated in real time on easy-to-read dashboards, means finance teams will always have the latest figures at their fingertips.

Tip 3: Make decisions with operational data

Data analytics are essential to supporting business decisions and, as companies seek to understand the status of their inventories, supply chains, and customer orders during the current period of uncertainty, operational data is now firmly at the forefront of decision-making. Operational, or non-financial, data enables CFOs to look further out and predict future demand for goods and service, manage costs, or reforecast inbound delivery schedules. Without leveraging the power of operational data, a finance team is essentially flying blind. A 2017 study by FSN found that businesses which made better use of non-financial data were more than twice as likely to be able to forecast beyond the 12-month time horizon than those that didn’t. However, FSN’s 2020 study, showed that reporting against operational data is often overlooked in many organisations. Therefore, it’s important that CFOs don’t neglect sources of operational data as a means of supporting business decisions. They should instead consider investing in specialist analytics applications that manage both financial and operational data, increasing the value of the latter by delivering more meaningful insights for improved operational and strategic decision-making. Covid-19 has changed everything, and finance leaders have been forced to adapt to an unprecedented set of circumstances. While it’s important for finance leaders to invest in process changes, technologies, and best practices to support their teams, they must do their best to avoid any further disruption. That’s why getting the basics right in 2020 sets you up in the long term to handle complicated circumstances later down the line. Without overreaching or disrupting too much, sometimes basic is best. Richard Sampson is SVP of EMEA at insightsoftware, a global provider of financial reporting solutions with more than 25,000 customers worldwide.