Historically, the management of cash was linked to purchasing processes in the materials management module and supply/sales processes performed in the SAP ERP SD module. From a financial perspective, these were logistics activities related to the day-to-day operations of a company, being to a large extent outside the domain of the finance department, and definitely subject to different paradigms. Apart from direct posting the only integration tool was the DSO ratio as well as blockade, discount, rebate and provisions policy. Much has changed in this respect though.
A new trend in strategic management
The trend in strategic management initiated in the early 90s by S. Kaplan and D. Norton assumes that a company is a set of processes rather than a number of loosely linked departments which very often execute their own “internal policies”. This perception translates not only into the use of strategy maps, but also advanced insourcing and outsourcing activities, depending on the profitability of performing individual process in house and outside the company. The approach mentioned is successfully implemented also in the area of cash management and the FSCM module is SAP’s response in this respect.
Will the new solution make it possible to do a better, more profitable business? Experience tells us it will. As we all know, until payment is made sales is merely a donation, and the majority of companies going bankrupt suffer not so much from too many undelivered sales plans as from the absence of current cash flow. So far management in this respect focused on the analysis of outstanding items and the optimization of payments processes, including the integration with external electronic banking systems as well as the optimization of the discount process.
Possibilities offered by FSCM
The FSCM module goes beyond the existing scope of financial processes supported by the FI module of the SAP ERP system, allowing for an advanced cash management through the so-called Liquidity Planner – that is planning the inflow and outflow of funds based on the data included in invoices, FI accounts and bank accounts.
Biller Direct – EIPP Electronic Invoice Presentment and Payment. It enables the bill recipient to view his account in the supplier’s system and thus to control the balance, individual invoices as well as payments. The client can initiate batch payments and download invoices to his own accounts payable system. It makes real-time integration possible without the use of SAP GUI – the access is enabled through a Web browser. This solution is targeted at two types of clients. The first one are telecoms companies and the media delivering products and services for bulk consumers – the solution enables each client to display its own balance, update the basic information and manage disputes. The second group are key, demanding clients for whom an easy access to hundreds of items online and the possibility to manage these items is the major advantage.
Collections Management – it is not only the day-to-day management of collections as a form of payment of receivables, but most of all it is a platform for an extended integration with settlements even if collections management as a payment form has not been applied. As opposed to the standard reports with single items, this solution enables one to manage overdue items showing statuses, promises to pay, amounts paid, broken, monitored, including the monitoring status. It makes it possible to divide payments into installments allowing for different forms of payment.
Credit Management – it helps monitor credit risk (of a trade credit) by premium and negative customers, granting credit lines based on a customer’s history and assigned scoring. It automatically updates risk category assignment in the customer’s basic data. The key feature of this solution is the use of a management cockpit with the possibility to assign individual items to a selected controller (e.g. by regions).
Dispute Management – it is another cockpit, this time enabling a flexible management of disputes, fully integrated with the standard single items report. It allows the user to create a dispute, assign overdue open invoices, assign statuses to such invoices as well as to generate dunning notices to customer via text messages, fax or e-mail. It allows the user to see the entire history of contacts with a customer along with all comments entered into the system. It is integrated with Collections Management and allows to break individual items into smaller payments based on arrangements made with the customer by phone (call center functionality).
Based on an analysis by one of SNP’c clients, it turns out that over 70% of bad receivables is collected by means of the so-called “soft reminders procedure” consisting in regular contact with the customer through the call center functionality, dunning notices sent by text messages, fax or e-mail as well as temporary blocking of deliveries or rearrangement of the payment terms, without the need to go to court.
In-House Cash – used to process internal and external payments within a group or company. The basic aim of the in-house cash module is to reduce the number of bank accounts held by the company and the number of international bank transfers. The solution is installed at the head office responsible for settlements between individual units, is aimed at reducing the number of bank transfers outside the group and maximizing transactions within the capital group.
Treasury and Risk Management – as opposed to the former TR module known from the SAP 4.6 C release, it includes expanded risk management functionalities. The customization layer has been changed and the operation by the end user – new transactions and screens. The following elements have been added: Portfolio Analyzer, Market Risk Analyzer or transactions manager. This module has also been fully integrated with other FSCM elements: liquidity planner and In-house cash. As in the previous version, it allows to log WA SAP transactions such as bonds, futures, spot, FX, loans or issuance of commercial papers, including postings on GL accounts on maturity date, while keeping integrity with electronic banking solutions.
Internal collections procedure – it is the typical collection procedure allowing for debiting the recipient’s/customer’s account with the amount due upon signing a relevant agreement with a cooperating bank. As there is little trust towards this type of payment, this solution is not widely used by businesses in the Eastern Europe. It is, however, well-known and used in Germany which is partly due to the legal conditions as well as to the characteristics of the local financial market.
The launch of the FSCM module was SAP’s response to the current trends in treasury management, implementing a new philosophy of a process-based approach and thus replacing the object oriented approach used to date.
Expanded functionalities in terms of managing open items, payments and invoicing within the new module show the new direction for the SAP system development.
Expanded functionalities in terms of managing open items, payments and invoicing within the new module show the new direction for the development of the SAP system. The shortcomings of the SAP FI module, i.e. the stiff structure and inflexibility which were particularly visible during attempts to expand the credit management functionality, have now been addressed. These shortcomings were used by the competitors who have launched external applications integrated with the SAP system. The disadvantage of such solutions was the need to maintain and develop interfaces, while the update of data made further development, such as integration with SAP Workflow, almost impossible. Although FSCM does not provide all the detailed functionalities available in dedicated solutions, it does ensure a full integration within the same SAP platform and the extension of the existing functions as part of this platform is not a problem.
The key solution in the FSCM module is the change of the approach to invoicing, without the need to print documents, extending the possibilities of the already known e-invoicing solution using IDocs to entities from outside the capital group. The use of web applications eliminates the issue of access to SAP GUI allowing the access also in the case of bulk consumers.
The launch of the FSCM solution seems to be match market expectations perfectly! And the process-based approach to treasury management provides managers and financial controllers with some excellent tools. Will this new solution be welcomed by companies using the SAP system? The answer is ‘yes’ and the growing number of FSCM implementations across Europe seems to prove it.