Purchase-to-Pay Process Automation

In today’s environment, traditional companies are getting disrupted as the business environment gets more competitive. The pressure to drive productivity and cost savings has increased. It is thus critical for management teams to remain agile and focus on streamlining business processes as much as possible.

In line with this development, the finance function in a company has also evolved from purely accounting into a more strategic one. Hence, CFOs desire to streamline their manual finance processes so that more time can be dedicated to strategic planning and analysis.

One of the critical but very manual functions in most finance departments is the Account Payable function. This function handles all cash outflow, both spending and investment and they provide the source data for spend analysis. In a recent 2018 survey conducted by Canon, 76% of CFOs interviewed believe that Accounts Payable (AP)/Purchase-to-payment (P2P)’s will grow in influence and importance in the next two years. Efficiency, automation, and improved accuracy are top priorities for the finance function. With accurate and timely data, we will be able to synthesize insights to help the management team make better decisions.

Five Reasons to embark on Purchase-to-Payment Automation

Improve accuracy with less time spend on reconciliation

Large number of supplier invoices coupled with time pressure could result in manual entry errors. Furthermore, as hardcopies of supplier invoices are usually circulated, there is a lack of paper trail. Hence, this would increase the risk of losing an invoice. At times, the same invoice could be processed twice because proper control measures were not put in place. Based on our experience, any invoice loss or entry errors could result in 23% more time spent on tasks resulting in inefficiency.

With automation, supplier invoices can be archived with an electronic trail. In addition, an improved data entry interface could also reduce human errors in data entry. For certain companies, they might consider outsourcing their data entry function offshore. This will allow the existing finance function to perform the role of a checker and increase accuracy without incurring too much cost.

Better staff morale and increased productivity

With less time spent on manual tasks, finance staff could be upskilled to do more meaningful tasks. Instead of being employed to do data entry and hardcopy filing work, finance staff can spend more time on analysis and supporting business development efforts.

It will also improve the staff morale of other functions. The interaction between finance and other operations is crucial as these operations usually provide the source information. Due to finance control requirements, it could increase administrative load if the process is too manual. In fact, this causes a high turnover rate in certain roles for one of our clients. We helped them to plan for an integrated system to reduce the administrative workload for both finance and non-finance staff.

Better visibility on invoice processing and approval status

With a structured and digitalized workflow, stakeholders will have a better visibility of each purchase requisition request. The correct financial approval level of authorization will be applied. In addition, companies would also have visibility over their spending and ensure that various divisions spend within their approved budget. For certain companies, they would also have a list of approved vendors which ensures that they spend in-line with their internal policies. This will promote greater transparency in spending.

Faster P2P cycle, earlier payment discounts and less late penalties

In a typical manual process, hardcopy supplier invoices are usually shuffled between various stakeholders. As a result, the finance department may run a risk of delays, or that the hardcopy invoice could be lost during the transfer from person to person. Worse, late penalty charges may be imposed for certain supplier invoices that are not processed in time.

Also, with automation, most orders will be pre-approved, with all invoices being PO-based. This means that th invoices can be easily matched with the corresponding purchase order (“PO”) and delivery order (“DO”). Hence, the AP staff will no longer be required to chase for payment approval and the company could potentially benefit from early payment discounts.

With a faster payment cycle, supplier relationship will improve, and the purchaser will be better positioned to negotiate for further discounts or other terms.

Sets the foundation for companies to scale operations

A business should not stay stagnant but should strive to remain competitive. However, a manual process could result in over-working certain staff when operations load increase. We spoke to a restaurant client of ours. During the discussion, they were concerned that their finance executive is unable to cope with their accounts. With only three outlets, the executive is already struggling. The business owners are worried that things will get worse when two more outlets open.

Our suggestion was that they should deploy automation to their P2P process and outsource the data entry overseas. With this, the business owners are more comfortable to scale operations.

Critical success factors for successful implementation

One of the pitfalls is the deployment of software without proper consideration of the business specific workflows. There is existing software in the market that promotes finance process automation. However, our experience tells us that there will not be a one-size-fit-all solution. In fact, we noticed that many companies deploy tech solutions which later became white elephants as they are not used.

