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Use cases

What Organizations Should Know Before Using Financial Shared Services for A/R

As companies become increasingly complex and expand across the globe, managers are looking for new ways to reduce costs and standardize processes. FSS can help companies achieve these goals and more, but it is especially useful for accounts receivable.

What Are Financial Shared Services?

The finance shared services model consolidates financial functions within an organization. Instead of each business unit carrying out separate financial functions, a centralized department serves multiple business units across the organization.

For example, a multinational corporation supplying computer chips could hire and train one global financial shared services team to handle payroll in its main markets. That team becomes responsible for processing payroll for branches around the world.

How Do Shared Services Work for Collections?

Shared services can be especially beneficial for A/R collections. In this case, one department handles all the accounts receivable tasks for the subsidiaries in the organization. Companies may do this for several companies in a region or across several countries. A centralized A/R department may handle these and other tasks:

  • Invoicing customers
  • Creating dunning strategies
  • Collecting receivables
  • Resolving disputes

For example, Mech-A is a specialist mechanic shop serving large commercial fleets across America. Its primary location is in Atlanta, but it also has teams in 18 other cities. The A/R collections team works from the Atlanta office. They tally up completed work orders and invoice clients. They then follow up to ensure timely payments.

What Are the Pros of Shared Financial Services?

Streamlining work processes under one department might sound like a simple fix to many organizational problems. But does this business model live up to expectations? These are some of the main advantages companies realize:

  • Reduced Redundancy: By centralizing financial functions, companies can reduce duplication. When a single team handles all the finance tasks, there’s less overlap in duties and fewer costly mistakes due to miscommunication.
  • Efficiency and Cost Savings: The streamlined process also helps businesses save money on administrative costs. Companies realize these savings through economies of scale achieved by one large department versus several fractured ones.
  • Global Standardization: Shared services allow companies to standardize complex processes and procedures worldwide. All subsidiaries within an organization will use the same system for managing A/R collections with some adjustments for local regulations.
  • Centralized Data: Subsidiaries and their local managers must understand local performance, but the CEO and CFO need a broader picture. One A/R department breaks down data silos and moves all data into one location for organizational analysis.
  • Better Alternative to Outsourcing: FSS is a practical middle ground between keeping all financial functions in-house and outsourcing them completely. It gives companies some of the benefits without introducing a third party, thereby reducing risk.

What Are the Cons of Shared Financial Services?

Despite its apparent benefits, sharing financial services has some potential downsides. Here are some common ones you may encounter:

  • Reduced Local Expertise: When financial services are centralized, there’s a risk of losing specialized knowledge that made it easier to serve a region or subsidiary. This might lead to problems with compliance and customer service.
  • Internal Resistance: Companies may face resistance from employees who prefer to use their current A/R systems and don’t want to change. This can lead to a loss of motivation and productivity, negatively affecting the organization.

What Are Some Effective Solutions for Managing Shared Services Risk

Over the years, managers have implemented best practices that reduce or eliminate the challenges faced by the financial or accounting shared services model. Review each carefully and determine whether they should be part of your implementation plan.

Leverage the Power of Automation

Why handle tasks manually when you can upgrade to an automated system? These software applications eliminate tedious tasks and allow workers to design, customize and execute work processes. For example, the account receivables team could use automation for invoicing clients and sending follow-up communication. If the company had several subsidiaries, this could drastically reduce the workload for the team.

Prioritize Data Security

Due to the higher risks associated with centralized data, companies must do more than just pay lip service to data security. They must take every reasonable precaution to safeguard data from external threats. This is especially important for companies operating in markets affected by data protection laws, such as the European Union’s GDPR and California’s CCPA.

Create a Service Level Agreement

Shared service departments do well when the team’s manager runs it like a separate entity ? even when it isn’t. These internal departments should develop competitive SLAs based on organizational goals. While an FSS is essentially an internal monopoly, SLAs set an acceptable performance standard and earn buy-in from the various subsidiaries. Doing so ensures business units can hold shared service departments accountable if performance levels decline.

Hire and Train for Applicable Specializations

B2B collections are typically less regulated, but companies must abide by local rules and consider cultural expectations. For example, in Islamic cultures, creditors must follow specific principles affecting interest and late penalties to comply with Shariah Law. Pakistan is one such example.

Absorb Existing Teams

Headquarters often create instability when they build a separate team and order subsidiaries to shut down their A/R departments. Companies can preserve buy-in and employee relations by offering the opportunity for people to join the main unit. Managers at HQ could allow employees to work remotely or offer the possibility of moving to the main office. This approach would reduce the need to train for local specializations.

Create a Dedicated Budget

One of the most common mistakes managers make is underestimating the cost of implementing a shared services model. Companies must consider long-term infrastructure, software, and employee training costs as part of their budget. In some cases, it may be more cost-effective to keep teams at the subsidiary level or use a hybrid approach. If this is true for your organization, a thorough cost analysis will help you determine that ahead of time.

How Will Financial Shared Services Evolve?

FSS models are changing, with technological advancements and changes in the business landscape driving transformation. One key trend is the increase in global financial shared services, which involves centralizing financial functions across borders. Other trends include the growing integration of technology into accounting processes and continued remote and hybrid work.

Remote work transformed the way managers view and achieve teamwork. It opened the door for employers to tap into talent outside the office. Some companies have made headlines as managers speak out against remote work. Employees have pushed back. Even Elon Musk had to acquiesce to pressure from Twitter staff after ordering them all back to the office.

Finally, companies are still looking for ways to reclaim profits after the financial uncertainty of the pandemic, and labor costs are often a top target. Automation is one way to reduce costs, but there is another common solution. Companies can also build internal teams in lower-income markets and manage them as in-house extensions of the organizations.

How Can Gaviti Boost Collections for Organizations With Shared Financial Services?

FSS delivers significant cost savings and improves consistency across an organization. However, successful implementation requires the right tools. Gaviti provides a suite of management and automation capabilities so that accounts receivable teams can automate repetitive tasks and reduce errors. The platform also has a dashboard which tracks important KPIs to help managers make better business decisions, even about customers who might be far away. 

There is great concern about using AI to handle job functions, but human intellect and creativity still play a crucial role here. Workers must draft  invoices and use interpersonal skills to create effective communication templates that result in higher paid invoice rates. The simpler the templates, the better.

Gaviti makes it easy to automate work processes so that you can build an efficient and effective shared A/R team for your organization. But why take our word for it? Speak to a Specialist today to see our software in action.

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