Wednesday, August 12, 2020

Virtual finance operations -- the way ahead for organisations in the 'new normal'

Jun 18. 2020
Montri Khongkruephan
Montri Khongkruephan
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By Montri Khongkruephan
Special to THE NATION

The Covid-19 pandemic has had a significant impact on most businesses across the world. Many countries have been implementing extensive mitigation measures to turn their downside scenario to a recovery scenario; they include social distancing, “shelter in place” orders and “lockdown” to reduce growth in the number of Covid-19 infections.

These measures have widely and deeply impacted the businesses both from commercial and operation points of view. Most of the organisations have had to announce either mandatory “work-from-home” policy or a split team working environment to comply with those measures.

CFOs and their team currently play a strategic role in supporting the organisation during this period. From financial accounting and reporting perspectives, there are four key activities that CFOs would need to put more efforts in to support the organisation during the pandemic.

▪︎Risk assessment – Performing risk assessments in potential risk areas that impact businesses and markets in three stages of the pandemic situation -- respond, recover and thrive -- in order to bring the businesses back to normal as soon as possible. Thus, re-forecasting revenues, costs and investment projects are the outcomes from this key activity.

▪︎Cost Control – All expenditures need to be re-evaluated and realigned with challenging business conditions and risk assessment provided. CFOs need to drive down the costs by eliminating non-essential costs. Furthermore, assessing opportunities to improve resources and spending allocations and processes are also important for the organisation to help their businesses recover once the government lockdown measures are lifted.

▪︎Cash flow management – Optimising and monitoring working capital will enable the business to identify and unlock cash release opportunities. Examining the operational, strategic and financing levers among accounts receivable, accounts payable and inventory can also help improve liquidity. Usually, most companies accelerate their collections and delay payments to suppliers. Considering your company is also a supplier of your customers, they are likely to delay their payment as well. However, business trust is as important as their cash flow.

▪︎Financial reporting – Considering how the management ensures that their teams are doing proper work while staying compliant during the working-from-home period.

In order to perform those four key activities effectively, organisations need to have the right infrastructure in place to be able to provide accurate and timely financial information.

CFOs are currently facing extreme challenges and constraints during this difficult time and it is getting worse due to the lockdown and mandatory work-from-home policy or split-team working arrangements.

The question remains as to why finance teams are unable to work remotely. Prior to the Covid-19 situation, most of the organisations were convinced that they have gone digital with ERP and robotics, and various other digital initiatives in recent years.

However, the current pandemic has revealed that in reality, financial operations still remain hybrid -- between digital and manual.

Whilst some processes and data have been automated, the majority is still required to be done manually. Therefore finance teams are not able to operate outside the office as they need to access their desktops and hard documents to process and reconcile information in the office. Such a hybrid state creates five key challenges for financial operation activities with respect to working remotely:

▪︎Limited mobility – Over 40 per cent of organisations have shown that their finance teams cannot work remotely as they need access to the desktops and manual files at the office.

▪︎Labour and time-intensive – Around 61 per cent of organisations still manually do finance work offline eg approving the JV entries, signing documents, finance memos, preparing reconciliation, etc.

▪︎Higher risk of error – Over 50 per cent of CFOs are not completely confident with the accuracy of their financial reporting, which is the first priority of CFOs. This challenge becomes critical during a pandemic if your organisation has been operating in many countries.

▪︎Low morale – Some 42 per cent feel that they put too much efforts on tedious data-gathering, copy and paste function rather than doing the data analysis. Although the organisation can hire low-cost personnel to support such tasks but they are still concerned about staff morale.

▪︎Lack of analytical capabilities – Over 60 per cent find lack of analytical capabilities. The question is: will CFOs invest in training to upskill their team or find a right analytic tool to help them?

Taking into account the above-mentioned challenges, organisations need to accelerate their adoption of automation in Finance “Virtual Finance Operations”. There are four steps for CFOs to consider:

1 Go paperless – Organisations can start considering an end to the use of paper in several processes eg memo approval, document approval, procure-to-pay, and order-to-cash processes, etc. Moreover, utilising e-payments and encouraging suppliers to issue electronic invoices, including establishing a central portal for uploading documents, will be supportive of the paperless processes.

2 Go mobile – Organisations may consider replacing all desktop computers with laptops, including looking into possibilities of processing on-the-go via mobile applications eg approval workflow on your mobile phone.

3 Go automation – Organisations need to accelerate their adoption of automation. The examples are “Optical Character Recognition” and “Natural Language Processing" to automate the data capture of physical documents. Furthermore, leveraging “Robotics Process Automation” technology to automate repetitive, rule-based accounting activities.

4 Go cloud – Moving to cloud-based ERP systems, including implementing a cloud-based solution extension from those ERP related to a financial close and reporting platform, which enables the finance teams to work, manage and monitor the close, consolidation and reporting activities online from anywhere.

In conclusion, finance teams need to put more effort in the four key finance operation activities to support and monitor the organisation in a remote working environment, as CFOs are nowadays facing more challenges from managing their finance team during the lockdown and the mandatory work-from-home policy in many countries due to the pandemic. This could soon be a “new normal” in the business environment.

Most of the challenges are a result of the digital-manual hybrid state of financial operations, which keeps CFOs awake at night.

“Virtual finance operations” will be a sleeping pill for CFOs, which consist of four steps: Go paperless; go mobile; go automation; and go cloud.

Virtual finance operations introduce efficiencies into the organisation and keep the finance team running smoothly even in times of crisis.

Another important matter is that CFOs and controllers should empower their finance teams with the “flexibility” to work from anywhere, real-time collaboration and minimising tedious and manual processes. Rethinking on transforming the current practices of financial operations to virtual finance operations will become a long-term competitive advantage, not only to survive during the pandemic, but also to stand out in the “New Normal” trend for financial operations in the near future.

The author is partner, audit and assurance, Deloitte Thailand

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