There are three main considerations that a company should pay attention to before any technology deployment:

Firstly, the new system introduced should be integrated with other existing systems. Otherwise, it will be counter-productive and cause an increase in workload instead. Of course, one of the options will be to revamp the whole company’s system which would be costly and time-consuming. We recommend that companies first map out their current workflows. We will then need to figure out how this new system is going to integrate with the existing systems. Ideally, the systems should be seamlessly integrated with each other.

Secondly, management should give assurance to AP staff. While they might see the benefits of finance process automation, they could be worried about their job security. Without their buy-in, the implementation will not be successful. There must be a plan to re-purpose existing staff to perform tasks with higher responsibility and greater business value. Furthermore, as the learning curve could be steep, it is vital to deploy any changes in incremental stages.

Lastly, data collected will be meaningless unless they are moulded to suit decision-making. Different users within the organization will require different information. Communication with various stakeholders is crucial to design dashboards tailored to their specific needs.

Next steps

Every company has different needs. We believe that you will need to have an intimate understanding of existing processes and systems before deploying any new technology. Also, the budget for every company will differ. Any technology investment should generate a ROI that justifies it. Hence, we will need adjust and tailor the solutions specifically to the company.

Excide has worked with various organizations ranging from MNC subsidiaries to SMEs. We help companies to define their objectives and budget.

Once defined, a bottom-up approach will be critical to understand the pain-points on the ground. Without buy-in from staff, implementation will be challenging. Hence, we will go hands-on and experience their work. This experience will also uncover any blind-spots that management might have.

We do not rush into implementation and will roll out changes in phases. This ensures that staff are not overwhelmed by the steep learning curve in migrating to a new workflow. During implementation, we will guide company staff step-by-step for a smooth onboarding.

About Excide

Excide specializes in transforming finance functions in Singapore and Myanmar. We work closely with various stakeholders in the company to better understand their needs. Our hands-on approach allows us to better tailor our solution and commit resources in the most value-added features. This will allow our clients to achieve maximum value during the various implementation phases. We commit resources on-site to ensure that we understand your business, build stakeholder relationships, and ensure smooth onboarding. If you are interested to find out more, please contact me at [email protected] or call +65 9698 1755.

Why hire a contract CFO?

It is common for entrepreneurs or start-ups to find themselves unable to make progress in their business plans due to their financial situation. The internal accounting processes not being optimal, or the financial data collected and analysed being irrelevant may be some issues you are facing in your business operation. You want to address them, but you cannot neither afford all your time and energy to the issues, nor the money to hire a full-time executive to do so. What option do you have?

Chief Financial Officer (CFO) — An asset instead of a liability

First, let us explore how a CFO can actually be an asset to your business. Typically, a CFO is responsible for activities which involve financial controlling & management at a firm, namely:

  • Budgeting and forecasting
  • Cash flow management
  • Corporate planning
  • Fundraising
  • Operational support (Financial reporting, audit preparation)
  • Transaction support (M&A, IPO, due diligence)

On a more relevant and specific level, the CFO will be able to help optimise your accounting processes, and ensure complete visibility of your accounts and ledgers. Moreover, you can receive much-needed insights into your business from proper cost allocations, tracking of revenue sources and expenses, and more importantly, improve profitability. With the CFO’s accounting knowledge and experience, you can eliminate problems that stem from inefficient processes and data which provide little to no value. Consequently, you can then channel more time into growing your business, while the CFO takes care of your financials for you.

Of course, the question of whether you can afford the services of a full-time CFO will naturally arise. You are looking at S$15,000 to upwards of S$40,000 a month for the services of a full-time CFO, a substantial sum that cash-strapped companies simply cannot afford, and comes at too high an opportunity cost for developing businesses. Furthermore, the value you get out of this may not justify the costs you have to incur; the cost of having a CFO around will become a liability to you instead. Fortunately, you are not out of options, as this is where a contract CFO can step in to help.

Full CFO services at a fraction of the cost

With a contract CFO, you are effectively paying for full CFO services at a fraction of the cost that you would otherwise normally incur. How so, you may ask. A contract CFO is similar to a full-time CFO in terms of his/her responsibilities, and possesses the necessary expertise to carry them out. The main difference, however, is the flexibility and potential cost savings you will have if you were to hire a contract CFO. You can engage the services of a contract CFO as and when you require the relevant expertise, and terminate them when it is unnecessary. You will thus only incur costs for the period of time the CFO is hired for, and the type of work that is carried out. Consequently, you will reap cost savings since you will not have to pay the high fixed costs that come with a full-time CFO for the same amount of work done.

