Payables automation remains one of the key opportunities for organizations who are either considering or actually undergoing some level of digital transformation. As we have consistently advised, moving away from paper processes into digital systems and processes is a key to the rapidly unfolding world of 4IR. There are not only hard cost extractions available, but also transaction-based insights into self-behavior and client tendencies. The capture and effective use of data is one of the soft opportunities that is quite difficult to quantify in a neat ROI package, which is often the greatest hurdle to gaining organizational investment. This piece, appearing in PaymentsSource, summarizes one of the pain points for typical organizations, in this case more specifically smaller businesses, when it comes to managing cross-border currency headaches.
‘Most organizations arrive at a crucial point in currency management when they start growing, often through spinoffs, mergers, acquisitions, and regional office setups….When that happens, their ability to manage foreign exchange (FX) becomes more time-consuming. Large organizations often have an in-house treasury function that can manage regional bank accounts, trade currency, and facilitate bank relationships. But for those businesses in growth mode, an independent treasury function inside your business may not always be the most productive use of headcount and resources. Because of this, the process often falls at the feet of the controller, CFO, or someone in accounts payable.’
The article is written by a payables automation fintech CEO and certainly makes sense from our viewpoint. One can delve into any number of pain points for smaller organizations in handling financial processes, but certainly FX becomes one of those, especially as businesses grow in size, scope and geographic reach. Many smaller organizations do not have the structure or organizational expertise to handle the nuances of X foreign bank accounts and currency risk management. In many cases, automated payables solutions can handle this at the transaction level, providing data and transparency at the point of transaction. The article goes on to discuss a survey of financial professionals at mid-sized companies.
‘Of those surveyed that had more than two entities (cost-plus or standard accounting), one major truth appeared. Only 10.8% stated that they have an independent, designated treasury function. Instead, 29.2% have someone in accounts payable manage the currency processes. Another 26.2% has someone else managing the process (presumably a member of the senior-level finance team such as the CFO or controller). And another 27.7% do not have any currency management, which indicates that they may not even bother with local currency issues. Interestingly enough of that last group, 25% of those businesses also had at least one cost-plus entity, meaning some form of conversion has to happen within the stream.’
Some other interesting insights as well and worth the few minutes for a read and consideration.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group