How Startups Can Leverage Financial Automation To Minimise The Year-End Financial Woes

The biggest challenge that new-age neobanks and fintechs are trying to solve is providing a platform that offers a unified view of the financial health of businesses. In fact, the Covid-19 pandemic accelerated the adoption of digital financial products and services among India’s SMBs. This has driven the demand for fintech SaaS solutions such as app-based accounting & bookkeeping, no-code payment aggregation and equity cap table management. The market size for fintech SaaS in India is expected to see a 2.7x surge in the next three years, from $4.6 Bn in 2022 to $12.6 Bn in 2025.

Naturally,  SMEs and startups want to keep an eye on their businesses’ overall health year-round. Though, tracing the flow of money can be quite a challenging task at the end of a financial period. The financial year-end is when companies try to get a comprehensive view of their cash flow by compiling all incomes and expenditures accrued and ensuring the books are clean. 

Fiscal Period Challenges Faced By Startups

Enterprises often end up facing the same financial challenges during this time of the year. These can be broadly categorised into two types — operational and business.

Some of the financial operational challenges include:

• Providing the correct purchase order to vendors that match the invoices for accurate payments
• Reconciling all the transactions made on or before the financial year-end
• Processing all pending reimbursement requests that match your standard operating procedures
• Resolving all pending transactions by:
  • Completing and matching the cash flow reports with the current fiscal year invoices
  • Tracking and resolving any vendor issues promptly to ensure payments posted are in the correct fiscal year
• Ensuring all forms and invoices are complete with requisite signatures and accurate information

Is Financial Automation The Way To Go?

Financial automation refers to leveraging artificial intelligence (AI), robotic process automation (RPA), and other relevant technologies to automate accounting processes such as bookkeeping, expense management, bank reconciliation, taxation, fungible credit, etc.

Digital automation can offer SMEs to embrace operational efficiency. While switching from manual processes to automation, companies should focus on picking the right tech that is agile enough to suit the needs of their business. Simple, rule-based tasks and processes that include redundant operations can be meticulously streamlined with robotic process automation (RPA).

It can help businesses to:

• Promote transparency between the vendors and the finance team by automating invoice/ PO tracking and paying TDS timely with an intelligent vendor management system. This system works for both account receivables and payables
• Improve accuracy and due diligence with auto-accounting and auto-reconciliation. Automation makes this possible as it eliminates  manual intervention that is required for matching transactions with invoices
• Efficient management of end-to-end employee payroll and reimbursements with a self-help platform empowering them to take care of their taxes
• Showcase a unified source of truth about your business through a single dashboard view of insights on your payments, invoices, and taxes

Financial automation has an immense potential to change the future of how businesses carry out their business finance operations. However, it comes with its own set of challenges. 

Challenges Of Financial Automation

Before deploying financial automation, the startup should ask itself the following questions to figure out the right automation: 

• Is the organisation ready for a digital transition of financial services?
• Do the chosen systems talk to each other?
• Can it be integrated into the current system? How complicated is it if the answer is yes?
• Is the new system adaptable? 

Even though financial automation looks adventurous, changing how businesses work is always scary. No one likes change, even if it’s for their own good. Having an automated system means any information that is entered into the system at the initiation must be complete. It helps when the data is populated across the systems accurately. 

One can make data changes manually when required with independent systems, not affecting other systems. It is easy but inefficient. It doesn’t allow systems to talk to each other and present a holistic view of the business’s overall financial health.

For example, when a vendor makes a payment against an invoice, the accounts should settle automatically, and the amount should reconcile with the banking transactions. It can only happen when the payment module talks with the accounting module and then the taxation module. Otherwise, this task would need two people manually going through heaps of invoices and transaction details to perform accounting and reconciliation.

Future Of Financial Automation

What if brands could embed a small banking code (APIs) and offer loans based on customer data and purchase history. Say, for example, you selected apparel from an ecommerce brand, and the total amount exceeds your usual cart value. Based on your purchase history and behavioural data, the brand assigns you a score and allows you to avail yourself of a small line of credit. From a brand’s perspective, the average cart value increases steadily. It is one of the many things a brand can offer with the help of embedded finance. Brands can build a whole ecosystem with embedded finance and make lucrative customised offerings for their customers. 

The ecosystem becomes even more complicated as IoT-based payment systems become the norm. As the ecosystem grows, businesses have to adapt to receive purchases and payments irrespective of the device and channels.

The financial year-end is always a hassle. Unending heaps of paperwork and late working hours are the norm for accounting professionals. It is critical to understand that streamlined and automated processes can deliver accurate and timely financial performance reports. It can help businesses minimise year-end financial woes due to unstructured and unkempt financial data.