Reducing opportunity costs to open doors

The cost savings you reap from hiring a contract CFO to resolve your problems opens doors for you to grow your business. Since you avoid having pay the exorbitant price of a full-time CFO, you are essentially making additional financial resources available for other purposes. These include investing back into the business itself to grow it further, or for an additional headcount that is necessary for your operations in another department. This may then result in more investment returns generated for your company, on top of the returns you are likely to receive from engaging CFO services. Hence, not only do you reduce the opportunity cost associated with engaging CFO services, you are also generating new opportunities to develop your business further.

Access to a wider range of skills

Hiring a contract CFO service is akin to hiring a company to help your business. Since a contract CFO service provider usually includes a team of CFOs and operational support staff, you are not just hiring an individual, but a dedicated team of experts to help your business.  This means that you may actually be tapping on all the talents available in the company, and extracting more value out of every dollar you have paid. If you were to contrast this with hiring an individual full-time CFO, not only are you limited to the knowledge and skills that particular individual has, you may even receive less value per dollar paid. As such, a contract CFO service may actually be better.

A contract for who?

Contract CFO services come at a substantially lower cost than the conventional full-time CFO role, and with higher value through more possible investment opportunities and wider range of skill sets. However, you still have to take some considerations into account before making your decision, mainly:

  • Do you require a full-time commitment or dedication from your CFO to your business?
  • Do you require a CFO to help you grow your business for the long-term or execute a long term strategy?

Depending on your answers to the above, a contract CFO service may or may not be what you need.

A contact for you…

If you answer “no” to the questions above, and are in need of CFO services to improve your business operations or explore near future business growth opportunities, have a look at our contract CFO services that we offer.

Alternatively, if you require CFO services that will help you in developing and executing long term strategies, here are some services that we offer which can assist you in achieving your goals.

When to hire a start-up CFO?

Companies often ask “Do I need a CFO?” and if so, when do I need one. In many cases, they are too streamlined to hire an employee for the sole CFO role as such a start-up CFO is an alternative!

A start-up CFO benefits your company greatly in many ways. Your businesses can benefit in the following ways:

  • Cost savings on salaries (average full-time CFO salary $250,000 or more)
  • Independent and fresh viewpoints due to deep experience in diverse areas of businesses
  • Financials advice such as how to better price products/services and manage cost
  • Efficient accounting systems to streamline processes resulting in cost savings
  • Precise and professional financial statements which are critical for business performance reviews
  • Fund capital improvements through cost-cutting strategies

You must be thinking since a start-up CFO provides so many benefits to businesses when should I hire one? Well here are a few ways you can access if it is time for your company to hire a start-up CFO.

Complexity of business

A key question to ask yourself is whether your business is complicated. A simple business that sells one product to a small fixed set of customers probably does not require a start-up CFO. However, if your business involves multiple products sold through various sales channels to multiple customers in several geographical locations – it is considered complex! Such businesses would thoroughly benefit from a start-up CFO, if they do not already have one.

Lack of capabilities

Demand for goods and services are driven by a need. If your business cannot perform the roles that CFOs provide then there is an evident need for it. In most start-ups, manpower is very streamlined as such CFO roles are often neglected due to the high cost of hiring a full-time CFO. However, CFO role such as bookkeeping, financial planning and advising is especially important for start-ups. Therefore, if your business lacks such crucial capabilities, it is highly recommended to consider hiring a start-up CFO.

Size of company

As your company grows in operations, headcount, sales or in any other metrics, its financial needs naturally become more complicated. An important metric to consider before hiring a start-up CFO is the headcount of your company. In some countries, reaching a certain headcount of employees requires the company to hire a CFO by law. In another context, a team of 20 is a ball-park figure to estimate when you should strongly consider hiring a start-up CFO. A CFO will assist your business in pay-roll and cost-restructuring. Redundant and inefficiencies can also be pointed out by the start-up CFO to reduce headcount or change operations to increase efficiency and profitability.

