As a leader in a company, the modern CFO needs to propel a culture of security. No longer is our job just about revenue, costs, and budgets. There is a strong emphasis on managing risk, driving performance, and ensuring the integrity and accuracy of company information. — Sankar Narayan, former CFO | Xero
Finance teams are no longer just responsible for following up on receivables, keeping track of payables, and creating reports. They have become an integral part of the company's architecture. Earlier finance teams used to remain siloed from the rest of the organization, focused on bookkeeping and reporting transactions.
The digital ecosystem has transformed the way how teams work. Business functions no longer follow an obsolete model where each department has its own goals and responsibilities. Organizations are adopting a strategic business partnership at the leadership level where each department works towards attaining a common business goal. This new approach converges operations top-down in an organization and helps in building synergies to navigate the competitive landscape.
In today’s digital economy, the ease of discovering a product along with the convenience of completing the purchase is the real revenue driver. To aid this revolution, companies have stepped up technology adoption in their applications. Almost every application that we use on a day-to-day basis, is working towards making payment collection simple and easy. This has helped in generating huge volumes of valuable information from across the value chain about customer buying behaviors, payment preferences, order fulfillment challenges, returns, and cancellations trends, etc.
One function which is privy to all this information is finance. With this change in place, the finance teams are getting more involved in developing business strategies than ever before - they are involved in creating business projections, directions for sales, embedding payment workflows, providing inputs to marketing and operations on ideal channels to deploy, and so on. As finance has this holistic view, businesses rely on them to build new synergies that accelerate sales, marketing, and supply chain growth.
Finance as a strategy enabler
The finance team is the only function across the organization that has access to all the components of the business. Therefore it falls on them to establish a synergy across teams. It plays an incumbent role in allocating budgets, defining targets, managing cancellations, returns, refunds, and so on.
When it comes to being a strategy enabler, the finance function touches upon all the other departments in the organization. For example, the finance team works with the product team to enhance the ease of purchase, monitor and manage credit limits for wallets and gift cards, resolve refund and cancellation requests from the customer support function, and settlements, and so on. It works with the HR team to establish incentive plans to drive performance. The finance team with its analytical capabilities and holistic view is strongly positioned to support strategies that increase customer acquisition.
It is one of the first teams that needs to directly align with the company’s long and short-term goals. The finance team has in-depth knowledge when it comes to financial metrics and therefore is positioned to drive business strategy, optimize operations, access risks and profits. Without proper inputs from the finance team, growing companies would often end up with cash flow problems and stalled growth.
Finance in streamlining the payment process
The convenience economy demands access to goods and services in real-time, which means as a company, you need to ensure that your buyer’s journey is easy and simple. To achieve this, businesses have applications with financial workflows embedded, for almost everything — right from ordering food, investing in mutual funds, paying your bills, playing a game, shopping online, and so on. These applications are powered by digital payment rails to capture the payments.
Customers these days have their own payment preferences. Therefore, offering a range of payment options such as credit cards, digital wallets, COD, and so on enhances your user experience and increases business opportunities. The finance team is in charge of managing the payment process, offering refunds, tracking settlements, and so on. They also closely work with the product team in resolving any friction that might be there in the checkout process. A frictionless checkout reduces cart abandonment, which increases the revenue and thereby creates a virtuous growth loop.
Finance in optimizing cost
Opening up commerce directly with the end customer brings in a lot of challenges associated with dealing with multiple external payment gateways, cash collection partners, etc. All these external entities are governed by commercial contracts based on the transactions that are being processed. This is a cost that cannot be avoided and can easily shave away 3-4% of your overall revenue even before it hits your bank account. Armed with the right data, the finance team can keep track of the cost of transactions on a real-time basis. This information can be used to optimize the source mix and ensure that you are leveraging channels that are driving traffic as well as offering optimum cost benefits.
Likewise on the payout side as well, the finance function is in charge of defining a data-management strategy that guides in analyzing the rising volume of data to identify leaks, excess payouts, and breaches in contracts. Being the core functionality of the business, they need to ensure that the commissions to the vendors are calculated accurately and paid on time. By analyzing and tracking money end to end, the finance team is able to enhance the profitability of the company, optimize cost and identify opportunities for growth.
