CASH MANAGEMENT

Prepared by Parag Kasrekar Presented by Ameya Poredi

WHY CASH MANAGEMENT IS IMPORTANT?

Cash is money that is easily accessible either in the bank or in the business Most liquid of the current assets Take advantage of strategic investments Take advantage of opportunities to reduce costs

Profit growth does not always mean more cash

EFFECTIVE CASH MANAGEMENT CAN HELP

YOU
Measure and monitor Manage Achieve cost savings Ensure financial stability Anticipate problems Maximize results

Better cash management means more successful operations.

WHY FINANCIAL ACCOUNTING IS NOT

SUFFICIENT Realize that cash flow and profit is not the same thing It is important to understand that financial accounting is not focused on cash flow It is focused on net income or profit Over the long term, profit and cash flow, are approximately the same but the crucial difference is timing

CASH VS PROFIT
Cash is ready money in the bank or in the business Profit is the amount of money you expect to make over a given period of time, while cash is what you must have on hand to keep your business running. Profit growth does not necessarily mean more cash on hand Over time, a company's profits are of little value if they are not accompanied by positive net cash flow. You can't spend profit; you can only spend cash.

CASH FLOW
Cash flow refers to the movement of cash into and out of a business. The outflow of cash includes those checks you write each month to pay salaries, suppliers, and creditors. The inflow includes the cash you receive from customers, lenders, and investors.

CASH FLOW
Positive Cash Flow If its cash inflow exceeds the outflow, a company has a positive cash flow. A positive cash flow is a good sign of financial health, but is by no means the only one. Negative Cash Flow If its cash outflow exceeds the inflow, a company has a negative cash flow. Reasons for negative cash flow include too much or obsolete inventory and poor collections on accounts receivable (what your customers owe you). If the company can't borrow additional cash at this point, it may be in serious trouble.

CASH FLOW
Operating Cash Flow: Operating cash flow, often referred to as working capital, is the cash flow generated from internal operations. It comes from sales of the product or service of your business, and because it is generated internally, it is under your control. Investing Cash Flow: Investing cash flow is generated internally from non-operating activities. This includes investments in plant and equipment or other fixed assets, nonrecurring gains or losses, or other sources and uses of cash outside of normal operations. Financing Cash Flow: Financing cash flow is the cash to and from external sources, such as lenders, investors and shareholders. A new loan, the repayment of a loan, the issuance of stock, and the payment of dividend are some of the activities that would be included in this section of the cash flow statement.

LIQUIDITY
There term liquidity is often used in combination with cash management. Liquidity is defined as a company's ability to pay its short-term debt obligations. How is liquidity measured:

Current ratio Quick ratio

CASH MANAGEMENT
Good cash management is simple. It involves: Knowing when, where, and how your cash needs will occur Knowing the best sources for meeting additional cash needs Being prepared to meet these needs when they occur, by keeping good relationships with bankers and other creditors The starting point for good cash flow management is developing a cash flow projection.

CASH MANAGEMENT SYSTEM

The tasks of a cash management system include: Analyzing financial transactions within agreed posting periods. Identifying and mapping future trends in financial budgeting as accurately as possible. Cash concentration

BANK A MAJOR LINK IN FSCM

A major player in a businesss financial supply chain Products and services flow from suppliers, through to producers, to customers. Cash flows in the opposite direction You can deal effectively with your bank by thinking of it as another supplier, albeit an important one As is the case with any service provider, you want to be proactive and try to understand things from their perspective

BANK A MAJOR LINK IN FSCM

Your bank may actually play several different roles: Services in connection with bank accounts, routine processing, and other related services Sources of credit Sources of investment of excess funds

WHY SAP CASH MANAGEMENT

Most businesses have too many bank accounts, held at too many different banks. This makes it difficult to keep an overview of the relevant account balances. As banks send statements daily, precise, value-date accounting often does not take place. Businesses miss out on the full benefits of investment instruments because value date information is lacking. Payments are often made from one account only, regardless of whether it contains sufficient funds.

WHAT SAP CASH MANAGEMENT DOES?

SAP Cash Management offers the following tools, designed to make cash flows clear: The cash position, which illustrates short-term trends in the bank accounts The liquidity forecast, which illustrates mediumterm trends in sub-ledger accounts too Thus, SAP Cash Management caters to Short- to mid term liquidity planning. For medium to long term liquidity analysis and planning we can use SAP Liquidity Planner.

SAP CASH MANAGEMENT REPORTS

The cash position illustrates trends in bank accounts over the next few days. The liquidity forecast, on the other hand, illustrates liquidity changes in the sub-ledger accounts. Functions that enable to gain relevant information on expected forecast payment flows are also supported. This information appears in the form of memo records in the cash position, or as planned items in the liquidity forecast.

CASH POSITION

SAP Cash Management uses the cash position to reflect movements in bank accounts, while movements in the subledger accounts are represented using the liquidity forecast.