Growth stage of company

A start-up CFO’s role is considerably more strategic. It not only handles the basic financials of your business but acts as a consultant by taking up responsibility of company’s profitability. Hence, understanding where your company’s growth stage is currently at will aid in deciding to hire a start-up CFO. In cases where your company is planning to expand, raise funds, consider new product introduction, a start-up CFO will greatly support your company in your growth plans. As many start-ups are either in the rapid growth stage or preparing to enter this stage, prudent financial planning and advise is extremely beneficial. Therefore, a start-up CFO’s experience in managing finance cost, projections and market intelligence will be pivotal to your company’s growth success at a fraction of cost.

Preparing for mergers & acquisitions

Mergers and acquisitions is another good indicator that a business should hire a CFO. A start-up CFO will provide advice on the correct target company that will provide cost and revenue synergies after the deal. Furthermore, a CFO will be the best person to interpret due diligence reports by the prospective company in the deal. Additionally, a CFO can represent your company in preparing information and anticipate questions that industry experts will often ask; something a layman might not understand. If your company is considering any M&A deals, it is highly recommended to hire a start-up CFO to aid in your decision process.

Financing needed to facilitate growth

Bank financing is often obtained to facilitate growth and such loans often come with many obligations. These obligations go beyond the basic paying of interest and principal such as reporting of financial information on a monthly, quarterly or yearly basis. In such cases, a start-up CFO can deal with such pertinent issues that are not of utmost importance to your business’ progression. A start-up CFO will keep track of such obligations to ensure no hiccups occur as you focus on growing and improving your business operations.

 

Understanding the need and timing of hiring a start-up CFO is crucial for start-ups to strive in this ever-competitive business landscape. By understanding certain key indicators such as size and growth stage of your company, you can better evaluate the need for a CFO.

SME Go Digital Industry Briefing (21 July 2017) – Five Things Excide learned from the Briefing

SME Go Digital Program has been the focus of discussion for many technology vendors and solution providers. It is an effort by Singapore to spearhead the digital transformation efforts for Small and Medium Enterprises (“SME”).

Launched in April 2017, IMDA aims to enhance the digital readiness of SME by providing subsidies for their digital purchases. This scheme is meant to replace the seven-year-old iSprint scheme and Innovation and Capability Voucher (“ICV”) for Integrated Solutions.

On a side note, ICV has been extended to 31 December 2017. However, we notice that many providers have been taken off the list and the application check has become more stringent.

In this article, we would like to share some key takeaways from last Friday’s session.

More transparent but stringent approval process

One of the biggest barriers for solution provider is the lack of clarity on the pre-approval process. However, transparency could also result in more complaints and less flexibility for the government agency.

However, IMDA mentioned that the team is ready to take this risk and be transparent about their pre-approval process. While feedback could be expected, they will take them positively and use it to improve the internal process.

The solutions will be evaluated based on SME’s requirements, user friendliness, and price affordability. Unlike current schemes, the accreditation will only be valid for a year. The bar will be set higher over time, and present board-based criteria would be further refined. However, IMDA will give ample time for the solution providers to adapt to the requirements.

SME Digital Tech Hub

ASME has been awarded the operator rights for SME Digital Tech Hub. In partnership with IMDA, it will provide more specific advice for SMEs with more advanced technology needs.

Advisors at Tech Hub will help to diagnose their business needs, prescribe the right solution and guide them on the implementation. This approach could smoothen SMEs’ transition to adopting the technology.

The Tech Hub is expected to be launched later this year.

Focus areas – Cyber-security, Personal Data Protection and Data

Cyber-security, data analytics, and personal data protection are three priority areas mentioned during the briefing.

As part of Singapore’s push towards advanced manufacturing and a digital economy, these focus areas will be increasingly important. Critical systems will have to be protected as the country embarked on our digital transformation journey.

Data is also a key focus as we strive to be more data-informed. We need use these data to make critical decisions and remain a competitive edge. However, with more data collected, this also explains the growing importance of personal data protection.

Industry Transformation Map

IMDA will work closely with industry leaders to develop Industry Digital Plans (“ICP”). This ICP will be aligned to the Industry Transformation Maps (“ITM”). Industry consultations will be held with industry players and solution providers.

