How To Structure a Modern Finance Department

Technology and digitization have created new business models in every sector, and finance departments are feeling the effects.

For instance, software-as-a-service (SaaS) business models have changed the way payments are done these days, creating an emphasis on recurring payments. This has prompted changes in finance departments’ procedures, particularly within accounts receivable.

Here are five more trends within finance departments that reflect modern business' unique demands.

The business factors driving changes in finance department structures

1. Emphasis on digitization and automation

Technology has made big inroads in eliminating clerical tasks and manual processes. A report from Versapay and PYMNTS revealed that nearly 93% of United States firms with at least $25 million in revenue are currently integrating digital technologies into their accounting operations.

This has a marked effect on finance functions like accounts receivable (AR) and accounts payable (AP), which historically involve a high degree of manual work.

For this reason, the headcount in these departments may be lower, as less staff is needed to carry out day-to-day activities. Instead, finance can concentrate its talent on more strategic planning.

2. A need for resilience

Facing rising inflation and supply chain disruptions, preserving cash flow is more important than ever for businesses.

This has elevated the finance function as a value driver, as chief executive officers (CEOs) increasingly count on projections and forecasting from the office of the chief financial officer (CFO) to help them navigate these new challenges.

The accounts receivable function becomes an especially important lever for shoring up cash flow, as enabling faster collections through digital transformation can free up much-needed resources.

AR and other finance functions are thus value creators.

3. Digital skills are in high demand

The recent emphasis on digital transformation has changed finance job requirements. Modern finance teams must handle large data volumes, making basic data science skills essential.

Gartner highlights skills in automation, data literacy, and advanced analytics as critical areas of focus. Finance leaders should consider data handling skills closely when screening new potential hires.

4. Agile teams and flat organization structures

Finance teams have historically relied on rigid organization structures with multiple individual contributors focused on executing manual processes.

Automation has changed this picture, leading to flatter and more agile finance teams. Gartner has highlighted agility and autonomy as critical qualities for finance professionals.

Previously reserved for technology and engineering functions, finance teams can stand to benefit from borrowing and adopting elements of agile workflows.

With less rigid team structures, there can be more engagement between departments, particularly financial planning and analysis (FP&A), AP, and AR. This will surface crucially important data to team members who otherwise might not engage with it.

5. Customer experience is now a bigger priority

An underrated skill that accounts receivable professionals have is the ability to engage effectively with customers. Their ability to collect on outstanding invoices depends on how they communicate with customers, walking the line between managing relationships and business priorities.

As finance teams further digitize accounting processes, they’re increasingly focused on how this benefits their customers’ experience.

Versapay and PYMNTS’ survey found 95% of CFOs indicated benefiting customers/vendors as a reason for digitization their AR and AP workflows. Another 70% believe that digitizing multiple accounts receivable and payable functions is important to building lifetime customer value.

Your finance department is integral to delivering a great customer experience. Customer experience and support may become a greater consideration in hiring for AR roles.

How many departments does the finance function have?

Finance departments can have anywhere from three to six functions. Here are six primary departments within a typical finance team structure.

1. Accounts payable

Accounts payable (AP) handles paying company vendors and contract terms fulfillment. AP is traditionally a cost center, but data can help you transform it into a profit center. You can capture early-payment discounts and identify top-performing vendors to boost your profits.

By integrating vendor management in your AP processes, you can eliminate duplicate spending and unauthorized expenses.

2. Accounts receivable

Accounts receivable (AR) handles the processing and collection of customer payments, including issuing invoices, reducing credit cycles, and minimizing disputes. Accounts receivable automation is a key efficiency driver in modern organizations.

Having optimized, real-time insights into AR data and performance through dedicated software can also simplify cash projections, free up working capital, and streamline budget reporting.

3. Corporate treasury

Corporate treasury handles a company's liquidity and capital levels. Treasury is responsible for identifying potential capital sources for new asset financing. Treasury departments also identify capital requirements and help their firms satisfy regulatory requirements.

Treasury departments can have one employee or multiple, depending on the size of your firm.

