Why Is Finance So Afraid of Technology and Automation?

Even though it’s 2023, that narrative is still playing out and working its magic in some industries like finance. So, you see a lot of finance professionals who shy away from using tech in their roles because it’s the ‘unknown.’ It doesn’t help that 47% of employees in financial services believe technology is putting their job at risk. And when you consider the sheer amount of work on a finance or credit manager’s plate, the idea of having to use technology can sometimes feel like a burden – one that could get in the way of the work they need to do.

Rather than ponder on this subject myself, I thought it’d be far more valuable if I asked finance automation and credit risk experts from Quadient, upSWOT and Creditsafe.

While I can certainly understand where these fears are coming from, our ‘Feeling the Recession Pinch’ study reveals that 37% of business leaders are realizing tech and automation lags within their finance function could throw their businesses into financial ruin and make it tough to keep cash flowing in the face of a recession this year. In particular, using manual, outdated processes and tools (21%) was cited as the biggest cash flow management mistake, followed by failing to automate the accounts payable and accounts receivable processes (16%).

Adam Dolby, SVP Partnerships and Alliances at upSWOT, thinks a fear of technology is what’s made the finance profession so slow to automate processes.

“If you look at the jobs across financial services, there are certainly some jobs that are at risk due to technology and automation. But you have to remember, financial services is a relationship-driven industry at its core and relies heavily on trust. So, it’s not so far-fetched that finance professionals worry about tech ‘taking over’ and replacing them.

And while those fears may not hurt business growth when the economy is calm, it’s a completely different situation when you find yourself in a recession. With rising inflation, a cost-of-living crisis, increasing energy prices, rising materials costs, supply chain disruptions and an ongoing labor shortage following the pandemic’s ‘Great Resignation,’ businesses can’t afford to let those fears take over. It’s in uncertain times like we’re in today that business leaders will be faced with tough decisions. Nothing will be black and white – there will be nuances to every challenge faced and decision made.”

Now, there’s another perspective to consider. According to Ed Willis, Director of Channel Sales at Quadient, there are common myths driving the tech and automation lags in finance.  

“A lot of finance teams will say: ‘We get cash when we get cash. Most late payments are just part and parcel of doing business and they typically come from a subset of delinquent customers. There really is little we can do to impact or change those customer’s behaviors.’

The truth is that many collection strategies rely heavily on Excel sheets with the common practice of sorting by who owes the most amount of money for the longest period of time. Then those past due accounts are divvied up across the collections team so they can collect the debts. I’d say this is happening in most instances because some finance teams simply don’t realize how technology can actually improve and speed up the debt collection process.

On top of that, finance teams are very busy doing a lot of manual work, which can often make it hard for them to make the time to think about tech adoption – creating the ultimate Catch 22. While this rationale may have worked when finance automation was in its infancy, it’s not a viable long-term strategy, especially with a recession looming overhead.

Another reason why finance teams haven’t been as quick to adopt technology is that they already use enterprise resource planning (ERP) software and so they don’t think that they need anything else. Many finance teams believe that the technology native in their core ERP software related to dunning or payments qualifies as automation and additional solutions won’t have much of an effect on their cash flow. In this case, the challenge is exposure. Simply put, a lot of finance teams may not have full line of sight into what true AR automation entails. So, if they don’t understand what finance automation is and what it entails, they won’t push to bring in new technologies.”

All the talk of a recession this year has North American companies panicking about getting paid by customers and being able to sustain their cash flow. As our study reveals, these fears are warranted given that 85% of businesses reported being paid late by their customers. Of that 85%, 42% of businesses are paid late by 11-30% of their customers, while nearly one in 10 businesses are waiting for payments from over 30% of their customers.

These findings weren’t all that surprising to Ed Willis, Director of Channel Sales at Quadient. He’s seen customers face all sorts of cash flow problems due to missed customer payments. These problems are often caused by internal financial management and invoice processing issues.

Some causes of these cash flow issues include:

• Different customers have different billing requirements and payment preferences.

• Payment terms and credit amounts vary by customer.

• Some customers require that they submit their invoices into their accounting portals, while others require invoices to be sent via email or even by mail or fax. Delivery preferences vary by customer so there’s no standardization, which can lead to confusion, errors and delays in processing.

• Some customers ask for the information listed on invoices to be shown in different ways. For example, one company may ask for products and/or services to be broken out separately on different invoices in different currencies.

• Some customers may have negotiated discounts or longer payment terms. These tend to be more of an exception than a rule.

As Ed Willis explains, “Think about all those variations in how customers pay and what they require on their invoices to process payments to suppliers. And then remember that the invoices must be sent in a timely manner (to stay on track for payment within the agreed terms), must list all necessary information (as the customer has requested) and must be accurate.

And if something isn’t right on an invoice, disputes can eat into 30% of the credit-to-cash process (and time). The process of dealing with those disputes can be tricky. As a supplier, you want to make sure it’s handled with respect and transparent communication. At the end of the day, the best supplier-to-customer relationships are based in mutual trust and respect.

But it’s also important to remember that if you let late payments continue simply because you’re afraid of upsetting a customer, that could have negative repercussions for your own business. Because the more customers that pay your business late, the more collections you have to deal with and the more strain will be put on your cash flow.”

As if late payments weren’t bad enough, our study also found that 28% of businesses expect to rack up between $500,000 and $3 million in debt over the next 6 to 12 months. Meanwhile, 7% expect their debt to exceed $3 million. On top of this, more than two-thirds (67%) of businesses expect borrowing costs to increase this year.

Needless to say, financial pressures are only going to get worse in the face of a recession. Our study’s findings emphasize just how important it will be for companies to do everything possible to get paid by customers so they can reduce their debt and increase their chances of being approved for a loan, if the need arises. And technology will inevitably help in that battle.

Matthew Debbage, CEO of the Americas and Asia for Creditsafe, believes finance teams need to embrace digital transformation the way other departments have (i.e. technology, IT and data security).

“Over the last few years, many companies have been increasing their investment in digital transformation. Digital technologies and processes offer so many benefits, including increased productivity and reduced costs. And it’s usually the CTO, CDO, CIO and/or CISO who lead the digital transformation charge. These are all roles where technology and automation are critical and embedded into every process from the start.

But the finance profession has historically been slow and hesitant to adopt technology into their roles and processes. This is a profession that, in many cases, still uses Excel sheets to maintain its ledgers and manage its debt collection.

Rather than relying on a physical ledger, using a digital ledger management tool means you can get a full and accurate view of your cash flow. So, you know exactly how much sales are coming in, how much cash is going out as well as which customers have paid their invoices and which ones haven’t.

What’s even better is that it means you can:

• Speed up the time it takes to collect payments from your customers

• Boost your cash flow so you can pay for your ongoing expenses, while also having enough cushion to account for a potential decline in customer demand and sales in a recession

• Lower the risk of bad debt

The more you know about what money is owed to you and by whom (in real-time), the faster and easier it will be to collect those debts. And that’s going to be a good thing for your cash flow.”

Technology can and should be a finance team’s ally. It’s about making sure you have the right tools that provide the right data so you can make the most informed business decisions. For instance, a lot of businesses use ERP (enterprise resource planning) software to manage day-to-day financial activities within accounting, procurement, project management, risk management, compliance and supply chain management. The software is meant to help companies plan, budget, forecast and report on financial performance.

But there are several challenges with ERP software. In many instances, ERP software isn’t correctly implemented across all functions, which leads to internal errors and failures. Another problem with ERP software is that businesses don’t properly integrate their ERP software across their entire technology stack. This happens because legacy systems are so outdated that they can’t communicate and integrate properly with ERP software. And that leaves companies stuck with data quality problems that often lead to misinformed decisions that expose their business to financial, legal and compliance risks.

Let’s also not forget that ERP software doesn’t always have important metrics you need to manage your cash flow, such as accounts receivable (AR) metrics. Without these metrics, companies are left with a huge blind spot that could put them at risk of increasing their DSO (days sales outstanding) and reducing their cash flow significantly.

It doesn’t help that 61% of late invoice payments occur because of incorrect invoices. And that’s happening because finance teams are relying on their ERP software as a catch-all for their data needs. But that software is missing vital information about your customers’ financial health, ability to pay invoices on time, outstanding debt, credit score, credit limit and other information that’s needed to make the right decisions for the business.

That’s why you shouldn’t put all your data eggs into a single basket. You need to look at all the data available about your customers, identify the gaps and blind spots and then, either implement or integrate the necessary technology into your tech stack. The end goal should be to protect your business from working with risky customers that are in poor financial health and can’t (or won’t) pay their invoices on time.

I asked Dmitry Syvolap, CCO & Co-Founder of upSWOT what role technology plays in the finance profession. Here’s what he had to say.

“There’s absolutely no way to manage finance without technology today. For finance professionals, data is one of the most important tools and assets in doing their job. It’s essential to keep all information up-to-date and to have a clear picture of your company’s finance health and growth capabilities. It’s also critical in identifying and preventing your company from being exposed to risks. Without data, finance teams are flying blind and the potential risks are likely to increase.

But there’s another benefit to leveraging technology – it can help finance teams do their jobs better. Let me explain how. By automating invoice processing and creating payment calendars (by each customer), your finance team will know exactly when and to whom they should send payment reminders to. And if they use software that lets them build in workflows for this, they can do it in a single click – meaning payments can be collected faster and your company’s debt burden could be reduced.

Of course, technology can also help your finance team save so much time by presenting your financial data in a digital dashboard. For instance, your team can merge your ledger data with credit risk data so you not only get the full picture of your own company’s financial health, but you also see how long it typically takes your customers to pay their invoices and how much money they owe in past due payments.

At our own company, we’ve seen first-hand how valuable technology can be in improving our team’s productivity and efficiency. For example, we’re no longer manually managing our bills and invoices. And thanks to technology, we have access to all the necessary financial and credit risk data we need so we can prepare our quarterly or annual reporting. Plus, we’ve used a cash flow forecasting tool to accurately model our financial growth.”

Most industries are facing a labor shortage. Much of this has worsened since the pandemic drove the ‘Great Resignation’ and pushed employees to expect and demand more satisfaction and value from their roles.

According to Ed Willis, Director of Channel Sales at Quadient, hiring is only going to get harder in the finance profession.

“Data from Gartner reveals that the only demographic growing in finance is employees who are 60 years of age and older. And we know that fear of technology is often more pervasive in older generations. So, you can imagine how big of a task recruitment teams will have as they try to recruit tech savvy finance professionals. For companies that want to bring on finance professionals who embrace technology and embed automation into their processes, the available talent pool will shrink considerably.

And you have to remember that managing Accounts Receivable in a business is no easy feat. More often than not, finance teams struggle with cash management, trade promotions management, credit management, customer payments and debt collection.

If the demographic in finance that’s growing the most is employees aged 60 years and older and this demographic is more fearful of technology, I’d advise companies and their recruitment teams to show this workforce the power and benefits of using technology. Show them that technology and automation will not only make their own jobs easier to do, but will also help them be seen as innovators and high performers inside the organization. This will be key to making finance teams more willing to embrace technology moving forward. It's also important to remember that what scares and frustrates your finance team is likely to do the same for your customers. So, you can solve two problems with one solution.” 

Armine Movsesyan, VP of Financial Success at upSWOT, is also a strong advocate for embracing technology in the finance profession. But she believes companies hold a key responsibility in empowering and upskilling finance professionals so they’re less fearful of technology.

“Companies can help their finance teams by providing access to training and development opportunities that focus on upskilling their knowledge and use of technology. This will help them automate and streamline various finance operations. I think most finance professionals would be open to this, as they’ll be able to see first-hand the kinds of improvements and benefits technology brings to their work. Ultimately, finance professionals who are open to new technologies and committed to personal growth will be a company’s greatest financial champions who drive their companies forward in the digital age.”