Two industry consultation sessions have been announced during the briefing:
Logistics: “A Nationwide Federated Locker network transforming the future of last mile deliveries in Singapore” – 16 August 2017 (Wednesday)
Retail: “Emerging digital technologies and innovations for the Retail Industry” – 18 August 2017 / 25 August 2017 (Friday)

The sessions will be by invitation only.

Digital platform

Data-driven innovation and artificial intelligence have been identified as the key growth enablers for companies and Singapore economy. IMDA has also called for submission for a commercially managed digital platform that will drive the adoption of these technologies.

The call for submission document can be requested on IMDA website. The deadline for pre-qualification proposals will be on 8 September 2017, 12 pm.

Deriving Business Strategy using Financial Model

There is a fine saying by Sun Tzu: “know yourself, and you will win all battles.” In the business context, I cannot think of a more tried and tested tool than the financial model which spurs entrepreneurs to stay constantly updated with a 360 degree understanding of their business.

Do you really know your business inside-out?

What is Financial Modelling?

A financial model goes beyond a financial statement (you cannot manage what you cannot measure) and a budgeting exercise (you cannot spend beyond what you can earn).

Unlike a financial statement which is a snapshot of the present and a budgeting exercise which places a stronger emphasis on immediate future needs, a financial model is meant as a diagnostic strategic planning tool to secure your business’s longer-term future.

A financial model == financial statement or budgeting exercise

I would like to think of financial model as the numerical version of chess (underlined are similar benefits and attributes). At the starting line, you position various business drivers/resources and as the game unfolds, watches the situation from a bird’s eye view and deploy changes accordingly.

Ultimately, you reach your goal by understanding the inter-connectivity of available resources and stimulating various outcomes before determining the next move.

Below are some commonly received questions from past clients on how the financial modeling process works.

Five Commonly Asked Questions

Question:
How does financial modeling for business owners differ from other types of financial modeling?

Answer:
The focus on financial modeling for business owners is more for business decisions – the aim is to help the business owner make as accurately as possible any material decisions to improve business profitability.

While assumptions related to the cost of capital and balance sheet strength are important to a loan banker looking to evaluate credit score of business client, assumptions related to profitability (i.e. revenue and cost driver) are the more important aspects of the financial modeling process for business owners.

Question:
How does financial modeling unveil insights for decision making? Can you walk us through via a real-life case study?

Answer:
There are a few key components to the financial modeling process which forces business owners to consider their business workflow from various perspectives.

Consequently, fresh insights arise.

These components include but are not limited to: identifying business drivers, deducing cash cycle and deriving business valuation.

Zooming into identifying the business driver, let’s take a Chinese eatery for instance.

Factors affecting revenue generation including but not limited to space capacity constraints (consider seating layout), table turnaround, average spend per customer, average spending per peak/off-peak hour, takeaway hurdle (dependent on chef capacity).

Factors affecting cost include but not limited to: employee labor productivity, rental cost, inventory cost.

Some key revelations from the above that surprise our past clients include uncovering of certain popular menu items that might be underpriced and more economical sense to shorten operational hours (during the less active hours to reduce labor cost).

Question:
How do I determine my revenue model?

Answer:
Broadly speaking, revenue is a multiplication of two components – price and volume.

For pricing factors, it is usually a consideration of:
1) Cost plus basis – what is the cost of service or raw material for the output
2) Market rate – what your peers might be charging
3) How aggressive a pricing strategy you might like to deploy

For volume, you may like to think about:
1) Top-down regarding maximum potential market size
2) Bottom-up approach via looking at your sales distribution channel capacity
Together these two approaches form the lower-bound and upper range of the total quantity playing field.

Question:
How often should the financial model be updated?

Answer:
The rule of thumb is as often as you will need to make strategic business decisions.
I would say minimally on a monthly basis.
It is best if the information feeds in real-time.

Question:
Any recommendations for someone looking to get started on financial modeling?

Answer:
1) Attend training/classes – the benefit is complete mastery and control over how you can maneuver it for your needs, and the downside is, of course, your time
2) Engage a consultant to help them through the process – it all boils down to consultant value to fee. A consultant can help you set up a tailored financial model structure, but it will only be valuable if you provide the input to the numerical assumptions
3) Purchase or source for existing financial model template – the benefit is you can get started immediately, but as is not your template, it will be challenging for you to modify it in your maintenance or to customize it more specifically for your industry