How CFOs can digitise finance to achieve a competitive advantage

Forward-thinking CFOs will be familiar with cloud-based systems that provide anytime and anywhere insights into key information and documents, as well as reassuringly high levels of data security. From ERP and procurement through to e-commerce systems, CFOs are increasingly beginning to realise the benefits of digitalisation with cloud-based technologies, providing streamlined and efficient processes, and data-driven insights for improved decision making.

However, despite these technological advances, many finance departments are holding back business growth due to an inefficient approach to indirect tax management. Still viewed by many CFOs as merely a routine compliance burden, by not taking a ‘digital first’ approach to the tax function, organisations are simply unable to respond quickly to change. The limitations of native tax tools in ERP, procurement and e-commerce systems combined with an ever-changing global tax landscape, result in slowness and possible loss of competitive advantage.

The state of the finance department

Today’s CFO is aware of the value of digitising core financial processes, and there’s a growing awareness that there is still a long way to go in their digital journey. They are feeling the pressure to accelerate initiatives not least due to economic uncertainty, supply chain challenges and remote working pressures. However, research by EY indicates that CFOs are being restrained from moving as quickly as they’d like, with 71% of CFOs and senior finance executives stating that “traditional back-office behaviours and mindset” were slowing their modernisation of the finance department.

It appears that for many CFOs, the finance department is not yet delivering the competitive advantage hoped for, and in the face of external and internal forces including regulatory changes and mergers and acquisitions, it’s unable to scale up and respond as quickly as hoped.

The good news is that the desire to modernise the finance department among finance professionals is great. Our research into the growth challenges facing ambitious ecommerce businesses reveals that 59% of finance professionals working in companies that sell products and services online, believe that the digitalisation of core financial processes presents one of the most significant opportunities to maximise business growth this year.

The worrying news is that when considering finance department transformation, too few U.K-based CFOs consider the role of cloud-based indirect tax functionality, and yet they have a crucial role to play in allowing tax professionals to drive value and support growth.

Digitising tax   

Any organisation that wants to compete effectively in today’s agile, fast-paced business landscape needs to reconsider its approach to managing indirect tax processes. After all, businesses relying on the basic functionality in their ERP, procurement or e-commerce system will struggle to be agile enough to take advantage of opportunities such as expanding product and service offerings, entering new territories or deploying new channels to market. This is because the native indirect tax functionality in these systems simply can’t provide the in-depth data interrogation needed to ensure compliance with indirect tax regulations around new territories or market channels. And so, the finance team is forced to work long hours to plug the VAT, sales and use tax holes, slowing down the business’s growth plans while adding considerable time-consuming administration and risk.

In fact, it’s common to see finance professionals figuring out business critical tax compliance obligations and calculations using Excel spreadsheets, with a staggering 36% of finance professionals in the UK and Ireland admitting to still using manual processes for managing cross-border indirect tax liabilities.

As businesses expand, they naturally grow in complexity, and manually intensive and error-prone ‘hands-on’ practices or reliance on unsophisticated tax tools can lead to a higher chance of improper indirect tax determination and calculation. The business is also at increased risk of non-compliance and tax overpayments.

The reality is that the tax function in today’s businesses must accommodate nearly constant changes that affect indirect tax determination – not just the challenging new economic climate and the resulting regulatory changes, but numerous business changes. Geographic expansion; the ability to quickly make strategic decisions on indirect taxes around mergers and acquisitions; and the creation of new business units, supply chain channels and product offerings, each have their own complex tax considerations.

Specialist indirect tax functionality seamlessly connected to ERP, procurement and e-commerce systems provide the perfect solution to businesses’ indirect tax challenges, creating an automated and highly sophisticated means to ensure full compliance with indirect tax regulations and seamless transactions across jurisdictions, sales channels and business units. They also increase tax accuracy and lower audit risk while more effectively supporting the business as it scales.

Getting serious about indirect tax

Manual processes and native indirect tax functionality often just don’t cut it, particularly for those businesses looking to expand globally, and considering the digital transformation agenda that many CFOs are now driving forward. Any CFO considering finance department digitisation must look beyond cloud-based ERP, procurement and e-commerce systems and expand their scope to include indirect tax cloud functionality, otherwise the indirect tax function will always remain a compliance burden rather than a growth enabler.

To learn more about the topic featured in this article, as well as other key trends impacting senior finance leaders, register now for our CFO Executive Dialogue event taking place on October 13, 2022.

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