Mitigating Risk in Finance Processes: A Proactive Approach with Process Intelligence

Financial risk threatens profit and spans scenarios like capital losses, stunted cash flows, and revenue leakage. While no business can entirely eliminate risk, finance functions can take a proactive approach by improving their processes. The result? Staying liquid, spotting threats early, and even capturing much needed value along the way.

Developing a mitigation strategy built on processes 

Integrated risk management plays an outsized role in a time of global economic upheaval as finance functions have to contend with inflation and interest rate hikes. Since risk management depends on seamless data integration and the timely recognition of potential threats, optimized processes allow risk managers to quickly access and act on relevant information across the enterprise. In fact, 83% of finance leaders see processes as vital to safeguarding against operational risk.

So what are the consequences for lacking a proactive risk management strategy?  Let’s look at five typical risks faced by finance departments and how finance leaders can outmaneuver threats by boosting operational risk management and bridging funding gaps.

1. Liquidity and Cash Flow Risk  —  Liquidity and cash flow risks are intertwined. A company’s liquidity is their bottom-line ability to manage money and pay current obligations. Timing drives liquidity risk (what happens when suppliers are net 30 but customers get extended 90 days credit?) Cash flow can be impacted as reserves dwindle, lending costs increase, profit margins fall, and outstanding receivables mount. To achieve a steady, positive cash flow, finance departments can improve forecast data quality, harmonize the payment of short- and long-term obligations, and boost the efficiency of day-to-day procurement, payment, and collection activities.

2. Credit Risk — Robust credit risk management can reduce bad debt and help ensure company financial health. When companies extend customer credit to grow revenue, uncollected sales create losses. At the same time, poor invoicing practices can create piles of old, unbilled orders leading to revenue leakage.

3. Operational Risk — Operational risk disrupts the flow of normal business operations and can lead to organizational failure. Operational risks can emerge from internal processes, systems, and people. These risk events include data breaches, cyber attacks, employee error, fraud, and the failure of internal controls. To gain an upper hand over operational risk, finance functions must develop their capacity to track and measure deviations from expected operational metrics.

4. Regulatory Compliance Risk — Companies must adjust their risk management processes to adapt to regulatory changes and identify compliance gaps. Developing a regulatory risk mitigation strategy can include the use of generative AI to carry out compliance monitoring, risk identification, and streamline regulatory reporting.

Reduce risk, free up cash flow with optimized processes

Game-changing improvements can be elusive. Only 8% of finance leaders take action to optimize processes on an annual basis, according to one 2023 global study. That’s a vast missed opportunity.

Processes hold the opportunity for finance teams to reduce costs, improve control of cash, and ensure compliance. Streamlining and automating workflows can enhance performance and synchronize efforts with organizational needs. Put simply, mitigating risk begins with optimizing the many processes that make up the finance function.

Problem is, many finance functions struggle with sub-optimal processes. In vital areas like accounts payable and accounts receivable, a worrying 44% of processes run in a sub-optimal way, according to a global study of financial leaders.

Using Process Intelligence, teams can proactively anticipate emerging risks that conventional risk mitigation systems may overlook. For finance departments, Process Intelligenceprovides an MRI-like view of how, for instance, collections, invoicing, and credit risk assessment workflows actually run — giving teams agency and options beyond traditional risk management.

Manage risk on facts, not feelings 

As finance departments face urgent decisions on risk, they need data-driven prioritization to answer critical questions about cash flow, liquidity risks, credit assessments, and operational conditions.

With solutions like Process Intelligence, finance departments can achieve end-to-end visibility of their processes. With a real-time view of operational execution, teams can cut costs, spot duplicate invoices, and accelerate collections. Finance teams can reduce risk by:

• Controlling cash flow risks — Knowing how your processes really run strengthens forecast data. This knowledge allows you to harmonize the payment of short- and long-term obligations. And by spotting when collection activities go off-script, finance teams can make targeted adjustments to restore the efficiency of day-to-day procurement and payment activities.

• Optimizing liquidity — Create a buffer of working capital by gaining visibility over inventory reduction. Speed up collection of receivables, lengthen the payable cycle by avoiding both early and late payments.

• Strengthening credit risk management — Accurately assess customer credit risk based on real-time activity. Set up automations to eliminate duplicate invoicing and unbilled orders so you can recoup costs and recover revenue. For instance, this can be accomplished by seeing the total amount of open and aging credit memos across vendors and ERPs.

• Stay ahead of regulatory risk — Align processes to meet complex regulatory requirements. Spot compliance gaps. An optimized finance process can swiftly adjust to shifting regulation.  Automated workflows speed up tax reporting submissions while reducing manual effort and minimizing errors.

To learn more about improving the thousands of workflows that make up finance, sign up for our weekly Process Mining demo. Check out our process mining solutions for finance to discover the big wins companies have made by using Celonis to improve cash flow, reduce costs, and speed up their response to risk.

Casey Sanchez

Writer

Casey is a writer at Celonis. He has written about technology, engineering, and finance for Deloitte, Exponent, and Google for Startups. His work has appeared in The Los Angeles Times and as branded content for Wired UK.