Also, below is a transcript of the podcast episode:
Jim Hunt: Hello, this is Jim hunt hosting Bramasol’s Insights to Action podcast series, which focuses on key issues of compliance, financial management and financial transformation. Today we’re really lucky to have, insights from Julio Della Costa. Julio is the director of technical accounting at Bramasol. He’s a CPA. He’s got over 18 years of professional variants in accounting. He’s been on both sides of the desk and started at KPMG in their external audit practice. He’s spent many years at multinational fortune 500 companies at the director level. Today we’re going to talk a bit about some of the technology trends in automation and artificial intelligence and the impact those are having on the monthly accounting closed process. So Julio, it’s great to have you with us today. Will you want to talk a little bit about your experience and how it maps into this particular topic?
Julio D: Yes. Jim, thank you very much for having me today. Very excited to talk about this topic. So Jim, as you mentioned in your introduction, as far as my experience is, so I have been fortunate enough to be on both sides of the fence. When I said what side of fense, what I mean is really, I’ve been a controller now what I do at Bramasol is I help companies improve their processes. We implement suits and softwares and as a result of implementing these softwares, we look at process improvement. We look at how can we make this business run better in all my experiences thus far with implementing revenue recognition software as well as lease accounting software once what find is even though you’re implementing software, it’s surely a process reengineering.
So what do I mean by that? What I mean by that is as you implement a new software, you really have to take a look at what is my as if process for revenue recognition and lease accounting. And then what do I want it to be going forward? What this great software that I’m adding to my organization. There has to be financial processes that underlie the software. So I don’t always see it, the implementation, I always see it as a process reengineering and I think that goes well with customers because customers always looking for the additional edge of how do I make my organization run more efficiently or more effectively or both. So those things as well. I really like to focus on as we go into customer organizations and we help them implement software, implement new processes as we go forward.
Jim Hunt: So in a way that there’s really no magic bullets about software that you can drop in and everything is perfect. You always have to stop and think about the processes and how they’re impacted and where you’re trying to get to.
Julio D: Yes, of course. So people are, some people think as you said, you know, I’m going to put this beautiful piece of software and it costs a lot of money and it’s going to do that magic bullet for me and do all the things that I wanted to do. Well, you know, from a fundamental perspective, what really drives organizations at the basic level of processes. So, you know, using software, what’s you’re doing is you’re changing from a manual process to an automated process. So there’s implications in that discussion as well.
Jim Hunt: Let’s kind of cut to the focus of today’s topic, which is how these software changes impact, hopefully in a positive way, the monthly close process.
Julio D: Yes. So if we take a step back, I mean, as long as companies have been reporting numbers, they’ve been closing their books. So I don’t know if this have even thousands of years, hundreds of years, but every company, you know, whether you’re doing 50 billion in revenue, or are you doing $500 in revenue, you have to close your book. Because what essentially you’re doing is you’re tabulating all the results for that period and you’re reporting, those results to shareholders, to the owners, to internal, external customers. So the closing process is one of those necessary evils that companies have been, you know, dealing with for as long as time, as long as accounting has been around. So from a fundamental perspective, if you think about the close process, we see that technology has come in the last 10 years, especially in the last five years where companies are looking at, again Jim, it goes back to processes, goes back to the processes of what does an accounting close and look like. From my experience being a Controller on the other side, you know, I’ve been includes processes where it takes 15 days, 15 days to close your books. So by the time you close your books, you actually have to think about the next month that flows. So it really wasn’t that efficient. And as a personal experience
Jim Hunt: Kind of like a squirrel in a treadmill.
Julio D: Right, exactly. You just never stopped you all. You always closing the books. And I think the focus recently with new technologies and new platforms has been how can we make this clues essentially more efficient? And you know, we have the usage of the would obsolete, but it’s not necessarily obsolete. It’s more efficient that I like to see more efficient because how can we take something that we’ve been doing in one way and then improve it to allocate more resource time to something else? Because at the end of the day, if you think about what the close process will do if you shorten it, is that I’m taking it from 15 days to five days. Well the next question you’re going to be asked is, well, what are you going to do with these additional 10 days that you have now, now that you’ve made your clues more efficient?
Julio D: Well Jim, we can talk about this from no, so it’s tomorrow, but there’s a number of other things that accountants, especially finance and accounting departments would love to do. A Constance has always been looked at as the back office guys, the guys that record the historical numbers. Well with those extra 10 days, what you can really do is you can start driving value within the organization. You can start driving benefits to the executive team by saying, okay, we’re not just the back office guys. We can help you drive future value. We can help you drive looking at your processes, trying to see its cost, trying to increase your revenue. So your accountants of the future. The accountant of now really focuses on how can I drive more value within my organization.
Jim Hunt: So in a way, what you’re doing, the accounting team is able to kind of shift its focus from looking in the rear view mirror to looking down the road and seeing the curves and the terrain ahead.
