Document

Finance Automation: Process, Benefits, & Examples

By Annapoorna

|

Updated on: Feb 27th, 2024

|

15 min read

social iconssocial iconssocial iconssocial icons

About 70% of organisations expect to increase automation by 2025, as per the recent Gartner’s report. Automating specific manual processes brings about efficiency and delivers cost savings, standardisation, transparency, and other benefits. 

A proficient finance team anticipates and plans for such scenarios to ensure the company consistently maintains sufficient cash and meets its financial obligations. There are now solutions for such routine tasks thanks to finance process automation.

So, what is finance automation? And how to automate finances? Please read the article to learn more.

What is Finance Automation?

Finance automation refers to automating specific manual tasks along the finance process that can be performed more efficiently with artificial intelligence. It means setting up a series of tasks, called workflows, and making predefined steps to implement and use technology on these workflows. The automation streamlines operations and offers financial insights and analytics for a competitive advantage.

Key Areas for Automation in Finance

As report by McKinsey indicates, a minimum of 42% of all finance activities can be fully automated, and an additional 19% can be mostly automated across various industries. Here are some processes and key areas for automation in finance:

1. Payroll Administration

Payroll accounting involves managing employees' compensation for their work hours. You can automate reporting errors and omissions in timesheets. Further, you can audit reported hours against the schedule, calculate deductions, and ensure consistent data across various timekeeping systems.

2. Accounts Payable

Accounts payable processes include gathering, handling, and settling invoices from vendors who supply products or services to the customer. Invoice automation allows for fully automated processing of the majority of invoices. It can automatically extract essential invoice details through invoice capture, validate, identify duplicates, and generate necessary postings.

3. Financial Analysis

Creating financial statements is both time-consuming and daunting. You can utilise an automated bot to log into ERP systems, extract the necessary information, and reconcile bank statement balances. It will produce standardised financial reports and consolidate and validate budget and forecast inputs.

4. Accounts Receivable

Trade receivables represent amounts owed to a company for delivered goods or services yet to be recorded. Retrieving data from order forms, often submitted as images, can be automated through deep learning. Bots can monitor receivables, notify customers of open balances, and calculate provisions for doubtful accounts.

5. Tax Compliance

Businesses often face the complexity of relying on costly professionals to calculate their tax obligations. However, accounting software has emerged as a game-changer for finance teams. Now, finance process automation efficiently computes tax obligations for each transaction.

How to Enable Finance Automation Process?

But how to automate finances? Here is a step-by-step procedure to help you:

1. Evaluate your current processes & Setup

Automation heavily depends on technology and collaborative software. Examine your manual workflows to pinpoint areas where automation can impact most. Are you drowning in paperwork? Are you dealing with repeated financial tasks?

Identifying your most pressing needs is a solid starting point. Automation platforms effectively connect existing applications to allow seamless communication seamlessly between the integrated systems.

2. Set up the workflows

This is the phase where you actively engage in setting up automation. Workflows play a crucial role in guiding the technology throughout this process.

Each workflow should include the following components:

  • Trigger: This marks the starting point, a predefined event that initiates the automation.

For example, a customer submits a product return request.

  • Action: Describes the response triggered by the initial event.

In the given example, an automated email will be sent acknowledging the return request, and the return status will be updated in the system.

  • Result: Outlines the intended outcome or goal associated with the trigger.

Thus, the customer will receive confirmation, and the return process will be seamlessly tracked within the system, ensuring a streamlined customer experience

3. Select the appropriate tools

Once you have determined areas for improvement and established workflows, choose tools tailored to address those specific needs.

4. Ensure integration and data migration

Assess multiple software and select one that seamlessly combines with your existing systems to facilitate a smooth transition.

5. Test the workflows

Conducting thorough testing of the workflows is essential to guarantee their seamless functionality. It will reassure your finance team and allow them to engage in more valuable tasks.

6. Provide training and manage change

Introducing a change can be challenging, but investing in training ensures your team is well-prepared. It minimizes surprises when transitioning away from traditional spreadsheets.

7. Prioritise continuous improvement

Understand that finance automation is an ongoing process. Make it a routine part of your month-end close checklist and regularly review it to optimise your workflows.

