Topics: Finance & Accounting Outsourcing, Record-to-report cycle

Critical Steps in Record to Report and Managing Challenges with R2R Services

Posted on December 06, 2023
Written By QX Global Group

Steps in R2R Process & Managing Challenges with Outsourcing

There is little doubt that data empowers businesses in more ways than one. The vast volumes of data companies produce can be harnessed to get insights into different facets of their business. This allows stakeholders to accelerate decision-making and make these decisions confidently, backed by data. When it comes to finance and accounting, the correct data helps business leaders understand market dynamics better, stay on top of the headwinds impacting business growth, leverage tailwinds, mitigate financial risk, enhance forecasting, and do much more to strengthen their strategic position on the market.  

 However, just having data is insufficient to gain the insights your business needs. You can’t just take data and make sense of it. Raw data is not very useful; it must go through a collection and analysis process to deliver value. This is where record-to-report (R2R) comes in to help save the day and why it is a critical part of finance and accounting.   

What is the R2R Process in Finance? 

Record to report or R2R is a mission-critical arm of the finance and accounting management process as it makes data more accessible and ensures that users can leverage this data to present financial information in a way that can be understood easily and which can lead to improved financial decision making that supports various business transformation initiatives that in turn result in business growth. The record-to-report process focuses on delivering strategic financial guidance on your company’s performance that can better inform key business stakeholders, investors, and shareholders about the company’s trajectory.  

The R2R process is essential and needs to be performed well because it is replete with complexities and involves the use of financial data. Every company, including yours, will produce and have access to a wealth of financial data from which you can glean insights. Unfortunately, this data is not available at a single location but is spread across multiple systems, and sometimes, these systems are spread across distributed locations. It, therefore, can be challenging to identify the correct data, track it, and report on it by putting it in easily digestible visual formats. The record-to-report process aims to simplify this process by helping collect, record, analyse, and present the necessary financial data for actionable insights.  

What are the Critical Steps in the R2R Process? 

R2R is not limited to recording and reporting alone but involves a series of steps that form an integral part of R2R services. You might need help with the gamut of actions or a few of them as a company. Let’s take a look at these steps: 

  1. Data Extraction

    This is the first and arguably the most critical step in this process as it involves mining/extracting/removing all necessary data from identified systems; this data can include all transactional data from sources such as purchases, sales, expenses, and more.

  2. Data Collection and Representation

    The next step is recording all extracted data, taking cognisance of the fact that not all data is necessary, therefore zeroing in on the correct data, recording it, and ensuring it is represented in an easy-to-understand manner. R2R experts must ensure data accuracy, consistency, and reliability are not lost throughout this process. Therefore, only the most accurate and reliable data should be recorded.

  3. Closure of the General Ledger

    Following the data extraction and collection phase, the general ledger is locked for a specific duration. This ledger holds pivotal financial data, including revenue, expenses, liabilities, equity, and other information necessary for a business. Subsequently, this data is sent onwards for processing.

  4. Validation of Data

    While you must have laid stress on maintaining the integrity of your data, you must revalidate all the data that needs to be reported to check for errors. If you need to, you can consolidate all your data in one place to get a single unified view of your data.

  5. Data Analysis Reporting

    The last and final step is to analyse all the data within a particular report to get meaningful insights into the various financial metrics of the company and to get more clarity on the business’s performance, financial and otherwise.  

Think of these as the five macro steps that are part and parcel of every R2R process, and you must work with a record-to-report services company that can manage the length and breadth of these steps. More importantly, this service provider should be able to address all the challenges stemming from this process’s complex nature.  

Challenges of R2R 

There are plenty of challenges that an R2R process encounters and that R2R professionals have to navigate. Some of these challenges include: 

  • Maintaining Data Accuracy:
    There needs to be a very high level of accuracy associated with R2R, which essentially means that data entry, reconciliation, and reporting must be free of errors. One of the solutions that can help address this challenge is to bring a degree of automation to R2R, where a repetitive process such as data entry can be automated.  
  • High-Volume Transactions:
    A company generates a considerable amount of financial information courtesy of the number of financial transactions happening all the time. The sheer scale of managing and reconciling such transactions can be overwhelming. Couple this with the timelines associated with financial reporting and the industry standards to be maintained, and you have an extremely challenging scenario to address.
  • Tech Transformation:
    The tech challenge is implementing a tech-led R2R process that can seamlessly fit into the complex R2R framework and simplify this process to improve quality and productivity. This needs specialist expertise and a seamless alignment of tech and accounting knowledge.
  • Regulatory Compliance:
    The continuously evolving nature of financial reporting regulations and associated standards is challenging. R2R professionals must follow the latest updates and quickly adapt their process to the new regulatory requirements.

How Can I Improve My R2R Process? 

Your R2R improvement strategy should be founded on capacity building. Reliance on a lean R2R team can stand you in good stead if you are a small business with limited transaction volumes, but what happens when your company grows quickly? In such cases, you will need to scale your team. Still, a lack of available talent, the cost of hiring qualified professionals, and the various overheads can bog you down. Therefore, the solution to improving the R2R process is to partner with a record to report the R2R services provider who brings specialist expertise to the R2R function. This means you can build an outsourced R2R department quickly and have the flexibility to scale this department when needed. Moreover, you can work with the best talent, leverage the most advanced systems, and benefit from labour and cost arbitrage. It’s a win-win scenario for building an efficient and cost-effective R2R process.  

How do You Measure Outsourcing Performance? 

When you decide to outsource your R2R function to an R2R service provider, you must identify your needs and goals and make them a part of the performance metrics that will help evaluate the performance of the R2R outsourcing provider. The key here is to zero in on your tangible expectations, make them a part of your SLAs, and ensure benchmark performance with these SLAs. Look out for any deviances and flag them to set course action immediately.  

The key here is to work with a record-to-report R2R services provider like QX, which has a demonstrable history of successfully working on the R2R needs of cross-spectrum organisations across the UK. Our R2R experts know their way around all the regulations governing R2R and financial reporting and can bring sustainable efficiencies to your company’s R2R process.  

Contact QX to know more about how we can fine-tune your R2R process and make it more efficient.

Originally published Dec 06, 2023 06:12:27, updated Apr 16 2024

Topics: Finance & Accounting Outsourcing, Record-to-report cycle

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