By Archit Gupta, Founder and CEO, Clear
Compliance technology is the need of the hour. It helps enterprises tackle compliance challenges, effectively meet deadlines, and stay up-to-date with new and evolving laws and regulations. Previously, compliance technology comprised disconnected digital tools and processes that helped enterprises solve individual challenges. However, now, it has grown exponentially and is helping organisations digitally transform by putting critical processes in auto-pilot mode.
In this article, we break down what compliance technology is and analyse the growing need for real-time compliance in Indian enterprises.
What is compliance technology?
Compliance technology refers to innovative solutions for organisations to automate and streamline their operations, enhance regulatory compliance, and reduce risks. Modern-day compliance solutions also help businesses increase their tax savings and improve profitability.
Further, they increase the efficacy of certain key compliance processes by-
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Ensuring data is in the required format for regulatory compliance or can be put into the required format with a click of a button
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Automating workflows from data import to return filing, ensuring greater speed and accuracy
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Providing options for data storage, management and retrieval at scale and permitting bulk actions on data
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Synchronising upstream and downstream processes to ensure seamless data flow across the finance ecosystem
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Providing finance leaders with vital financial information, analytics and insights at their fingertips through a single source of truth
Risks involved with manual or semi-automated compliance processes
Until a few years ago, most Indian businesses followed conventional accounting and compliance practices across data reporting, tax return filing, reconciliations, and others. Even input tax credit claims, receivables/payables, inventory and vendor management has been manual or semi-automated with tools such as Excel being used. This has greatly heightened risks in regulatory compliance.
For one, the regulator has digitalised the tax administration process. This means that they can detect non-compliance and fraud much faster. Even minor anomalies in tax returns filed result in enterprises receiving demand notices and being at risk of penalties. However, semi-automated processes make it almost impossible to detect inconsistencies and risks in real time. In fact, in the past, enterprises were alerted of errors in their tax returns only once a demand notice for interest or penalties was sent to them. However, by using compliance solutions today, enterprises can assess threats in real time, and analyse, act, or shut down such threats before they materialise into non-compliance or financial losses.
The second risk in using manual or semi-automated processes is the lack of holistic visibility across the finance ecosystem. Finance data tends to be stored and managed in silos. For example, tax teams do not get access to accounts payables data. Hence, if vendors default in tax filings, there is no automated collaboration between teams to withhold vendor payments until they comply. There are multiple such situations across processes, such as vendor onboarding, compliance status validation, invoice management, accounts payables, etc. There is no single source of truth where finance leaders can get access to data on-demand with a click of a button.
The third major risk lies in cash flow leakages and the impact on profitability. The constantly evolving tax laws and increased need for real-time data reconciliations and vendor communication make 100% accuracy in compliance almost impossible to achieve through manual or semi-automated processes. These gaps in data matching could result in huge input tax credit (ITC) losses and higher GST cash payouts, thereby impacting working capital and liquidity.
Hence, while individual datasets and each process may be digitised to an extent in an enterprise today, they are not all digitally connected, thereby limiting growth and collaboration and heightening financial risks.
Need to adopt real-time compliance technology
Compliance technology has come a long way and extends far beyond just digitising processes such as tax return filing and data reconciliations. Modern-day compliance technology helps manipulate and process data at scale while keeping data secure at all times. Further, they digitally transform processes and streamline workflows across the entire ecosystem.
Some of the technologies in present-day compliance solutions are Artificial Intelligence (AI) and machine learning. While the primary objective of AI in compliance solutions is to automate workflows, machine learning helps monitor processes, resolve issues and identify risks based on past problems and threats.
AI-based tools are also used in data matching and can be customised by users to suit their business requirements and improve the percentage of data matches. These solutions help minimise losses from unclaimed input tax credit and by way of interest/penalties from data mismatches. By eliminating manual processes along the way, your enterprise saves time and manpower, and you can be assured that without human intervention, your data is always 100% accurate.
Further, there are new compliances introduced every year, such as e-invoices, e-way bills, new TDS provisions, etc. SaaS solutions offer integrated compliance solutions where data flows across various compliance processes with a single point of input. Compliance technology also comprises tools such as CFO dashboards that provide vital financial data, analytics and insights to finance leaders at their fingertips and help them know how much money they are leaving on the table at any given point in time.