Julio D: Exactly. So you know, typically, you know, in the accounting world, accountants has typically been a cost center. You have a cost center, coalitions of, of information, of costs. They don’t really drive any revenue. And I think what the focus has been shifting to is, are there ways in which the accounting department can become a profit center? A profit center now has revenue involved in it. Now, most people would think that I’m crazy by seeing that. But there are ways where accountant can really drive value within your organization. And I think we would talk about some of those in shortly, right, Jim?
Jim Hunt: Yeah, let’s talk some about the both buzzwords like predictive analysis and financial insights and so on. And the big picture artificial intelligence, kind of define those things but also you know the old tried and true nuts and bolts are accounts payable and accounts receivable. Those processes are essentially, they’re driving the data streams that feed into the closed process. So you can’t ignore them, but they have to be brought into the big picture of, with new technologies.
Julio D: Correct. So if you think about what automation and artificial intelligence can do for an accounting process is the first thing you have to look at is what has been volume driven transactions as far as the accounting clues. When you look at volume driven transactions, two things come to mind first thing is account receivable. You know you have an invoice you send the customer invoice, the customer pays you, the money comes in, somebody has to apply those invoices. In my experience as a controller in my previous life, you know you have five people, all they do for five days of the month is the open the envelope from the customer and from the mail they see a check they go into the system might be Excel or whatever system they’re using and they apply that cheque amount to the customer invoice that the company sent out. So as you can imagine, that’s a very repetitive task. It’s volume, especially if you have a high volume transaction environment. In my experience, I used to look for basically a comcast type environment where the company had 100,000 customers. So you had five people five days of the month, all they were doing 10 hours a day was opening the mail pulling cheque. So entering the information and applying it to a customer invoice. So that is where you really see value to artificial intelligence. When I say artificial intelligence, what do I mean? I mean that they are the software platforms right now ERP, addons with essentially what the system does is once the check comes in, the check says this is coming from this customer. Well the system already knows that we, the company sent out this invoice 10 days ago, 20 days ago, so it automatically, what else human intervention can see customer ABC paid you $100 this much is exactly with the a hundred dollar invoice that we sent out 15 days ago. So what artificial intelligence was doing that scenario, it will take all those assumptions and say, okay, at the end of January we found a hundred applications. They are five applications that the customer name did not match the customer receipt of the cheque. So you have go check that. So there’s still some manual intervention, but here’s the good thing about artificial intelligence and in company environment, Jim, is that the next month, let’s say it was ABCD period, the cheque came in a fax the system is going to loom that ABCD customer is ABCD period customer. So the next month instead of coming up with a potential exception seeing, well the hundred dollars doesn’t much because the customer name is different. It learns from the previous month that along with the period, this is also the same customer. So that’s the beauty of artificial intelligence with looming as a goal.
Jim Hunt: To me that’s amazing too. And it would seem that there’s a job enrichment component to this as well that’s a receivables clerk is able to deal with exceptions, see the bigger picture, the AI module almost becomes a kind of a companion of coworker that does the gound work and then the human is able to look at the bigger pictures, exceptions and gain from the work. The AI module is doing.
Julio D: Well, Jim, I don’t know anybody in my experience that actually enjoys application of customer payments to the invoices. So you exactly correct. What’s going to happen is, what’s going to happen is very simple, is that you have this sort of assistant or colleague, just the colleague is the artificial intelligence and they’re doing all the manual labor with, you know, the receivables clerk is doing, you’re doing more analysis. And as we know, what motivates humans is when you start doing higher levels of work and the quality of your work. So instead of you matching these invoices, what’s you’re doing though is you’re looking at review reports and you are doing research or you’re doing investigations so that it’s more info enriching work to be done. And obviously I think you may have a more satisfied employee. So there’s a lot of benefits outside of just the automation piece.
Jim Hunt: Yeah. And it sounds like from our previous discussions that there are some other benefits as far as for companies that are global, have a lot of individual departments or individual business units that the new technologies such as AI will make it easier to roll those up or to look at reports across departments. So it’ll kind of lift the view and make it broader than a single human being could do as well.
Julio D: Yes. I mean, so Jim does, there’s two other areas as far as artificial intelligence process automation goes on the flip side, there’s the accounts payable area, which is exactly the same process on the accounts receivable area, which is you pay a cheque and then you applying that payment to reduce your liability. So essentially again, you have a AI tool that is automatically matching the payment to the invoice as well. And that is also reducing time. The next big piece for the accounts include is companies that do what we call in the SAP world. Goods received invoice received. So essentially what that is is when you have companies that have inventory and they ship that inventory, what happens is when the inventory is received, you have to go into your accounts payable system and say this has been received. However, just because the inventory has been received doesn’t necessarily mean that you as a company have received that invoice from the customer. It might be in the mail, it might be in transition still. Therefore that GR IR account is a holding account and I think there’s really, really good benefits where again, in my professional experience, I have had folks work on this GR IR account for the 15 days within the clues just trying to match, especially when you have high inventory customers with a lot of inventory, a lot of shipments going on. And what we’ve seen is that artificial intelligence can automatically improve that process by matching the customer shipments to the invoices without human intervention.
