AI, Real-Time Reporting and Predictive Modelling
Imagine if bank reconciliations happened without you lifting a finger. Charity finance management software automatically populated your budget every month and predicted your financial future. Monthly reporting wouldn’t exist. Instead, you could monitor your finances in real-time, with fully integrated dashboards available anywhere on any device. Predictive modelling means monthly management accounts are a thing of the past. It’s not science fiction. It’s the future of charity finance.
Finance teams have suffered in charities for many years. Limited resources, excessive reporting requirements and multiple funding pots have plagued UK charity finance managers for decades. Throw in significant year-on-year budget cuts, an increased demand to do more with less and a global pandemic, and you have a perfect storm.
However, help is at hand. Artificial intelligence, machine learning and robust predictive modelling are changing the game for how charities will use their finance teams going forward. In this article, we take a look at why these technologies will shape the future of non-profit finance and consider how they can work for UK charities.
The present: why do we need to change?
OK, so first, let’s take a second to appreciate where we are now. Charity finance teams up and down the UK still spend hours every month on account reconciliation. Budget spreadsheets are updated by hand, and finance teams spend weeks every month playing catch up on reporting.
Thank you Charity Commission, but spending days completing your reporting requirements really helps us deliver against our mission. Oh, and managing all those restricted pots of money? I love trying to work out who can pay what bill with what funding at any time. And our Gift Aid claims? Administering Gift Aid is such a strategic use of our time…
Simply put, most UK charities are still running their finances on spreadsheets, operating in admin (not strategic) mode, and looking at historical financial information way too late.
Add to that the financial instability and rising costs facing most charities since the pandemic and cost-of-living crisis began and you realise that keeping a keen eye on the rear-view mirror with monthly management accounts isn’t enough.
Charities need smarter tools and real-time financial intelligence to navigate an uncertain financial future. Fortunately, emerging technologies are providing solutions.
AI-powered reconciliation
Bank reconciliations are the bane of every charity finance team’s existence. Why do we love spending hours every month matching bank transactions to petty cash expenses, Direct Debit payments, salaries paid in expenses, etc.? Fun times. At BeonReality, we hear this pain firsthand from charities large and small.
But never fear, artificial intelligence is coming to save you.
AI-powered bank reconciliation software uses machine learning to automatically match transactions between your bank accounts and spending systems. Over time, the more it processes your transactions, the smarter it becomes at automatic reconciliation. It can spot anomalies, highlight exceptions that need investigating and even help predict fraudulent transactions.
And it’s not just bank transactions. Advanced AI reconciliation can automatically match Gift Aid declarations to donations, simplifying Gift Aid claims. It can account for multiple restricted pots of money, ensuring transactions are always automatically allocated to the correct account. AI can also integrate with payment platforms, automatically logging any donation or payment made directly through your fundraising accounts.
The time saved by implementing AI reconciliation will free up hours of admin time every month. More importantly, it will free up finance teams to focus on strategic, valuable tasks that actually support their charity’s mission.
Real-time reporting dashboards
Trustees used to quarter-review old financials. Finance teams run on a monthly cycle, producing management accounts weeks after the month ends. Year-end involves (even more) headaches spending weeks compiling annual accounts.
But technology doesn’t have to work this way. With today’s cloud computing and real-time reporting, connected dashboards can give anyone in your charity access to live financial data 24/7.
Finance systems connected to your charity CRM and other working systems can update financial figures in real-time. Senior leaders can have instant access to income, expenditure, cash position, restricted funds, reserves, you name it.
What does this mean for charity managers? Real-time data dashboards give charities flexibility and agility that monthly accounts cannot. Take a fundraising campaign as an example. Instead of waiting until the end of the month to assess campaign performance, your team can analyse real-time income and adjust tactics accordingly.
Imagine seeing one of your biggest ever donors donate through your fundraising site. With real-time reporting, you’ll know instantly and can adapt your planning to accommodate this windfall. Real-time fundraising insights also allow you to pivot if certain appeals aren’t performing as well as expected.
