Visibility and Control for Effective Cash Management

The way in which companies do business is changing, in
response to the evolution of the business, technological, economic and
regulatory environment. As noted in an earlier article, advances in digital payments are breaking traditional business boundaries
and resulting in the evolution of new business models, client needs and a
different technology environment. A new competitive dynamic has emerged that
makes product and service differentiation – while still maintaining margins and
using complex supply chains – a major challenge.

At the same time,
the ongoing eurozone crisis, low interest rates and the devaluation of
currencies are creating an uncertain global economy that has a direct impact on
the profitability and balance sheets of organisations. Sluggish economic growth
in many regions and weakening conditions in developed markets are offsetting the
growth potential of globalisation. Consequently, it is important for
organisations to be vigilant and manage exposure. Meanwhile, the tightening of
regulatory controls around the world is resulting in the need for increased
transparency, verification of receivables and payment flows, and revenue
accountability across businesses and geographies. The fast-changing landscape
means that a holistic approach is required to optimise working capital.

Improving Visibility

The first step towards enabling
companies to deal effectively with the many challenges they face is to improve
visibility and control across their order to cash/procure to pay (O2C/P2P)
cycle. However, improving visibility is often difficult. Many companies are
taking advantage of globalisation by outsourcing certain functions to cost
effective regions, or setting up shared service centres (SSCs).

Multinational corporations (MNCs) tend to have a complex cash management
ecosystem across different payment methods and geographies. In addition,
corporates often have to deal with inconsistent message formats associated with
payment and receivable transactions from different countries, channels and
instruments and fragmented data and access points for reporting.

Another common problem is inconsistent remittance data elements for different
instruments, which increases overheads associated with exception management and
makes straight-through reconciliation (STR) and cash application a challenge.
For example, an organisation accepting automated teller machine (ATM) payments
and over the counter (OTC) convenience store payments in Taiwan has to support
highly diverse funds, information , and reconciliation workflow.

Receivables via ATM payments are posted in the organisation’s bank account as
individual transactions, settle the same day, and can be reconciled straight
through, from both a cash and accounts receivables (AR) perspective, against the
order number or payer account number. In contrast, OTC cash payments are settled
in bulk, typically as many as 10 days after the payer completes the transaction,
and cash reconciliation against open invoices or order is more complex.

Many of the visibility-related problems faced by treasurers are a result of
antiquated technology infrastructure and processes. Often they depend on
spreadsheets collated from different business units in different countries to
manage cash flow. A July 2012 treasury strategy and operations survey,
conducted jointly by Deloitte and gtnews, showed that visibility over cash and
financial risk exposures is ranked as the biggest pain point by 36% of
respondents. For treasurers the challenge is straightforward: if something
cannot be seen, it cannot be measured and therefore it cannot be effectively
managed. However, visibility can be improved by adoption of some best practices
and taking advantage of accelerated technology evolution.

Standardisation is Critical

While many of the macro challenges
facing companies are complex and change rapidly, it is possible for companies to
achieve visibility and control of their payments and receivables by focusing on
some key best practices. Standardisation of data must be at the heart of any
effort to improve visibility and control. Without data standardisation, there is
no way to gain consolidated access or a unified view across variables like
multiple markets, business units, accounts, instruments and channels.

Achieving standardisation is especially challenging as companies accelerate
their expansion into new countries – especially in emerging markets – or grow by
acquisition. It can take several years to consolidate an enterprise resource
planning (ERP) system in a new territory or business unit. That limits growing
companies’ potential for standardisation. Companies’ partner banks can play an
important role in absorbing the complexity and providing value-added information
management and reporting services. Banks can also provide value-added services
associated with financial flows, complementing ERP implementation at group or
headquarters level.

Financial messaging standard ISO XML 20022 and
the single euro payments area (SEPA) are creating opportunities to increase
efficiencies in bank and corporate interaction by standardising the exchange of
account and credit/debit transaction information. Standardisation provides a
strong foundation for organisations to centralise common functions, increase
automation and gain efficiencies.

