Published: September 19, 2011
Deep process-level integration between corporate clients and their banks enables straight-through reconciliation, facilitates informed decision-making based on the data available directly in the corporate ERP systems, and helps corporate clients maximise their ROI on ERP systems, according to Vairavan Ramanathan and Amit Vyas of Standard Chartered Bank.
As physical and financial supply chains always co-exist, streamlining and automating only one and not both will result in limited benefits.
In the past decade many companies have made significant investments in eliminating inefficiencies from their physical supply chains. Enterprise resource planning (ERP) applications have contributed significantly in streamlining the information flows and providing basic information to decision-makers.
The initial focus on centralising transaction processing to gain scale and reduce costs has delivered some expected benefits.
The ability to optimise the process becomes even more important in the light of the move towards shared service centres (SSCs) and regional treasury centres (RTCs). Companies are seeking ways to improve the efficiency of their finance and treasury centres by moving common processes to SSCs and setting up RTCs.
That initial focus on centralising transaction processing to gain scale and reduce costs has delivered some expected benefits. The next phase involves collaboration between corporations and their banks to build up financial and operational efficiencies through process-based integration and straight-through reconciliation (STR).
Companies looking to maximise the return on investment on their ERP and treasury management systems are actively seeking process-based integration with their financial services providers. Specific focus is placed on integrating the receivables, payables and trade-related processes.
While banks continue to offer online services combined with file-based integration, the inherent constraints of such an approach often limit the benefits. Modifying the ERP system to capture a richer set of information is not always feasible – giving rise to the need for an intermediate, process-based layer between the banking systems and the clients’ ERP systems.
The benefits of such process-based integration include trend-based cash application and posting, auto-reconciliation of payments and reflection of payments and trade processes in the cash flow – so that letters of credit (L/Cs) are clearly linked to the corresponding invoices/purchase orders.
This approach enables banks to provide their clients with a seamless integration of their trade flows into their financial flows, while eliminating the need for clients to make sizable investments in enhancing their ERP or treasury systems.
Historically, straight-through processing (STP) was aimed at achieving automation, cost reductions and facilitating the flow of information. Today, the focus is shifting towards better working capital management.
With STR, companies will be able to realise their sales proceeds faster, achieve better control of their payment processes and fully integrate their cash and trade functions to optimise cash-flow forecasting.
Apart from the benefits listed above, STR will help achieve the stated benefits of STP, namely cost reductions, more efficient reconciliation, full visibility of cash across entities and regions and greater operational efficiency.
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In response to clients’ feedback, Standard Chartered has designed the Straight-2Bank Access for Oracle E-Business Suite which offers deeper process-based integration into clients’ Oracle E-Business Suite systems.
Straight2Bank Access closes the connectivity gap by providing a two-way integration between corporate clients and bank, enabling clients to move from STP to STR. The key benefits of the solution include:
When a payment is initiated by a corporate client in its Oracle E-Business Suite, the payment information is captured by the solution, and the enrichment of data is done outside of the ERP system, without making any changes to it. The solution then validates the payment to improve the STP rates.
Receiving a direct debit payment is significantly cheaper than receiving a paper-based payment.
If the payment is rejected due to validation errors, or the authoriser chooses to reject the payment, a voiding report is generated with the bank and ERP reference numbers to help the corporate finance team to void the payment.
After processing the payment, advices are generated for the beneficiary, and the intra-day statements are sent back and loaded into the Oracle E-Business Suite’s Cash Management Module. End-of-day bank statements are uploaded into the Oracle E-Business Suite for auto reconciliation.
Corporate clients are alerted via email if there are any unreconciled items and for exception handling.
Statistics indicate that the most time-consuming and costly aspect of accounts receivable (A/R) management actually starts after receiving the money. Further research indicates that receiving a direct debit payment is significantly cheaper than receiving a paper-based payment, highlighting the importance of control in the receivables processing.
Standard Chartered’s solution for receivables is built on the following drivers: cash application and posting (management by exceptions), switch to efficient collection mechanism and early notification. [[[PAGE]]]
Management by exceptions
Acting as an intermediary between banking systems and clients’ ERP systems, the solution facilitates faster application of funds to a client’s account. With a built-in learning engine, historical receipts are analysed and receipts tracked for an early application of funds to smooth the realisation of proceeds.
Once the funds are applied to a client’s account, the solution focuses on cash posting. An auto-reconciliation engine supported by a data-enrichment service, associates receipts with corresponding invoices to mark the invoice closure. If cash posting is unsuccessful, an exception queue is maintained on the solution itself, allowing clients to access both current and historical information to expedite the exception processing.
The model allows clients’ A/R teams to focus on exceptions, while the rest of the receipts are auto-posted and applied together with closure of invoices and release of credit limits.
Efficient collection (see figure 1)
The solution allows clients to manage their direct debit mandates efficiently. Based on the billing cycle and invoice due dates, the solution will auto-generate direct debit transactions from Oracle E-Business Suite and send them to Standard Chartered for processing. Since these transactions are pre-reconciled, their updated success/failure status will automatically be reflected in the A/R statement and lead to closure of paid invoices, effecting instant realisation of receipts.
Notification
Exceptions can be resolved quickly if they are promptly brought to the attention of the right people.
Standard Chartered’s solution provides auto-exception tracking and notifications that can be configured by clients. While configuring the notifications, clients can specify what type of exceptions should trigger the notifications, and designate relevant individuals within the organisation who should be notified. Armed with instant awareness regarding the exceptions, companies can resolve disputes faster and significantly improve their exception management processes.
The solution integrates with the purchasing and sales order management modules of Oracle E-Business Suite to extract purchase orders, invoice acceptances, sales orders and invoices, and sends this information to Standard Chartered’s trade system for financing and to process L/Cs.
Exceptions can be resolved quickly if they are promtly brought to the attention of the right people.
The solution uploads updated intra-day statements and auto-reconciled end-of-day statements into the Oracle E-Business Suite’s Cash Management Module. The corporate user is notified of unreconciled and exception items via email.
The key is to realise the above benefits at the lowest possible cost. The solution is designed for faster on-boarding, and is highly configurable which lowers implementation costs. It provides tight security at transport and message level through the use of digital certificates and encryption, and is based on the ISO 20022 XML industry standard.
The depth of integration described in this article is aimed at enabling STR and allowing corporate clients to make informed decisions based on the data available directly in their ERP systems, eliminating the need to gather data from multiple sources.
Straight2Bank Access for Oracle E-Business Suite was designed specifically to drive STR, and aims to support the next generation of integration needs for Standard Chartered’s corporate clients.
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