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What is Finance Automation, and How Does it Work? A Guide
A survey from KPMG revealed that over 50% of the professionals they interviewed still used Word and Excel for their company finances. While spreadsheets and word processors have their place in business, their use has become somewhat obsolete in day-to-day accounting and obscured by the advent of finance automation software.
With the introduction of generative AI, there’s never been a better time to consider finance automation tools for your business. But what is finance automation exactly? And how does it fit into your organization?
In this comprehensive guide, we pooled our most valuable resources to demystify everything there is to know about finance automation. We also revealed what is the best software to use and practices to implement to reduce costs and streamline operations with finance automation.
What Is Finance Automation?
The goal of finance automation is to replace manual, repetitive tasks with automated and/or streamlined processes. Typically, finance processes are automated using software like Enterprise Resource Planning (ERP), which is able to autonomously automate manual tasks.
ERP systems enable businesses to manage, track, automate, and integrate their core business processes. It collects and manages data from several departments, including accounting, supply chain, manufacturing, sales, and marketing.
However, finance automation doesn’t just begin and end with ERP. There are many other ways in which finance processes can be automated. In fact, the current spectrum ranges everywhere from digitizing paper processes to leveraging artificial intelligence (AI) to automate decision-making and data analysis.
Examples of Finance Automation
Below are examples of the most commonly used finance automation processes to give you an idea of what it is and how it works.:
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Digitization and Processing of invoices
In the past, processing invoices involved paperwork and manual labor. However, with the advent of ERP systems, invoice generation, approvals, and payment processing can all be automated, reducing errors and manual tasks.
Real World Example
BOLDT technologies—developer of AI-driven solutions—automates the processing of invoices for their suppliers and vendors using Xledger ERP as well as their billing, expense process, and bank reconciliation.
You can learn more by reading this case study
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Paying Employees
Paying salaried employees is a repetitive task that can consume valuable time from your payroll and accounting team. However, with finance automation software, this process can be simplified and automated.
By leveraging an ERP for finance automation, organizations can now streamline the distribution of paychecks to employees as well as the calculation of wages, deductions, and taxes.
Real World Example
The American Soybean Association automates the processing of their payroll ensuring safety and compliance with weekly payment batches.
You can learn more by reading this case study
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Accounts Payable and Receivable Automation
One of the most sought-after finance automation processes by large enterprises is the streamlining of the accounts payable and receivable process.
Tracking accounts payable and accounts receivable is essential to better understand your company’s financial position. By using finance automation software that automates accounting processes, like Xledger, your business can reduce spending, manage its cash flow effectively, and forecast for the future.
ERP finance automation software can handle the entire billing process by matching invoices with purchase orders and payments.
Real World Example
Visit Colorado Springs automates its accounts payable and receivable process and has significantly streamlined its accounting processes by implementing Xledger’s automated accounting software.
Visit COS previously used an old accounting system that required manual entry of data, which took up significant time. Xledger thoroughly automated manual tasks for the Visit COS team, saving them time and resources.
You can learn more by reading this case study.
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Reporting
Before finance automation software simplified the creation of financial reports, decision-makers sometimes had to wait days or even weeks to have the information they needed to make financial decisions.
However, with finance automation software, needing to wait days or even weeks to make a business decision based on a report is no longer an issue.
Real World Example
Women to Women (Kvinna til Kvinna) advances women’s rights by funding 130 women’s organizations in 10 conflict-prone countries. They faced issues with their reporting and monitoring at all levels and sought a solution that was simple, fast, and reliable.
Their dependence on spreadsheets meant they had limited visibility into their data which led to inefficient financial reports and decision-making processes that were not agile or quick enough.
By using Xledger Finance automation software they reduced the whole project reporting process from two weeks to an astonishing three days.
The reason it moves so much faster is that they have access to all their numbers with the touch of a button. There are fewer quality assurance elements when using Xledger.
You can learn more by reading this case study.
How Does Finance Automation Actually Work?
This is a breakdown of how finance automation tools typically work:
- Data Integration
Finance automation software like ERP is designed to connect multiple data sources into a comprehensive database. This might involve either pulling data from various databases using APIs or having a unified database where different departments store their information.
For example, by using finance automation software, your banking data and customer relationship data can all be integrated into the same database. This allows your ERP system to quickly connect payment data to customer data.
By doing this, it eliminates the need for the sales or marketing department to make data requests to the accounting department, reducing manual labor.
- Automating Tasks
Task automation is of course a big one when it comes to finance automation software. By leveraging AI and algorithms, finance automation software eliminates repetitive tasks and automates them according to preset criteria
For example, generating weekly performance reports for the sales team and delivering them to the team’s mailbox every Friday.
These are some of the most common processes automated by finance automation software:
- Invoice processing
- Expense management
- Payroll processing
- Accounts payable & receivable
- Bank reconciliation
- Financial reporting
- Tax compliance
- Budgeting & forecasting
- Fraud detection
- Investment management
- Data entry & integration
- Audit & compliance tracking
If your organization hasn’t taken advantage of all the benefits finance automation software can offer and you’re not sure where to start, our team can help.
