How to redefine financial efficiency for stronger company foundations

There’s no getting away from it: businesses of all shapes and sizes are having a tough time. Tech scale-ups in particular — those who benefited from cheap borrowing costs and rapid expansion in recent years — now find themselves laying off staff, reducing budgets and unable to raise funding. 

CFOs and finance leaders are poring over their numbers, looking for financial efficiencies in the face of rising interest rates, record inflation and flatlining lead generation. More than half of UK tech staff are fearful of being made redundant. 

That’s the bad news part out of the way. Now for the good - there is opportunity in crisis. 

By redefining the concept of ‘efficiencies’ — rather than framing it in terms of simply reduced budgets and headcount — finance leaders can not only weather this storm, but rebuild the very foundations of their business to be in a stronger position when the dust does settle.

Finding efficiencies in processes before people

‘Efficiencies’ in business are closely tied up with cost-cutting and reducing headcount. When times are tough and the numbers aren’t where they need to be, the first logical step to take is to trim down an organisation’s biggest expense - its people. This is the harsh reality for many businesses in 2023. 

But where possible, try to align financial efficiency with processes, before people. Finance leaders — and the investors they’re accountable to — are right to look to the numbers both current and forecasted as a marker for success. But letting people go should not be the only tool in an organisation’s money-saving arsenal. 

Significant time and cost savings are to be found in smart technologies. A July 2022 survey of 226 CFOs found that digital acceleration was the top spending priority over the next 12 months, with 66% saying they plan to increase their investments in digital finance initiatives. A third aim to prioritise back-office automation technologies.

A recent CFO Connect survey found that CFOs want more integration, automation, and ease of use:

The penny has dropped for many - outdated manual processes take up precious time and resources, causing unnecessary stress to staff across the entire business. This lowers wellbeing and potentially leads to key staff leaving. And then come added costs associated with rehiring and onboarding newcomers. 

Increasingly, business leaders are assessing where inefficient processes and systems exist, both within the finance function and the business as a whole, as a way to reshape their foundations in order to be better protected against future shocks.

Automation is key to financial efficiency

Financial process automation has the capacity to deliver significant operational efficiencies, enhanced regulatory compliance and more streamlined workflows, amongst its many other benefits. After the initial outlay on new software and processes, an automation drive can result in the cost of existing processes being halved, and 25% more capacity within operational teams. 

As well as freeing up human capacity and driving down costs, automation reduces the potential for errors within finance teams, as human decision making and therefore errors decrease.

Then, as employees spend less time on repetitive, manual tasks, they can move their focus to more impactful, strategic endeavours. This drives up staff satisfaction across a business - not necessarily a direct KPI for a finance leader, but one that will mean better retained, more productive staff with less need for hiring and development.

The wider benefits of finance process automation become even clearer when we dive into what some of those processes are.

Historically, these have been labour intensive, highly manual tasks that can easily eat up most of the finance function’s time. This not only leaves little room for impactful strategic initiatives and planning, but can also cause stress, burnout and even key talent to leave the business. 

A business that invests in some or all of the following automation initiatives will have stronger foundations as it navigates the current turbulent conditions.

Payroll

A survey of 2,000 British workers found that around one in five (21%) has changed jobs after being paid late or inaccurately by their employer. This is equivalent on a national scale to nearly seven million employees, with 60% of those surveyed saying they had identified mistakes on their payslips. 

Crucially for finance leaders, 25% of those surveyed said they felt less engaged and productive at work as a result.

What this tells us is that in order to retain their best staff, avoid the costs of unnecessary recruitment and training, as well as reduce mistakes, CFOs must automate payroll. After all, a company that cares about its employees’ wellbeing, helps them feel engaged and productive at work, and retains its best staff has a better chance to weather the storm.

Automated payroll software has been shown to save payroll teams 80% of the time they spend running it each month. This frees up time for more impactful strategic initiatives. It eradicates error-prone spreadsheets, removes the need for an outsourced accountant (and the hassle-laden back and forth involved) and allows payroll, HR and finance teams to do everything in one place - together.

For the CFO specifically, automated payroll software provides more transparency and autonomy over their payroll data, helping them to make sound decisions based on accurate information, putting them in better shape for the future.

Accounts payable / receivable

Capturing invoices accurately and promptly ensures that suppliers get paid on time, reducing the likelihood of incurring late payment fees. And no finance leader needs to be told that getting paid on time is essential not only for cash flow, but for the accounts receivable department’s stress levels.

AR and AP automation helps to significantly reduce the time and hassle associated with paying and receiving money. Rather than spending time chasing payments or worrying about what is owed to others, accounts teams can spend their time more effectively on data analysis and reporting to finance leaders, for example assessing gross margin patterns, bad debt ratios and forecasting how this may impact the business over time. Employee workload and wellbeing is improved as a result, and cash flow becomes a lot healthier. 

The ability to more effectively plan ahead means CFOs will be in a stronger position to weather future storms, not to mention improve cash flow through the current one with past-due invoices reduced by as much as 30%.

Cash management

In a similar vein to AP / AR, automated cash management offers finance leaders greater insight and accuracy over data, enabling them to make better decisions. One provider helped a client improve gross margins by 20%, with a half a million dollar uptick in cash flow.

Numbers like these should be significant enough for the majority of businesses to avoid going down the redundancies route entirely.

Contracts

The contracts you have in place with suppliers and partners are key to the organisation. The effective and consistent creation, implementation and evaluation of contracts can be the difference between the success and failure of not just the finance function, but the entire organisation.

But traditionally, contract management has been a laborious, time-consuming and manual process, blighted by errors.

The concept of contract lifecycle management dictates that the entire contract management process from start to finish can be partly or fully automated, with enhanced visibility into contract-related data provided so that finance leaders can make sound decisions in real time. 

The likes of DocuSign allow organisations to significantly improve contract workflows by taking the entire signature process online. Agreements can be shared electronically amongst relevant parties and signed in seconds, reducing bottlenecks, freeing up time and creating peace of mind. CLM has been shown to reduce the time taken for contract processes by up to 83%. 

Automated, electronic contract management makes a positive first impression on customers and partners, strengthening retained revenue and reducing churn, an essential metric for finance leaders to improve in turbulent times.

Process efficiencies beat headcount reductions

Reducing headcounts and cutting budgets may seem like the best short-term solution for navigating choppy financial waters. Sometimes it is. However, smart businesses should first look at how strengthening existing foundations can help them not only to weather the current storm, but be better prepared to deal with future ones. 

Finding ways to reduce unnecessary time spent on finance tasks, getting better insight into data in order to make sounder decisions, and freeing up your staff to do truly impactful work, will put your business on a much firmer footing for both short and long term success.

About the author

Rebecca Russell is PayFit’s in-house payroll expert, advising businesses on complex issues surrounding payroll legislation, administration and strategy. Before, and indeed while, working in payroll, she worked in various IT and tech roles, cementing her passion for helping businesses to improve their systems and processes. Having gained over 10 years’ experience in payroll, both within payroll bureaus and in-house, Rebecca now brings her expertise both in payroll and software to PayFit and its customers.