How to Build a World-Class Cash Management Operation

Published: January 01, 2000

How to Build a World-Class Cash Management Operation

by Rajkumar Varahagiri, Business & Systems Transformation Lead, Brocade

Key Challenges

  • Manual, antiquated, duplicate and inefficient cash processes across all functions
  • Excessive reliance on banking portals resulting in excessive bank fees and high cost structure to maintain each bank portal
  • Multiple unique point-to-point system interfaces with banking partners resulting in high IT maintenance costs and limiting the capability to scale in the future
  • Decentralised and desktop storage of banking data inhibits bank data search and exposure to confidential cash activity
  • High volume of manual journal bookings and increased period close cycle time
  • Bank-owned solutions and proprietary file formats are now proving to be a cost burden and hindrance to scale or switch banking partners

Our aim is to adopt the world class cash management process, with the most efficient use of bank services and IT.

Key Points

Opportunity

As Brocade’s cash flows grow steadily in the US and overseas, it faces more and more complex issues and new challenges every day in cash management activities. The company needs to rein in the disparate cash management activities and automate a structured business process to continuously improve the management of its bank balances and transactions.

To be most efficient, most bank transactions should occur within our ERP system, and be transmitted through a single channel between ERP and multiple banking partners.

The main objectives of the Cash Management Optimisation Project are:

1) Improve processes by streamlining banking related activities throughout Brocade using best industry practices.
2) Cut costs associated with our banking relationships worldwide.
3) Build a process and technology foundation that enables Brocade to be bank-agnostic and scale effortlessly in the future.[[[PAGE]]]

Building a business case

Fig 1 - Business Case

Since Jan 2013, Brocade’s Treasury has undergone a complete review of its processes. Through benchmarking and internal discussions, opportunities to improve the cash management process and significantly reduce costs were identified.

  • Serious soul-searching involving the effectiveness of our existing accounting and cash management processes
  • Insightful internal interviews with IT, AR, AP/Payroll, GL, and Intl AP to understand how banks are being used to complete their functions, and current issues/limitations/wish lists.
  • Benchmarking interviews with many peer treasury groups to better understand their processes, issues and solutions
  • Various lengthy discussions with multiple banking partners about existing issues and how the banks can help improve our processes and reduce our costs

After finishing all these exercises we concluded that we AS-IS processes related to cash operations and existing IT components (interfaces, data stores etc.) could improve our process dramatically by adopting industry best practice. We outlined all our and provided a comparison with the future model that promised benefits. For example, we would completely eliminate manual activity to perform a majority of cash functions (thousands of man-hours’ reduction) that include logging on to bank portals daily/monthly, retrieving bank statements, keying spreadsheets, manual journal entry and approvals and reconciliation.

Brocade Quotations

The rationale for a treasury management system (TMS) was to provide an enterprise platform to support various treasury functions (cash pooling, financial instruments, and bank account management) and reduce the dependence on bank portals. Security and control was another major factor. For example, we had 100+ user profiles, three types of security tokens and more than five authorised signatories on the banking systems. Each portal had to be maintained to ensure uniform approval processes are in place to authorise payments leading to increased external and internal compliance & SOX audits.

We recognised that by implementing a TMS our banking administration, internal controls and the efficiency of the approval process would be enhanced significantly. The rationale for Oracle Cash Management was to provide automated cash clearing & accounting, FX loss/gain accounting, automatic bank statement reconciliation, permanent data store for bank statements, automatic journal postings for bank charges, fees and other miscellaneous transactions resulting in high automation, an overall reduction of period close cycle, elimination of desktop procedures (outstanding cheque/payment tracking).

Recommendations

Optimise the cash management process, according to the four steps outlined below:

1. Consolidate banking relationships with banks that are robust and support ISO standards
2. Implement SWIFT to communicate with our banking partners
3. Utilise existing Oracle ERP Cash Management module to eliminate manual processes involving bank statement and cash reconciliation
4. Implement a TMS for treasury processes including cash management, reporting, FX and international pooling

Choosing the right solution

Figure 3

SWIFT alternatives
With SWIFT we had a choice to host the solution in-house (direct connectivity) or to work with a service bureau (indirect connectivity). The first option was overkill for a mid-sized company like Brocade while the later was not cost-effective and a deviation from our InfoSec policies.

A third option, Alliance Lite2, a light connectivity over a secured internet channe, proved the right fit for Brocade in terms of message volume, pricing, IT Infrastructure needs, ease of back-office integration and a web-based user interface. 

Treasury management system alternatives
We evaluated a few SaaS based applications and invited two leading solution providers to give us a comprehensive demonstration of the features with each of our business organisations. After the demonstration, we asked the internal business organisations to provide a score on a simple 10-question survey in terms of the capabilities, user interface, compliance, research ability, reporting, security, ease of learning, future enhancement capability.

We chose ORBIT as a partner solution that not only offered us the capabilities but also provided flexibility, in addition to the commitment to our programme goals and deadlines, product enhancements to address our business needs as a standard feature, and SLAs.

