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The COVID-19 pandemic has changed the way the world does business. While almost every business function was impacted, the effects of which might last forever, the finance function has probably seen the most resounding changes. Even those businesses that ran completely offline today either have their accounting or tax compliance digitised or have begun to accept digital payments. But this was just the beginning.
So, here are seven trends to watch out for in 2022 that will shape the future of finance.
A term that has become popular in recent years, regtech, is technology to manage regulatory processes better. The main processes include regulatory monitoring, compliance, and reporting. Based on automation and driven by cutting-edge technology, regtech tools reduce a company’s compliance risks by identifying potential threats to financial security and minimising the risks involved.
Some of the areas regtech are applied to are banking supervision, management information tools, health check tools, and real-time tax compliance monitoring. With the demands for compliance only increasing, regtech will shape the financial landscape with advanced digital solutions.
Micro, Small and Medium Enterprises (MSMEs) are often faced with cash crunches. Being unable to take on traditional forms of credit from banks and financial institutions due to credit rating, interest costs, or collateral issues, digital supply chain financing has begun to take off.
Here, Fintech companies offer options like invoice discounting, amongst others, that give MSMEs an infusion of cash to accelerate their payments and take on new projects. Typically, there are no collaterals to be given here. The enterprise receives credit just by presenting the invoice. Tech-based solutions have made supply chain financing faster and more efficient while allowing businesses to introduce liquidity in their supply chain without incurring additional costs.
In India, the government is moving at break-neck speed in its quest to digitise the supply chain to curtail tax evasion. The government is now monitoring transactions in real-time by using artificial intelligence to detect fraud, introducing e-invoicing and e-way bills, direct and indirect tax linking, etc. They have also merged the supply chain with tax compliance to eliminate all loopholes.
With the government’s no-nonsense approach to compliances, businesses across the country have already begun automating their compliances. Everything from return filing to reconciliations to vendor communication to even payments and obtaining credit is now carried out with the click of a button. Compliance is now simpler, faster, and transparent by leveraging automation and artificial intelligence. The elimination of manual intervention leads to the elimination of errors. Automation and the use of AI in tax compliance is a rising trend in 2022.
Every business leader requires real-time visibility of business insights and financial information at their fingertips. Gone are the days of post-mortem data checks and reconciliations or month-end reporting. Financial information is no longer just to assist the finance function, but it now helps provide the insights required for overall organisational strategy.
Data analytics help monitor performance, understand key business trends, identify profitability and cost control areas, mitigate decision-making risks, etc. Most importantly, today’s business leaders want discrepancies flagged in real-time. With the current digital tools available, real-time data analytics are not a far-fetched dream but a necessity that every business should incorporate.
In India especially, the dependency on vendors for an enterprise’s financial compliance is unprecedented. Under direct tax laws, a vendor’s compliance should be assessed to ensure the correct deduction of TDS amounts. And under indirect tax laws, a vendor’s compliance should be checked for accurate claims of an input tax credit.
Modern, smart businesses have already begun looking at automating their vendor management processes right from the vendor onboarding stage to minimise compliance risks. This step helps businesses only deal with compliant vendors. Further, businesses are also automating vendor communication and vendor payments. Automating processes that were traditionally carried out manually frees up resources and increases overall compliance in the tax ecosystem.
Businesses have already started consolidating their entire finance function on a single platform. Previously, it was quite common to use different software for various finance functions such as invoicing, GST filings, TDS returns, e-way bills, etc. Further, businesses relied on consulting firms for financial data insights and managerial decision-making assistance. Every function or process was disconnected, and there was no option to view all financial and tax data in one place.
Now, businesses are moving to obtain a single source of truth regarding their financial data. Business leaders can now view data related to all branches in one place, such as invoicing, direct and indirect tax compliance, and other government-mandated compliances such as e-way bills, e-invoicing, etc. A single platform provides the requisite data for other stakeholders, i.e. vendors, distributors, internal teams, third-party auditors, etc., with the right access controls for everyone.
Every organisation is looking to reduce their environmental impact while doing business, whether government-mandated or not. Businesses that haven’t started doing so should look to make it their new year business resolution. Sustainable operations could mean different things for different sectors. However, it is about automating every process that can be automated when it comes to financing.
The wastage on print and postage can both be easily avoided in this digital era. Most business compliances have already been automated, such as registrations, return-filings, and refund procedures. Now, it is about automating reconciliations, communications, payments, credit, etc., which will set the path for overall digital transformation. Small businesses should look to take their accounting digital as a first step if they haven’t already. The best part about sustainable operations is that it also helps future-proof a business. If the pandemic hasn’t been an eye-opener to the need for digital transformation, then nothing will ever be.