Stamford, CT—Nov. 30, 2011—Because financial systems are becoming increasingly interconnected, both company-wide and globally, any changes made to a system impact wider parts of the business, according to a survey announced today by Basware. This increased interdependence creates a network effect that impedes cash flow visibility and confidence.
The 2011 Cost of Control – Fuzzy Finance report, the third annual report commissioned by Basware, provides insight into the opinions and priorities of more than 550 finance executives around the world. The report includes an ongoing trend comparison with the 2010 and 2009 Cost of Control reports to measure finance executives’ confidence and strategic business goals.
Concern about the visibility of cash flow was the prominent theme uncovered in the survey, largely due to the increasing interdependence of finance systems currently within businesses and on a global scale. What was once a purely technological problem of the ‘dialogue’ between disparate systems has now become a series of complex interdependent workflows, resulting in a ‘network effect’ that impacts operational efficiency across the organization. This is further complicated by interaction with external systems that are equally interdependent. As a result of this interdependence, 71percent of global CFOs and finance directors are concerned that greater levels of reliance between different finance systems present cash flow visibility challenges.
Along with this increased interdependency, 59 percent think decisions have been made within their business to improve financial operations without a clear understanding of the wider implications on cash flow visibility. This concern is reinforced by finance executives stating that realizing cost savings across the business is the most significant challenge facing their department (48 percent).
When comparisons are drawn with the 2010 and 2009 Cost of Control report, the importance placed on achieving this has continued to rise (39 percent and 31percent, respectively). The awareness of financial system interdependency on cash flow visibility is further supported by 47 percent respondents claiming that the second highest priority is systems integration and technology challenges, an increase of 10 percent since 2010.
Despite ongoing cost savings challenges, overall confidence in the regional and world economy has increased among CFOs since 2010 and 2009, both by 18 percent.
Confidence in company performance has moderately increased (+7 percent), but confidence in the performance of the finance function remains static.
Esa Tihilä, CEO, Basware, commented: “Confidence in regional and world economies has improved since 2010, but the climate of recent years has resulted in businesses fundamentally shifting the strategies they adopt based on the need to continually identify cost savings. Cash flow visibility, in real time, is critical to achieve this and finance executives need to have a holistic view of finance in order to realize these savings. The increased interdependency of financial systems within a business and on a global scale is creating a fuzzy view of finance, leading to a lack of confidence in the ability to access a real-time view of cash flow. ”
Taking a deeper look at the components of financial systems, Accounts Payable is seen as the most critical to provide an accurate view of cash flow within the business. Sixty-two percent agree that inefficient Accounts Payable practice compromises visibility, while 64 percent believe it has a more immediate impact on other parts of the business due to higher levels of integration between systems.
Automation within areas such as Accounts Payable and e-invoicing have become increasingly important for finance executives to access detailed information of company cash flow on a real time basis. Investing in e-invoicing technology to increase productivity was ranked as the top activity that 52 percent of businesses are more likely to implement now than 12 months ago. Additional priorities were reducing days outstanding on customer payments (49 percent) and extending payment terms for suppliers (44 percent).
Tihilä added: “Automation of manual processes is critical, particularly as financial systems become increasingly interdependent and reliant on information from other parts of the business. Businesses are recognizing the tangible value automation can bring to an organization, even beyond the more obvious ways to yield cash through extending supplier payment agreements and reducing customer payment terms.
“The increased interdependence of financial systems means no element of the financial process can be seen in isolation of others, as a change at one end of the financial spectrum will almost certainly impact the other. The key is for finance executives to have a clear visibility of cash flowing within the business and an overall awareness of how these networks interlink so any changes that are applied do not have a detrimental impact.”
Peter Smith, editor & co-managing director, Spend Matters UK /Europe, noted: “Spend Matters sees a trend for procurement and finance functions and executives to work more closely together, and this report supports that idea.
It’s important for senior procurement executives, therefore, to understand what is driving their finance colleagues, and the Basware survey provides a good handle on that.
“It’s interesting to note that senior finance staff are becoming more concerned about cash flow and the visibility of commitments, payments and other key cash-related issues, and the focus on cost savings from suppliers is actually declining, in finance’s eyes at least. That all has implications for procurement strategies and approaches, and also suggests that organizations need to look at a more integrated approach across the whole purchase-to-pay cycle,” Smith added.
“The survey suggests that organizations are looking at Accounts Payable with higher priority rather than merely considering it as an administrative task.
The wider issues in this area around control, visibility, cash management and supply chain finance seem to be increasingly understood. That in turn suggests that automation and better management of the invoicing process is going to become a bigger issue,” Smith concluded.
For a full copy of the 2011 Cost of Control Fuzzy Finance report please visit: http://www.basware.com/resources/a-cost-of-control-report-2011-fuzzy-finance.