One result of a global economy is a significant increase in the number of multinational customer relationships. Along with the increasing number of group subsidiaries, a significant increase in the number of cash flows and banking relationships results for large and especially for international companies. Such companies also experience considerable costs for international payments. Efficient management of these cash flows and the related risks is increasingly becoming a decisive competitive advantage. SAP In-House Cash offers companies a solution for cost-efficient processing of internal and external cash flows. At the same time, it reduces the need for external bank accounts and the costs of foreign payments.
Management of cash flows
The in-house cash center is the heart of the solution. It functions as a service department for the financial affairs of the group and serves the group’s subsidiaries as a virtual bank. Like an external bank, the in-house cash center carries one or more current accounts and can do so in various currencies. From the viewpoint of the subsidiaries, the in-house cash center is simply another banking relationship. The accounts of the in-house cash center include accounts for calculating and posting interest and fees, granting account credits, and generating statements for affiliated companies. Terms and conditions can be configured flexibly. The special charm of the application is that these accounts work directly with the cash flows of financial accounting. Each payment automatically updates the daily financial status in SAP Cash and Liquidity Management. This feature gives funds managers a global view of incoming and outgoing payments.
Communications between the in-house cash center and the solutions of the subsidiaries occur over application link enabling (ALE) or remote function calls (RFC); Intermediate documents (IDocs) serve as the transport medium. Payment requests generated by the standard payment programs of the subsidiaries use these connections to arrive automatically at the in-house cash center. The in-house cash center sends to subsidiaries an electronic statement, also sent as an IDoc, which provides information on payments made and incoming payments. The standard account statement program clears open items. The financial accounting department at the central office uses its own payment program to redirect outgoing payments sent by the in-house cash center to its house bank. In the case of incoming payments, financial accounting reads the electronic statements of the house bank and automatically redirects certain payments for the in-house cash center with RFC.
Decision-support for funds management
SAP Cash and Liquidity Management is a central application of financial supply chain management (FSCM). FSCM applications help monitor the effects of strategic planning on cash flow. SAP Cash and Liquidity Management provides decision-making support for funds management. To do so, it must integrate the incoming and outgoing cash flows of other applications; it must also map financial accounting, logistics, and sales.
The daily financial status provides information on the short-term financial situation of bank accounts. The liquidity preview integrates expected incoming and outgoing cash payments from financial accounting, procurement, and sales in a mid- to long-term liquidity trend and liquidity estimate. The daily financial status and the liquidity preview can also integrate with cash flows from the financial deals of SAP Treasury Management. These features allow funds managers to consider financial investments and borrowing costs in their decision making – as soon as these deals are captured in the system.
SAP Cash and Liquidity Management also includes functions for automatic processing of account statements. Account statements from banks can be read and posted directly in the application. If an automatic posting is impossible, such as in the event of a customer’s underpayment, for example, the application offers a follow-up transaction. That transaction leads the user to the problem, such as a list of open items, where it offers a series of posting options, such as the creation of a residual item or partial payment.
Borrowing costs and financial investments
The basic tasks of treasury include borrowing costs, financial investments in money and capital markets, and the closing of hedge deals. Depending upon the organization of the treasury department and the existing treasury guidelines, various considerations can occupy the foreground. The considerations can include an internally oriented service for group subsidiaries or active involvement in financial markets to invest liquid funds, finance planned investments, or hedge against existing risks.
The spectrum of financial instruments that SAP Treasury Management can map depends upon the term and purpose of the hedge and reaches from money and currency deals to securities and loans and, ultimately, to derivative financial instruments. It can map processes from the capture of data in commercial activities to the processing and control of deals and to transferring the data to financial accounting (straight-through processing). SAP Treasury and Risk Management is set up to support a traditional treasury department with a focus on trading and asset management departments. This feature offers the advantage of processing all types of deals – from short-term financing to strategic, long-term investment – on the same platform.
The analytical tools of SAP Treasury and Risk Management support numerous methods and procedures to analyze the risk related to currencies, interest, and securities prices. They also offer a way to determine and monitor the success of activities on financial markets based upon various key performance indicators.
The integration of various SAP applications does more than just simplify work. It also helps to accelerate processes and reduce the number of errors. On one hand, the treasury deals in the SAP application have an immediate effect in cash management, on their further processing, and ultimately on their posting in financial accounting. Payments flow into SAP In-House Cash. On the other hand, the decisions of funds managers based upon the daily financial status or the liquidity preview can be implemented immediately in SAP Treasury and Risk Management.
And the functions of risk management therefore offer more than an isolated view of individual areas or special risks. All the required information, including data on operating cash flows and financial deals, is available in a single, completely integrated solution. To measure the risks of currencies and interest rates, users can calculate the values of the items and determine the effects of future changes in interest or currency rates on the future values. They can then check the options available for hedging.
With SAP FSCM, SAP gives employees in the financial department and management the tools they need to run the company more profitably, create long-term value for investors and stakeholders, and use cross-company financial scenarios in an manner that add value.