An Overview of SAP Treasury

Continuing from my previous blog where in there was a discussion around SAP Financial Supply Chain Management & SAP Treasury, and why Treasury was brought into FSCM.  In this blog I will try to put forth in a simple way how SAP Treasury applications can be leveraged.  First of all, the SAP solutions which are grouped under Treasury are         

• Treasury & Risk Management
• Cash & Liquidity Management
• In-House Cash
• Bank Communication Management

There is a logical reason behind this grouping.  Similar to FSCM, the interconnectivity between these modules are so very important and very high.  Of these I will explain in brief about the most widely used modules in this blog – Cash & Liquidity Management and Treasury & Risk Management. 

Cash and liquidity management is a widely used solution because of its easy usage and also it is 1 of the most important tool for any organization.  This is used for cash planning and forecast of liquidity.  I will try to explain with a use case for easy understanding.  Assume we have multiple bank accounts.  Also in each account, balance is not going to truly reflect the cash status.  There might be cash locked in outgoing checks, incoming checks, suspense accounts, transfers which are yet to reflect in our account.  Now we can see this at a consolidated level what is going to be the total balance remaining i.e. the exact liquidity we have for all accounts and also across all banks.  The total balance for individual currency can also be viewed.  This is just a simple use case.  There are multiple ways in which we can structure the reports.  Using Liquidity planner, we can plan for liquidity across time buckets so that we will be able to check exactly what our payments due and what is our cash strength to make those payments, what is the excess cash available for investments etc.  But Cash and Liquidity Management is a receiving module and gets the info from FI, Treasury, In-House Cash etc.

What to do with the excess cash is the next question.  Also from these reports we get to see that there are certain payments to be made in a foreign currency etc.  Now that is where the treasury department will have to make efficient use of the excess funds and also the case where this is a requirement of fund.  There are many avenues for these which are known as financial instruments where the excess cash is invested and taken out as per the requirement.  The short term liquidity requirements are met through short term loans/borrowings.  The excess cash can be invested in money market area or securities.  It is not only treasury department of an organization which will deal with instruments but also financial services organizations which whose revenue itself is through managing financial instruments efficiently.  Further there are banks that also make use of their cash liquidity. 

So there is a huge market which is going to deal with this and in fact they are directly going to dictate the finances of many organizations and directly impact the economy.  It is because of these reasons, that there are many standards, regulations and policies in place which are to be taken care of.   SAP Treasury solution is going to support the handling of all these instruments across their whole life cycle from purchase, accounting, valuation to sale/maturity.  It supports all kinds of instruments/commodities like money market, derivatives, forex, securities & commodities.  It supports some of the most complex financial instruments along with hedging strategies in full compliance according to FAS133. These are all managed through Treasury – Transaction Manager. 

But dealing with finance itself, is going to have many inherent risks resulting from market fluctuations to counterparty.  There is a comprehensive risk management system in SAP treasury which is going to analyze and quantify the risks and classify according to our requirements.  The major advantage here is it is fully integrated with treasury which is going to make the whole process of risk management much more efficient.  But the key for an efficient risk management is to have an enterprise wide risk policy and a clear risk management process in place.  Once this is there in place, SAP is going to provide the perfect platform for supporting the risk management process.

I would signify the importance of In-House Cash and Bank Communication Management in another blog.  Together with SAP FSCM, SAP Treasury will certainly be a perfect stepping stone for the overall efficient management of Finance for any organization.  It is important to choose the right solution, but it is even more vital to get the solution correct so that business can be optimized.  SAP treasury is one of the best in class product in this space but we need to ensure that we leverage maximum out of SAP for our business.  I strongly feel that there should be no sacrifice of business for the want of technology.  With SAP the second part of equation is removed.  So it is imperative to derive maximum business benefit out of it.