Technology And Treasury Management: Working Capital Management


By Denise Bedell

Companies are looking to technology to help them delve deeper into their working capital processes.


The debate that has long raged over whether enterprise resource planning (ERP) systems can compare on a function-by-function basis with specialized treasury management systems is about to get more intense. As companies look at ways to dig deeper into, and reduce costs within, their working capital management processes, the systems they choose to do so become key.

Working capital optimization now requires an unprecedented level of visibility into all of the systems and information that make up the working capital cycle—from receivables, payables and inventory on the one hand to accounts, investments and liquidity needs on the other. Data must flow regularly and quickly, and be modeled and reported in sophisticated ways.

As a result, companies are changing the way they look at technology and are increasingly seeing the advantage of dedicating more of their budget to upgrading treasury and finance technology in order to gain longer-term cost-cutting benefits.

“Companies are really looking for an evolved view of how they use technology to manage treasury”

“They are evaluating the entire treasury work flow and taking a more transformational view of technology” – Justin Brimfield, Reval

ERP systems, treasury management systems (TMSs) and other solutions used for working capital improvement all have strengths and weaknesses. Which solution will work best for a particular company—be it using an ERP system alone, using an ERP and TMS in combination, using a smaller, specialized system focused on one or more element of the process or simply using macros and a spreadsheet—will depend on the individual company.

As the range of solutions grows, choosing the most appropriate one becomes more difficult. Companies must look at what resources they are willing to put behind a working capital optimization program. Doing so will determine the next questions they must ask—how deeply they are able to dig into their existing processes and make changes, what their goals are in terms of reducing costs and increasing efficiency in the different stages of the working capital cycle, and how to achieve those goals.

According to Enrico Camerinelli, senior analyst at consultancy Aite Group, improving working capital management continues to be a critical corporate endeavor. “Companies need to look at working capital right now in order to use working capital as a source of funding. If you can extend payment terms and reduce days sales outstanding and collection times, for example, you can use that additional cash for other activities and reduce inventories.”

Camerinelli says that if a company is really viewing its working capital as a source of funding, a treasury management system will provide the information: “The TMS provides information related to cash flow projections, payment terms, cash reporting and liquidity needs.” He adds that TMSs are generally more flexible and allow the treasury department to make decisions relating to the levels of payables, receivables and inventory a company should be aiming to make.

However, he also points out that for the TMS to help treasurers make simulations and analyze working capital effectively, “you need a good ERP system to provide the basic data.”

Mix and Match

Having both types of system working in unison might be the ideal, but maintaining two such systems is simply too costly and complex for many companies. Although the advent of software-as-a-service (SaaS) treasury systems—where you can purchase just the pieces you want and it can be delivered via a portal with no need to host the solution on internal corporate servers—can reduce that expense, there is still the ongoing cost of use to consider.

Mark Webster, a partner at treasury consultancy Treasury Alliance Group, says stand-alone ERP systems can still hold their own against TMSs: “If you know what you are doing and have the right systems, ERPs can be structured to do anything. Early on, their treasury modules were cumbersome, but they have become significantly better.” He says the key advantage of using ERPs is that they are integrated directly into the company’s accounting systems.

The ERP vendors worked hard to enhance the capabilities of their treasury modules, and certainly they have much of the functionality of a specialized TMS. China Martens, an analyst at Forrester Research, says ERP providers are looking for ways to expand usage of their applications and increase their flexibility. She says: “More vendors, such as Infor, NetSuite, SAP, and Syspro, are beginning to offer their customers graphical business process orchestration tools.” In other words, they are rolling out more user-friendly dashboards and graphics to make it easier for business users to both see, and make use of, the information that is relevant to them.

Vendors are also making use of new technologies, such as cloud computing and in-memory technology, to make deeper cash flow analyses faster and easier. In-memory databases allow for much faster processing of complex data, as they hold all the data-sets involved in a particular query within the main memory, rather than having to access disk memory for each inquiry. Cloud computing allows for processing to happen across various different systems within the cloud in order to provide greater computing power, and thus faster processing times. Craig Himmelberger, director of the ERP financial solutions marketing at SAP, explains: “The real challenge with liquidity planning is processing and data collection. Having all of this loaded into a unified system with in-memory response time and the ability to make multidimensional views is a clear advantage.”

For all the advances that are happening, however, many companies will still be happy relying on Excel spreadsheets. With good data flows from accounts payable, accounts receivable and inventory systems, or from those modules of the ERP, a spreadsheet can provide all of the necessary information for a working capital assessment. Again it comes down to resources. The issues with spreadsheets are well known, however: risk of errors, risk of data changes, and the time and human capital involved.

Fine-tuning a strategy for improving working capital management depends on many factors, but one thing is clear: Companies generally see the advantages of investing in technology to improve these processes and are increasingly looking at such investments as part of a broader financial transformation. Justin Brimfield, senior vice president of corporate development at system supplier Reval, explains: “Companies are really looking for an evolved view of how they use technology to manage treasury across the board. Now, rather than putting in place a band-aid solution for one piece of the process, they are evaluating the entire treasury work flow and taking a more transformational view of technology.”