Most companies aspire to a fast close, but the reality is that it is often a long, drawn-out process. The consequence? CFOs don’t have up-to-date information on the company’s cash position, which hampers strategic decision-making, and the day-to-day financial management of the company is not at its optimum.
Here, we examine why a fast close is important to businesses, detail the key challenges in achieving this goal, and explore how automated bank statement feeds can help.
Why is a fast close important?
Quite simply, a fast close gives companies better visibility of their cash position, which is key to strategic decision-making and strong financial management.
With up-to-date information, CFOs are better placed to act as strategic advisors to the business and inform decisions on capital expenditure and investment, while finance teams are empowered to manage cash more effectively across the group. For instance, suppliers can be paid earlier to gain settlement discounts and surplus funds can be placed in deposit to earn interest.
In short, the more up-to-date the cash position data, the more dynamic and responsive the company can be regarding its strategic direction and operational efficiency.
What are the challenges in achieving a fast close?
The challenge is that a fast close is usually more of an aspiration than a reality. Often, it takes weeks to close the previous month’s accounts and the difficulties can usually be traced back to a slow reconciliation with several manual steps. Bank statement data retrieval is a particular issue, with even market-leading enterprise resource planning systems (ERP) systems normally requiring finance teams to retrieve and upload bank statement data manually. And of course, the larger the company, the larger the banking estate and the more complex this process becomes.
The high volume of transactions aside, account teams also grapple with the numbers in bank statements and the general ledger not readily matching, causing loss of valuable time investigating discrepancies.
The risks of manual retrieval of bank data
Manual retrieval of bank statement data also introduces several risks to finance operations. Firstly, it increases the scope for internal fraud because manually downloaded data can easily be manipulated to hide underlying issues and make it seem like the company’s internal systems and the bank data reconcile.
Secondly, it can increase the risk of error when individuals transpose data between the banking and ERP/back-office systems. Not only can this be costly and time-consuming to rectify, but it also means that companies are in breach of regulations such as the upcoming UK SOx, a transformative shift in corporate governance which requires companies to have robust systems and controls in place, leveraging technology and automation to detect and prevent key risks.
Automated bank statement feeds
Automated bank statement feeds provide finance teams with an alternative approach to manually downloading bank statements. By connecting a company’s ERP system to its bank account(s), automated bank statement feeds can retrieve, reformat and import bank statement data directly into the ERP system without any manual intervention. They can also incorporate extra reference data, which helps improve match rates and bring substantial efficiency gains to the business. All of this makes automated reconciliation possible. Moreover, the lack of manual intervention in retrieving statement data reduces the risk of internal fraud and manual error.
To benefit from automated bank statement feeds, there are three approaches that companies can adopt:
- Host-to-host connections or bank APIs can facilitate one-to-one connections with specific banks but are of limited use if the goal is to create one-to-many connections to get access to data across the banking estate.
- Open Banking feeds are also sources of statement data but have significant limitations regarding the scale of use. They only work with certain banks and account types, so are not viable for full coverage. The data is also not as rich as SWIFT’s, which limits the reconciliation process and makes them of limited viability outside SME banking.
- The SWIFT network is the most efficient way to consolidate statements across multiple banks, accounts and countries. This approach requires a SWIFT Business Identifier Code (BIC) but is also the most complex and costly to implement and beyond the reach of most organisations. Therefore, many companies choose to work with a third party, such as AccessPay, which has its own SWIFT BIC.
Once implemented, automated statement bank feeds can bring considerable business benefits, including achieving that elusive goal of a fast close and reducing the risk of error and fraud. CFOs gain near to real-time cash visibility, with a true picture of their finances helping to play a more strategic role in their business and answering that key question, “How much money does the company have?”