Innovative teams are already transforming finance and, as many companies are discovering, it might be one of the highest ROI investments available.
Finance departments have long been treated as a "back office." But these days, embedded finance is putting payments and finance front and center and turning finance departments into strategic enablers for growth and a focus for many companies. This presents opportunities and challenges that finance leaders haven't before encountered.
It starts with payment efficiency. "Failed payments cost the [global] economy an estimated $118.5 billion per year in fees, labor and lost business," according to results from LexisNexis Risk Solutions. Failed payments occur for numerous reasons, "including inaccurate or incomplete information, data entry issues due to human error, or poor reference data and validation tools." Also, large amounts of money are trapped in the banking system because it can take up to 10 days for banks to decline to settle payments.
This tells me that most companies have catching up to do on the basics around payment acceptance. At the same time, the world of payments evolves and presents new opportunities. are expected to surge to $59 billion in 2027, up from $32 billion this year, Juniper Research analysts predict. As new bank rails such as FedNow launch this year, real-time payments over bank rails will also likely lead to drastic changes in the process and speed of payments.
Tackling Big Issues
These trends put pressure on finance departments to automate to stay competitive. Payments are, fundamentally, a data problem. To figure out how much work you need to do, assume that a smooth-running payment operation means being able to answer basic questions on the spot:
How much do you send to whom, when and how? After it's sent, how do you know that it got there? How quickly can you match the two for a smooth reconciliation? How fast could you close your books with confidence? How fast do you want to be able to close your books?
Then, look at two buckets of payments transformation that might be hindering your ability to move quickly and compliantly:
1. Technical Roadblocks And Inefficiencies
Much of the software still used by finance departments is decades old—often home-grown to serve each company's purpose and containing bolted-on pieces. Many companies also face the challenge of storing data in silos, which makes it hard to fully and quickly analyze. results show that 56% of finance leaders across 89 companies demonstrated confidence with the "completeness and accuracy of data generated by [the] finance function." Still, only 22% got there without "significant manual intervention" and only 33% on a "timely basis." The Lexis also found that "one-third to more than one-half of all payment data elements are still validated manually" and 66% of organizations said that reducing manual processes was "extremely challenging or very challenging."
In almost any business endeavor, it first makes sense to automate manual tasks. What I see working for companies is to first automate the easy stuff and the processes that return the best ROI. Before you automate, however, make sure that the process is a good one. It doesn't make sense to automate a bad process. Automation means software, which you can build yourself or buy.
If payments and finance data are in silos, it can increase efficiency to bring them together to increase insight into payment life cycles. Database solutions will differ for every company and may depend on existing technology and how, or if, you want to update.
When making investments, figure in the cost of inaction. Many finance teams lack real-time insight into their finances. That's a hidden cost because, without that insight, companies can't fully use their cash to make decisions or invest to earn maximum interest.
2. Changing Culture
Helping people see new ways of working will be critical to moving finance from a back-office function to a strategic enabler. Companies may have a lot of work to do here. Many finance teams see their jobs as being around accounts, receivables, sending and receiving invoices, matching them against the books and putting them on an Excel spreadsheet to close at the end of the month. That's the guts of it.
But now, software-embedded and real-time payments via new rails like FedNow may upend traditional workflows. In an instant payment world, payments will settle 24/7. That means data will arrive continuously, not just from 9 a.m. to 5 p.m. on weekdays. Teams will have to consider: Do we staff on nights and weekends, too? Can we invest money quickly, even overnight, in higher interest-bearing accounts and then move it out when needed? Will it make sense, in an instant payment world, to use that to our advantage?
This pushes finance teams to be more forward-looking, not backward-looking as has been the norm. Rather than reconcile what happened, finance teams will ask themselves: What can happen, and how can we be part of the solution that creates revenue? The finance team might need new skills, including talent steeped in working with APIs, algorithms and real-time programmatic decision-making.
Transformation takes time. It also takes leadership and recognition that changes lead to results. As you win good results, let everybody know that the finance team came through. That will build commitment to more changes. Sales organizations are lauded for winning customers because recognition is motivating. Other teams, especially back-office ones like finance, can benefit from recognition, too.
From Cost To Revenue
The finance function can move from the back-office realm by treating it as a revenue center—not a cost center—by automating tasks, removing inefficiencies and setting finance teams up for success in making changes. Innovative teams are already transforming finance and, as many companies are discovering, it might be one of the highest ROI investments available.
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