Data-driven finance: the quest for clarity


Why the finance function needs 20/20 vision in 2024

A clear view of what’s going on throughout a business is the holy grail for CFOs, but attaining this requires a highly coordinated approach to implementing new tech

As the digital revolution continues to transform how businesses operate and ongoing regulatory interventions make many financial processes more complex, it’s becoming ever more important for finance teams to obtain and maintain as full an overview of their firms’ operations as possible.

Without a complete and current picture of what’s happening, CFOs and their colleagues across the organisation are less able to react quickly to changes affecting the business, while senior leaders risk basing key strategic decisions on old and/or incomplete information.

Yet many finance teams are struggling to obtain such a picture, particularly those in companies that still use manual processes to generate reports.

“The more manual your processes, the more mistakes you can make along the way,” notes Matthias Heiden, CFO of enterprise software provider Industrial and Financial Systems (IFS). “Without the right technology, you’re always in doubt. A single source of truth is needed more than ever in times like this, so that you’re fully on top of all your divisions.”

Firms that have been on takeover sprees can also face problems if they don’t have a consolidated view when trying to integrate their newly acquired businesses. Equiniti serves as a case in point. The company, a specialist in shareholder and pensions services outsourcing, recently made a series of acquisitions, meaning that various parts of the expanded business had different ways of working, recalls its group financial controller, Rob Bloor.

“Our business became very fragmented, so crafting information required a huge amount of effort,” he says. “For accounting matters such as the consolidation of foreign exchange, that required a very complex human intervention.”

Improving data processes

Some firms are also relying on “cottage industry data sets”, which tend to lack consistency, making it even harder for their finance teams to obtain an accurate picture. That’s the view of Clare Walsh, director of education at the Institute of Analytics.

“People are often using completely different terminology and there are subtle differences in the numbers they’re collecting,” she reports. “There needs to be more focus on interoperability.”

Other companies are trying to improve the visibility of their operations by adopting a single enterprise resource planning (ERP) system that gives users a better view across the organisation, often enabling them to see changes happening in real time.

Equiniti recently adopted a new ERP system that has helped the firm streamline several processes and given its finance team a better understanding of what’s occurring throughout the business.

“This was a quantum leap in achieving consistency,” says Bloor, adding that most of the finance team’s processes are being performed inside the ERP system. Any third-party applications the team uses can be connected via an application programming interface without any manual input. 

This approach can also help with managing payments, particularly when sending money across borders – a traditionally slow and clunky process. 

Marco Torrente, global CFO at travel services company WebBeds, says that his firm manages “all cross-border payments through one global provider. We manage FX risk through hedging and then we integrate payments processes as much as possible with our ERP system.”

Streamlining payments activities

But the payments process is not only about execution; it’s also about stewardship and compliance. For instance, CFOs must ensure that payment data cannot be manipulated once it enters the system.

Heiden explains that this security measure is crucial, because the risk of fraud increases significantly when data is transferred from an ERP system in a file format that can be tampered with inside the payment system.

“On the execution side, it’s about speed and efficiency – and that is where we need a lot of technology,” he adds.

IFS is working on a project in which it will run several virtual account structures through one central global cash management bank to improve efficiency and cut processing costs.

Payments are a constant challenge for the office of the CFO

“Payments are a constant challenge for the office of the CFO,” Heiden says. “Whether you have economic headwinds or tailwinds, you must always combine stewardship with execution. That’s because, while you’re constantly seeking efficiency gains, you can’t compromise on the compliance side.”

For Giancarlo Bruni, CFO at ecommerce company Heroes, the ERP is the key to that all-important holistic view. "As a CFO, I want to know how much money and profit we have in real-time and what levers I need to pull," he says. "We also need to know about our stock, including when it's arriving, how much is in transit, and if we need more. I can see all of this via my ERP, plus I can see spending in real-time thanks to the direct integration with my expense management software."