- Data Processing
Finance automation software not only integrates data, it can also help validate and process it. Once the data is collected through integrations, the automation software processes it using predetermined rules and algorithms.
An excellent example of this can be observed through bank reconciliation automation. Once the finance automation software connects to your bank and collects all the banking data, it can help categorize expenses based on the vendor. This can help streamline accounting and budgeting processes.
Another example of this comes from the accounts payable and receivable process. Modern finance automation software can help automate the expense report process by automatically scanning receipts and extracting key data.
For example, the amount and date of the invoice. This can save thousands of manual labor hours for organizations each year as well as flag any policy violations—all without human intervention.
The Advantages of Finance Automation
Automating your organization’s finances is about more than simply reducing costs. By automating finances, organizations can essentially augment their strategic capabilities while also fostering the well-being of their employees.
These are some of the most important advantages that finance automation provides:
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Ensures accuracy
Automation eliminates human errors in data entry and calculations, and consistently applies rules and formulas, further minimizing mistakes.
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Cost Reduction
Needless to say, automating processes can lead to a significant reduction in costs and human resources. Automating finance functions can reduce labor costs related to manual tasks.
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Improved Fraud Monitoring and Security
By removing manual labor from the equation, finance automation tools boost fraud prevention by potential bad actors within an organization. AI tools and algorithms can also flag suspicious transactions and improve security—all in real-time.
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Speeds Up Decision-Making
Finance automation software speeds up decision-making by automating reporting and leveraging real-time data dashboards. This quick decision-making allows businesses to remain agile and adapt quickly to market trends.
CFOs, for example, can quickly analyze cash flow and marketing ROI by using automated dashboards, enabling budget adjustments within hours rather than days.
Which Finance Processes Can Be Automated?
- Accounts Payable
The accounts payable process is a series of standardized steps that involve tracking, verifying, and paying suppliers. By following the accounts payable process, companies can ensure they always pay the appropriate amount to the right person at the right time.
Using ERP and automating the accounts payable process is the most effective way to streamline the accounting process. ERP systems can simplify operations, improve accuracy, and reduce error rates in AP management.
The top three ways to improve the accounts payable process with ERP are invoice automation for faster and error-free processing, matching, and tracking orders to ensure efficient reconciliation, and centralizing supplier management for better organization and timely payments.
- Payroll Process
The payroll process can be automated using ERP and other finance automation software by integrating payroll with HR and accounting systems, automatically calculating wages and taxes, and issuing payments without the need for manual labor.
- Accounts Receivable
The accounts receivable process consists of tracking, verifying, and collecting payments from customers. By following the accounts receivable process, companies can ensure they receive the right payment from the right customer at the right time.
The top three ways to improve the accounts receivable process with ERP finance automation software are invoice automation for faster and error-free billing, matching, and tracking payments to ensure efficient reconciliation, and centralizing customer management for better organization and timely collections.
- Expense Management
Expense management is one of the most error-prone accounting areas. In many cases, employees misplace receipts, miscategorize expenses, and make errors in their reports. In some cases, those errors could create compliance issues with tax agencies.
That’s why expense management is one of the processes that benefits from finance automation software the most.
The top three ways to automate the expense management process with ERP finance automation software are by scanning,ensuring policy compliance, and streamlining approval workflows to accelerate reimbursements.
- Invoicing
Automated invoicing integrates sales, e-commerce, and project management tools to facilitate invoice generation in real-time. The top three ways finance automation improves the invoicing process are by allowing invoices to be generated automatically and using automation for matching and reconciliation of invoices.
Automate Your Business Processes With Xledger ERP
Xledger is a leading ERP system in the United States that’s helping businesses all over the country automate their financial operations, cut costs, and be more efficient.
Some of the ways Xledger can help your business thrive by automating finance operations include:
- Automating accounts payable and receivable
- Automatically generating financial statements, dashboards, and reports on a scheduled basis
- Automating expense management
- Automating budgeting and forecasting
- Automating tax compliance
- Automating cash flow management
- Automating payroll processing
- Ensuring compliance and facilitating audits
Xledger is the world’s #1 modern online ERP software. Its versatility, scalability, and adaptability. Unlike traditional ERP systems, Xledger’s cloud-based functionality does not require businesses to invest in on-premise servers, IT departments, or other hardware necessary to run the system locally.
The platform integrates data from all your organization’s departments while automating mundane and repetitive tasks. Thus, allowing your accounting team to focus on strategy and forecasting to grow your business.
Xledger online ERP software is a category leader that specializes in automating accounting processes, streamlining financial operations, and connecting all aspects of a business in one place.
If you’re ready to scale out of your simple or outdated accounting software, book a free one-on-one demo with our team of experts. From there, our team will guide you every step of the way.
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