Jim Hunt: Again, I assume that there’ll be a kind of an exception reporting that comes up to the human. So for instance, all if all of those invoices in goods received in the holding account and the GR IR account, there are obviously going to be many instances, especially if you have a high volumes where there is a discrepancy, there’s not a match say in quantities of goods received and quantities invoiced. And those are the things you want your experienced skilled human beings to focus on.
Julio D: Exactly, Jim. So in that process, especially in that environment, what happens is every period run, the accountant would receive an exception report, exactly what you said. There’s a discrepancy. Are you going to allow it? Are you going to research it? Is it okay? And then the system will come with suggestions. You know, we think, you know, I think this is what it should be. And you can accept it, you can reject it, you can research it further. I think the good thing, again, just like in the ER process, what happens is the next month, if you accepted all of those potential discrepancies for the next month are going to be green lighted. So it’s going to really keep on improving. And that’s the beauty of what I see today is the exciting technologies within the finance and accounting function is that it learns every month. So it gets better and better. So therefore, again, it’s all about what am I going to do with my accounting staff knowing that now I have all this additional time
Jim Hunt: That sounds great. We have a few minutes left in the podcast. Can you elaborate a bit on what it means to the teams and how they’re going to be more efficient and how their roles will change with the increases?
Julio D: Yes, definitely. When we go from this traditional accounting rule of here’s what I’m doing you know, I’m the accounts receivable clerk. I am the accounts payable. I’m the inventory reconciliation person that’s doing this. This is my job for 25 days of the month when now you have this additional time. Well what does that look like? What does that look like from an executive level? Well, instead of maybe doing that reconciliation, maybe I can find better ways to match my costs to my revenues. I can find better ways to do analytical analysis. So let’s look at account receivable. The person who was previously matching receivables to payments, the customer payments, why not look at how can I optimize my customer collections? Most companies offer discounts if you pay within three days or most companies have cycling where essentially the faster you pay the bigger discount you get. So why not look at these sort of analytical processes to help drive revenue. And if you’re not driving revenue, you’re reducing your cost. So in the example of an accounts payable, instead of me paying in 30 days a lot of companies say if you pay within 10 days, you get a 3% discount, I can tell you from my professional experience, most companies don’t even take those discounts because they’re too busy reconciling. But what about if you had this extra two, three days within the close and you’re saying, wait a minute, if I just paid seven days earlier, I’m going to get a 3% discount, 3% discount or 1% discount for 10,000 invoices every month. It adds up pretty quickly. And then you can go to your executive and say, by the way, you know, not, I have extra time in my day. I looked at all payment schedules and I was happy enough to see if the company $50,000 in six months. I mean, that’s something that is, you know, any executive will be very, very happy to hear.
Jim Hunt: Absolutely. Absolutely. Now okay. Suppose I’m a CFO and I really like what I’m hearing about the changes that could happen. How would I go about it? What if some of the first steps and is it a giant overhaul, a big step function, or is there some way I can incrementally move into it?
Julio D: So that’s a great question, Jim. So from my perspective, based on talking to a number of customers and what I’ve seen in my experiences as a professional myself, the technologies available today I mean since we in Bramasol, we aligned with SAP, there’s essential finance platform where it’s actually designed for companies not to necessarily take a full S/4 Journey. Once you start, as they say, tiptoeing into the S/4 journey by using central finance. In central finance, you can actually add these modules of GR IR module, we’re going to help you do that And you can also add those AR and AP functionality that’s going to help start to bring in little pieces of artificial intelligence in your process. I mean, obviously this is an investment that companies have to make at some point, but there’s always cost benefit analysis when you go to the CFO and go to the executive committee and you put forward, here my case and my case was going to say I am going to drive my costs down by reducing the time it takes to close my books. With that additional time, I can have my accounting analysis done faster? I can do more analyses. Companies always talk about the accounting team doesn’t have time to do analysis. Well, if I closed my process faster, I’m going to have more time. And at the end of the day, Jim, this is all about time. It’s all about resource allocation. If I can turn my allocation of my resources from monotonous repetitive work, give that to the artificial intelligence and have my analysts do more what they’re paid to do, which is analyzing. I think you’re gonna see a really, really, really different conversation at the executive level.
Jim Hunt: Boy, It sounds really exciting and just to note, I think we do have a upcoming webinar focusing on central finance and we’ll be doing another podcast. I hope you can come back and join us for that one because we’d love to hear your insights on how to leverage central finance and other technologies to start the journey without having to overhaul the entire operation. This has been very helpful. I appreciate your time. I know all the listeners appreciate your time and future podcast from you. Have a good day. Bye bye.
Julio D: Thank you very much. Have a great day.
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