Recent advancements in technology have allowed businesses to automate many aspects of their operations that were previously performed manually.
Financial automation is one such development that has allowed businesses to transform their finance departments and garner incredibly valuable data in the process.
Financial automation has created major advancements in the field, prompting a dynamic shift from manual tasks to critical analysis being performed. This shift from data management to data analytics has created significant value for businesses.
In this FAQ, we will explore what financial automation is, why it is important, and some of the ways organizations are automating their financial operations.
What Is Financial Automation?
Financial automation is the utilization of software and other technology to automate financial tasks that have historically been performed manually.
In some cases, technology applications are integrating artificial intelligence and machine learning to perform more advanced tasks like invoicing, payroll, collections, and even some analytics.
This is not to say that financial automation has eliminated the need for human intervention, but rather has allowed a dynamic shift from human beings performing manual, error-prone tasks, and diverting them to analytics and idea generation.
Financial Automation in AI
While financial automation in finance is nothing new – new technologies and ways of working have been going on for decades – a new type of automation is completely changing the way finance works, artificial intelligence (AI).
AI has automated financial processes in a number of ways, so let’s go over a few of them:
- AI and ML helps with forecasting and scenario planning – By running many scenarios and historical data, AI helps automate one of the toughest jobs in the finance department – forecasting and scenario planning. “Predicting the future” is a lot less guess work nowadays as many FP&A software can process huge amounts of data and predict company analytics more accurately.
- AI helps financial automation by identifying errors – AI finance tools can identify discrepancies in the data and it helps identify errors before they are entered into management reports or acted upon. This saves a lot of manual work and has the potential to catch costly errors before they happen.
- AI can get generate instant answers to finance questions from chatbots and generate reports and dashboards – Tools like Datarails FP&A Genius, a finance chatbot that generates instant answers to questions like “Compare revenue from August, 2022 to August, 2023,” help save finance professionals endless hours of creating reports and answers to every possible question from management. Other tools automates presentations and visuals also saving finance professionals many hours of work through financial automation in AI.
Click here for the full guide to AI in FP&A.
Why Financial Automation Is Important
Finance departments are typically divided into two primary groups: accounting and finance. Both of these groups have distinct responsibilities.
Historically, accounting was done manually, with general ledgers being maintained by staff accountants who made manual journal entries. The process was time consuming and often error prone as employees turnover or accounting policies change.
Consequently, accounting departments often spend a great deal of time reviewing journal entries, managing payables and receivables, ancillary accrual and depreciation schedules, and preparing financial statements.
In some cases where unique accounting policies apply, financial reporting has signficant time demands.
Financial automation can shift the burden of data entry from humans to machines, which has the benefit of being static and consistent across all entries.
This allows humans to analyze and review entries much more effectively, allowing accountants to perform significantly more in-depth reviews of the accounting environment.
This also results in a better, more robust control environment. Similarly, financial automation has largely eliminated ancillary accrual/depreciation schedules and provided significant assistance in tax planning.
For finance professionals, automation has had significant impacts in the way data requests are fielded.
Historically, finance departments were the dumping ground for various data requests, taking significant time to field and create ad-hoc reports that took raw data and made it digestible for those requesting it.
Automation software has allowed for the creation of dynamic dashboards that can be utilized by each department for relevant data, providing insight in real time and alleviating finance professionals of the burden to respond to these requests.
Consequently, finance departments with effective automation have seen a shift from data management to data analytics.
This allows finance professionals to focus their attention on value-add analysis and has even resulted in some organizations creating financial SWAT teams that can assist in various projects.
These specialized teams can put their focus entirely into assisting departments with various financial needs, with the goal being profit generation.
Financial automation has resulted in many businesses experiencing reduced costs and faster execution of financial processes like collections and month-end close cycles.
Automation has led to reduced errors as a result of manual inputs and created far more transparent operations. In most cases, automation leads to employees being able to shift their focus to higher value-add tasks, leading to higher employee engagement and satisfaction.
How Do Businesses Automate Finance Departments?
There are many ways that financial automation provides efficiency. In some cases automation is being used in the simplest way to pre-populate financial forms with standard information. This might include vendor payments, or customer billing, or even tax forms.
In some cases, entire business processes are being automated. This might include the generation of automatic journal entries for accruals, depreciation, sales, cash receipts, and even loan balance roll forwards.
This type of process automation has provided significant benefit to large organizations that are transaction-heavy.
Another form of financial automation that is beginning to take off is the use of dynamic dashboards for various departments.
These dashboards can collect and present data in easy-to-read graphics and even field queries from users. This takes the burden off of finance professionals to field data requests and places their focus on value-add analytics instead.
Along the lines of the dashboard are chatbots. Chatbots are automated conversation agents that allow users to request information using a text-to-text format. This is a convenient way to create virtual assistants that customers and even internal staff can use.
FP&A has seen vast efficiencies created as a result of financial automation. Preparation of reporting packages and financial statements has historically taken a significant amount of time.
Financial automation can generate standardized reports, including financial statements. Some systems provide consolidation capabilities and even provide budgets.
Perhaps the most useful automated task is that of data aggregation, which historically placed large resource burdens on finance departments.
Using Datarails to Automate Your Finance Department
Every finance department knows how tedious financial planning and analysis can be. Regardless of the tasks you are performing, it requires big data to ensure accuracy, timely execution, and of course, monitoring.
Datarails is an enhanced data management tool that can help your team create and monitor financial forecasts faster and more accurately than ever before.
By replacing spreadsheets with real-time data and integrating fragmented workbooks and data sources into one centralized location, you can work in the comfort of excel with the support of a much more sophisticated data management system behind you.
This takes financial planning and analysis from time-consuming to rewarding.