Financial planners can find great benefit in using tools that help them plan their inflows and outflows accordingly;...
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SAP Cash Management is one such tool. The subcomponent of SAP Financial Supply Chain Management primarily reflects the financials associated with procure-to-pay -- procurement cycle -- and order-to-cash -- sales cycle -- business processes.
SAP Cash Management provides two reports, namely:
- Cash position
- Liquidity forecast
The cash position report reflects the short-term cash in and outflow of the company, while liquidity forecast predicts the long-term cash position.
Take a look at how the system updates both of the reports in procure-to-pay and order-to-cash by evaluating the working capital. Working capital, in its simplest form, is current assets minus current liabilities. The current assets are reflected in the order-to-cash business process, while the current liabilities show up in procure-to-pay business process.
Procure-to-pay. In this business process, the system considers specific procurement elements such as purchase requisitions, purchase orders and scheduling agreements to estimate cash outflow. However, the system only books the vendor payment liability not when the vendor has delivered material or service, but when the vendor submits the invoice for payment. The payment terms agreed between the company and the vendor are also taken into account.
Order-to-cash. In this business process, the system updates the cash inflow position not when the company delivers a product or service, but when it bills the customer for one. Here again, the system takes the payment terms with the customer into account.
It is possible to further segregate vendors and customers based on unique business needs. For example, in case of a foreign vendor, the company needs to record the vendor's bill first, and therefore account for liabilities, before it receives goods. Similarly, a company can designate customers who might miss timely payments as "high-risk," as a group separate from "low-risk" ones, so as to have greater confidence in the cash flow position.
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