Strengthening Compliance by Making
Data Actionable

Just as standardised data is essential to improve
visibility, so visibility is crucial to improve control. Every company generates
huge quantities of data. However, for effective management the information must

  • Actionable as user-friendly, meaningful presentation is
    necessary for decision making.
  • Context driven to cater to multiple
    stakeholders that require different views of data: while a customer service
    representative or account reconciliation professional needs to see specific
    transactions, the credit team or treasurer needs a higher level of visibility,
    with flexibility to drill down to information that is more granular.
  • Dynamic and providing the ability to view different cuts of data in
    real-time, navigate quickly from high-level summary information to the lowest
    level of transaction details including, for example, scanned images of
  • Accurate as it is critical that different business units and
    functional groups access the same underlying data: there must be a single
    version of the truth.
  • Universal as for companies, the uncertain economic
    environment and other macro challenges means an increased need for an
    integrated, consolidated view of their day-to-day payments and receivables
    flows, not just an end-of-day, single point in time view of account balances.

Digitisation for Strategic Transformation

innovation and digitisation provide additional value in achieving visibility and
control goals and increase automation. For receivables, corporations can improve
visibility and control by adopting electronic invoicing and payment, as well as
accelerate collection while providing more convenient anytime/anywhere payment
options to payers.

New channels and payment methods require
investment and resource commitment and can prove disruptive in the short term.
However, in the medium- and long-term, digitisation improves efficiency, lowers
costs and transform corporates’ visibility and control of payments and
receivables while enhancing security and risk management and making it easier to
comply with changing regulations.

Benefits of Best Practices

Improving exceptions management and process optimisation
One common pain point for corporate is exception management: exceptions such
as returns and rejects may trap cash and affect the profitability of an
organisation. Exceptions happen for a variety of reasons, including partial
payments, single payment for multiple invoices, incomplete, incorrect or missing
remittance information and multiple data formats. Exception codes also vary by
geography and instrument, and require significant manual research and telephone
calls to trace the point of origin, and understand the reason for exceptions.

Exceptions can be reduced by standardisation and improving visibility.
With improved visibility, clients can gain actionable information to identify
top exception reasons by account, business unit, as well as perform payer
behaviour analysis. Using technology tools such as online workflow, rules-based
routing, automated alerts, collaboration, and virtual accounts, exception
management can be transformed.

While solutions such as virtual
accounts or A/R matching can be used to reduce exceptions, they do not eliminate
them. Organisations need to incorporate online exception management tools to
allow A/R personnel to repair or enrich transactions based on entitlements. The
underlying technology must be flexible to support configurable workflow – thus
setting out who can do what in terms of repairs or returns, and to which
accounts or transactions – and provide audit trails.

Breaking silos
and improving collaboration

Technology can also be used to improve
collaboration within companies in order to enhance visibility and control of
payments and receivables. In a typical organization, multiple individuals or
teams are involved in AR/AP processing. By providing support for collaborative
tools, the ability to share reports and notes with peers can be improved,
leading to greater transparency, improved efficiency and enhanced risk

Standardising policy and governance
AR/AP technology
is essential to both improve visibility into global data flows and assist in
making that data actionable. However, technology can only act as an enabler.
Organisations must be willing to take the acumen derived and translate it into
meaningful initiatives to standardise policy across business units and revenue
lines to support strategic payment methods and channels, increase STP and
working capital. For example, a large municipal agency identified that the
relative cost of each in person payment at a service centre location could be up
to 400% higher than bank-provided online bill pay.

Electronic bill
payments are not only more cost-effective, they also have lower exception rates.
The exception rates associated with receiving payments over electronic channels
are, according to an exception benchmarking survey by Blueflame Consulting,
estimated to be around 0.58%, against 7.13% for walk-in/paper channels. Policy
can be consequently changed to favour the use of electronic channels and
bank-provided online bill payments. Similarly, visibility and workflow
automation can be used to streamline exception processing and reduce exception
handling cost by up to 45%.

Equally, corporates must develop
guidance for promoting policies and reducing risk activities. They must also
clearly define a governance structure for delivering process efficiencies and
cost reductions and managing key performance indicators across business

Optimising working capital through visibility in today’s
dynamic environment requires a holistic approach focused on the standardisation
of data, using technological tools to make that data actionable and digitisation
of the payments and receivables lifecycle. Companies and their global treasury
departments can then utilise the insights derived from these efforts to better
manage exception processing for faster cash application break historical silos
and improve policy standardisation and governance procedures.

Visibility is simply a foundation: it is policy and governance that improves
control. To achieve that control – while also enhancing visibility across the
O2C/P2P cycle – treasurers need to be playing a broader role within the
business. By being involved in the multiple payments and receivables processes
that take place across the business, treasurers can ensure that the actions of
all departments and business units are aligned to help the company achieve its
strategic goals in changing times.


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