4. Financial planning and analysis

Thanks to technology, financial planning and analysis (FP&A) has assumed a significant presence in finance department structures. FP&A teams evaluate trends in the company's financial data and model future needs. They consider quantitative and qualitative factors from the company's financial data.

FP&A teams work closely with IT to prepare and deliver reports such as short-term cash flow analysis and budget versus actuals to CFOs.

5. Tax

Minimizing taxes and identifying credits falls to the tax department. Typically, this department is comprised of accountants specializing in taxation. Taxation is purely an expense, but investing in the right resources within the tax department will save you money.

A skilled tax accountant can identify credits and deductions, helping to lower your tax bill.

6. Executive functions

Roles like Chief Financial Officer (CFO) and Chief Risk Officer (CRO, not to be confused with Chief Revenue Officer) occupy the executive functions within finance departments. At larger companies, individual business units appoint deputy CFOs who report to the organization's CFO.

CFOs provide valuable data to the CEO when plotting their organization's future course.

How should you structure your finance department?

Whether your organization is small and scrappy or an established enterprise, your finance department can benefit from agile work principles.

McKinsey & Company highlights the following as hallmarks of an agile finance organization:

• Responds quickly to stakeholder actions, whether customers, competitors, or partners.
• Combines a flat network of teams executing transactional and strategic tasks
• Incorporates small teams working on clearly-defined project scopes in rapid sprints
• Led by executives who encourage team members to act as proactive counselors to their business units

McKinsey further specifies classifying employees and new hires within the following categories:

• Core members: Responsible for executing transactional activities such as accounting and balancing the company's books
  
• Problem solvers: Team members who work on multiple project teams to solve challenges at short notice
  
• Specialists: Employees with expertise in areas such as revenue analytics or taxation
  
• Value leaders: These employees combine insights to define their business unit's direction. With automation eliminating the need for much of the manual work involved in accounting processes like AR and AP, this can free up more of your employees to become value leaders.

Here's what your finance team might look like depending on your organization's size.

High-growth startups

Startup resources vary depending on the funding they've acquired. Agility is the key here as multiple roles report directly to the CFO. Being able to quickly leverage data-driven insights is especially helpful in this case.

Small businesses

Creating a flat structure with employees wearing multiple hats is essential for small businesses.

Mid-sized businesses

Mid-sized organizations will have finance departments of varying complexity, depending on their size.

Enterprises

Enterprises will have many finance functions with multiple sub-departments. The image below highlights one possible approach to structuring an enterprise-level finance team.

What job positions are in a finance department?

No matter their organizational structure, finance departments have a few common job roles and key responsibilities.

Much like department structures, some of these roles might not be relevant to your organization based on your company's size.

CFO

All finance-related activities fall under the CFO's purview. Their primary task is to provide insight and financial strategy to the CEO.

Modern CFOs are attuned to the potential technology offers for their department and recognize the role their department plays in creating positive customer experiences.

CFOs seek to improve their company's efficiency and use metrics to track their progress. For example, they might look to:

• Improve net margins by 10%
• Reduce cost of capital by 5%
• Increase return on equity (ROE) by 15%
• Reduce processing costs by 5%
• Improve backend integrations

Treasurer

The treasurer focuses on cash management, risk management, and monitoring regulatory changes. Liquidity is one of the treasurer's primary concerns. They enforce policies that ensure the company has access to adequate capital.

In large organizations, treasurers are deeply involved in maintaining banking and investor relationships. Having reliable access to data can simplify their task by offering insight into metrics such as:

• Rate of cost of capital increase/decrease
• Credit rating trend
• Cash application accuracy trend
• Net interest income changes

Controller

The financial controller is responsible for preparing the company's financial statements, general ledger, and payroll. They coordinate yearly closes with internal and external auditors. They also ensure payments from customers and debtors arrive on time.

Folks in this role deal with cash flow on a day-to-day basis and are concerned with metrics such as:

• DSO trends
• Cost of invoice factoring
• Working capital trends
• Credit card acceptance costs
• Bad debt ratios

Managers

Finance managers work within AR and AP. Their key functions involve monitoring account statuses and increasing efficiency.