Trustees and governors can also benefit from real-time reporting. Instead of waiting until the next board meeting to see financial results, trustees can access live data wherever they are. When they attend the next board meeting, trustees will arrive informed and ready to focus on strategy, rather than reviewing old reports.
Real-time reporting is also perfect for charities with complex fund accounting. Being able to monitor restricted/unrestricted balances at a glance helps trustees ensure your charity is spending in line with donor intent. Tracking your reserves policy live helps trustees ensure your charity is meeting its legal obligations.
Charity Financial Intelligence: Artificial Intelligence Applications in the Third Sector
Artificial intelligence (AI) applications can transform financial management in UK charities. Automated insights from financial data can reduce time spent on management information and bookkeeping whilst increasing confidence in decision-making. Predictive analytics can improve fundraising strategy, income forecasts, and cash flow management. Compliance tasks can be automated to free finance staff from routine work. Generative AI tools are already assisting with writing board papers, drafting trustee meeting agendas, and processing ad hoc information requests.
Here we’ll explore how AI can assist with some common finance challenges in the third sector. We’ll outline the opportunities and consider practical steps to overcome implementation barriers.
AI Insights for Charities: Turning Data into Intelligence
Charities struggle to turn data into insight. They collect large volumes of financial data each year but often don’t have the time or resources to extract meaningful intelligence from it. Natural language processing and machine learning tools can automate this process.
Finance tools with AI capabilities can produce natural language reports that explain a charity’s financial performance. They can highlight key variances and trends, without users having to interpret spreadsheets or run queries. Machine learning models can automatically identify anomalies for further investigation. These could include unexpected transactions, sharp increases in costs, unusual booking patterns or worrying trends developing over time.
AI tools can go beyond highlighting financial information contained within a charity’s own accounting systems. For example, tools can automatically benchmark performance against comparator organisations or sector averages. UK charities could compare costs as a percentage of income to Charity Commission data or sector surveys, benchmarker their reserves against the top quartile for charities of a similar size, or analyse income streams compared to total income against sector norms. Trustees and senior managers gain assurance that their organisation’s financial position is healthy.
When financial systems integrate with non profit CRM solutions, additional insights can be drawn from combining donor data with finance records. AI can spot trends in supporter behaviour and forecast lifetime giving value to predict which donors to focus on. AI algorithms can segment supporters based on their income potential and engagement scores to target fundraising efforts appropriately.
Fundraising Forecasting: Smarter Income Predictions
Volatility is the enemy of effective financial management in UK charities. Income can fluctuate wildly from month to month and year to year. Income planning is often little more than informed guesswork. Charities struggle to make accurate income forecasts, yet their entire budget depends on income predictions.
Charities need better tools to forecast fundraising income. Predictive analytics can analyse historical donation data to identify likely renewal donors, incremental donors (who will give more) and lapse donors (who will stop giving). Algorithms can analyse performance of different fundraising channels (DM, email, legacy programmes) to estimate future income at different levels of investment. Predictive models could assess the impact of macro-economic factors (employment rates, inflation, stock market movements) or external events (media coverage, social sentiment) on fundraising performance.
Predictive analytics can assist charities with legacy income forecasting too. Legacies are typically the least predictable source of income for charities, yet form a critical part of most income budgets. AI models can analyse demographics, patterns of pledge making, and legacy notification rates to provide better legacy income forecasts than currently possible.
Scenario planning and budgeting would be transformed if charities had reliable forecasts on which to base predictions. Rather than inserting guesses into spreadsheets, fundraisers and finance teams would be equipped with fact-based predictions. Charities would be able to model different income scenarios (best case, worst case, most likely) with probabilities attached to each scenario. Programmes and investments could be planned with greater confidence around fundraising campaigns or appeals likely to deliver additional income.
