In the ever-shifting global landscape, organizations must possess a clear and real-time understanding of their financial position and the flexibility to manage relationships with multiple financial institutions. Globalization means more regulation, an increasing number of banks and bank portals, new currencies, and different rules for how to expatriate the cash. So it comes as no surprise that finance executives in medium to large businesses (>250M revenue) assert that managing cash is becoming more difficult than ever to forecast.
To execute in this environment, treasury functions will need to find ways to provide management with information on cash positions and cash forecasts faster and with deeper insight. Organizations now require improved visibility into their consolidated assets – foreign and domestic, across banks and investments. Bringing together disparate systems is the first step in obtaining a clearer financial picture and more accurate reporting.
Global Corporate to Bank Integration
Smaller organizations typically start by manually checking their bank accounts each day, entering transactions into their ERP or back-office accounting system. As organizations grow, this task not only becomes tedious, error-prone, and time-consuming, but is wholly unscalable when the number of bank relationships expand to foreign countries, each governed by different banking legislation. Decentralized global organizations often operate under complex a web of bank relationships and international bank accounts, without any central visibility. Lacking a holistic picture of the organization’s financial network is typically a sign that cash is not being utilized efficiently.
Corporate to bank integration consolidates and centralizes cash management activities by electronically connecting an organization’s ERP to banks across the geographical landscape, providing daily digital feeds without the need for manual data entry. With full financial visibility, organizations will be better positioned to deploy cash effectively, when and where it is needed. Other benefits include:
- Decreased number of Days Sales Outstanding (DSO) due in part to the automation of electronic invoice delivery directly to trading partners.
- Eliminating the reliance on a single primary bank to act as a portal to foreign banks, thereby avoiding expensive “home bank” fees.
- Providing remittance information to trading partners with electronic payments, avoiding the need to field calls when they conduct their own reconciliations.
- Implementation of e-payments to cut accounts payable expenses and reduce the risk of check fraud.
Once corporate to bank connectivity is achieved, and reporting between banks and your organization has been automated, bank statements still must be reconciled against the accounting department’s own transaction records. In the last decade, many organizations have digitized inbound purchase orders, order confirmations, and outbound shipping processes using EDI automation. While this cuts down on manual entry, organizations can go a step further by digitizing and automating invoicing and payment processing, critical components of cash management. Without this, invoices and payments must be processed via fax, email or paper mail, the latter which significantly delays the process of cash collection and ultimately, reconciliation. Further slowing the process is a lack of remittance details when paper checks are issues for payment.
Discrepancies between the expected payment and the actual payment received are not uncommon when dealing with numerous trading partners. When this occurs, additional information included in the electronic remittance detail can explain the discrepancy. Without the remittance information, accounting departments must contact each other to investigate the reason for the difference. For example, in the event the accounting department invoiced a customer for $100 but only received a payment of $60, reconciliation cannot be completed until the discrepancy is explained. Electronic remittance data will surface up payment inconsistencies, allowing the A/R team to quickly identify the issue (perhaps some of the items received were damaged, etc.) and reach a resolution.
Organizations that rely on manual processes to manage payment collections spend 15% of their time prioritizing their activities, 15% of their time gathering information to make collection, and only 20% of their time communicating with their customers. In contrast, organizations that utilize accounts receivable automation spend only 6% of their time prioritizing their activities, 6% of their time gathering information for collections calls, and 62% of their time communicating with their customers about their payment. (Source)
Improve Cash Visibility & Forecasting
The advent of GPS and traffic forecasting tools transformed the way people travel, providing real-time insight into traffic on any given route. Empowered by this data, travelers are now able to make the best decisions to get to their destination without delays. Corporate to bank integration provides similar transparency into real-time cash balance information, empowering accounting departments to quickly provide cash balance reports for stakeholders, both internally and externally. Armed with this data, the organization will be better prepared to identify and avoid financial risks (such as exchange rates, changing interest rates, liquidity risks, etc.), as well as opportunities (optimizing working capital, mergers and acquisitions, etc.)
With the automation of cash management and improved speed of reconciliation, the accounting team can be confident that they are providing accurate, reliable forecast data. This provides a powerful base from which informed decisions can be made to deal with short term cash requirements and also help with long term planning for investments.
In today’s ever-changing global market, your financial infrastructure must act as a stable platform for future growth. By leveraging the power of corporate to bank integration with a technology partner capable of helping you navigate the global market, your organization will be positioned for growth without the fear of blind spots sabotaging your plans. Join our upcoming webinar, Scaling Growth Through Cash Visibility & Forecasting with guest expert Steve Scala to learn more about managing cash with globalization in mind.