Dexteyra Consulting Group Inc.

SAP In-house cash can build efficiency into your corporate banking capabilities

Charanpreet Kaur*

April 19, 2011

SAP In-House Cash approach

If your company has multiple corporate bank accounts spread across its global organizational structure, you are either paying an extra fee or providing free money to the banks by maintaining minimum cash balances. And you may be taking expensive loans for some part of your business whereas; you can be having extra cash to spare within your organization. Would you like to get optimum visibility of your cash position across multiple company codes, geographies, product lines, and business units?


If you can imagine your company having a virtual bank in-house that can help you process inter-company payments and netting process with no hassles, no bank fees, and external over-drafts involved, then it can be offered through the latest offering by SAP through its Financial Supply Chain Management (FSCM) component. The participating companies, customers, and vendors can be located in multiple countries or continents, and can be trading goods, services, and loans in multiple currencies with each other. You can do intercompany payments and netting, inter and intra company loans, liquidity, and cash position management, without even routing through an actual bank.


In addition, if you would want to see your actual bank balances, you can get an electronic feed from your banks as often as every 20 minutes. So you won't have to logon to your Bank Accounts any more or make those frantic calls before issuing a large check or to update your general ledger accounts when you receive payments. SAP enabled Electronic Bank Statements (EBS) can handle this for you. Your attention will be needed only when an exception happens.


The SAP In-House Cash application in particular helps in reducing the costs of processing transactions by reducing the external bank accounts for internal, external, and international payments and settles the receivables and payables of your group companies centrally. This is achieved by using reciprocal clearing process between the In-House Cash Centre (IHCC) and affiliated Subsidiary companies. The system also calculates turnover and balances of the Current Accounts (refers to respective virtual bank accounts of participating inter and intra company subsidiaries of the IHC) along with detailed reporting on cash. This information can be forwarded as Electronic Internal Bank Statements through IDOCs to Financial Accounting for tracking the payment statuses. Thus SAP In-House Cash reduces the physical cash transfers by internal netting and in return; saves bank fees for bank accounts, payment transactions and cost for external cross border payments. This approach would gain more interest by keeping cash within the group and use that cash surplus to finance other companies within the group by lending them to another of your company and also helps in the reduction of hedging due to concentration exposure internally.


SAP In-House Cash functionality for your company�s financial operations

SAP In-House Cash supports decentralized, centralized and a combination of centralized and decentralized organizational designs and is flexible as per your company's structure. For a decentralized organization (subsidiaries and the head office have separate account), the payment transactions for the head office is processed through an In-house Cash Centre whereas the subsidiaries continue to make payments to external business partners from their respective house banks.  In a centralized environment, the company head office will process the payments for the group through the house bank whereas the bank accounts of subsidiaries and the head office can be maintained in the In-House Cash Centre. For mixed organizations, each subsidiary has one or more accounts with its houses bank as well as one or more accounts with the IHCC. As a result, you can process payments using external house bank or the In-house Cash Centre.


On context of changing global corporate scenario


Current business trends and precedence to privatization by governments of multiple countries across the world are resulting in the continued thrust toward the culture of thriving multinational corporations. These enterprises are experiencing rapid growth with a significant emphasis on business expansion through acquisition. They face particular challenges in finance operations as their intra-company and intercompany financial communication is escalating. This results in the increase of number of bank accounts as well as a rise in the cost of cross border payments. As per the WTO report, the world trade has recovered by 9.5 % in 2010 after the sharpest decline in 2008. As the volume continues to increase and migrate to open new account terms, pressure is being exerted on both banks and payments systems to run the businesses worldwide but there are so many challenges while processing the payments globally. There is no ubiquitous universal payment system due to the lack of common global standards and variations between systems. Thereby reducing the capabilities of the banks and the corporate treasury as rules vary between the originating and receiving countries. This may lead to higher direct and indirect costs.   

Virtual bank- Is it a Possibility?

For more than 20 years, technology and its tools have revolutionised businesses and have turned out to be a panacea to the corporate world. Enterprise Resource Planning (ERP) technology has become a backbone of virtually every domain of global industry. Flexibility in financial operations and efficiency is the key task for running small, medium, as well as large companies. According to the Association for Financial Professional Treasury Benchmarking Program Survey, the results show that companies whose revenue are less than $500 million spend more time on managing and reconciling cash positions and paying and employing more full time equivalent (FTE) employees relative to revenue. Whereas a larger companies having revenue greater than $2 billion spend 32 cents per $1000 of revenue on the treasury function. On the whole 76% of treasury department is spending in personnel including 12% for overhead and 9% for ongoing system costs. In order to provide flexible solution, SAP In-House Cash Management functionality creates virtual bank to better manage the internal, external and overseas payments.




In today's increasingly globalized, highly aggressive economy, SAP In-House Cash will benefit the organization by eliminating the physical transfer of cash related with intercompany payments. Thus reducing transaction costs, bank charges, and value date losses. Centralized approach (shared services model) to external transaction reduces the volume of foreign exchange transactions, administration charges, and most importantly - reduces the currency risks and loss due to exchange rate fluctuations. Implementation of SAP In-house Cash functionality makes it easier to standardize, integrate and control business processes and provides a clearer and more immediate view of liquidity forecast. IHC can provide direct access to group-wide payment transaction information for best possible liquidity control.


 *Ms. Charanpreet Kaur works as an intern and a consultant with Dexteyra Consulting Group Inc. She has interest in financial supply chain management (FSCM), banking, and insurance functionalities of SAP. She holds a Masters Degree in Electrical Engineering from University of Windsor in Canada and a Bachelors Degree, also in Electrical Engineering from Punjab Technical University in India. Ms. Charanpreet has interest in writing on varied topics such as business and economics.

Please contact to reproduce this article or to add your comments.


Share with: