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2021: Back to Business with Fintech Learnings from 2020

2021: Back to Business with Fintech Learnings from 2020

When prognosticating 2021, it’s useful to consider some of the technology and payments forecasts made about 2020. Many predicted technical consolidations, AI, moving processes to  the cloud, and improved strategic positioning for the finance organization. These were pretty safe bets. What was unexpected was the pandemic, which had the impact of accelerating the reality of those predictions. It’s pushed all business to act sooner because we suddenly needed these advancements more than ever.

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So what is the next phase of digital transformation? Assuming as a company you made it through 2020, 2021 should offer even more significant technical leaps as organizations reorient themselves and strive to get back to business.

Greater governance

Oversight has always been challenging from a corporate finance perspective. The status quo for many businesses has been to rely on well-trodden processes to operate. For example, accounts payable is still one of the most time-consuming aspects of finance, held together by limited point solutions, bubble gum, and prayers. According to the APQC (American Productivity & Quality Center), businesses erroneously make an average of 1.5% of payments each year to duplicate invoices. Legacy systems and manual processes do a poor job identifying duplicate invoices and don’t offer a fail-safe at the payment execution step. And duplication is just one of many points of failure that organizations need to address.

Most AP solutions don’t do an adequate job monitoring and tracking the point of payment (when money leaves the bank account). Beyond risks associated with financial controls, the inability to identify how payments are made can add days or weeks to a reconciliation process, severely limiting insight into cash flow.

In 2021, you can expect companies to begin a more aggressive recovery period. Those organizations may begin expanding into multiple entities or start acquiring other businesses. A broken AP process will get worse under those conditions because entities often utilize regional banks or have unique internal processes. Monitoring at the transaction level needs to happen across all entities and in every office and country.

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Are paper checks history?

Paper checks during the pandemic—made worse with the postal issues in 2020—are highly risky and inefficient. Beyond being an expensive backend payment method, they’re more prone to fraud, damage, and delivery issues. Checks involve a physical workflow of printing, signing, mailing, auditing, and reconciling.

Imagine requiring staff to courier checks across town to senior finance folks for signatures and approvals, then frantically licking envelopes (a very pandemic-unfriendly exercise) to mail them out. I wish I could say I was making this up, but I’m not. It happens. And any perceived cash flow benefit in the float is wiped away by inefficiency and wasted time.

In New Zealand, banks have notified their customers that they’ll no longer support paper checks starting 2021. They’re encouraging electronic payments and the New Zealand versions of the automated clearinghouse (ACH). While it’s too early to tell if the rest of the world will follow, one thing is clear: Once you go away from paper checks, you don’t bother going back. And indeed, more businesses will avoid them entirely.

Consolidation is coming

CFOs are looking at consolidating finance functions, taking a more holistic view rather than as silos. AP, AR, banking and treasury, lending, foreign exchange, etc., are all a part of a company’s financial circulatory system. They’re a series of inputs, outputs, and processing workflows that must be considered as a whole. For example, suppose the organization has multiple global entities, business units, and subsidiaries, and each manages its accounts payable separately. In that case, the parent company still needs to fund its subsidiaries to make local payments.

In larger, more established businesses, this would be regarded as a treasury function where everything eventually should reconcile back. Reconciliation takes time and some amount of spreadsheet gymnastics, even with an ERP in place. But if the objective is to support global payables, funding operations should be a part of the same flow. Transactional systems that can handle treasury and payables for all entities improve visibility, reduce the process gaps, and limit risks.

A robot revolution or robot elevation?

If the pandemic taught us one thing about our work lives, it’s that every bit of help you can get is welcomed. Finance teams can not be expected to give their unerring attention to every transaction. Working from home and Zoom fatigue has significantly taxed people’s ability to focus. And any type of detail work is better suited for artificial intelligence. This will undoubtedly continue in 2021, and perhaps make even more considerable strides as comfort levels around AI continue.

AI can analyze existing data, recognize patterns, and bubble up inconsistencies and infractions in the most narrow processes. And with the more significant employment of machine learning, modern finance applications are learning a greater understanding of our preferences. They are digital butlers that relieve teams from the most excruciating manual operations. Rather than replacing workers, AI elevates them.

Greater investor expectations

2020 was a mulligan year—everyone’s opportunity to blame the circumstances. 2021 likely will not be as forgiving from an investor or executive standpoint. We can expect more unicorns, more IPOs, and more exits as the financial community plans for the future.

To meet those goals, businesses must shore up their processes to fully capitalize on what they have. Securing and expanding market share—even more than before—will determine who succeeds in the long term because not everyone is as well-positioned and ready to scale as they seem.

All that said, 2021 should be a year of rebounds, with some companies bouncing back higher.

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