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In today’s ever-evolving business environment, finance directors face vast external challenges that can impact their organisation’s financial performance – from geopolitical tensions and trade block negotiations, to soaring inflation and the residual effect of the Coronavirus pandemic. With a lot to navigate, finance teams are exploring all potential routes to help strengthen the bottom line and create cushions to absorb any unexpected headwinds. 

In its latest report, Automation Across Nations, leading source-to-pay software provider, Proactis, reveals how major UK firms are reacting to this tough climate. Focusing on three key trends – The Payment Squeeze, Financial Black Holes and The Automation Gap – the report uncovers the self-preservation strategies firms are implementing, as well as the extent to which businesses need to get to grips with financial technology to gain greater control over their bottom line.

The Payment Squeeze: The Financial Fight for Survival 

The UK’s larger businesses are putting pressure on their supply chains by making purposefully late payments and even implementing cash freezes as they try to protect cash flow and preserve liquidity. A quarter of companies with more than 50 employees intend to delay supplier payments beyond the terms agreed, with a further 28% implementing a temporary payment freeze on all suppliers to preserve cash.

The move is a matter of survival for many firms, with one in five businesses implementing a ‘payment squeeze’ to remain viable, while one in three are doing so because they won’t be able to pay staff or complete crucial activities if they do nothing.

But these payment squeezes risk a ripple effect of unintended consequences in the delicate supply chain ecosystem. To mitigate these risks, Proactis’ report highlights the importance of implementing robust automated cash flow management processes that establish clear payment terms to streamline the payment process. 

By harnessing the power of automation to adopt these measures, organisations can gain more control and transparency over the nature and timing of spend, including ensuring supplier prices align with budgets. Consequently, it allows organisations to reduce the need for payment squeezes, improve supplier relationships, and optimise working capital.

The £2.7bn Financial Black Hole

The report also revealed that UK businesses cannot identify some £2.7 billion** worth of company expenditure until after it has already happened as they struggle to account for a quarter of company expenditure until it is too late – a phenomenon that’s causing them major problems in tracking and managing their outgoings. 

On average, just 49.7% of an organisation’s expenditure is pre-approved each month, meaning over half is unaccounted for. These ‘financial black holes’ – where finance teams are blind to their organisation’s outgoings until after the money has been spent – can have a significant impact on a company’s cash flow and financial decision-making.

For finance teams to gain greater control and accuracy over their forecasting and spend management, increased visibility of spend is crucial. To achieve this, the report emphasises the need for companies to undertake comprehensive spend analysis and leverage advanced analytics and procurement solutions. This, along with improved supplier contract management, can help businesses to take action to prevent financial black holes.

The ‘automation gap’ and finance team efficiency

Automation is another key theme explored in the report, championed for its ability to enhance efficiency and financial outcomes. But despite 85% of UK organisations indicating they use some form of automation in their finance processes, Proactis’ research reveals that the resulting ‘automation gap’ –areas where manual processes prevail – could be leading to inefficiencies in accounts payable (AP) systems. Two thirds (61%) of the firms surveyed had adopted a hybrid approach to accounts payable systems – where some automation requiring an element of human interaction is used – while one in ten major firms (15%) reported that they still rely on purely manual processes. 

While the research clearly points to the fact that automation is here to stay, and that middle market organisations are following in the footsteps of their larger counterparts, there is a considerable gap in the movement to fully automate, with some companies having made no movements to automate their systems. This chasm is likely to give companies which have automated an edge over competition, and cause unnecessary risk for those companies not embracing financial tech.

How to make the most of these insights 

By focusing on critical areas such as the payment squeeze, black holes and automation, finance directors can unlock hidden potential, drive efficiency, and ultimately achieve long-term financial success. 

Learn more about Proactis’ suite of solutions and access the full report here.

** A survey by American Express and the Centre for Economics & Business Research found that each year SMEs with 50+ employees spend an average of £3m/year on services and goods for their businesses. The ONS states there are 43,600 businesses in the UK with 50+ employees. £3m x 43,600 = £130.8 billion total expenditure. In our research, 24.8% of businesses’ expenditure in the previous month was not known about until after it had happened. 24.8% of £130.8 billion = £32.4 billion worth of annual expenditure businesses did not know about. £32.4bn / 12 months = £2.7bn.