Matthew Debbage, CEO of the Americas and Asia for Creditsafe, believes finance teams need to embrace digital transformation the way other departments have (i.e. technology, IT and data security).
“Over the last few years, many companies have been increasing their investment in digital transformation. Digital technologies and processes offer so many benefits, including increased productivity and reduced costs. And it’s usually the CTO, CDO, CIO and/or CISO who lead the digital transformation charge. These are all roles where technology and automation are critical and embedded into every process from the start.
But the finance profession has historically been slow and hesitant to adopt technology into their roles and processes. This is a profession that, in many cases, still uses Excel sheets to maintain its ledgers and manage its debt collection.
Rather than relying on a physical ledger, using a digital ledger management tool means you can get a full and accurate view of your cash flow. So, you know exactly how much sales are coming in, how much cash is going out as well as which customers have paid their invoices and which ones haven’t.
What’s even better is that it means you can:
- Speed up the time it takes to collect payments from your customers
- Boost your cash flow so you can pay for your ongoing expenses, while also having enough cushion to account for a potential decline in customer demand and sales in a recession
- Lower the risk of bad debt
The more you know about what money is owed to you and by whom (in real-time), the faster and easier it will be to collect those debts. And that’s going to be a good thing for your cash flow.”
Technology can and should be a finance team’s ally. It’s about making sure you have the right tools that provide the right data so you can make the most informed business decisions. For instance, a lot of businesses use ERP (enterprise resource planning) software to manage day-to-day financial activities within accounting, procurement, project management, risk management, compliance and supply chain management. The software is meant to help companies plan, budget, forecast and report on financial performance.
But there are several challenges with ERP software. In many instances, ERP software isn’t correctly implemented across all functions, which leads to internal errors and failures. Another problem with ERP software is that businesses don’t properly integrate their ERP software across their entire technology stack. This happens because legacy systems are so outdated that they can’t communicate and integrate properly with ERP software. And that leaves companies stuck with data quality problems that often lead to misinformed decisions that expose their business to financial, legal and compliance risks.
Let’s also not forget that ERP software doesn’t always have important metrics you need to manage your cash flow, such as accounts receivable (AR) metrics. Without these metrics, companies are left with a huge blind spot that could put them at risk of increasing their DSO (days sales outstanding) and reducing their cash flow significantly.
It doesn’t help that 61% of late invoice payments occur because of incorrect invoices. And that’s happening because finance teams are relying on their ERP software as a catch-all for their data needs. But that software is missing vital information about your customers’ financial health, ability to pay invoices on time, outstanding debt, credit score, credit limit and other information that’s needed to make the right decisions for the business.
That’s why you shouldn’t put all your data eggs into a single basket. You need to look at all the data available about your customers, identify the gaps and blind spots and then, either implement or integrate the necessary technology into your tech stack. The end goal should be to protect your business from working with risky customers that are in poor financial health and can’t (or won’t) pay their invoices on time.