How the CFO Can Take Control of Transaction Processing

Here’s a question for finance leaders: Is transaction processing a key element of finance transformation?

If I think back to the hundreds if not thousands of conversations I have had on the subject of finance transformation over the last 10 or so years, the vast majority have included at least an initial focus on defining a strategic role for finance by creating or improving the capability to deliver better business insights.

Yet, in my first blog in this series, I discussed how finance transformation requires not just a new reporting tool and strategy, but a start-over mindset and a total technology rethink. Well, just arriving at that start-over approach must begin with a rethink at the transaction level.

Referencing a recent survey of 46,000 FSN members, Chief Executive Gary Simon said, “More than two decades after ERP systems first appeared in the business landscape, more than half of all CFOs say that they spend too much time on transaction processing.”

Hardly surprising when you consider that on average, transaction processing takes up more than 50 percent of all finance resources. Add to the mix that inaccurate transactions take 80 percent more time to process than a transaction that’s processed correctly the first time. Therefore, transaction processing is one of the major barriers preventing finance from achieving transformation and the ultimate goal of delivering a better business partnership.

Most of this increased workload is due to the fact that the transaction models of traditional systems were not designed to capture the data necessary to support the reporting and analytics goals of today’s businesses. The transactions of legacy systems were designed to replicate and automate the manual double entry bookkeeping entries of a much simpler age. These systems aggregate sub-ledger data—with debit on the left, credit on the right—which worked well for its designed purpose of GAAP/IFRS type reporting, but completely fall down when it comes to giving the business insight into the “why” behind transactions. Here are some of the main challenges presented by these systems.

Complexity: The chart of accounts and limited code block dimensions of legacy financial systems do not do a good job of reporting on business context. A desire to report on elements, such as customer, product, channel, region, industry, project, marketing campaign, and anything not immediately relevant to GAAP/IFRS, has traditionally meant either extending the account number, or parsing another code field. All of which leads to added complexity for finance teams.

I’ve spoken to a customer that, in their legacy system, faced tens of thousands of code combinations that resulted in over 2,000 data errors on transaction entries every time they entered their financial close period. In old-world systems, more accounts means more reconciliations and more effort.

Transaction processing is one of the major barriers preventing finance from achieving transformation and the ultimate goal of delivering a better business partnership.

Inappropriate responsibilities: Imagine you want to track costs by project. In a traditional system this means one of two things—either you ask the operations folks to enter account numbers or you ask accountants or accounts payable personnel to enter project information. These are tasks for which neither group is well suited, resulting in inefficient transaction handling due to either lots of time spent in meetings or on email at the front end, or file work declassing lots of entries posted to “other expense” or “other activity” on the back end.

Manual transaction analysis: New accounting standards require more business context to analyze transactions for proper GAAP/IFRS accounting. For example, proper analysis of revenue events to determine the appropriate accounting for a sale under IFRS 15 requires significantly more business context than a simple debit AR/credit revenue journal entry.

Manual transaction routing and approval, or automated processes that provide limited business context data, cause significant transaction processing inefficiencies. For example, how do you approve a purchase invoice if all you get is a date, amount, and invoice number?

So unless your system weaves governance into the fabric of the system at the transaction level, and is designed to capture business context at the same stage (which is the purpose of Workday’s Worktag transaction coding architecture), you begin your transformation journey with at least one hand tied behind your back.

If finance is to realize its vision of becoming a more strategic partner, then efficient transaction processing is the cornerstone of finance transformation. Workday is helping finance expand and enrich the data it captures in every transaction, and is reducing the resources finance must devote to transaction processing, creating a foundation for successful finance transformation.

Read part three in Mark Nittler’s blog series, “The Role of Governance, Compliance, and Control in Financial Transformation.”