LIQUIDITY FORECAST

The liquidity forecast is based on payments from/to customers and vendors in accordance with the open items. As planning for incoming and outgoing payments covers a larger time frame, the probability of the payments occurring on the day given is less than in the cash position.

SAP CASH MANAGEMENT

Helps to get Cash Position and Liquidity Forecast depending upon

Planning Level Planning Types (classifying cash-flows entered manually/ for linking Memo records with Planning Levels) Planning Source (further breakdown of Planning LevelsBank or subledger a/c) Planning Groups (assigned to customers and vendors)

STRUCTURING
Source Symbols
Used in Cash Position Used in Liquidity Forecast

Planning Level

Planning Types

GL Accounts

Planning Groups

Memo records

Bank Accounts

Customer / Vendor Accounts

CASH POSITION AND LIQUIDITY FORECAST

Both reports contain levels. These supply high-quality information on the commercial reasons for a movement in an account - that is, they explain how the account opening and closing balances came about. For example, levels give information on whether a balance in a bank account is the result of a bank posting or of a memo record entered manually. They can also be classified according to how secure the receipt is (confirmed or unconfirmed memo record, for example). In the cash position, accounts (bank and bank clearing accounts) supply information on the current balance. The liquidity forecast contains groups instead of accounts. Vendors and customers are assigned to a planning group by means of an entry in the master records. Each group reflects certain features, procedures, or risks.

CASH POSITION
A snapshot of actual cash balances across different cash accounts. Planning Levels assigned to G/L accounts Planning Types for manual planning (memo records) linked with Planning Levels Memo Records:

to include additional information which involves incoming and outgoing payments that do not trigger actual postings in Cash Management.

DEPENDENCIES ON OTHER MODULES

Cash Management does not hold or generate any business transactions. It pulls data from other modules namely- GL, AP, AR, Banking, MM, SD, Treasury Management (TRM) and displays it through the two reports Cash Position and Liquidity forecast.

Cash Management

Cash Position

Liquidity Forecast

Bank Accounts

Clearing Accounts

Vendor Accounts

Open Items

Customer Accounts

GL

MM

AP

AR

SD

(Note: Integration with SAP Treasury Management is not shown in the above diagram)

PREREQUISITES - CASH POSITION

Process any outgoing payments or Lockbox processing Perform manual/electronic check deposit Import and process any manual / electronic bank statement Create / upload memo records, if any

Why required? These activities actually update the bank accounts and the bank clearing accounts, i.e., the corresponding GL accounts in SAP, thus giving the latest cash position.

TRIGGERS

Creation of Purchase Order (PO) Liquidity Forecast is updated with value of PO as a commitment based on the schedule lines entered in the Purchase Order Vendor posting - Liquidity Forecast is updated with value of invoice based on the payment terms Creation of Sales Order (SO) Liquidity Forecast is updated with value of SO as a commitment based on the schedule delivery date entered in the Sales Order Customer posting Liquidity Forecast is updated with value of invoice based on the payment terms Bank Posting - Cash Position is updated with document value based on the value date for bank main, outgoing and incoming accounts Posting to GL relevant to planning level Cash Position and Liquidity Forecast is updated with relevant document value (E.g. Tax Payable Accounts, Fixed Deposits Accounts etc.) Creation of Memo Records The memo records have updated the financial status in cash management and can be found under the corresponding planning level

INTEGRATION WITH ORDER TO CASH CYCLE

ORDER TO CASH CUSTOMER MASTER DATA

Cash management Group field in the Customer Master Data

28

ORDER TO CASH SALES ORDER

Payment Terms

Delivery Date
29

ORDER TO CASH LIQUIDITY FORECASTING

REPORTING

30

ORDER TO CASH LIQUIDITY FORECASTING REPORTING.CONT

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ORDER TO CASH LIQUIDITY FORECASTING REPORTING.CONT

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ORDER TO CASH INVOICING

33

ORDER TO CASH LIQUIDITY FORECASTING

REPORTING

34

ORDER TO CASH LIQUIDITY FORECASTING REPORTING ..CONT

35

ORDER TO CASH INCOMING PAYMENT

36

ORDER TO CASH INCOMING PAYMENT

37

ORDER TO CASH CASH POSITION REPORT

38

ORDER TO CASH CASH POSITION REPORT .CONT..

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ORDER TO CASH CASH POSITION REPORT .CONT..

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ORDER TO CASH CASH POSITION REPORT .CONT..

