Finance Transformation: Unlocking the Hidden Finance Processes

Finance operations are a complex system that connects many applications, processes, and data. When we decompose the finance organization into small processes, we can find that there are different types of processes:

• Independent process;
• Interconnected process;
• Interrelated process;

Independent processes, like running depreciation or entering a purchase order, lay on the surface.

Interconnected processes, for example, can be invoice processing, period-end close activities, or payroll calculations. Those processes can be straight and simple, like invoice processing, where the company can have 3 or 4 independent processes (from receiving an invoice to OCR and validation by an accountant). Alternatively, it can be more complicated, like period-end close with many more independent processes.

Interrelated processes are hidden from the surface and not easy to determine, but they are more important and influential than other processes. Interrelated processes, as a holistic view, can determine the rest of the processes in the company (independent and interconnected processes) and can answer the most important questions. One of the examples of interrelated processes is a 3-way or 4-way match.

Initially, companies set up a combination of independent and interconnected processes. Most automation and transformations aim to automate interconnected processes because this is where most manual and routine work arises, but it is like dealing with “consequence” and not with “cause.” Like the human body, we take pills to deal with the “consequences” of disease without working with the “cause” to prevent disease.

How do you find the hidden interrelated processes in your finance organization?

I will use the concept of five that always move to answer that question and the purchase-to-pay process (interconnected process).

Purchase-to-pay is a wide topic, but I will focus only on processing purchases here.

1. When business needs arise, the requestor creates a purchase request;
2. Purchase request validated and transformed into a purchase order;
3. Purchase order goes to a business control and approval;
4. The requestor communicates with the vendor. The company receives goods or services and invoice (bill);
5. The invoice is paid and reconciled, and the period is closed;

This is a basic circle that is balanced and harmonious. Each phase enables the next phase, which is called the enabling cycle. Let me show you what a misbalanced circle looks like:

When the circle is misbalanced, this will affect the business significantly. For example, if the company decided to exist without a validation & PO phase, then this would lead to company overspending, unnecessary costs (fraud), lack of spending control, lack of budget control, uncontrolled balance sheet, lack of transparency and data accuracy, additional resources in accounting team to handle invoices and much more.

We can apply the same logic for other phases of that process.

Now, we are coming to the point of identifying the interrelated processes.

First, you must design a circle for your process (you can get inspiration here). Then, when you have an enabling circle, you can see interrelated processes. Please take a look at the images below:

You can have a simple version of interrelated processes, like a 3-way match, and more complicated, like a 4-way match or cash-flow management. Let's talk about “Flexible Cash Flow Management”. For example, the company decided to reduce the costs and try to keep the cash for as much time as possible in the bank. In that scenario, without a properly configured process — “flexible cash flow management,” you can face the following challenges:

• Perform the control function manually (e.g., review Excel files and select what should be paid);
• Increase the volume of manual work for accountants and finance teams;
• Reduce data accuracy (e.g., manual steps brings the risk);
• Reduce vendor loyalty (e.g., outstanding debt);
• Reduce employee motivations (e.g., they need to communicate with vendors about the delay);
• etc.

On the other side, having such a process automated and implemented appropriately can give you much flexibility and help you avoid the challenges described above. With it, you can act as a proactive team — when business goals are to reduce costs, the control function can modify policies, communicate with vendors, etc. I hope you find that approach interesting.