Centralised cash management – not just for the multinationals

Centralising cash management yields a number of benefits to corporates. Today’s flexible, cost-effective treasury and finance technology means that these benefits are no longer the exclusive preserve of global multinationals.

Technology solutions may now be configured to reflect corporate organisation and financial management policy, so that the full spectrum of a corporate’s specific centralisation demands can be properly accommodated. This means that decentralised operations can take advantage of many of the facilities of centralised cash management, without compromising control and confidentiality requirements.

The relevant business areas are payments management, cash positioning and cash forecasting, which benefit in different ways from the standardisation, control, process optimisation and transparency achieved through centralisation.

Technology as the enabler

Technology is the cornerstone of achieving effective centralised cash management, providing the central database, processing and reporting functionality, connectivity, communications and control functions for the organisation. This includes working efficiently with banks and enterprise resource planners (ERPs) and internally, to ensure that the operation is up to date, accurate and secure. The flexibility of the technology allows a wide range of business objectives to be achieved, in many different types of corporate.

Process optimisation

Technology provides the means to define, configure and operate standardised processes right across the organisation, readily enabling the achievement of best practice operations in critical financial functions. The key benefits include:

Running paperless processes. The immediate value is the elimination of error prone, labour-intensive manual processes; significantly enhancing the efficiency, accuracy and audit quality of the finance operation. A key streamlining advance relates to the management of payment authorisations, which are cumbersome and prone to delay when performed manually. A paperless electronic solution manages the complexities of verifying authorisation data, ensuring that specific operations such as payment release are rigorously subjected to the authorisation steps required by policy. Each individual in the process is properly validated and all details of the validation are captured for audit and reporting purposes.
System integration. A fully integrated solution effectively manages the information flows to and from banks, ERPs and the cash management system; for both payments and the bank balance reporting required for cash positioning and forecasting. Robust integration results in a high level of security and dependability for finance operations, so that deadlines are consistently met, with reduced operational and financial risk.
A centralised cash management solution is underpinned by a central database and system, which updates and responds in real time; providing high-quality operational results. Centralisation provides a solution for the consolidation complexities, which are involved in diverse areas such as cash position construction and cash forecasting. Reporting – and hence decision taking – are accordingly based on current, reliable information. Users can concentrate on their treasury and finance roles, not on struggling with inefficient, fragmented old technology.

Payments management

A centralised payments solution offers all users a standardised platform for management of this most sensitive area of finance operations. The powerful payments factory benefit is today in the budget range for corporates of many sizes, beyond the traditional base of multinational corporations (MNCs). Its strengths include the operation of cross-functional, cross-departmental solutions, with the central system taking care of the complexities of different currencies, formats, communications protocols, security protocols and international regulatory demands. Bank communications may be performed via channels such as SWIFT, host-to-host and local communication standards, or a combination.

The standardised communication function manages both the receipt of payments files from multiple ERPs, their validation and authorisation, and their release to the banking network. The end result is a secure workflow, which eliminates many of the complexities and risks of payments.

A central payments operation accommodates both bulk payments and high-value treasury payments, such as foreign exchange (FX) hedge settlements and loan transaction flows. The processes may be set up so that more elaborate approval processes are used depending on the size of a particular payment, in compliance with a pre-defined finance policy.

Process automation

A fully automated set of operations means that payment files are managed in an end-to-end seamless process, from creation until receipt by the bank, with validation functions configured to fulfill specific requirements. Such automated flows are supported by sophisticated security processes, including user identification and encryption mechanisms. The centralised structure provides a high level of confidence that payments are being managed as required, right across the corporate organisation.

Automated retrieval of information from the banks provides the basis for deriving the current cash position and for building a cash forecast. The process is controlled and monitored centrally; it will include automatic checks that all the required banks have in fact reported and that the reports are valid. This enables any errors and omissions to be researched and repaired quickly, so that key cash management processes do not suffer significant delays. The workflow may be implemented so that the validated bank data is automatically transferred to back-end systems such as automated reconciliation, maximising the operational benefit.

The effective straight through processes (STPs) that can be implemented reduce – or even eliminate – the need for manual intervention, enhancing the quality of many core finance functions.

Organisational considerations

The use of a centralised cash management resource is not limited to centralised corporations. The system’s process management and permissions functionality are used to control who is allowed to perform specific functions; also who is allowed to see a particular set of information. This allows company-specific structures to be defined, secured and operated.

For example, one organisation might function with all payments being authorised and operated locally by the business units’ finance teams, with the centre simply having overview visibility. Alternatively, the centre would be responsible for all payment operations, with the originator just having visibility of the results. In both cases – and in a range of hybrids – the organisation benefits from the power of a best practice solution, configured to comply with policy requirements.

Conclusion

Today’s financial technology is making powerful cash management solutions accessible to a growing number of corporates – allowing them to take advantage of the efficiencies, risk reductions and control and visibility benefits which have historically been the preserve of the largest operations.

It is now possible for many organisations to centralise the management of payments and bank reporting in full compliance with specific policy requirements and organisational constraints.

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