In any organisation, there will be some change-averse employees who’ll have to be persuaded of the need to embrace new tech and working methods if their firm is to become more efficient and remain competitive.

“The obvious first thing that people fear about technology and automation is that it will put them out of a job,” Torrente says. “Communication is therefore important in ensuring that all employees understand the benefits they will gain.” 

By outlining how advanced IT can help everyone to work more efficiently, employers can ease such concerns and build support for the tech investments that should give their finance teams the holistic overview they require.

“We’re working towards an end state of spending more time on value-adding activities and gaining a proper view of what’s happening across the enterprise,” Torrente says of his team’s recent efforts. “That way, we can serve as a strategic business partner and be more predictive about the challenges and opportunities our company will face.”

Sustainable success: how finance can lead from the front on ESG

An EU directive (and proposed SEC changes in the USA) will soon oblige tens of thousands of finance teams to up their reporting games. It may also represent their chance to steer their firms’ sustainability strategies

Together with the EU taxonomy for sustainability activities, the corporate sustainability reporting directive (CSRD) aims to stamp out greenwashing and ensure that investment is channelled into enterprises that will help the bloc to become climate-neutral by 2050. It’s set to affect about 50,000 companies across the European Economic Area – a significant increase on the 11,000 covered by the current non-financial reporting directive. The CSRD will also affect more than 3,000 companies in the US.

To comply with the CSRD, finance teams will need to report on a much broader range of ESG-related investments and activities from the financial year 2024 onwards. They will also have to disclose a range of key performance indicators covering anticipated financial impacts stemming from risks and opportunities relating to climate change and other issues affecting ecosystems and their biodiversity. 

"Sustainability is still a new topic for finance teams, meaning every company approaches it differently," says Erik Stadigh, co-founder of Lune, a sustainability-focused software company. "But in light of new EU regulations and proposed SEC rules in the USA, every company must now consider and plan for it. When the tides of regulation inevitably hit, leaders who embed processes to measure impact today will be cruising ahead of those still scrambling for data.”

The CSRD should bring standardisation and clarity to how firms report their ESG metrics and align these with financial data. This in turn should help investors and other stakeholders to make more accurate assessments of the financial risks arising from sustainability issues. The European Commission claims that this will ultimately create a culture of openness around the environmental impact of commercial activities.

Business-wide collaboration

In effect, the finance team of any company covered by the CSRD will need to know about ESG-related decisions and activities spanning the whole organisation. 

Annu Nieminen is the founder and CEO of the Upright Project, an open-access platform for impact data. She says that sustainability is “no longer just something that’s reported on. It’s also increasingly steering decision-making across companies – for instance, in investment planning, product development, marketing and business development.”

This means that “it won’t be enough for the finance team to coordinate well with the sustainability specialists alone”, Nieminen says. “Collaboration with all the business and even the board is required.”

Financial processes and systems will therefore need to be reviewed and, if necessary, adapted to ensure that every potential financial impact of a firm’s ESG activities – including where risks and opportunities are most likely to emerge and have the strongest effect – is identified and gauged. 

“Financial models should be able to translate ESG data into monetary values at risk, potential profits, provisions and reliable forecasts,” notes Erin Lyon, head of ESG consulting at Lloyd’s Register Quality Assurance.

ESG data disclosed by firms under the CSRD and the EU taxonomy for sustainability activities will undergo auditing. That’s likely to be challenging for many finance teams, according to George Roffey, chief sustainability and people officer at Centrus, a financial services provider.

“There has been a lack of historical data and no consistent taxonomy for how it’s collected and measured, making this the biggest challenge to accuracy,” he explains. “Every reporting requirement will add more work for the people, processes and systems that underpin appropriately governed, risk-managed and compliant financial controls.”

Where the finance function can add value

Despite such challenges, the finance team’s established role as the gatekeeper of costs and resources makes it well placed to align sustainability requirements with core commercial strategies. That’s the view of Alexandra Smith, co-founder and partner at sustainability management and reporting platform FuturePlus, part of The Sustainability Group.

