Optimization of Working Capital through Financial Supply Chain Management
The CFO is at the heart of complex internal and external relationships that need to be connected intelligently. As the company’s integrating force, they must also take care of all the individual aspects of the financial supply chain (FSC). This chain encompasses all processes and transactions that have a direct impact on cash flow and working capital. As the diagram below illustrates, the financial supply chain starts with the selection of business partners and continues with the payment process, drawing up reports and analyses, and making cash-flow forecasts.
Effective FSC management can be a great blessing for the CFO, because it can positively influence customers, financial forecasting, and working capital. The advantages of successful FSC planning for your company include:
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Improved inventory monitoring and cash-flow management;
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Reduction in the working capital by 20% and more;
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Lower installment payments for the required working capital;
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Earlier identification of problems with business transactions;
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More efficient, automated financial systems.
Until recently, the individual financial functions were usually regarded by CFOs not within the context of an integrated supply chain, but rather as separate entities. An integrated approach enables better resource management and makes it easier to adjust the financial supply chain to operational requirements. Such an approach offers CFOs the following benefits:
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Integrated cash-flow management;
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More exact profitability forecasts through more up-to-date and precise information about customers;
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Better use of the working capital and avoidance of an expensive working capital float;
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Greater drilldown depth in financial reports;
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Faster and more efficient resolution of payment problems;
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Comprehensive overview of business partners;
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Improved support for strategic planning.
Moreover, an integrated financial supply chain accelerates the processes between the vendor and the customer, which represents a decisive competitive factor in today’s transient business environment.
Financing and invoice processing are usually the most expensive factors in financials, and tie up large amounts of capital. Traditional ERP systems can accompany these processes, but are often not yet integrated with the related systems to customers, vendors, and banks. SAP® Financial Supply Chain Management (FSCM) is a concept that encompasses the entire process—from selecting vendors and customers, through the payment process, reporting, and analysis—in other words, all processes that directly have an impact on cash flow and working capital, and not just within the company, but also throughout the business partner network. A Swiss SAP customer stated: “The SAP solution supports, improves, and optimizes the business processes in the financial supply chain by drastically cutting the days of sales outstanding (DSO), and reducing the cost of finance, ultimately optimizing the working capital.”
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