Finance as a driver in business expansion
Our focus is making sure that we are growing at the right pace. Whether it’s our new city launches or expansions or our new retail partnerships, we want to ensure that we have the ability and capacity to provide the best service and experience for our customers. - Ravi Gupta, CFO of Instacart
Expanding into new markets brings in new opportunities for growing your business multifold. But, it is no easy feat. Once a business identifies a potential country/product line to expand to, the most important aspect is to plan the business processes there. They need to be prepared to handle a new currency, a new collection or payout method and therefore might have to partner with local banks, identify payment partners that work for them, set up payment gateways, and figure out a way to manage tax implications.
Getting into a new market requires solid financial planning. Right from spending on a local legal counsel to allocating funds for the infrastructure, to reconfiguring the value chain, the finance function acts as a key driver.
Finance in engineering, research, and development
Engineering and technology is probably the most critical aspect of a digital business. The right investment and focus on product development and engineering can ensure long-term sustainability and growth of the business. The finance team needs to have a clear understanding of the dynamics involved in investments towards developing products internally and for customer growth and expansion. This allows them to prioritize and allocate funds to the departments accordingly. Companies that fail to understand this often hire engineering consultants as a quick fix to solve their problems. However, for most companies, it does not scale and therefore they end up re-working on the problem once again.
When it comes to research and development, the finance function is not just in charge of how much these departments spend but also helps in identifying the link between investment, spending, and risk. With the key performance indicators at their fingertips, they can refute or substantiate any growth strategy. They are highly qualified in making decisions that maximize potential and reduce risk.
Finance in managing and acquiring funds
During the early and growth stages of a business, it is very important to optimize cash flow in the business to ensure that there is sufficient cash flow that will take the business to the next level. The finance function plays a huge role in keeping track of the burn rate and projecting runway availability so that individual business functions are able to stay agile and plan accordingly.
Historically, finance sat in the back seat, looking in the rearview mirror. “Where have we been? How much money did we make? What changed from last quarter?” The job of finance was to answer questions like those. With modern systems, looking backward is much easier, but so is looking forward. The systems calculate what happened in a very accurate way. Finance now rides shotgun; it is the navigator of the car. Yes, the line of business is driving, but finance is looking forward, suggesting routes to try out, and modeling new possibilities. You don’t just extrapolate from the past; you are free to see what else is going on. This is a totally different job, partnered up with the lines of business. - Safra Catz, Former CFO (now CEO) of Oracle
The fundraising process is a key aspect of evolution and growth. The external world is only exposed to the euphoria around a fundraiser when the round is closed, but the amount of hard work that goes into making this process a smooth sail is immense. Right from identifying the right partners to work with, managing the due diligence process which at times can end up running for months to ensuring that the funds hit your bank on time, the finance function and leadership play a vital role in the process.
It is critical that finance processes are structured in a way that these events does not become huge stress on resources at the time of the fundraiser. Smart finance functions are adopting processes and systems which easily scale and enable data and context sharing at these critical junctures.
Finance in navigating the broader economy
Every organization has ups and downs. This means the finance team needs to be flexible in managing the situation. With proper financial management, it becomes easier for businesses to operate during this cycle. One such example that almost all the companies faced is the COVID 19 pandemic. The pandemic brought about a massive set of challenges for the organizations to adapt to - teams had to be moved to remote working environments, business processes were disrupted and had to be redesigned from scratch, etc.
One common theme which we witnessed during the initial phases of the pandemic was how data was being made available to teams when they became remote. Finance teams who had thought about centralizing financial data management and introducing systems fared better than organizations who had manual processes and data was spread across local systems. Visionary leadership and foresightful investments are required to ensure that your organization is able to tide through unexpected twists and turns in the global market scenarios.
An eye for cash and an eye for growth
The ultimate goal of any business is to grow. Finance teams have always helped in identifying the blind spots. But, what has changed over the years is that finance teams are now not just seen as accountants but as drivers who contribute to an organization’s decision-making. By empowering your team to be more tactical, agile, and responsive, you are creating a foundation for accelerated growth.
Now that you have come all the way until the end, we would like to let you know that Recko is built to solve financial operational workflows such as reconciliation, commission calculation, payout creation and reporting, for businesses to track, manage and account money end to end. Recko’s global financial operations platform is currently used across different industries like e-commerce, food tech, fintech, neo-banks, gaming, etc. We work with some of the biggest global internet brands like Deliveroo, Grofers, Meesho, Dunzo, Pharmeasy, Curefit, Udaan, MPL, Khatabook among others.