Financial Supply Chain: Managing Enterprise Cash Flow

If we use the SCM concept to manage cash flow, can Financial Supply Chain reduce the amount of cash that enterprises need to store?

Supply Chain Management (SCM) can reduce inventory and reduce costs, but supply chain management system is usually used to manage logistics. If we use SCM to manage cash flow, can financial Supply Financial reduce the amount of cash needed by enterprises?

Although ordinary ERP systems provide financial management modules, they can improve the degree of automation of internal financial management to some extent. However, the management of financial pactions between enterprises is still done manually, and many important e-procurement behaviors have not yet been able to realize the automation of the payment process.

The emergence of the new concept of financial supply chain is expected to further improve the efficiency of the core departments of enterprises. Others believe that it will lead to the next important business mode after ERP.

The introduction of ERP in financial supply chain is a big wave in the field of enterprise computing in the past twenty years. 85% of Fortune 1000 companies have implemented ERP.

The inventory cost of the first 1000 companies in fortune's early 90s was about US $150 billion in the beginning of the year. If we could reduce the inventory, we could save the cost considerably.

According to the US Department of Commerce, the inventory / sales ratio dropped from 5.4 to 4.8 between 1980 and 1990.

It can be seen that cash reserves are very similar to inventory in some respects. If there is a lack of foresight in their sources and uses, inventory and cash need to be stockpiles.

But if we get information from the relevant supply chain and manage it, we can reduce uncertainty. For inventory, it is raw material and service supply chain. For cash, it is financial supply chain.

It is estimated that the cash reserves of the top 1000 companies in fortune are as high as $90 billion.

Although the current e-procurement can be completed within a few seconds, the goods can be sent the next day, but the flow of funds still takes several months.

In fact, many important e-procurement practices have not yet automated the payment process.

The main problems are: the single point solution is not perfect, the integration is very limited, the integration and automation degree of enterprises is limited, the dispute resolution, reconciliation and payment are still manual methods.

Some experts say that there are two key points in the management of the financial supply chain: first, whether it is able to get accurate information about future cash expenditure needs and cash inflows; and two, whether the basic technical realization is in place.

In the past three years, the Internet has become one of the main ways to link businesses, and the business processes of enterprises are also built on trusted network infrastructure.

It is time to automate invoice receipts, tax calculation, invoice approval, payment and cash management.

Although there may be some security problems, it is technically sufficient to support the deployment of electronic payment systems.

If we can build a perfect financial supply chain management system, enterprises can not only make the cash flow more pparent and healthy, but also help suppliers realize self-help management, reduce the cost of invoice processing and reconciliation, improve the final settlement and eliminate repeated payments.

The biggest obstacle that many automation solutions currently encounter is that 80% of the process is still based on paper. Therefore, the automation solution of the financial supply chain must start from paperless, and try to avoid getting bogged down in complex business process reengineering.

The implementation process of a specific financial supply chain can be divided into four stages: the electronic document.

OCR technology is used to replace the heavy data entry work. Electronic invoices are checked and passed according to the purchase order, so that the approval is easier and can be passed through the standard workflow system, so as to allow time to deal with various exceptions.

When OCR technology is not available, manual management of exception management is needed.

Financial pactions automation.

After the payment is changed to electronic payment, the payment process can be completely controlled, so that payment can be made anytime and anywhere.

Electronic payment may not be able to shorten the payment cycle. If the customer wants to maintain 30 days' payment time, it can pay on the last day.

However, with the electronic payment, enterprises can offer various preferential terms to shorten the payment cycle through negotiation.

A major misunderstanding that needs to be clarified is that some people think that the delay in the inherent deadline caused by the paper process can bring some benefits.

But in fact, for most enterprises, the benefits of improving operational efficiency, plus the date of payment that can be arranged arbitrarily, has greatly compensated for any loss caused by floating income.

In addition, automation technology makes it more feasible to use cash control to optimize cash position.

Debt management automation.

In the United States, the Sarbanes-Oxley bill brings new pressure to the operation of enterprises in terms of regulations. If there is no end to end automation solution, it is impractical to realize the report accurately, quickly and pparently.

In addition, sales / usage tax rates vary in different regions and vary year by year, and automated solutions can save financial management costs while enhancing operational efficiency.

Liquidity management.

Once the financial process is automated, it can strengthen the links between various departments in the financial supply chain, thus eliminating the uncertainty of the payment chain. It can help enterprises to optimize cash management according to the accurate information of daily accounts payable and accounts receivable, while improving credit and credit decisions, and has the opportunity to seek external financing channels, such as agency financing.

A US company recently implemented a financial supply chain management system. The results show that its operating efficiency has greatly improved: 85% of pactions no longer require data entry; the cost of invoicing has been reduced by more than half, and the cost of each item has been reduced to $1.27; and the operating cost has also decreased by 30% (the direct impact brought by the reduction of full-time staff).

Other major benefits include improving paction and payment terms, and reducing the need for IT resources supporting multiple payment systems.