Transformation also in Treasury? Transformation also in Treasury? Transformation also in Treasury?

This article will highlight various aspects for assessing the relevance of the S/4HANA transformation for Treasury and what courses of action are available.

In addition to Accounting and Controlling, Treasury is increasingly gaining in importance within the finance function; this usually offers enormous potential for improvement.

At the same time, the requirements on the responsiveness of the finance function are rising steadily, which is amplified by the changing economic environment. Efficient reporting and decision-making channels will therefore increasingly become a focal point, which can be achieved with the help of system-supported treasury processes, for example with regard to cash management and liquidity control.

To leverage these potentials, the current processes and treasury management systems are therefore undergoing scrutiny as part of the SAP S/4 Roadmap. 

Treasury needs to examine how involved it intends to be in the transformation project and what role it should play in it. There are various conceivable scenarios for the treasury:

1. If SAP modules are already being used in the treasury, migrating to S/4HANA is a potential solution. A re-alignment of the treasury solutions is usually detached from the S/4HANA transformation in terms of both timing and content.
2. If primarily non-SAP solutions such as Coupa, ION, FIS, Serrala, etc. are used as treasury management systems or if the treasury uses special solutions (for example, TIS or Omikron in payment transactions), chances are that it will continue to use the existing solutions in the future and either implement the necessary interfaces to the new SAP S/4HANA system or also use the SAP treasury modules in SAP.

In particular, the second case often leads to discussions in the companies concerned, forcing the treasury into the difficult situation of needing to position itself. This article will take a closer look at possible considerations and options for action available to the treasury.

A key factor is the potential automation of processes, with a view to gaining stability and avoiding manual steps. A frequently stated goal is so-called Straight Through Processing (STP). For a comprehensive STP, numerous interfaces between the individual system components in the treasury are required, in addition to other factors.

By integrating the systems, the treasury can access the required data from other sub-ledgers (controlling, logistics, sales, etc.) and from accounting. Many treasury departments consider the use of common master, transaction and plan data without media or system breaks as a key element, especially under single source of truth aspects. They can then dispense with time-consuming reconciliation measures thanks to a high level of system integration or an integrated system landscape through interfaces.

The use cases are outstanding items in accounts receivable and accounts payable, which can be automatically reconciled from payment runs and imported electronic account statements. The aim is to make all cash flow-relevant movements in sub-ledgers such as asset accounting, real estate, logistics, sales available for use in cash analysis and liquidity planning. Another element is integrating cash and liquidity management into the risk management process and payment transactions. The main focus is greater transparency regarding the Group's liquidity as well as the efficient and reliable allocation of liquidity. All liquidity-relevant movements are consolidated and analyzed here.

Another process is the management of bank accounts, from opening and modifying to analyzing and closing them. As this pertains to fundamental master data management, a high degree of integration into the payment processes is a major prerequisite, including the centralized management of bank accounts. 

All exposure information comes together in the risk management system. The direct link to trading platforms enables the efficient trading of financial instruments. The aim should be to achieve a fully automated integration into the financial accounting system. 

A modern system landscape not only improves process efficiency, but also reduces other risks. Optimized and system-supported planning and management of short- and long-term liquidity increases process reliability. A central tool facilitates a more efficient monitoring and management of financial risks such as forex and interest rate risk.

In regard to payment transactions and bank accounting, treasurers strive for a high degree of automation of bank statement processing as well as group-wide payment transactions, including the use of an in-house bank. The process from bank statement processing to account clearing should be as fully and intelligently automated as possible.

Going beyond the modules' individual functions, the centralization and integration of controls ensures compliance with internal control system and compliance requirements.

Thanks to a high degree of automation, manual work steps can be reduced. As a result, efficiency and transparency are increased and, at the same time, errors are greatly reduced, thus cutting down on the amount of rework required. In addition to the reduction of manual activities, the scaling down of the IT platforms and interfaces in use also results in optimized costs through lower system and maintenance costs.

The above-mentioned blocks of topics are a selection only, but they still provide a general idea about the scope that the topic of process integration can encompass. It is up to each company to decide for itself what level of integration and associated automation it is aiming for. An advantage of automating processes is that treasury functions can focus on value-creating strategic tasks, such as liquidity planning or cash management.

The extent to which processes should be integrated in turn hinges on a number of criteria that contribute to the complexity of treasury processes. The complexity of the financial risks, the global organization of the group and thus of the finance function are just two of them.

If throughout the Group, SAP systems are predominantly or exclusively used as ERP, the treasury benefits from a low number of interfaces. If numerous entities operate a non-SAP system as ERP (and are not part of the S/4HANA transformation), such as Oracle, Microsoft, etc., this advantage will not have the same payoff. In addition, new interface technologies such as API offer IT new options for implementing simple, secure and stable communication between the systems used in the treasury. This applies to any system combination.

A powerful system landscape is the cornerstone for optimized processes and an efficient treasury organization. Each treasury management system and each customized solution has its own specific strengths. However, this often comes down to individual requirements and prerequisites. Furthermore, the best user experience, i.e. the handling and usability, cannot be judged universally in an objective manner. A change to another system will always pose a challenge.

In addition, different treasury components can be combined with each other. There are several possible combinations for cash management, payment transactions or bank connectivity and risk management with the trading platforms to be linked. As part of the SAP S/4HANA transformations, it is also possible to combine SAP solutions with non-SAP solutions, for instance the revised cash management module in SAP with a risk management module from a third-party manufacturer such as FIS, ION or others. Hereby, the initial status of the system always plays an important role, because this has a strong influence on the costs of a potential migration.

In addition to the total cost of ownership, that is, the migration and implementation costs as well as operating costs for licenses and interface maintenance, the specific advantages should also be looked at.

In short, the treasury must actively and individually grapple with the S/4HANA transformation. Since the process and system landscape is changing fundamentally around the treasury, it has the opportunity to benefit from this transformation and to simultaneously optimize the systems used in the treasury (SAP and non-SAP). If treasury were to miss this opportunity, subsequent further developments would be time-consuming and onerous. In addition, companies usually work on the transformation over a period of several years, which means that internal resources for additional projects are very limited.

Treasury's needs and objectives in the individual context must be determined. The degree of integration, the complexity of the treasury function and the system-related prerequisites are the most important factors for determining the most appropriate course of development for the treasury. This is generally done as part of a preliminary study lasting several weeks, which is then used to create a comprehensive vision of the objectives and a time schedule, including all dependencies.

Source: KPMG Corporate Treasury News, Edition 112, June 2021
Authors: Börries Többens, Partner, Finanz- und Treasury- Mangement, KPMG AG; Daniel Müller, Senior Manager, Finanz- und Treasury-Mangement, KPMG AG