The road to cash management excellence

Mar 19, 2024

finance

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“Cash is king.” It was the adage of every CFO in early 2020, when facing the pandemic. While the threat of the health crisis has faded, volatility and uncertainty have remained. Fortunately, more and more companies are prioritizing solid cash and liquidity management – while software providers invest big in new solutions. Time for a deep dive into smart cash flow analysis, forecasting, and planning and how to integrate these to boost speed, resilience, and transparency.

But let’s start by taking a short step back. Just about a year ago, Kristof Sergeant, SAP Treasury Solution lead in our team of finance experts, shared his insights on the growing importance of the treasury function and SAP’s answer to that need: “When launching SAP S/4HANA, SAP introduced a complete portfolio of solutions to meet all the treasury requirements, both on a functional and technical level.”

Since then, Kristof and his colleagues have worked with SAP’s cash management solution to level up our cash and liquidity management at our customers. So, it’s time to catch up with Kristof and discover the delaware approach.

Enhancing cash management, the delaware way

Effective cash management encompasses several key processes:

1. Short-term visibility

For the daily cash management activities, you need a real-time view on your organization’s cash position, by currency and value date, and a certain short-term forecast of up to 7 days. Tools like the SAP Fiori Cash Flow Analyzer offer real-time insights. This capability is vital for daily management and short-term forecasting, enabling businesses to structure reports, drill down into transactions, and facilitate internal collaboration.

2. Mid-term forecasting

A crystal-clear view on the expected cash inflows and outflows (payments due, orders, …) is a must to make informed short- and mid-term investment and financing decisions. While SAP solutions like SAP Cash Management or SAP Fiori Cash Flow Analyzer offer forecasting capabilities, integrating external data – ranging from business operations to macroeconomic indicators – can significantly enhance accuracy and reliability.

Zooming out: liquidity forecasting versus liquidity planning

Confused about the terminology? The terms ‘liquidity forecast’ and ‘liquidity planning’ are often used interchangeably. Kristof uses this definition:

Liquidity forecasting is the process of predicting the mid-term liquidity position, by estimating the future cash inflows and outflows based on data registered in SAP.
Liquidity planning is an active process that uses information from a wide range of sources, including the business, to get a complete, accurate, and reliable view on liquidity.

3. Mid-term and long-term liquidity planning

To get a comprehensive view of your future expenses and investments, you need to actively collect information from many different data sources – including the liquidity forecast – and combine it. This process, supported by tools like SAP Analytics Cloud (SAC), is crucial for long-term strategic planning.

Under the hood: One Exposure from Operations

With a tool like SAP’s One Exposure from Operations hub at the basis of these processes, you're good to go. Kristof explains: “SAP's One Exposure is a central storage location for all the data that is relevant for managing cash and liquidity. So, no matter how many sites, subsidiaries, or divisions a firm may have, the hub bundles all their data from SAP and third-party systems, both structured and unstructured. That includes bank balances, treasury flows, commercial contracts, and orders, but also manual planning details, saved as memo records, for example. This centralized view, accessible to every stakeholder, is a great first step to optimize cash control.”

Drive confidence for finance, management, and shareholders

As organizations become more cash-focused, they understand that business and finance have to share ownership of cash performance. Establishing a company-wide cash reporting and cash management system across different entities, however, is complex – and time consuming. Kristof: “In large organizations, the financial planning & analysis process takes months, with data going back and forth between subsidiaries and departments. By connecting all the relevant internal and external data, from the most diverse sources, finance teams will save precious time.”

“For example, sales, marketing, and procurement spend long days preparing budgets at year end. When that carefully prepared budgeting data is integrated in the liquidity planning exercise, you’ll enrich the dataset significantly. More than shortening the FP&A cycle, that approach ensures access to expanded, more accurate information to make more informed liquidity and, as a result, business decisions. On top of that, reporting will be far more transparent. All in all, that ensures more confident finance teams, management, and even shareholders,” Kristof concludes.

In many organizations, cash management is the sole responsibility of finance, not the business. We suggest sharing ownership with colleagues from the business. SAC helps to collect information across divisions, entities, and subsidiaries.

Kristof Sergeant, SAP Treasury Solution expert