Best practices in structuring expense heads in COA

Find out interesting insights with Anthony Peltier, Coast to Coast Finance

Moderated by Pat, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Pat: Hello, and welcome to CFO insights by Hyperbots. Today we have Anthony Peltier, a seasoned CEO, with extensive experience in financial management across various industries. We’ll be discussing the structuring of expense heads in the chart of accounts, best practices, common mistakes, and the role AI can play in this area. Thank you for joining us, Anthony.

Anthony Peltier: Yeah, thanks for giving me the pleasure to be here.

Pat: Alright. So before we dive in, Can you explain why the proper structuring of expense heads in the chart of accounts is important for an organization?

Anthony Peltier: Absolutely. Yeah. Expense heads are crucial in the chart of accounts because they directly impact the financial reporting analysis decision making right? So when you have a well-structured chart of accounts that ensures expenses are accurately categorized. It makes it easier to track costs, control budgets, and identify areas for cost savings super important. That also facilitates compliance with accounting standards and regulations which is vital for maintaining financial integrity.

Pat: Right. So what are some of the best practices for structuring these expense heads in the chart of accounts, regardless of industry?

Anthony Peltier: Yeah, I would always recommend aligning those categories with the core business activities and using a standardized nomenclature that’s helpful for consistency, that nomenclature can balance the granularity in your accounts, and then regularly review those.

Pat: So what are some of the stories? What are some of the best practices for structuring expenses at the start of accounts, regardless of industry?

Anthony Peltier: Yeah, I would say, the best practices are aligning the expense categories with the core business activities that way you can use a standardized nomenclature for consistency, for balancing granularity, and for regularly reviewing and updating the chart of accounts to reflect any changes in operations that way you can separate the fixed and the variable costs, and start to group expenses by function or department or by bucket, and that’ll enhance clarity  and accountability. So those practices can help maintain a COA that’s both useful for management and compliant with external reporting requirements.

Pat: Okay, so could you provide some examples of how different industries, such as manufacturing or the SaaS industries, might structure their expenses differently?

Anthony Peltier: Absolutely, the focus is gonna be on direct production costs, raw materials, and labor factory overhead, while Sas companies are gonna emphasize technology-related expenses like software development, hosting, customer support, and so on. Each industry is going to have unique cost drivers. So their COA structure needs to reflect those differences, and that’ll ensure accurate cost tracking and financial analysis. A retail company may have expense heads for inventory purchases and store utilities, while a construction firm would include direct material costs, equipment, rentals, and subcontractor fees, stuff like that.

Pat: So all these different industries right? What are some of the common mistakes that you see an organization make when they are structuring their expenses in the chart of accounts?

Anthony Peltier: Yeah, this happens quite often. Some of the main mistakes, I see, are overlapping and redundant categories. This confusion causes inaccuracies in reporting and then another mistake is over. Granularity: Too many categories in the COA are going to become cumbersome and difficult to manage, and inconsistency in naming conventions, that’s gonna cause errors. It’s not gonna reflect changes in the business operations and that’s gonna lead to inefficiency overall. So as a result the expenses are going to get misclassified. They’re going to mix direct and indirect costs and it’s going to distort the financial analysis and decision making.

Pat: Okay, so how do you think AI can help organizations better manage the expense structure in their chart of accounts?

Anthony Peltier: Yeah, AI can help a lot in this regard. It can automate the classification of the expenses. It’ll reduce manual errors, and it’ll increase accuracy, so it can suggest optimizations by identifying those redundant categories and proposing consolidations, also detecting, you know, unusual spending patterns that might indicate errors or fraud and even it can extract data from invoices like hyperbots does and other documents enhancing accuracy reducing the workload for the finance team. So overall AI can provide dynamic, continuous learning capabilities that are going to adapt to the evolving needs of the organization.

Pat: So could you give me a specific example of how AI might be used in the practice to optimize the expense structure in a company?

Anthony Peltier: Yeah. A retail company could use AI to automatically categorize expenses related to marketing. It can analyze the invoice descriptions and the vendor names right? Then those AI algorithms can learn from historical data to distinguish between different types of marketing expenses, such as digital advertising versus print, and that will allow for a more accurate categorization. That’ll also help create a more precise chart of accounts, and it can alert management to any unusual spending patterns, such as a sudden spike in a particular category.