Examples of Finance Process Automation

Technology has emerged as a game-changer for finance teams. Establishing standards and automating some processes can assist your team in reducing errors, enhancing collaboration, and boosting productivity. In fact, as per a report by Gartner, finance automation can save a full-time employee about 30% of the time.

Clear Accounts Payable can be one of the notable examples of finance process automation in Accounts Payable

Advantages and Disadvantages of Automation in Finance

Given below are the advantages and disadvantages of automation in finance:

1. Saves Time and Costs

Finance automation can perform mundane tasks and repetitive jobs like data entry. It means finance professionals can spend more time on core projects and activities. In addition, automating manual work reduces the risk of human errors and reduces associated costs.

2. Enhances Compliance

Following financial rules and standards is crucial for any business. Finance automation can help ensure that all finance activities adhere to these rules and internal controls. It lowers the chances of non-compliance and penalties and creates automatic records for audits.

3. Reduces the Risk of Fraud

Data breaches and fraud by employees or outsiders are not uncommon. Finance automation software includes an approval system and allows you to manage access to your financial data. The advanced tech adds an extra layer of protection to spot and stop fraud.

4. Real-Time Insights

Finance automation provides crucial financial information whenever required. It is valuable because it facilitates faster and more informed decision-making. Real-time access to financial data is among the primary benefits of finance automation.

While finance automation brings numerous advantages, you may encounter hurdles during its implementation. Here are the common challenges of implementing finance automation.

1. Resistance to Altering Core Business Processes

A primary challenge in finance automation is the reluctance to change. Integrating new technology can be difficult, as many businesses need help to automate well-established finance procedures.

2. Reporting

Poorly implemented finance RPA can result in accurate or complete reports, potential restatements, and reputational damage. It is essential to ensure the proper setup of automation from the outset to avoid such issues in the future.

3. Compliance

Errors in automation can compromise compliance accuracy in regulatory reports. It may expose your business to fines, notices, sanctions, and legal consequences.

Future Trends in Finance Automation

Finance processes have undergone remarkable changes, and ongoing transformations and emerging trends promise further innovation. A few of the future trends in finance automation include:

1. Unlocking the Potential of Large Language Models

Large Language Models (LLMs) with advanced AI capabilities can capture complex financial information. They can cross-reference industry and sector-specific data to provide insightful recommendations. Additionally, LLMs can articulate financial tables and convert raw data into easily understandable narratives.

2. Switching from RPA to CPA

Cognitive Process Automation (CPA) prioritises cognitive abilities over repetitive tasks and takes automation further. It is a powerful tool for analyzing financial data, making informed decisions, detecting anomalies, and optimising processes.

3. Enhancing Blockchain Smart Contracts with the Integration of AI

Smart contracts represent self-executing agreements and automatically carry out predefined conditions on a Blockchain through code. AI enhances smart contract capabilities, analyses data, and identifies patterns, ultimately ensuring efficiency, precision, and cost savings.

4. Emergence of APIs

Application Programming Interfaces, commonly known as APIs, allow smooth integration, sharing of data, and collaboration across diverse systems and services. They serve as a bridge between various applications and facilitate communication and interaction in a standardised manner.

Finance and accounting tasks are undeniably complex and demanding for businesses. Following traditional methods results in an unnecessary waste of time and resources. Finance process automation is more than minimising risks and avoiding errors. It helps enhance efficiency, ensure compliance, and boost productivity within the current financial system. Automating finance processing at a larger scale can lead to improved in-house service and optimised operations in the long term.

Frequently Asked Questions

How is automation used in finance?

Automating critical yet repetitive processes, like accounts payable, invoicing, bookkeeping, tax compliance, and payroll, can save time and effort. It also ensures consistent and accurate financial information.

Will automation replace humans?

No. While tasks may be delegated to AI systems, human intervention is still required to ensure accuracy and transparency.

What are the risks in finance automation?

Automation presents multiple risks that can be overcome with robust strategies. Some common challenges include the initial cost of implementation, lack of flexibility, and risk of data breaches.

About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

Index

Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

Cleartax is a product by Defmacro Software Pvt. Ltd.

Company PolicyTerms of use

ISO

ISO 27001

Data Center

SSL

SSL Certified Site

128-bit encryption