“The function’s expertise in financial analysis, risk management and resource allocation positions it to drive ESG decision-making and reporting, ensuring that this aligns with financial performance, profitability and stakeholder expectations,” she says. 

But, as many ESG initiatives involve different and perhaps novel business models, finance teams “need to be knowledgeable about ESG-related activities to ensure that they can support the business”, says Trevor Hutchings, partner at BIP Consulting.

The finance function will play a more integral role in shaping the sustainability strategies of companies

Such knowledge – and the inevitable increase in emphasis on ESG matters under the forthcoming directive – should empower finance teams. So says Jordan Hairabedian, a research consultant in European environmental policies and decarbonisation at EcoAct, an environmental consultancy.

“They [the finance function] will play a more integral role in shaping the sustainability strategies of companies, with a focus on reducing impacts and risks, ultimately enhancing business attractiveness,” he predicts.

Hairabedian adds that, since the CSRD is the world’s most ambitious piece of ESG legislation to date, companies may be able to use it as a guide to help them achieve greater resilience. 

“This may entail some internal reorganisation, with the finance team likely to be at the centre of the changes,” he says.

Nieminen believes that making the CFO mainly responsible for their firm’s compliance with the directive will also send a strong message that definitions of impact and sustainability need to be unified. 

“If this goes well, there can be some real benefits,” she says. One of these is that “the whole organisation will gain a common view and a strategy for what we need to aim for and why”.

Commercial Feature

5 ways in which a seamless data flow empowers the finance team

Drawing financial information together and automating workflows can provide financial managers with a valuable real-time view of expenditure across a business – and much more

Accuracy and transparency are key components of the finance function. Data that’s correct, complete and current is therefore a vital part of any CFO’s toolkit. Despite this, many organisations still rely on disconnected systems and processes to manage their expenditure.

With a spending platform that consolidates financial data from across the enterprise, finance teams can easily close the month and make more informed decisions. In fact, a seamless flow of financial data can deliver benefits in several areas of the business. Here are just five of them.

01 A business-wide view of spending

When purchase orders, reimbursements and corporate card payments are processed manually, errors inevitably occur. Manual processes are hard to scale up across different entities or regions, further muddying the waters. Moreover, the slow process of compiling financial data manually makes it impossible for businesses to track all their spending in real time.

If financial data is trapped in different parts of the business, this can cause problems in terms of auditing, regulatory compliance and the enforcement of spending policies. This ramps up the risk of fraud and makes it harder to quantify how the firm’s spending intersects with its ESG goals.

“If you have various sources of the truth and disparate systems managing POs, incoming invoice payments, corporate card spend, and more —  instead of having everything centralised, your visibility is going to be blurred and disconnected,” says Konstantin Dzhengozov, co-founder and CFO of Payhawk, an all-in-one spend management platform for global business payments, expenses and multi-currency cards.

On the other hand, a fully connected view of how the whole business is operating financially makes reporting easier and enables more accurate financial forecasting and budgeting. 

“You’re reviewing one system that does all the heavy lifting for you,” Dzhengozov explains. “Every expense is categorised in the right way and pushed directly into your accounting system.”

You’re reviewing one system that does all the heavy lifting for you
02 Real-time reconciliation

Many financial managers still spend a lot of their time performing low-value tasks such as chasing receipts and matching up transactions manually. “This prevents them from really understanding the business and helping all the functions make sense of limited resources and how to use them in the most efficient way,” Dzhengozov says.

ATU, a large German automotive company, is a Payhawk user. The firm used to manage finance manually, which involved collecting and chasing paper receipts and properly categorising spend once it had them . If it couldn’t find and categorise its receipt spend, then it couldn’t claim back the VAT on those transactions. 

“We no longer have to chase receipts,” says Mathias Goetz, Senior Project Manager, ATU. “Since using Payhawk, managers must simply take a picture of their receipt – thus digitising it – and enter it into the automated finance system. In the first year, this change resulted in ATU recouping €2 million from the tax office that would have otherwise been lost.”

