Capital AllocationCash & Working Capital

A Look Back at Our Enterprise Reconciliation Insight

By February 27, 2020 March 11th, 2020 No Comments

Founder’s Edition, by Joseph Neu

A 20-year-old best practice guide says a lot about the state of working capital management today.

There seems to be a lot of renewed interest in working capital management lately, with a focus on automating processes, capturing data and deploying technology. The goal: to improve analysis and predictability of the quote-to-cash, order-to-delivery and purchase-to-pay cycles. This stands to vastly improve working capital management, but especially cash and liquidity management.

  • I kept thinking, all of this seems oddly familiar, and now I know why. I dug up one of our old best practice guides, published 20 years ago: Enterprise Reconciliation: The New Foundation for Cash Management in the Era of E-Commerce. Substitute AI-powered data matching for reconciliation and digital transformation for e-commerce and we could easily republish the guide today.

Produced with Chase Bank, the guide drew from a series of exchanges with companies (including Colgate-Palmolive, Dell, Eli Lilly, Merck, Microsoft, Nike and P&G) and a roundtable we facilitated in April 2000. The latter offered practical guidelines for how treasury, leveraging the internet, could take a leading role in promoting “enterprise reconciliation.” Here are some takeaways that remain highly relevant today:

  • Enterprise reconciliation requires businesses to reconcile information on transactions conducted through the banking system via intra-enterprise networks and extra-enterprise networks connecting business value chains.  Generally, these reconciliations come in three types:
    • Matching cash positions with those reported by banks via primary collection and disbursement accounts, and secondary custodial accounts receiving funds from investments and dispersing them to investors.
    • Matching cash with payments and receipts from invoicing and bill presentment that come from suppliers and customers (which also may be performed by a bank).
    • Matching cash positions with physical goods and services ordered, sourced, manufactured and delivered prior to the payments being made or received.
  • Total working capital management requires that data from each type be regularly reported, captured and analyzed relative to current, future and historical information.

In the broadest sense, then, enterprise reconciliation was understood as capturing data from all transactions, analyzing it and connecting the dots to gain instant insight and develop foresight on what the transactions say about the business today and what they can predict.

  • Two-decade-old challenges. Extending the bank reconciliation concept to the enterprise level posed three major challenges that should also ring familiar:
    • Moving to real-time reporting and processing that captures all relevant data.
    • Integrating data on physical and anticipated transactions with actual cash payments.
    • Creating a mandate to act on the data across the relevant functional finance and business silos.   

Finally, the old guide’s checklist items, meant to prompt specific actions, are totally relevant today. These include:

  • Expand scope—or die. As treasury’s time gets freed up by automation, teams need to expand their scope to other areas for financial operations to be in the game for total working capital management.
  • Assemble a cross-functional team. If a “takeover” isn’t possible, then assemble a team to work across the relevant finance silos and—above all—partner with the business units. Make sure you receive a clear mandate to both obtain the needed data and act on it.
  • Form partnerships with business operations based on common goals. Identify partners in specific business operations and determine how you can help them meet specific performance goals.
  • Go on-site to find data. Jointly looking under the hood to find relevant data is one of the main reasons to form these partnerships, so do it.

As happy as I am about the value of this 20-year-old insight, I’d rather see it have very little relevance beyond nostalgia when I look back in 20 years.

Ted Howard

Author Ted Howard

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