In-House Cash Management Improves Visibility, Efficiency, And Overall Cash Utilization

Dave Fellers

All companies need to carefully manage their cash to ensure that sufficient funds are always available to support business operations. However, in today’s global enterprises, it can be difficult to maintain clear visibility and management of diverse cash repositories. This can be especially challenging when subsidiaries and other operating units maintain separate external banking relationships within their regional or local environments.

I’ve touched on related issues in recent blog posts on working capital management and the need for a global approach to cash management. In this article, we are going to take a closer look at another key tool: in-house cash management.

What is “in-house cash”? Essentially, it is a process in which key cash-management functions can be centralized within the treasury function while still providing needed flexibility for diverse business units to locally manage their unique operational cash requirements.

A centralized “internal bank”

Using advanced tools, companies can bring all their intragroup payments within a central treasury function to minimize the risks of trusting critical payments to third parties. Instead of having much of the organization’s cash in external bank accounts, it is handled by the centralized “internal bank.”

The integrated in-house cash application enables easy setup and management of multiple internal bank accounts to serve the needs of different operating units. From the perspective of the individual business units, these internal accounts function exactly like external bank accounts, except that cash stays within a single centralized account.

The key benefits of in-house cash include the ability to:

  • Eliminate unnecessary external bank accounts
  • Significantly reduce external financial costs
  • Streamline overall banking relationships for maximum efficiency and control
  • Enable netting of intracompany activity before turning to external sources
  • Reduce overall costs of borrowing
  • Concentrate working capital and reduce carrying costs
  • Improve cash forecasting and planning capabilities
benefits of in-house cash management

For example, consider a domestic company with a global organization that includes four to five legal entities in Europe and another four to five entities in the U.S., each of which is managing its own receivables and payables using an external bank. Each entity might have 10 people handling these processes for a total of 80 to 100 staff. By transitioning to an in-house cash approach, the company could reduce the number of external bank accounts to only one centralized account or a few regional accounts, depending on specific country restrictions or legal requirements.

Simplified cash management

For simplicity, let’s assume that the company goes from 10 external accounts down to one central bank account. The in-house cash consolidation could potentially reduce staff requirements by as much as 90%. By eliminating the unnecessary staff time for supporting nine external accounts, these valuable accounting resources can be reassigned to higher-priority needs.

The company can process collections through the virtualized local accounts and provide all necessary financial tracking and reporting locally while leveraging the benefits of centralized in-house cash. An advanced in-house cash application can handle a range of multi-currency requirements to support local and regional needs. In addition, centralized cash management streamlines responsiveness, simplifies processes, and improves security.

coverage in in-house cash management

In effect, using in-house cash management provides significant savings and productivity improvements while also enhancing cash visibility, forecasting, and overall cash utilization. This enables companies to optimize their overall working capital management, reduce risk, and enhance global competitiveness.

Learn more about the SAP In-House Cash application.

Dave Fellers

About Dave Fellers

For over 25 years, Dave Fellers has leveraged business and technology solutions to help companies solve pressing challenges and improve performance. Since 1995, he has focused on applying SAP products to deliver real business improvements to organizations ranging from family-owned businesses to Fortune 100 companies in more than a dozen industries. Dave first joined Bramasol in 2007 to re-launch its professional services business. Since becoming CEO in May 2011, he has guided Bramasol to record-setting growth and revenues highlighted by the successful drive to serve the Office of the CFO in Accounting Compliance, Treasury and Finance Transformation, and a major acquisition that doubled the size of the company and gave it a global reach. Before joining Bramasol, Dave spent nine years at Deloitte, and started his career at Price Waterhouse where he first worked with SAP software. Dave is a graduate of Virginia Tech with a degree in Accounting Information Systems.