US banking partner alternatives
An RFP was sent out to major US banking corporates to replace our existing banking partner with a more robust partner. The drivers were enhancing banking interface, improved services and reducing costs. There were three final bidders and our selection criteria were based on known US product capabilities, technology capabilities, roadmaps and implementation experience, peer recommendations, international footprints and capabilities. Bank of America ultimately provided the best overall solution at the most competitive price.

A major benchmarking exercise was undertaken with many corporates that included small cap, mid-cap & large cap corporates (revenues from $2bn-$80bn), to study the implementation and integration of SWIFT with back-office systems.[[[PAGE]]]

Need for SWIFT

In Treasury, we need to communicate with our key banking partners and an additional 20+ local banking partners for making payments and obtaining statements across 30+ countries and 100+ accounts on a daily schedule. We wanted the flexibility and scalability to integrate with any of our current and future banking partners and back-office ERP systems without having to go through the entire process every time we bring on board a new banking partner, and also move away from bank specific solutions and interfaces. The logical solution was to implement SWIFT that provides a single, secure, reliable platform to integrate banks and enforces ISO standards.

SWIFT Key Features

Solution highlights

The cash management solution allowed Brocade to implement a green solution. Some of the key highlights include adopting ISO XML & SWIFT MT Standards, central bank report storage, going paperless, and the ability to attach document links to journals and a ROI payback in a year.

Implementation
We submitted our business case in August 2013, followed by an RFP for US banking relationship and TMS application. The necessary IT architecture, infrastructure and information security technical evaluations were performed, followed by a review of the legal documentation and negotiation before procuring the applications and services. We then formally started the implementation in December 2013 with all our partners - Bank of America, ORBIT, SWIFT and IT.

IT was a key player in the implementation as it was involved in the technical integration of our back- office application with banks, SWIFT and ORBIT. We had our first test file exchange with the banks in March 2014 and our first production file exchange was in April 2014.

Next steps
After going live with SWIFT Alliance Lite2, positive pay, customer lockbox, bank statements reporting, payment factory for straight-through processing (STP) in April-May 2014, the next step is to roll out our Oracle cash management and ORBIT TMS. The process improvements that have gone live are already starting to yield operational efficiencies.

Advice and experience

This initiative is proving to be successful and the organisation is very excited about it. Based on our experience, here are a few points that may be of use.

Legal documentation
Banking partners are very particular about the legal sign-off before initiating any conversation on the project deliverables or bringing on board their technical project team. It is essential to have these contingencies as part of the project plan.

Commitment
Banks, TMS vendor, internal IT and business teams are all critical to the success of the project. Their commitment should be engaged early.

Project plan
Project plans need to be built in unison with all the partners taking into account freeze periods, lead times, resource availability etc.

Lead times
When we planned to go live with our first interface, banks demanded a 10-day lead time as they had to adhere to their next production deployment windows. We had the same experience with rolling out SWIFT configurations, as they had specific production deployment windows and the request had to be provided at least seven days in advance.

Charges and fees
Each message via SWIFT Alliance Lite2 is charged. Our first bill from SWIFT included a charge for over 200+ messages - all of the traffic was due to the test and training period. Be aware that each test message is also charged and billed by SWIFT. Optimising the test message traffic would add to cost savings.

System availability and back-up options
Banking interfaces require 99.99% of system uptime. Maintenance and downtime window opportunities are very limited and should be planned precisely and meticulously to avoid any business disruptions (payroll payments, debt payments etc.). SWIFT provides a key feature (store and forward) that re-attempts delivery if banking systems are temporarily down. Using Alliance Lite Web Access, payment instructions can also be delivered during emergencies.

Having a back-up payment system (e.g., bank portal) to deliver payments while the systems are down due to unforeseen circumstances would save the organisation from late fees and credit downgrades.

Technical challenges
We faced challenges with the initial installation and configuration of SWIFT Alliance Lite2. By pro-actively working with the SWIFT Account Management team we were able to get the right attention to address the issue.

Involving the technical teams at both ends early in the cycle to share the technical details would help avoid last-minute surprises. For example, our first set of VPN boxes shipped out by SWIFT failed to establish a connection with SWIFT and we had to power recycle them. This wiped the Brocade specific SWIFT configurations and necessitated a replacement.

The final picture

  • Bank agnostic - reduces concentration risk with any one bank partner
  • Low cost structure - lower bank fees. Elimination of bank portals
  • Increased controls around cash processing
  • Elimination of manual processes, increased automation.
  • Reconciliation, payments, data storage and search capabilities of bank data
  • Cost effective, scalable model
  • Leverage standard bank connectivity used throughout the banking industry
  • More secure, standard formats.
  • More effective use of cash and human resources.

Treasury Today’s Adam Smith Awards 2014

Brocade was the winner of Treasury Today’s Adam Smith Awards 2014 - Best in class Benchmarking - for this Cash Management Optimisation Initiative.

Rajkumar Varahagiri

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Article Last Updated: May 07, 2024

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