Most large organisations use an enterprise resource planning (ERP) system of some sort. It is used by treasurers and others for financial management – often for accounting and monitoring purposes, and it is used for managing various operational activities too such as overseeing the supply chain. ERPs can also handle commercial processes and be connected to (or include) customer relationship management activities.
But does it handle treasury easily? In most organisations the answer to that is that it can, but at present most businesses the answer at the moment would be a clear and resounding ‘no’. Instead, spreadsheets are used or specialised treasury systems. It needn’t be this way, however, and there are ERP capabilities that can be better tapped by treasuries.
The Case for the ERP System
There are some very sound arguments for handling financial transactions within the ERP. There is the technical side of things: no need to purchase and support additional hardware and software, automatic inclusion in the organisation’s back-up solutions, availability and clustering solutions, better integration, technical monitoring and scheduling solutions, to name but a few. The ERP also provides a functional basis that treasury can use: master data is readily available and does not need to be entered again, security features guarantee the separation of data and processes, and rates will typically be available, etc. These are arguments, however, that the average treasurer is not very interested in. He or she wants to know how the ERP can make life easier in the day-to-day management of financial transactions.
Any system that handles financial transactions will, in the end, have to be integrated into the ERP, since financial transactions need to be accounted for. It is a well-known fact that the easiest interface possible is no interface, so the back office would be much helped, if the ERP could directly account for financial transactions (without relying on intermediary or specialist systems).
Operations and ERP Uses
What is less well known is the high potential that lies in the fact that the ERP handles a lot of operational data, and operational data are the direct or indirect reason why financial transactions are being done. The ERP is the place to find supplier and customer invoices, to find information about orders and information about how many quantities of a certain commodity will be used over the coming weeks and months. This information is needed for position management in the front office, which together with an investment, funding or hedging policy forms the basis for doing financial transactions. Thus, the ERP provides excellent data for foreign exchange (FX) hedging (on the basis of invoices and/or orders), for managing commodity positions, and for investment or funding transactions (when combined into a liquidity plan).
Front office position management belongs to those areas in corporate treasury that are least standardised. Every organisation seems to have a different approach to defining positions and exposures, and there are many policies that govern when positions need to be covered. One reason for this is certainly the fact that each corporation has different operations and goals. Yet, another one is a lack of system support – this is often the case where traditional systems ‘give up’, since the data is not readily available. It is, in fact, only readily available in one place: the ERP system.
Alternatives to the ERP system
If we leave out spreadsheets as nobody’s preferred solution, then we are left with several specialised alternative non-ERP solutions on the market. They may be hosted by a solution provider or installed at the corporate treasury.
The hosted, cloud-based solution relieves the treasurer of many tasks and is cost-effective, but integration with real-time company data is a long way off. On top of that, archiving business-relevant treasury data in the cloud is considered as too great a risk by some corporates, as they worry about being open to security risks. An effective security policy, however, can of course mitigate this concern.
Installed solutions sometimes provide real ‘best-of-breed’ functions including profound functionality in the front, mid and back office, reporting capabilities, and a treasury sub-ledger. Here, too though, the integration for data for the front office is often the weak point.
In addition, in both cases off-the-shelf solutions are being deployed that can neither be adapted to specific requirements in a corporate treasury, nor provide the global overview of the entire cycle of a transaction; at least not without considerable connectivity and integration work.
Disadvantages of the ERP System
Why doesn’t everyone use the ERP as a system to manage the lifecycle of financial transactions? There are a number of reasons; some explain it better than others. ERPs are often perceived to be heavy and costly – the very opposite of reactive when a new requirement needs to be covered.
Treasurers do not like dependency on IT resources – they want to be able to make basic structural changes themselves, produce reports and analyses as they want, and a spreadsheet can do this. Not all entities may be included in the ERP system, or there may be multiple ERP systems. And last but not least, the required functions are not there, or at least not in the depth required. An ERP is by definition a generalist, and not a specialist. A large corporate treasury seeking granularity of information may find it does not meet their needs.
A Possible Solution: A Specialist Within the ERP System
An ideal solution for treasurers might be a solution that combines the best of both worlds: specialised but customisable treasury features that can be integrated within the central ERP system and provide a high level of automation and integration.
Such integrated and automated solutions should also be able to cover corporate entities that operate outside of the ERP system, and should be able to seamlessly include them in the corporate-wide overview of treasury data. Due to the integration, treasurers can directly use all relevant data from the accounting and operational modules within the ERP system to handle both front office and back office tasks with ease. Treasurers get information faster and they know the data is complete and fully reliable.
In an ideal solution, operational business and financial transactions become visible in a single dashboard so that treasurers get a holistic view of corporate positions and financial transactions instead of sketchy individual snapshots. They can base financial decision on a solid basis of reliable data instead of gut feeling.
Better still, if cash and liquidity management solutions can be integrated with the treasury solution: the very same information needed for cash and liquidity management can form a sound basis for FX management or funding decisions. The treasurer gains a complete and integrated overview based on reliable and fast data that needs to be collected and processed only once.
The company builds on its investment in the ERP system, in addition to getting best-of-breed functions.
If treasurers want to achieve a holistic overview of corporate transactions – spanning from the beginning of a business deal all the way through to securing it with a financial transaction, they should move beyond spreadsheets. They should carefully look at the alternatives on the market.
Solutions that combine the advantages of ERP systems with specialised technology can drive significant efficiency gains for the entire company: a high degree of automation and centralisation due to customisable features enable a better control of financial risks and positions, shorter cycle times, automation, centralisation, accurate reporting and lower costs.
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