Some of the metrics AR and AP managers might track are:

• Dispute resolution times
• Percent of early payment discounts captured
• DSO
• Late payment percentages
• Average credit cycle length

Managers usually bear the brunt of manual workflows. Technology like AR and AP automation software can simplify most of their daily tasks, allowing them to focus on value-adding analytics work.

Clerks

Clerks work in AR and AP departments, reporting to managers. Their duties are similar to that of managers, except clerks handle more granular daily processes. Clerks post customer checks, verify and initiate vendor payments, apply cash, and resolve disputes.

Account reconciliations and producing monthly and annual account status reports are a major part of their jobs.

The need for CFO and CIO collaboration

Technology is redefining decision-making processes at the top of organizations. As a reflection of this, modern organizations have brought their CFOs and Chief Information Officers (CIOs) closer than ever before.

Pulse and Versapay surveyed 500 finance and IT leaders in March 2022 to understand the relationship between these two roles at their organizations. 97 percent of respondents agreed that collaboration between the CFO and CIO is critical to helping organizations identify future business needs.

As the mandate for finance teams stretches beyond basic reporting and into more complex forecasting, CFOs can especially benefit from closer collaboration with their CIO.

Completing this kind of strategic analysis requires access to reliable data and time away from the humdrum of day-to-day accounting activities, which is why more CFOs are keen to introduce accounting software into their operations.

Ensuring these software implementation projects move forward successfully requires a level of technical expertise beyond the bounds of a CFO’s typical skillset. For this reason, it’s vital that CFOs engage their CIO as a strategic partner early on in these initiatives.

It’s worth considering how you’ll encourage collaboration between traditional finance roles and IT when determining your finance department structure.

5 best practices for structuring your finance team

Structuring your finance team can be intimidating. Here are five best practices that will help you figure out the optimal structure for your finance function, along with advice for hiring for those roles.

1. Align finance with business strategy

Your finance team needs to be able to consume a lot of financial information and convey its importance to stakeholders. When filling roles, it’s important that you bring in people who will be able to discern the value of data based on the business’ priorities and effectively communicate the story it tells.

For instance, AR aging reports are useful when determining collection efficiency. However, presenting the report as-is to a CEO doesn’t tell them much on the surface. An aging report does not quantify the impact delayed collections have on working capital or the company’s cash position. Your finance team must take that extra step and speak the CEO’s language by translating financial data to business outcomes.

2. Automate intelligently

It’s in any finance team’s best interest to automate as many manual processes as possible. In automating elements of traditionally manual processes like AR, chances are you’ll need to allot fewer employee resources to that function.

By no longer having to spend the majority of their time on tedious and repetitive tasks like mailing invoices or manual cash application, your employees will be freed up to spend time on higher priority work.

Focus on the efficiency gains automation brings, not just the cost savings. You'll deploy your employee resources better and generate greater ROI.

3. Encourage greater collaboration

While automation will ease many of your teams’ pains, it won’t fix the significant issues that arise from the communication gaps between your finance departments and your customers.

Consider the roles in your finance organization that benefit most from close collaboration and how you can place them in your team structure to best enable that collaboration.

Software can also be immensely helpful towards enabling that collaboration. A collaborative AR platform, for instance, can make it easy for your staff to communicate with customers about their billing and payments in one cloud-based system. This provides you with an audit trail of all AR-related communications with customers that your entire team can access.

4. Standardize processes

As your organization grows, replicating earlier successes becomes more challenging. Standardizing processes along with internal and external policies will result in everyone working off the same playbook. Critical tasks such as new employee onboarding and training become simple, reducing downtime.

Consider creating internal wikis and documentation that defines procedures and communication standards. They will help you as you expand your finance department.

5. Hire for the right skills

While you must hire finance professionals with the right credentials, you should also screen them for the needs of your modern business. Familiarity with data, a willingness to accept change, and creativity are extremely important in modern finance functions.

Finance employees don't have to double as IT professionals. They must, however, understand concepts like data integrity and duplicate data issues. Screen your hires for these skills, and you'll build an agile workforce that can solve problems easily.

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To learn how you can adapt to modern business environments by facilitating greater collaboration between the CFO and CIO, read our report here