Pat: Right, that makes sense. So what steps should an organization take to integrate AI effectively into their expense management process?

Anthony Peltier: Well, it’s gonna come down to the starting point, making sure their data is clean and well structured. So AI tools, it’s the common saying, garbage in garbage out, right? So if you want quality data to function effectively then they can define specific areas where the AI can add value such as expense, classification, or fraud detection. You want to choose the right AI tools that align with their needs and integrate them with the existing financial systems. Finally, AI is a continuous learning machine learning. So ongoing training and adjustment are essential to refine those algorithms over time and ensure they continue to meet the organization’s requirements.

Pat: Right. So final question looking ahead, how do you see the role of AI evolving in the context of managing expenses and the chart of accounts?

Anthony Peltier: Yeah, I see it becoming more proactive and predictive. Instead of just purely automating tasks which are valuable. I see AI providing strategic insights, identifying cost savings, and opportunities, and predicting future expenses based on trends. It can also play a role in enhancing collaboration across departments by providing real-time, data and analysis and then that should enhance faster decision-making. So as these tools continue to evolve their capabilities are going to expand, and that should offer more comprehensive solutions to complex financial challenges. I think overall finance teams need to embrace these tools and see how it’s gonna make their life easier and allow them to have a more positive impact on the organization as a whole.

Pat: I think I very much agree. Thank you so much, Anthony, for sharing these insights. Structuring the expenses in the chart of accounts and the integration of AI can bring significant benefits to an organization across all industries.

Anthony Peltier: Yeah, thanks for having me. I look forward to more companies adopting AI and helping with their chart of accounts.

Pat: Perfect. Thank you so much, Anthony.

CFOs’ Toolkit for Adopting AI

Find out interesting insights with Anna Tiomina, CFO, & Founder Blend2Balance

Moderated by Emily, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Emily: Hello, everyone. This is Emily, a digital transformation consultant at Hyperbot Systems, and on the call, I’m really glad to have Anna with me. Anna is the CFO at Blend2Balance. In today’s discussion, we’ll be talking about a CFO’s preparatory toolkit for the adoption of AI. But before we dive in, Anna, would you share a brief overview of your background and perhaps set the stage for our discussion?

Anna: Sure. I’ve dedicated my entire career to finance, and I’ve been a CFO for more than 10 years. I’ve worked in various companies and industries. I started in steel manufacturing, spent around five years in pharmaceuticals, and joined an IT services company about four years ago. So I have a very versatile background in terms of industries. I also provide strategic consulting for early-stage startups. Since 2022, there’s been a huge emphasis on AI in all areas, including finance. Many organizations struggle to find the right approach to this transformative technology. It’s a pleasure to be here and shed some light on this crucial topic.

Emily: That’s really amazing. Great to have you as well, Anna. Let’s start with the first question. What would you recommend as the initial action for CFOs venturing into AI adoption?

Anna: I don’t recommend jumping into AI implementation initially. It’s worth running an audit in three main areas: data infrastructure, team skills, and the status of existing processes. For data infrastructure, it’s important to evaluate sources, ensure a single source of truth, address discrepancies, and prepare the data before implementing AI tools. Team readiness is paramount. Some teams are flexible with new technology, while others need more preparation to understand how it works. Lastly, the state of existing processes is vital. Are they unified and documented? Automating chaos leads to automated chaos, which is not what we want.

Emily: Completely agree. Those are insightful points, Anna. Moving forward, what key objectives would you recommend CFOs include in their AI strategic roadmap for the finance department?

Anna: When preparing the strategic roadmap for AI implementation, CFOs should focus on quantifiable objectives such as improving accuracy in financial forecasting, reducing processing times, and enhancing compliance and fraud detection. Setting a goal to automate 30% of manual data entry tasks within a year could significantly boost efficiency and accuracy. As a CFO, I’m always looking at the return on investment. AI implementation in finance operations should also consider potential savings and scalability if the organization plans to grow. Additionally, the cost of mistakes in finance operations is significant. AI can minimize errors, prevent fraud, and save the organization money in the long run.

Emily: True and valuable insights indeed. Considering your experience, what challenges should CFOs anticipate when aligning AI initiatives with their overall business strategy?

