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Cash Management

Optimize Global Cash Management and Visibility with Your Existing ERP

by Steve Scala

Cash Is King – But Managing It Is Getting More Complex

We have all heard the expression that “Cash is King”, but the implications differ depending on the size and maturity of the organization. High growth organizations can be profitable and still run themselves into bankruptcy because the ill-timing of cash flow can create a crisis. For larger enterprises with significant cash reserves, efficient cash management creates an operating and investment opportunity which translates directly to shareholder value.

As corporations enter global markets the complexity of managing cash increases, as different sovereignties are governed by their distinct banking regulations, requiring organizations to maintain multiple banking relationships. Having cash in multiple bank accounts makes it more difficult to centralize visibility and forecast cash flow. Many organizations rely on their ERP system for such activity but getting information into the ERP can often be manual and error prone since financial administrative staff is often tasked with logging onto bank portals only to re-enter the information into the ERP system.

How to Improve Cash Flow without Major Technology Investments

I often come across organizations that have invested in B2B/EDI integration to optimize procurement and/or to satisfy customer compliance programs. Yet this same infrastructure is not being leveraged to further optimize cash flow. A typical B2B/EDI integration project provisions the infrastructure needed to handle business transactions from a client or a supplier to the company’s ERP system. As a result, this infrastructure is often capable of supporting additional initiatives that directly focus on cash flow. Examples include:

Collecting Receivables

It is not uncommon for organizations who’ve implemented EDI to see an automated business process digitize an inbound purchase order, order confirmation, order change and outbound shipping process only to leave absent the invoice and payment. The invoice and payment are critical to managing cash, yet in the above process the invoice and payment are processed via fax, email or postal service which delays the process of collecting cash.

Organizations seeking to optimize cash flow digitize the transmission of invoices directly to a customer’s ERP system to accelerate payment reconciliation and cash collection.

Therefore, the Finance department should own, champion and facilitate the dialogue with customers about closing out the order to cash cycle by adding two additional automated steps to the existing business process.  Often, the exact same infrastructure can be used to add these two additional business transactions. it is not uncommon for 80% of an organization’s revenue to come from the top 20% of customers. Automating this process with just a subset of the customer base can have a huge impact.

Improving Cash Visibility

For organization’s with an international presence, cash receipts, payments and idle cash are now recorded in the foreign country bank account.  Transferring this information from the foreign bank to the company’s ERP is often conducted manually, which increases labor costs and the likelihood for data entry errors. Visibility into Idle cash is critical when managing the movement of cash from one country to another. Having such visibility enables organizations to grow and self-fund investments without the need for expensive bank loans.

Leverage Existing B2B Integration Infrastructure

While data integrity may be greater for bank transaction, modern B2B integration infrastructures can readily accommodate the secure transport of banking data.

Finance must maintain, champion and facilitate the dialogue with regional banks about getting data layouts for receipts, disbursements and cash balances. It is not uncommon for the bank to support a variety of EDI, XML or proprietary data formats. Automating the electronic receipt of this information once a day, will facilitate fast and efficient integration and optimize cash management via the company’s ERP.

Optimize Cash Payment Timing while Reducing Fraud

According to a leading US bank, the majority of business to business payment activity is still conducted via paper checks and checks are still the most susceptible to fraud, according to a survey conducted by The Association of Financial Professionals.

According to an estimate by Bank of America, an organization incurs a cost of $4-$20 per business check written, based on the price of the check and shipping, time employees spend to write the check, mailing, collecting and reconciliation of the check.

As a result, organizations seeking to optimize cash flow have moved to electronic payments. Issuing a payment instruction via a bank portal is safe, easy and efficient when there are just a few transactions.  When transaction volumes increase and transaction timing becomes more critical, automating such payment instruction directly from the ERP becomes more critical.

Controlling the actual timing of disbursements is a key component of cash management and the digitization and automation of a payment provides this certainty and control, thereby allowing treasury departments to maximize the retention of cash.

In an automated e-payment model, carbon copy methodologies allow payment information to be sent to a bank for the actual movement of the cash, and to the payment recipient for advanced visibility and reconciliation purposes (to close out the order-to-cash cycle and to resolve any dispute between the invoice and paid amounts). It is also common to receive an electronic acknowledgement response back (confirming receipt) from the bank relative to each transaction.

Implementing a Global Corporate-to-Bank Integration Program

Implementing a global corporate to bank integration program to satisfy the aforementioned requirements can be daunting if your IT is small, your B2B integration platform is immature, your staff is unable to work with geographically remote banks during their normal work schedules, or your staff does not have the language skills to read an implementation guide in a foreign language.

DiCentral operates a cloud B2B integration platform supported by geographically dispersed teams that have expertise in the enablement and execution of e-payments, reconciliation and e-invoicing with regional banks around the globe. Register for the webinar below to uncover how to optimize global cash management and visibility with your existing ERP.

Webinar - An Introduction to Multi-bank Connectivity
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