Andrew Jacobi, vice-president of US finance at State of Play Hospitality agrees. “We rely on the customisable class settings within Payhawk to distinguish between venues to analyse performance. Whether it’s categorising between venues or categorising it into the right at general ledger code, it’s extremely helpful in terms of how we track and allocate spend.”

Dzhengozov explains: “When it comes to uploading receipts and invoices, you can create different workflows, too – including who needs to view it and who has to approve it. All of the data from the uploaded invoice or expense document is automatically extracted, including bank details, payment terms and when the payment needs to be made.” 

All of this makes it much faster and less stressful for the finance team to close the month, meaning that it can spend less time chasing receipts and more time analysing data for strategic insights.

03 Actionable financial data for managing budgets

Software that can automatically generate detailed and accurate reports on financial activities can help the C-suite to make more informed budgetary decisions. Indeed, Dzhengozov believes it’s vital that financial reports include timely, actionable items.

Software-as-a-service subscriptions, for instance, have become a big area of spending that should be closely monitored. 

“You need them all to be visible in one place, so you can see how much you’re spending on various subscriptions and what’s going to happen next month, including which ones are due for renewal,” he explains.

This connected view of accounts-payable data is also vital for managing financial commitments effectively, says Dzhengozov, who adds: “You can easily see and predict your cash outflows and inflows with a solution like Payhawk.

04 Effective ESG oversight

Environmental, social and corporate governance (ESG) is fast becoming an essential part of doing business. Recognising this, Payhawk has partnered with Lune to launch Payhawk Green, a platform designed to help companies make more sustainable spending decisions. 

The app enables them to automatically quantify the carbon dioxide emissions associated with purchases on Payhawk cards. This, as Dzhengozov notes, “is crucial if you want to set good ESG practice in your company”. 

The platform can also be customised to easily collect and manage ESG data for suppliers, thereby improving supply chain transparency.

Businesses can use these features to help them manage their scope-three emissions and ensure compliance with regulatory regimes such as streamlined energy and carbon reporting, as implemented by the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018.

05 Faster international payments

Making payments across borders is often a costly, complex and slow process. In some cases, firms must wait hours or even days for a transaction to be approved.

Payhawk counteracts this with fast, seamless international payments in over 50 currencies and across more than 160 countries. A Wise Platform integration into Payhawk means that customers can get access to cost-effective money transfers and save them up to five times on a typical international  bank transfer. It also saves customers a huge amount of time, with 93% of transfers delivered within 24 hours and 55% delivered instantly.

What’s more, all of this happens via the same Payhawk solution where customers manage and track expenses, leverage corporate card controls, manage accounts payable including PO, and more. Meaning all of the data is connected and accessible – and syncs seamlessly with the ERP. 

“Once you’ve set up the system, it’s very easy to add units and companies to the mix,” Dzhengozov says. “You’ll really have a global view.”

Purse strings attached: managing expenditure in tough times

As the cost-of-doing-business crisis wears on, CFOs must balance essential cost control with the need to maintain employee morale, while remaining open to potentially lucrative investment opportunities

As companies throughout the UK continue to face tough trading conditions, their finance chiefs are having to keep a much closer eye on expenditure to maintain profitability and avoid a cash crunch. 

Yet keeping a tighter leash on costs, from capital expenditure to employees’ expenses, can have a negative impact on an organisation. Cutting investment could stifle its growth in the longer term, while cutting back on perks could harm employee morale and cause discontent.

It means that CFOs must strike a careful balance where they manage costs responsibly but don’t dial down spending to such an extent that the business will suffer.

“You need to ensure that you’re spending well and that you have a real return on that investment, as well as having a proper business case to justify the expenditure and understanding what benefits it will bring,” says Marco Torrente, global CFO at travel services company WebBeds.

