Although the role of Transactional Finance Manager is not new, Food and Fresh Produce Wholesalers are increasingly turning to their Transactional Finance Managers to take a lead role in the digital transformation of their supply chains and reaping significant benefits by doing so. Even more so as we learn to cope with disruptions to trade such as the current COVID pandemic and Brexit.
If this is a role that is not currently in your organization, then it’s definitely one that you should consider introducing sooner rather than later. If not, your supply chain risks getting left behind. If you currently have one in situ how can you support them to accelerate benefits?
This blog considers the role of the Transactional Finance Manager in the Food and Fresh Produce Wholesale sector, what are the most important KPIs to measure their impact by, and how can they be leaders in supply chain digital transformation.
How does a Transactional Finance Manager impact business performance?
For those that do not know, the Transactional Finance Manager sits over the Accounts Payable and Accounts Receivable functions. Traditionally, these two departments have been managed completely separately with different, and sometimes conflicting, goals and objectives.
It is not uncommon for AP and AR departments to run separate processes and separate systems which can unnecessarily increase costs. In the cases where trading partners are both customers and suppliers, such separation can have a negative impact on the quality of service they receive.
Only by bringing these two departments together, consolidating processes and systems under one leader, can a Food and Fresh Produce Wholesaler truly optimize its supply chain financial performance.
Overseeing both AP and AR, the Transactional Finance Manager can act as a change agent, balancing requirements such as cash flow with corporate social responsibility, mitigating risks, and ensuring supply chain financial performance contributes positively to overall company goals and objectives.
Which KPIs Best Measure Their Performance?
Once you have your Transactional Finance Manager in situ, how do you best measure the impact they are having? There are the obvious KPIs, such as Days Sales Outstanding (DSO), AR Turnover ratio (ART), cash flow, and the amount of bad debt. However, these are mainly focused on getting cash into the business from customers and not on getting the inventory into the business that is needed to be able to deliver products to those same customers. Often, they are also “lagging” not “leading” indicators.
Improving sending cash out of the business is not typically a goal of the AP team when looked at in isolation, but with a holistic view of AP and AR, this is not the case. More and more Food and Fresh Produce Wholesalers are putting greater focus on supplier relationships, often as part of their corporate social responsibility objectives. For example, by signing up for initiatives such as the Prompt Payment Code in the UK. Improving relationships with suppliers does deliver significant benefits, especially at crucial times, for example by securing the inventory needed to be able to sell to and retain customers.
In order to best measure Transactional Finance Managers’ performance and the impact they are having on the business, it is necessary to go beyond the traditional finance KPIs. Organizations that are getting the greatest value out of their Transactional Finance Managers are adding “digital” KPIs to their supply chain performance measurement. Eliminating manual activities is an essential part of transforming supply chains, but it needs to be done in a way, and with objectives, that align digital KPIs with financial KPIs.
How Do They Lead Transformational Change?
Transactional Finance Managers lead supply chain digital transformation by creating the correct balance between finance and digital KPIs across the AP and AR functions and aligning them with the full set of corporate goals and objectives.
To do this requires a focus on best-practice business process and best-practice process automation. The key, but subtle, point of this statement is the fact that it refers to best-practice for both business processes and for process automation.
The reason many supply chain digital transformation projects fail to deliver all of the benefits they could is typically down to the fact that the automation that is introduced is not the best practice. The main reason this happens is that the wrong digital KPIs are put in place to measure process automation, thereby focusing effort in the wrong place.
Supply chain digital KPIs can be counterintuitive and therefore counterproductive. For example, if you measure the value of invoices digitally processed you may have a high percentage in terms of value, but this will divert attention away from the tail of invoices where the volume and manual effort is much greater. Focusing on best-practice automation with the right digital KPIs will maximize the benefits that can be achieved.
By creating a vision that combines Accounts Payable and Accounts Receivable teams with best-practice processes, best-practice automation, and best-practice KPIs aligned to the wider business strategy, the Transactional Finance Manager can lead sustainable growth through transformational change to maximize business performance.