Anna: From what I’ve seen, security is a top concern among CFOs. Not understanding the technology can make it scary to let it make crucial decisions. Addressing security is crucial to reducing friction and gaining agreement from the rest of the team. I also recommend not rushing implementation. Let stakeholders adjust, understand the technology, and recognize its benefits to avoid big mistakes. In the long run, AI is a great technology. However, there’s pressure from leadership to implement it quickly to stay competitive. Finding the right balance between preparation and implementation and getting a leadership agreement is key.

Emily: Got it. Completely agree. Thank you so much, Anna, for sharing your insights and expertise on these critical aspects of adopting AI in finance. Any final thoughts or key takeaways you’d like to leave with our audience?

Anna: For CFOs feeling a bit lost in this process, I encourage them to do some reading or attend webinars. There’s a lot of information available, and it doesn’t take long to understand how the technology works and its benefits. Don’t be scared. It’s exciting to see changes in this market since finance automation tools haven’t seen a revolution since the 1970s.

Emily: That’s some great advice. Thank you so much, Anna, for being here and speaking on a topic that’s buzzing everywhere. It was truly amazing having you here today.

Anna: My pleasure.

Building a Business Case for AI-driven AP Automation

In today’s rapidly evolving business landscape, efficiency and cost optimization are not just goals but necessities. AI-driven Accounts Payable (AP) automation stands out as a transformative solution, driving significant improvements in financial operations, but how do you build a compelling business case for AI-driven automation? Let’s dive into the data and insights that underscore its value.

The current state of accounts payable

Traditionally, AP processes have been manual, time-consuming, and error-prone. According to a report by the American Productivity & Quality Center (APQC), companies that operate with manual AP processes can see processing costs as high as $10 per invoice. Furthermore, the Institute of Finance and Management (IOFM) states that manual invoice processing can take up to 8.6 days. This inefficiency not only drains resources but also hampers business scalability.

The financial argument for AI-driven AP automation

AI revolutionizes this scenario by digitizing invoices and streamlining approvals. A pivotal study by Ardent Partners found that automated AP solutions can slash invoice processing costs by up to 80%, reducing the expense to as little as $2 per invoice. Additionally, automation can cut processing times to just 3.3 days on average, enhancing operational efficiency.

Cost savings

Processing cost savings:
Consider the direct cost reductions from AI-driven automated invoice processing. For a business processing 1,000 invoices monthly, transitioning from a manual process costing $10 to an automated process at $2 per invoice saves $8,000 monthly—translating to annual savings of $96,000. 

 Early payment discount opportunity :
AI aggregates and recommends to CFOs/Finance controllers the vendor invoices where it makes economic sense to avail early payment discounts. It is usually done by comparing the annualized discount rate with the cost of capital. In the above example considering the average invoice value to be $500, there would be a total accounts payable to be $400,000 per month. Let us take a typical case of 25% of vendor payments having an early discount payment term of 2/10 net 30. It means 2% of 25% of $400,000 = $2,000 per month can be saved translating to annual savings of $24,000.



Efficiency and productivity gains

AI frees staff from manual data entry, allowing them to focus on higher-value tasks. As highlighted above, the AP clerks have been seen processing 300-400 invoices a day as against the 30-40 invoices per day, pre-automation. This efficiency not only accelerates the payment cycle but also improves staff satisfaction and retention.

Enhanced accuracy and compliance

Manual processes are susceptible to human error. AP automation significantly reduces these errors, ensuring data accuracy. Compliance is another critical consideration. Automated systems maintain detailed audit trails, simplifying compliance with regulations and standards, which is a non-negotiable aspect of modern business practices.

Building the business case

When building your business case for AI-led AP automation, consider the following steps:

Conclusion

The data is clear: AI-led AP automation offers a path to significant cost savings, efficiency improvements, and enhanced financial controls. By carefully constructing a business case that highlights these benefits, supported by solid statistics and data, you can make a compelling argument for adopting AP automation in your organization.
Embracing AI-led AP automation is not just about keeping pace with technology it’s about seizing an opportunity to transform your financial operations fundamentally. The time to act is now.

How can Hyprbots help?

Are you ready to explore how AI-led AP automation can benefit your business? Contact us for a personalized assessment and take the first step towards transforming your accounts payable process today.