Innovations have made the digital treasury a reality. Managing treasury and financial risk is one of the most complex aspects of international trade and businesses with the global operations – worldwide sourcing, production, distribution and consumption; even more so while conforming to national and international regulatory and compliance standards. There are wide-ranging and comprehensive treasury processes linked to value functions – financial instruments, cash, liquidity, payments, bank communication and financial risk – while preserving the integrity of the treasury department. The treasury function has evolved into becoming advisors delivering business insights to leadership. Embracing new treasury technology can be of great help with the focus on innovation and leading-edge developments. Information technology solutions are exceedingly effective in managing treasury operations with the complete visibility of value functions in real-time along with the ability to integrate with – enterprise resource planning, financial markets, trading platforms, market data and banks – optimizing the overall process flow leading to a truly digital treasury.
For corporate treasury function – strong, efficient and integrated technology solution has become essential – considering the complexity of global business operations, access to worldwide financial markets and availability of variety of financial instruments for investment, borrowing and risk management. SAP solution for treasury and risk management is the most comprehensive in value functions with advanced technology framework including almost every business scenario and process providing complete – visibility, transparency and control, simplifying the complexity of treasury operations.
The solution essentially focuses on the integrity of the treasury value functions and the larger financial ecosystem. The model representation in Figure1 – SAP Treasury and Risk Management Solution highlights these value functions. For representative purpose it also features planned product innovations and delivered innovations. These innovations are planned with the help from the industry fraternity along with solution feedback from customers and experience while working with clients around the world. They are comprehensive in nature and scheduled to deliver based on their requirements, complexity and planned roll-out strategy.
Financial Instruments and Investment Management
This function helps manage transactions and investment financial instruments with complete enterprise financials integration ensuring international regulatory standards compliance along with the ability to monitor, control and effectively plan for risk mitigation strategy. The treasury can make right decisions on investments and borrows at best rates at lowest costs. The solution features investment portfolio analysis and flexibility to generate detailed reports.
Cash and Liquidity Management
This capability provides global cash flow visibility in real-time. It also allows to consolidate, centralize and increase cash flow transparency of working capital across the group. Improves forecasting and liquidity planning along with control and compliance measures.
Payments and Bank Communication
This value function of the solution facilitates consolidation of of payments from various sources to centralize internal and external payments through In-House Cash center. Enterprise optimization of payment processes though In-House Bank and bank communication. Effective use of payment workflow enable – rule-based workflows, reviews and approvals of payment batches and payment audit trail. The “Payments Factory” concept can be efficiently managed though integrated value functions.
Financial Risk Management
Financial risk management is an essential characteristic of treasury. It supports to identify, quantify and manage exposure of financial instruments risk with real-time reviews and analysis. It facilitates effective planning for risk mitigation strategy based on financial markets and instruments used for hedging.
From the system perspective the treasury largely functions as an integrated process interacting with various components across the enterprise financial solution landscape. The treasury and risk management is the most complex solution area with intricate configuration and customizing steps across the value functions and enterprise financials. Though, the deployment of treasury and risk management solution depends on the company specific business scenarios and requirements. Figure 2 – SAP Treasury and Risk Management Solution Architecture highlights complete solution flow and their respective components as they relate to the larger enterprise resource planning process.
It also features recently released SAP Activate Methodology to help the team with the systematic implementation phases and project management stages. Each of these implementation phases and project management stages have a detailed activity and task plans scheduled to be performed with the deliverables based on the implementation scope, project timelines and solution model. In addition, the methodology provides accelerators linked to the relevant deliverables, business value and benefits.
The integrated business scenarios are linked as a process through a series of role based activities specific to treasury function. For example, the payments and bank communication helps process internal and external payments with the In-House Cash function. It supports managing intercompany payment transactions and external payments through a “Payment Factory” concept with the ability to centralize and route payments though In-House Bank efficiently streamlining the payment process and managing the cash flows effectively across the group. Working capital can be managed through effective cash pooling across the group. The payment workflow simplifies grouping of payments / payment batches / high-volume payments and routing through rules based approval process. Reconciliations provide intraday cash positions facilitating forecast liquidity. The bank connectivity is through ISO based formats enabling compliance with Single Euro Payments Area (SEPA). The bank communication also provides tools and interfaces to connect with Society for Worldwide Inter-bank Financial Telecommunication (SWIFT). These integrated processes help optimize payments and bank communication.
The mark of essential treasury is to efficiently manage cash and liquidity across the enterprise. Cash and liquidity management is centralized across the enterprise, enabling cash managers – better visibility and control over cash flow and working capital across the group. The key functions include bank account management, cash pooling, intercompany netting and payment-on-behalf processes through In-House Bank. With the data from value functions, it facilitates cash and liquidity, offering better insights into internal cash positions – business units, subsidiaries, regions and group. Real-time integration with enterprise financials and accounting provides accurate cash flow at each transaction level empowering treasury managers in forecasting and effective liquidity planning. The cash forecasting analytics supports hedging based on real-time cash positions and market exposure. With this the treasury department as a corporate function can make effective investment and borrowing strategies for the group improving predictability of cash flows and working capital utilization.
The availability of wide-ranging financial instruments and access to global financial markets increases the complexity of investment. The financial instruments and investment management in treasury is one of the central function facilitating investment and borrowing strategies across the group – this function of treasury is managed through transaction manager. With the real-time visibility of working capital and cash flow, right investments can be made along with the appropriate risk mitigation strategy. Treasury managers can make effective use of financial instruments for investment with the ability to track and report each of these investment transactions through right controls and monitoring of investment portfolios – improving visibility and insight of positions and exposures. Through effective use of tools exposures can be managed through hedge management. The complete process of deal creation, processing, posting and valuation can be efficiently administered with the integration of enterprise financials. Correspondence helps manage front-office, back-office, payments, valuation and accounting. This also simplifies compliance of national and international accounting standards – Generally Accepted Accounting Principles (US-GAAP) and International Financial Reporting Standards (IFRS).
Financial risk management is about availability of real-time data and analytical information for identifying and quantifying the risk with the appropriate mitigation strategy. The treasury function provides various risk analyzers depending on the type of risk. With this the financial risk managers have accurate and timely access to high-quality data and information to manage risks from foreign exchange volatility, currency conversion rates, interest rate fluctuations and commodity price variations. Simulation capabilities help model business scenario based risks. They can consolidate risks and manage positions and exposures with effective hedge management and accounting; supports IFRS9, EMIR and US-GAAP. One of the important characteristics is integration of market data – interest rates, foreign exchange, commodity prices etc. This provides access to real-time market data for comprehensive analysis enabling timely reports on market price linked exposures and positions. With the real-time visibility of various risk exposures and positions, hedging strategies can be planned to mitigate risks along with the ability to measure the effectiveness of hedging. The ability of transaction level audit trails improves hedging and reporting.
The role of treasury as a corporate function has evolved to become strategic advisors to the leadership team and organizational board. Innovations, solution roadmap and new technology have enabled SAP treasury and risk management solution a global leader with the most comprehensive functions. The idea of building a futuristic digital treasury ecosystem has become a reality embracing transformation and delivering value across the enterprise.