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ORDER TO CASH BANK RECONCILIATION

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ORDER TO CASH CASH POSITION REPORTING

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ORDER TO CASH CASH POSITION REPORTING.CONT

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ORDER TO CASH CASH POSITION REPORTING.CONT

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ORDER TO CASH KEY FIELDS

Delivery Date in the Sales Order Payment terms in Sales Order

Value Date in incoming collection document

46

INTEGRATION WITH PROCURE TO PAY CYCLE

PROCURE TO PAY VENDOR MASTER DATA

Cash management Group field in the Vendor Master Data

48

PROCURE TO PAY PURCHASE ORDER

49

PROCURE TO PAY LIQUIDITY FORECASTING

REPORTING

50

PROCURE TO PAY LIQUIDITY FORECASTING REPORTING CONT

51

PROCURE TO PAY LIQUIDITY FORECASTING REPORTING CONT

52

PROCURE TO PAY VENDOR INVOICING

53

PROCURE TO PAY LIQUIDITY FORECASTING

REPORTING

54

PROCURE TO PAY LIQUIDITY FORECASTING REPORTING CONT

55

PROCURE TO PAY LIQUIDITY FORECASTING

REPORTING

56

PROCURE TO PAY LIQUIDITY FORECASTING REPORTING CONT

57

PROCURE TO PAY KEY FIELDS

Delivery Date in the Purchase Order Payment terms in Purchase Order

Baseline date in vendor invoice

Value Date in outgoing payment document

58

MEMO RECORDS INTEGRATED WITH

CASH POSITION

MEMO RECORD

60

MEMO RECORD LIQUIDITY FORECASTING

REPORTING

61

MEMO RECORD LIQUIDITY FORECASTING REPORTING CONT.

62

INTEGRATION WITH TREASURY MANAGEMENT

TREASURY TRANSACTION

64

TREASURY TRANSACTION CASH FLOW

65

TREASURY REPORTING (DELTA DISPLAY)

66

TREASURY REPORTING (DELTA DISPLAY).CONT..

67

TREASURY REPORTING (INTEREST PORTION)

68

CASH POSITION IN FOREIGN CURRENCY

CASH POSITION IN FOREIGN CURRENCY (OVERALL VIEW)

70

CASH POSITION IN FOREIGN CURRENCY (OVERALL VIEW)

71

CASH POSITION IN FOREIGN CURRENCY (ONLY DOLLAR)

72

CASH POSITION IN FOREIGN CURRENCY (ONLY DOLLAR)..CONT..

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CASH POSITION IN FOREIGN CURRENCY (ONLY DOLLAR)..CONT..

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CASH POSITION IN FOREIGN CURRENCY (DOLLAR DISPLAY IN LOCAL CURRENCY INR)

75

CASH POSITION IN FOREIGN CURRENCY (DOLLAR DISPLAY IN LOCAL CURRENCY INR).CONT

76

CASH POSITION IN FOREIGN CURRENCY (DOLLAR DISPLAY IN LOCAL CURRENCY INR).CONT

77

CASH POSITION OTHER INFLOW / OUTFLOW

CASH POSITION - OUTSTANDING LIABILITIES (MASTER DATA)

79

CASH POSITION - OUTSTANDING LIABILITIES

80

CASH POSITION - OUTSTANDING LIABILITIES CASH POSITION

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CASH POSITION - OUTSTANDING LIABILITIES CASH POSITION.CONT

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CASH POSITION - OUTSTANDING LIABILITIES CASH POSITION.CONT

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CASH CONCENTRATION

CASH CONCENTRATION
Cash concentration involves moving the balances from various bank accounts to one target account, keeping defined minimum balances in the source accounts. The system creates a concentration proposal based on the grouping.

CASH CONCENTRATION PROPOSAL

Source and Target accounts could be from same or different company codes
Target account

Source Account 1 Min. Balance Excess Cash

Source Account 2 Min. Balance Excess Cash

Source Account 3 Min. Balance Excess Cash

CASH CONCENTRATION

Create cash concentration proposal

The proposal contains the balance for the end of the day, and the planning result -that as, the likely account transfers. The result is printed and takes the form of payment orders to the banks.
Payment advices are also created. They are necessary for the new bank balance at value date.

Generate Payment Requests

Process Payment Run

STRUCTURING
Source Symbols
Groupings Groupings used for cash concentration

Planning Level

Planning Types

GL Accounts

Planning Groups

Memo records

Bank Accounts

Customer / Vendor Accounts

LIQUIDITY PLANNER

LIQUIDITY PLANNER
Spreads across SAP CLM and SAP BI Liquidity Items (LI) Assignment of LI Settings for assignment Transfer Payment report Total List

LIQUIDITY ITEMS

A liquidity item stands for the actual origin or use of a payment

INFLOW OUTFLOW RECEIPTS PAYMENTS VENDORS CUSTOMERS BALANCES

Basically, to classify the cash flows mark each cash flow with an identifier called Liquidity Item.

LIQUIDITY PLANNER
Assign to Bank Accounts Assign to GL Accounts

Define Query Sequence

Define Liquidity Items

IMG SAP Easy Access

Define Query

Assign Query to Query Sequence

Assign Liquidity Items to Payments generated by Query sequence

View Liquidity Reports

APPENDIX

REFERENCES

AC805 Cash Management FSC800 SAP Liquidity Planner

SAP Cash Management Building Block Configuration Guide

QUESTIONS ???