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Financial Management: From Theory to Practice

Optimal financial management sets the foundation for the long-term health of any successful organization.

Robert Lynch, P2P Insights Analyst
Published on May 11, 2023

Financial management can be a complex process, requiring big-picture thinking for strategic planning, as well as attention to detail on tactical steps. Fortunately, savvy financial tools can make a CFO’s job easier. In this article, we’ll explore the elements of financial management and the software tools critical to fostering effective financial management. 


What Is Financial Management?

Financial management refers to the process of managing a company’s financial resources to meet organizational goals. The process begins with strategic financial management, which involves creating and implementing a long-term roadmap to ensure the business has the working capital to operate and reach growth objectives.

After an achievable strategic plan has been established, tactical financial management details the short-term steps and actions needed to achieve strategic goals. Tactical planning is regularly reviewed and adjusted to encourage progress.


Elements of Financial Management

As stewards of effective financial decision-making, CFOs need to support stability and growth while identifying areas of risk and opportunity. Planning is guided by financial objectives that align with company-wide goals. Here are some of the key areas financial management focuses on:


Value Creation and Efficiency

Financial management prioritizes creating value through profitability, growth, and sustainability. To achieve profit objectives by balancing revenues and strategic investments against costs, organizations need to identify their core competencies, competitive advantages, and areas of opportunity. Understanding the competitive landscape and identifying trends addresses market challenges whereas evaluating strategic opportunities enhances the potential for upside.

At the heart of maintaining profitability is optimizing operational efficiency, which is best achieved using best-in-class technology. The opportunity to maximize efficiency is especially apparent within accounts payable. From procurement to invoice processing to payment,  intelligent P2P automation offers an efficient and compliant process with real-time and trend data analytics to inform decision making and improve financial performance. For example, when you receive invoices with purchase orders, automation enables straight-through processing of a high volume of invoices without human intervention. 

But not all matching engines are created equal. Though most AP automation providers claim competency in smart matching, in practice, many fall short. To find the most effective solution, you need to test vendor matching capabilities during in-context demos.

For non-PO invoices, artificial intelligence can identify patterns and suggest appropriate coding. AP automation sends invoices for approval automatically and reduces processing times by up to 90%. Any exceptions are flagged with clear resolution guidance and routed directly for immediate action. The result is intuitive and efficient processing that increases accuracy while reducing costs.


Resource Planning 

Resource planning involves budgeting, forecasting, and cost management to plan for the future. Budgeting tools make it easy to create and manage budgets, track performance against targets, and project future performance. Another key support for efficient resource management is forecasting software. However, the quality of budgets and forecasts depends on the underlying data, which highlights the need for 3rd party integration from any data source. Organizations with high-performing software solutions can quickly identify areas that need to be addressed.

Once you have appropriate budgets that set boundaries on spend, you can manage costs to prevent out-of-policy spend. Beginning with the procurement process, P2P automation offers pre-approved spend functionality that allows users to draw down pre-determined budgets with preferred vendors. This empowers teams with greater control to monitor project spending that also complies with procurement policies. It also provides instant visibility into the return on investment for specific projects and control over spend. 


Analysis and Improvement

Financial management is a continuous process of learning and improvement. By evaluating performance and progress regularly, you can seek feedback from stakeholders and benchmark metrics against industry standards.  

Technology that provides full data visibility supports the advanced reporting and analytics needed to deliver actionable insights. For example, a comprehensive vendor management platform provides complete visibility into orders, invoice, and payment status. By tracking performance, you can choose the most reliable vendors and improve your relationships with them.

With fully integrated data from financial tools, CFOs can collect and analyze data and then create data visualizations to identify trends and patterns and unearth actionable insights. 


Solvency Planning and Capital Management

Over the long term, assets must cover financial obligations to maintain solvency. However, for businesses to thrive, CFOs assess financing needs, maintain enough cash flow to sustain operations and investments, and manage working capital efficiently. None of this is truly possible without software that provides accurate financial data in real-time. 

With automated procure-to-pay, CFOs can manage spend and project future cash flows with greater confidence. Instead of relying on payment data for spending visibility, you can access a clear view of accrued expenses, supporting liquidity management and efficient capital use. 

Another benefit of automated technology is the ability to decide who to pay on time and who to approach for early payment discounts. Automated payments facilitate granular control over payment based on predefined parameters, improving cash flow management.


Risk Management

To address uncertainty, CFOs first need to identify and assess competitive, financial, and compliance risks. Then, armed with smart technology and insights, they can ensure regulatory compliance and develop strategies to mitigate financial risks.  

A key pillar of risk management is setting up processes with effective controls, security, fraud detection, and audit capabilities. Look for software solutions with process controls and a clear audit trail, along with fraud detection and prevention features that meet industry standards like SOC and ISO.

Organizations lose billions per year to payments fraud, and manual accounts payable is particularly vulnerable. The rise of RPA (robotic process automation) automates error-prone repetitive tasks like manual data entry, which can produce issues like invoice processing delays and payment errors. Effective automated systems also integrate process controls while creating an auditable trail. The evidence is clear – embracing larger-scale automation improves outcomes and reduces risk


Transparency and Accountability 

Companies need to provide timely and accurate financial information to stakeholders to build trust and credibility. As a result, they rely heavily on software solutions that have seamless integration with the enterprise resource planning system and summarize findings with financial reporting software. 

The principle of transparency and accountability emphasizes the importance of technology support that produces accurate data. Precise information leads to a clear and comprehensive view of a financial positioning, enabling more efficient and informed decision-making.  


Technology Supports Financial Management

Choosing the right mix of financial tools that increase operational efficiency is critical to an organization’s financial health. An effective technology stack can help you successfully implement your strategic financial management plan and streamline the vast majority of tactical steps that support successful planning, process, and execution. In turn, optimizing financial management drives long-term growth and sustainability. 

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