He reports that the intense experience of the Covid crisis means that his team has been scrutinising expenditure far more than it ever did before the pandemic.

“What we learnt from that period is that, when you have a cost structure that’s flexible, you can survive and come out of it much stronger,” Torrente says. “Having a more discretionary cost structure means that you can more easily adjust your spending to the period you’re in. If it’s a growth phase, say, you can act differently from the way you’d behave during a downturn.”

Understanding costs better

The pandemic has prompted some firms to scrutinise not only corporate spending but also the viability of their underlying business lines. For instance, Equiniti has conducted a review to work out how much it costs to serve each client and how much revenue that expenditure generates.

“That forces us to look much more closely at how we’re allocating resources – and whether it’s worth continuing certain activities,” reveals Rob Bloor, Equiniti’s chief financial controller. 

Since the company’s acquisition by private equity firm Siris Capital at the end of 2021, its employees have had a direct equity stake in the business, which helps to focus minds on cost management.

“Everyone is reminded routinely that their contribution comes back around to their benefit because of their equity position,” Bloor notes.

While the continuing economic uncertainty means that firms will inevitably be more vigilant about their outgoings, the close scrutiny of costs should be part of the finance chief’s agenda regardless of the situation, argues Matthias Heiden, CFO at Industrial and Financial Systems (IFS).

“It’s the responsibility of the finance function and ultimately the CFO to manage spending sensibly,” he says. “It’s not that I lean back and tell people: ‘OK, let’s go on a spending spree now that the Sun is shining.’ You must manage this all of the time. It’s the CFO’s role to bring that discipline to the organisation.”

Maintaining such discipline can help companies better manage liquidity and avoid potential cash shortfalls or undue strains on the business.

“If you spend less, it’s not only your profit going up. At the same time, you hold on to your cash balance,” Heiden says. “We need to treat these topics holistically and view spending not only as a P&L item, but also as a liquidity expense that affects the bank account.”

Cost management must also extend to employee expenses, ensuring that people aren’t overspending in this area. This means establishing a comprehensive policy so that all staff understand what they can claim reimbursement for and what they can’t.

“You don’t want to operate a police state”, Torrente stresses, “but you do need to be clear that everyone benefits if you’re controlling costs in the right way.”

Cross-border spending challenges

Organisations that operate in several territories present a bigger challenge for finance chiefs when it comes to managing expenditure, both in terms of keeping track of spending and because cross-border payments can be notoriously slow and expensive.

Torrente says that a key objective for his team at WebBeds has been to “put a foundation in place where we have one enterprise resource planning system that everyone uses. This ensures that we can track, control and report all expenses the same way in any part of the world.”

By adopting the right technology, CFOs can obtain a consolidated view of cross-border spending that isn’t distorted by currency fluctuations. Heiden notes that an effective enterprise resource planning system will enable any finance chief to make “an apples-with-apples comparison when you look at your reports”.

Multi-national organisations can also manage cross-border payments better with 'borderless cards' that allow them to make and receive payments in multiple currencies. These tend to offer good exchange rates and can simplify cross-border transactions.

However, CFOs must also ensure that spending behaviour is consistent in every country of operation, agreeing common rules and clamping down on any profligacy they detect. “There used to be differences in how people spent in different countries, but that is starting to change as people learn what’s right and what isn’t,” Heiden says.

By establishing and maintaining good spending practice across the organisation and ensuring that any substantial outlay offers a clear return, finance chiefs should be able to manage costs without creating excessive friction among the workforce or missing potential long-term growth opportunities. While this is not a straightforward task, it’s something that many CFOs have had to become increasingly adept at in recent years.

Ben Edwards Duncan Jefferies
Ben Edwards A freelance journalist specialising in finance, business, law and technology with more than a decade of editorial and commercial writing experience.
Duncan Jefferies Freelance journalist and copywriter specialising in digital culture, technology and innovation, his work has been published by The Guardian, Independent Voices and How We Get To Next.