By Sid Saxena, Founder and CEO of Docyt. 

Global banking processes and lending are undergoing a dramatic transformation that’s occurring at an unprecedented pace. This is all thanks to the global pandemic, which highlighted inefficiencies that only the most financially stable companies had the time and operations in place to solve. The rest – mostly small businesses – were left in the dust, with many closing their doors for good. With the inability to operate in physical spaces, huge reliance was placed upon businesses’ digital and automated resources to shoulder the burden. As a result, businesses and banks all over the globe came to the realization that digitizing many workflows was not only easier and faster, but much more cost efficient. 

Take, for example, the lending process, which has long been inefficient and largely based on inaccurately-kept data. The nail-biting small business owner must endure a torturous application process, while the lender considering the application pours over mounds of disorganized statements. Both parties succeed when the loan is approved. The banker makes money from the loan, while the small business owner is able to grow her business with newly-infused capital. It’s a win-win. However, many loans are not approved due to poor bookkeeping practices and inaccuracies.

Existing standardized loan requirements disqualify many small businesses from loan approval

Disorganization and a lack of digitization is at the heart of why bankers and lending institutions cannot approve more business loans in a more timely fashion. Banks have long maintained very standardized processes with regard to approving business loans. In order to determine whether a business has sufficient liquidity and financial health to repay a loan, they may ask for statements, tax returns and more from years prior. On the flip side, most small businesses are run with little manpower and a focus on the client, which leaves the bookkeeping for last. This prioritization results in poor bookkeeping practices, accounting inaccuracies, and unpreparedness that can cost small businesses dearly in times of financial need. As we saw during the beginning of the pandemic, many small businesses were unable to get their books in order to even apply for government grants or PPP loans, which left them with nothing to do but shutter their doors.  

The lending institutions themselves generally analyze application data through crude and inefficient internal tools and expensive data analysts who must review the information in order to approve the application. Manual processes like these, coupled with the disorganization of many applications, results in a ‘greatest storm’ of sorts that decreases an applicant’s chances of being approved for a loan. Every application is held up against standard approval metrics and given a liquidity score, often based on inaccurate data.  

The future of global banking and business has arrived in the form of a digital back office

A solution to these banking issues lies in automated accounting and back office technologies. These AI-driven solutions are democratic in nature; they’re designed for all businesses, large and small. Once adopted, automated accounting solutions eradicate manual workflows, such as data entry, vendor payment, and bank reconciliation. Many boast real-time reporting functionalities, which allow business owners to see their business’s most accurate and up to date financial picture. 

How do they do this? A business’s bank and credit card accounts are digitally linked to the intelligent software, which continuously pulls in transactions, such as revenue and expenses. This information is automatically categorized into various chart of accounts and reconciled. Real-time reports can be generated in an instant. This takes the manual labor and inaccuracy out of processes, such as loan applications, annual reports, and tax filing. In the case of the loan application, with an automated back office in place, the applicant can pull together the necessary reporting within the software and send it directly to the bank with the click of a mouse. The lender can, in turn, quickly view the requested reports, identify the financial health of the business, and reduce the risk profile of their customer base. This takes the painful work of gathering years’ worth of documents, scanning them, and waiting for a banking analyst to review them. Businesses can grow faster, and banking institutions can lend faster. Both entities now have the ability to generate increased revenue in less time.   

Why early adoption of a digital back office equals faster growth

The early adopters of accounting automation technologies tend to be companies that operate at scale. As any business owner knows, payroll and supplies are the biggest expenditure a company can face. In the wake of the pandemic, recent labor shortages, and an inflationary environment, larger companies have had the opportunity to take pause and identify how they could turn the negative into a positive by transitioning to a digital back office. They knew they couldn’t throw more people at the problem to solve it. Something had to change. Despite the fact that many of these larger companies had a decade’s worth of data locked into archaic and costly ERP systems, they had the operations in place and enough capital to transition into digital back offices.   

The result? These companies are scaling at a much faster pace. With the adoption of automated accounting technologies and a digital back office, business owners can see their full financial picture at any time. This allows them to make faster business decisions in real-time, versus waiting for the monthly financials to be released. They can drill down into performance across entities, identify the right time to expand their portfolio, and empower general managers with the information needed to improve their department’s performance. 

How late adopters can transition into a digital back office

It’s no surprise that business owners may be hesitant to adopt a digital back office. Larger companies have a history of investing greatly in data storage and infrastructure. Some depend on labyrinthine-like cloud-based services that house decades of client data. Upending these processes to become more agile may seem like a big lift. Additionally, the task of training workers in new practices, even those that will streamline and protect company data, may appear insurmountable. However, through regular communication and workforce training, any company can transition to a digital back office. What most company leaders don’t realize is that automated accounting software can easily sit on top of existing cloud-based servers, extending the life of them without disruption. 

Late adopters of automated accounting technologies can still benefit and transition to a digital back office. Once these smart technologies are set up correctly, business leaders will only wish they’d taken action sooner. All company data remains intact, secure, and accessible in real-time. Manual systems are automated and company leaders are freed up to focus on growth. Business decisions are made faster, and companies can see real-time data that makes them nimble and efficient. Given the current pace with which industries are growing and adopting smart technologies, a digital back office will soon be a necessity.