Cashflow Forecasting: AI Applications for Smarter Liquidity Management
Cashflow is another aspect of financial management that could benefit from the application of AI. Irregular income combined with restricted funding means cashflow is rarely smooth for charities. Banks accounts may go into credit due to timing differences whilst programmes are starved of cash. UK charities that are technically solvent can still experience cash shortages that threaten their long-term survival.
Predictive cash flow forecasting tools could assist charities with their liquidity management. Systems could analyse past patterns of income and expenditure to predict likely cash positions days, weeks or months into the future. They could provide early warning of shortfalls, allowing charities to arrange bridging loans or reschedule payments. Finance managers could model different scenarios (pushed forward grant payments, delivering programmes faster, investing more in fundraising) and understand the cash flow impact of different decisions.
Charities that operate multiple ring-fenced funds or projects would particularly benefit from automated cashflow forecasting tools. Software could track cashflows separately for different grants or projects whilst providing an overall view of unrestricted cash across the organisation.
When integrated with bank accounts, some tools offer to move money between accounts to optimise interest, maintain minimum balances and build reserves. Charities with credit facilities or investment portfolios could be advised on best times to draw down credit or sell investments based on predicted cash positions.
Compliance Automation: Charity AI Applications for Regulatory Efficiency
UK charities are burdened with regulation and administrative tasks. Annual returns to the Charity Commission, SORP accounts, Gift Aid claims to HMRC, pension auto enrolment returns, Making Tax Digital – there are numerous processes that sap finance teams’ time and resources. Smaller charities often find compliance takes far longer than it should due to lack of capacity within finance teams.
Some elements of compliance could be automated with AI applications. AI enabled accounting systems can produce Charity Commission returns automatically by mapping financial information to the Commission’s required format. Systems can track performance against public benefit outcomes, and report trustee and governance data to the Commission as requested.
Gift Aid donations provide a particular opportunity for AI applications to deliver efficiency gains. Automated systems can ensure an adequate audit trail is kept, declarations are valid when claimed, and claims are produced in the format required by HMRC. Systems could also check claims for common errors before submission, reducing enquiries from HMRC.
Charities above the audit threshold could benefit from automation to provide the evidence and controls required by auditors. Transaction trails, approval processes, segregation of duties, and supporting documentation could be recorded systematically to make audits quicker and cheaper.
Could AI even read regulatory updates to provide guidance on actions charities must take? Tools may soon be able to interpret changes to accounting standards or Charity Commission guidance, spotting implications for individual charities.
Towards Implementation: Key Challenges for Charity AI Applications
Promising as these applications are, there are practical challenges for implementation in UK charities. Although funding costs are falling, buying and implementing new technology will remain difficult for many.
Smaller charities are most at risk of being left behind. Buying technology is only the first challenge; implementation and maintenance pose problems too. Many charity finance teams don’t have the technical knowledge required to implement and manage modern software systems. Financial leaders must be realistic about their current capabilities when planning AI projects.
Data quality is also important. AI applications are only effective if they have data to learn from. Many charities have incomplete donation histories, poor transaction coding, or generally poor data hygiene. Housekeeping may be required before charities can fully benefit from AI applications.
Resistance to change is another factor. Some finance professionals may be sceptical of changes to established ways of working. Trustees may be wary of relying on automated tools. Change management will be key if charities are to realise the full benefits of AI.
Technical integration will be necessary for real-time reporting and predictive analytics to work effectively. Charities use multiple systems – accounting software, fundraising databases, grant management systems, HR software – that need to ‘talk’ to each other in order to join data for analytics and reporting. Integration is a challenge for many charities at present.
UK charity finance must adapt to automation, digitisation, integration and prediction if they hope to capitalise on technology-led innovation. But that doesn’t mean automation is taking over; far from it.
