Financial systems are becoming increasingly interconnected, within businesses and on a global scale, creating a network effect whereby any changes made to these systems directly or indirectly impact wider parts of the business. This increased interdependence is impeding cash flow visibility and confidence, according to a report by Basware.

The 2011 Cost of Control – Fuzzy Finance report, the third annual report commissioned by Basware, provides insight into the opinions and priorities of over 550 finance executives around the world, including 50 in Australia. The report includes an ongoing trend comparison with the 2010 and 2009 Cost of Control reports to measure finance executives’ confidence and strategic business goals.

Concern about the visibility of cash flow was the prominent theme from the report, largely a consequence of the increasing interdependence of finance systems currently within businesses and on a global scale. What was once a purely technological problem of the ‘dialogue’ between disparate systems is now a seemingly endless series of complex interdependent workflows, subsequently resulting in a ‘network effect’ that impacts operational efficiency across the organisation, further complicated by interaction with external systems that are equally interdependent. Subsequently 71% of global CFOs and finance directors are concerned that greater levels of reliance between different finance systems presents cash flow visibility challenges.

Alongside this increased interdependency, 59% think decisions have been made within their business to improve financial operations without a clear understanding of the wider implications on cash flow visibility. This concern is reinforced by finance executives stating that realising cost savings across the business is the most significant challenge facing their department (48%).
When comparisons are drawn with the 2010 and 2009 Cost of Control report, the importance placed on achieving this has continued to rise (39% and 31% respectively). The awareness of financial system interdependency on cash flow visibility is further supported by 47% claiming systems integration and technology challenges is the second highest priority, an increase of 10% since 2010.

Karri Lehtonen, Vice President Basware ANZ , said  “ Cashflow visibility, in realtime, is critical to achieve this and finance executives need to have a holistic view of finance in order to realise these savings. The increased interdependency of financial systems within a business and on a global scale is creating a fuzzy view of finance leading to a lack of confidence in the ability to access a real time view of cash flow. ”

Accounts Payable is seen as the most critical to provide an accurate view of cash flow within the business. 62% agree that inefficient Accounts Payable practice compromises visibility, whilst 64% believe it has a more immediate impact on other parts of the business due to higher levels of integration between systems.

Automation within areas such as Accounts Payable and e-invoicing have become increasingly important for finance executives to access detailed information of company cash flow on a real time basis. Investing in e-invoicing technology to increase productivity was ranked as the top activity that 52% of businesses are more likely to do now than 12 months ago. Second to this was reducing days outstanding on customer payments (49%) and extending payment terms for suppliers (44%).

Peter Smith, Editor & co-Managing Director, Spend Matters UK / Europe, said, “Spend Matters sees a trend for procurement and finance functions and executives to work more closely together, and this report supports that idea. It’s important for senior procurement executives therefore to understand what is driving their finance colleagues, and the Basware survey provides a good handle on that.”

“It’s interesting to note that senior finance staff are becoming more concerned about cash flow and the visibility of commitments, payments and other key cash related issues, and the focus on cost savings from suppliers is actually declining, in finance’s eyes at least. That all has implications for procurement strategies and approaches, and also suggests that organisations need to look at a more integrated approach across the whole purchase to pay cycle.”

“The survey suggests that organisations are looking at Accounts Payable with higher priority rather than merely considering it as an administrative task. The wider issues in this area around control, visibility, cash management and supply chain finance seem to be increasingly understood. That in turn suggests that automation and better management of the invoicing process is going to become a bigger issue.”

For a full copy of the 2011 Cost of Control Fuzzy Finance report please click here.