Why Companies Underestimate How Finance Teams Affect the Bottom Line

One of the greatest ironies in business is that finance handles the money, but companies do not view them as income-generating. Managers feel this way even though the accounts receivable team directly impacts cash flow and the company’s ability to meet its financial obligations. Why does this happen, and what can you do to ensure your finance team acts strategically to feed the bottom line?

Companies Build Out Traditional Teams With 3 Main Focus Areas

Before companies had dashboards and other features of automated accounts receivable tools, finance professionals did all the heavy lifting. The finance team handled this by splitting their work into three main areas.

Past: Accounting

Several tasks fell under this header and involved a lot of manual labor. Examples include calculating key performance indicators and meeting reporting requirements. Typically, the quarterly and annual reports were the most critical assets created in this area. While this helps accountants track money, it doesn’t make any.

Future: Financial planning

This broad header covers several areas, including forecast planning, projections, and financial analysis. Large and medium-sized companies rely on these functions to predict specific scenarios, such as the feasibility of a new product line. They could then adjust their business strategies to achieve desired outcomes. This can help businesses make profitable decisions, but it doesn’t generate income on its own either.

Present: Finance Operations

Here, the company runs its day-to-day operations, which is crucial to getting paid. So, what falls under this header? Sending off invoices, collecting payments, paying vendors and meeting payroll are common examples. These tasks do not make money by themselves either.

Here’s Why These Finance Roles Still Matter

Companies spend a lot of time focusing on the bottom line. So, why are these three functions considered critical to business operations if they don’t generate income? Couldn’t a company simply skip some of the reports and KPIs? It could, but then that would negatively impact the bottom line:

• Failing to file taxes or complete reports could lead to fines.
• Ignoring KPIs would limit a business’s ability to make strategic decisions.
• Choosing not to chase invoice payments could cause them not to be paid at all.
• Longer DSOs lead to a greater reliance on credit.

With the recent hikes in interest rates, reducing credit reliance is even more important. Each time the Federal Reserve and lenders increase interest rates, not getting paid on time becomes more expensive. At the same time, the worth of shaving even one day off your DSO increases.

Generally, every time the interest goes up by a hundred basis points, the loan also becomes more expensive by a hundred basis points. For example, a 5% increase sounds small, but 5% is an extra $50,000 for each million you borrow.

The Best Financial Professionals Are Like Strategic Business Partners.

Smart chief financial officers help facilitate opportunities and grow businesses. They evaluate risks carefully and determine the best times to take the plunge. These professionals understand the correlation between risk and reward and use it to their advantage.

Conservative CFOs can kill a business. They tend to think, “No, no, let’s not do this. Let’s not do that. This is dangerous.” There are certainly times when this could be true. But, failing to take risks ultimately leads to missed opportunities.

When accountants are good at their jobs, they can find all sorts of loopholes. Maybe they know how to make reports that are compliant but look good and even reduce tax liabilities. But, this isn’t enough to rank among the best financial professionals. They must also know how to navigate risk.

Strategic Financial Partners Can Generate Income for Businesses

When a good financial professional encounters an idea that doesn’t look feasible, they don’t just toss it. Instead, they determine precisely what makes it too risky. From there, they can assess the level of risk and introduce potential ways to mitigate it.

For example, a good FP&A might not say, “Hey, it would be a terrible business idea.” Instead, they might recommend finding cheaper raw materials and making price adjustments to the final product or service. Additional options include optimizing processes and investing in new tools.

These steps can significantly reduce costs and improve profitability. After all, a dollar saved is a dollar earned. If you reduce your expenses, your net profit automatically increases. These profits are then distributed to shareholders or pumped back into the business.

Consequently, these types of strategic financial professionals are the ones that directly impact the bottom line by generating income.

Here’s Where Financial Leaders Can Excel and Make Money for Businesses

Let’s start with payroll. If your payroll team works well, meaning everything is on time, with no mistakes, you are already saving money. How does that happen?

• You are not getting fined by the government.
• You avoid civil litigation with former or current workers.
• You avoid the risk of failing to notice that you overpaid employees.

Next, there’s the case of accounts payables. Paying vendors quickly isn’t always in your company’s best interest. But, some vendors make it worth your while with better prices and more favorable terms. However, doing this manually can create room for fraud. Anyone could send an invoice and pose as a vendor to get payment.

Additionally, scaling operations for large companies is a big challenge. You have hundreds of vendors delivering different services, so you need to negotiate pricing with them. You need to actually gather invoices, verify them, and then submit payments.

Automation Can Drastically Improve Financial Operations

Over the past decade, larger corporations have introduced AP systems very similar to Gaviti’s A/R automation tools, but with the opposite purpose. They managed to use their admin at 48% because these automated systems successfully handled multiple thresholds. This, in turn, reduced the rate of AP fraud. It also reduced staffing needs.

Collections automation has an even better effect. When you get paid faster, you reduce your financing needs and how much you spend on interest. Because you spend less, profits are higher. 

You could reduce the reserves and write-offs, which also directly affect your bottom line, all while providing a better experience and allowing the opportunity to loosen up your credit controls. If you have a strong collections team, you can take more risks. Now, your sales manager will be happy to realize he can sell more.

That is where the CFO is becoming strategic-wise. They can then show how implementing Gaviti directly increased the net profit by X million dollars. They can also show it helped to increase the credit threshold. These changes to the accounts receivable process create positive driving factors for the bottom line.

Take a Look at How Gaviti Solves These Problems

Gaviti takes over many of the roles financial professionals previously completed manually. It does this by almost totally automating the accounts receivable management process. For example, it sends out invoices, automates conversations, calculates KPIs, and can conduct cash forecasting for different scenarios. Want to know what your DSO is? It shows that on a centralized dashboard too.

Removing these manual tasks from the finance team frees them to be truly strategic partners that generate income. However, this transition requires more than automation. Professionals must also be willing to rethink their value strategy and the roles they play within the organizations they serve. Book a Gaviti demo to see how automation transforms your accounts receivable process.

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