The Future of Charity Finance: Human + Machine
Of all the hype around financial technology, it’s important not to lose sight of the fact that technology should be empowering people, not replacing them. Yes, technology can automate certain processes; yes AI can learn to spot patterns and make predictions based on them. But technology cannot add context, cannot appreciate subtlety, and cannot apply ethical judgments the way that humans can.
The future of charity finance won’t look like a room full of robots brewing coffee for an absent workforce, but rather one where those robots give finance professionals more time to concentrate on analysis, strategy, and relationship management by taking over from them where humans are less efficient.
The most successful finance teams will be those who combine the power of technology with human experience and expertise, deploying the former to support the latter wherever possible.
Humans still having to learn new skills to keep up though; data literacy, systems-thinking, strategy and business analysis will become key parts of the finance professional toolkit alongside existing skills in accounting, compliance, and financial controls. Technology is enabling finance professionals to evolve from simply bookkeepers and reporters into strategic advisors and key business partners. But that evolution won’t happen without investment in those people.
Put simply: technology is a tool, not a replacement for skilled finance professionals.
Actionable Advice: Doing Technology Well
There’s no shortage of advice on how charity managers and senior leaders can navigate the future of finance technology. With so many blogs, articles, podcasts, and videos all saying more or less the same thing, here’s what every charity manager should remember about doing technology well:
Ask why. Start with problems you’re trying to solve, not solutions you want to buy. Is reconciliation eating up too much of your team’s time? Do you lack visibility over your cashflow? Are you consistently wrong-footed by unexpected income? These are all problems technology can solve, but not if you buy a shiny new tool without thinking about how it’ll actually help.
Don’t do everything at once. You’re not pushed a big red button to make all of your finance technology happen at once. Instead, look for opportunities to automate and streamline piece by piece. Work out how you want your finance function to operate, and then automate the things that are easiest to start with. Got lots of manual bank entries? Robotic process automation may be your starting point. Do you spend too much time compiling ad-hoc reports? Look at dashboarding and automated reporting. Learn as you go, and scale slowly.
Connect your systems. Unless your tech stack is integrated, your team will spend all of their time moving data from one system to another. Ensure that the tools you use can talk to each other, or you’ll end up worse off than when you started. Ditto with data quality; your systems might talk to each other, but if the data they’re using is poor it won’t matter.
Invest in training. New technology is useless if your people don’t know how to use it. Train your team, support their professional development, and think carefully about how you handle the people-side of change management.
Tell your trustees. Don’t leave your trustees wondering what’s happening. Ensure that you (and your tech vendors) explain how new technology works to your trustees, manage their expectations of what it can (and can’t) do, and ensure you have their support when it comes to making the investments required.
Learn from others. Speak to other charities who’ve implemented the technology you’re planning to. There will be lessons that they can share with you that you don’t want to learn the hard way. Your sector network, professional body, and tech vendors can all help you to connect with peers who can offer their experience and advice.
Technology doesn’t equal “business”. Out-of-the-box business software like Excel, Access, QuickBooks, and Sage might be cheaper than purpose-built charity finance software, but they’re unlikely to serve your needs. Accountant-created finance systems are rarely charity-friendly, and may struggle with fund accounting, Gift Aid, charitable trading, and Charity Commission reporting. Don’t accept sub-optimal technology because it’s cheap; businesses have different motivations to charities.
Be sceptical. Nobody’s perfect, and that includes your technology vendors. If something sounds too good to be true, it probably is. Whenever you procure new technology, know your requirements, question vendors who claim to be able to exceed them, and don’t accept suppliers who won’t show you proof of previous success.
Technology Will Enable Better Mission Delivery
Like it or not, the future is coming. UK charity finance teams ignoring technology advancements do so at their peril. Those who embrace it and use it to their advantage will find themselves far better equipped to succeed.
But the purpose of charity finance is not (and never will be) the technology it uses. Building a robust, transparent, and efficient finance function should always be about enabling better mission delivery.
Charities that focus on technology as a tool to support their mission, rather than an ambitious shiny new project, will be the ones who succeed.
