Effective and streamlined finance business processes keep companies running smoothly. They’re vital for sound financial management, which is essential for a company's success.
Finance business processes help businesses to:
- Track income and expenses
- Allocate resources efficiently
- Make informed spending decisions
- Comply with financial regulations
When you dig into financial workflows, you'll find many ways to make operations smoother, increase profits, and reduce risks.
Not sure where to start?
Below, we explore 17 examples of financial processes in business.
1. Data collection
Collecting data is usually the starting point for most, if not all, financial processes. It involves gathering financial information from a variety of sources within the business. For example, you might need to compile data from sales, expenses, investments, and other financial activities.
2. Accounts payable and receivable (A/P & A/R)
Accounts payable tracks what you owe to suppliers, while accounts receivable tracks what customers owe you.
In other words, it’s about managing the money that goes out (payables) and comes in (receivables). This finance process involves tracking invoices, sending payments on time, and collecting outstanding balances.
3. Credit management
Credit management involves assessing a customer's creditworthiness before extending credit. It’s an important financial process because it helps minimize bad debt and protects your cash flow.
4. Expense management
Tracking and controlling business expenses falls under the process of expense management. Getting this right provides important insights into a company’s spending habits. When you know exactly where money is being spent, you can help identify areas for cost savings, and improve budgeting.
Sabrinthia Donnelly
5. Payroll processing
Handling employee compensation is one of the most important finance business processes because it involves calculating salaries, withholding taxes, and managing benefits.
To help improve your company’s payroll process, you may want to consider automating it with a reliable software that can streamline the entire process.
6. Treasury management
Overseeing the company’s cash and financial assets falls under a company’s treasury management process. Proper treasury management maximizes return on investments, ensures sufficient cash on hand, and mitigates financial risks.
7. Cash flow management
This one is kind of self-explanatory as it involves the management of cash flow. The main responsibility is tracking the inflow and outflow of cash within a business to make sure it has enough liquidity to meet its obligations.
Your cash flow management is doing well when:
- You avoid running out of cash
- You can invest your extra money
- You're prepared for surprises
8. Capital expenditure (CapEx)
CapEx are funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment.
Businesses will prioritize this type of investment because it plays an important role in its long-term growth and efficiency. For example, a manufacturing firm might invest in new machinery to increase production capacity and improve product quality.
9. Asset management
Asset management is about getting the most out of a company’s assets. Think of it like this: you wouldn't keep using a super slow or almost broken phone, right? If you had the means, you'd upgrade it to something faster.
Asset management is similar. It’s a systematic process of developing, operating, maintaining, and selling assets to get the most out of them for the least money.
10. Financial planning and analysis (FP&A)
FP&A involves budgeting, forecasting, and analyzing a company’s financial performance to guide decision-making and support strategic goals.
Some of the main responsibilities associated with FP&A include creating budgets, forecasting future finances based on current trends and analyzing data.
11. Budgeting
Budgeting is the process of creating a financial plan for a specific period, typically a year. It involves estimating the company’s income and expenses to create a detailed plan for spending across the business.
If you work in a large company, the CFO will often allocate budget across different departments so that everyone knows exactly how much they have to spend and to avoid overspending.
12. Forecasting
Forecasting is about guessing how a business will do in the future by looking at past data and what’s happening now. It helps businesses get ready for problems and chances.
13. Financial close and reporting
This is the process of finishing the accounting records for a specific time, usually a month or quarter. It involves checking accounts, making sure everything is correct, and creating financial statements.
Richard King
14. Audit and compliance
This is the process of checking if a company’s financial statements are correct and everything adheres to the associated accounting rules and laws. It’s common for a public company to hire an independent auditor to review its financial statements before they’re released to the public. This is important because it can help build trust with investors and help the company find and fix any mistakes.
15. Tax preparation
Tax preparation is the process of gathering all the necessary financial documents to file taxes. This includes income, expenses, and other financial records.
For example, a small business would collect all their receipts and sales records to determine how much tax they owe. Preparing taxes correctly helps businesses avoid penalties and find possible tax savings, making sure they comply with tax laws.
16. Investment analysis
Investment analysis is like researching before buying something expensive - you check different options to see which one gives you the most "bang for your buck". This might include looking at stocks, bonds, or real estate. Good investment analysis helps in making smart choices that can increase wealth and achieve financial goals.
17. Risk management
Risk management is about about figuring out what could go wrong (financial trouble, equipment breaking), and taking steps to avoid it or be better prepared. A manufacturing company, for example, might buy insurance to protect against damage from natural disasters. Effective risk management ensures that a company can handle unexpected events and continue to operate smoothly.
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