A true story about SAP, its CashFlow module and its inability to process “What if” scenarios, or even get the work done Part 2

Posted on September 11, 2010 by CEO

From the first half hour of the meeting, it was obvious that the CashFlow module of SAP could not handle the “What if” scenario at all. Actually, the data it could provide was only a projection of collections and payments that came as a consequence of the invoices that had already been entered in the system. The data of the forecasted values of future months were not represented at all. When asked about that, the only solution that the SAP consultants suggested, was that data from budgeted values should be manually entered by the user, into the CashFlow module.

Since I have the benefit of hindsight on that specific issue (because of C2BII), I can tell you that this amounts to hundreds of thousands (or more) of lines of data. In other words, we are talking about a volume of manual work that is unrealistic and practically impossible. I should also mention that even relatively simple calculations (like the VAT payment) had to be manually calculated and manually entered into the system. And since that is a weekly ritual, that work should be done constantly.

As you probably have guessed by now, the CashFlow module of SAP was rejected on the spot, and the company is still performing CashFlow thru spreadsheet, in the old way. The only part of it that is being used, is the one that creates the projection of the already entered invoices. That part, by its nature, and for technical calculation reasons, has a useful time horizon of “Present day plus 15 days”, or less. As soon as the first derivative payments start to kick in (for example: salaries on the 15th and the 31st, retained taxes on the 20th, VAT on the 25th, social security contributions on the 31st etc), the calculation is in need of an overhaul.

To be on the fair side, I must point out that this is not a shortcoming that is unique, and happens only in SAP. The same would have happened with any other ERP. The reason that the CashFlow modules of all ERPs are still not being used, and the work is still being done thru spreadsheet, is because a method to effectively handle all CashFlow aspects and issues didn’t exist before C2BII.

If you are an experienced Accounting & Finance professional, you probably have realized by now, that the above mentioned requirements (2 classes of collections and 2 classes of payments) represent an extremely difficult and complicated situation to calculate in a forecasted environment. How would you feel, if someone told you that if that CashFlow calculation was structured and performed thru C2BII, then the processing of the “What if” scenario would require about one minute of “keyboard punching” time, and the result would be absolutely accurate, and would incorporate all needed data (actual invoices and budgeted values)? Plus, that it could be handled, even by a person that knows little to nothing about Accounting and Finance (like a secretary)? Sounds unprecedented and revolutionary, doesn’t it?

Stick around, as we are going to finally see the new idea that is going to bring a revolution, and change for ever the world of Financial Analysis.

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A true story about SAP, its CashFlow module and its inability to process “What if” scenarios, or even get the work done Part 1

Posted on September 11, 2010 by CEO

A few months ago, I witnessed the following incident. I happened to be present, when SAP consultants, twenty days before the scheduled first live run of a new SAP installation in a major Greek company, were delivering to the users the CashFlow module, and were scheduled to train them in its use. We all know that SAP AG is the global leader in ERPs.

That company generates a sizeable percentage of its income from sales to super market chains. In Greece, super market chains practically almost never pay their vendors on time. When the agreed payment day arrives, they tell you that they are going to pay you after X number of days, only the Y% part of the debt, and it remains to be seen what is going to be done about the rest of the amount. And since they are such huge and important customers, they get away with it. This is not a treatment that they have in store only for that specific company. This is what they do to everyone. Actually, if we look at the whole picture, we will see that there are reasons (most of them valid) behind that behavior, and that super markets are not the villains they might seem at first glance. However, the fact remains that their payment patterns are highly erratic. The company wanted to create 4 categories of payments and collections in its CashFlow.

  • “Collection Class 1″: These are collections that are expected to happen more or less on time.
  • “Collection Class 2″: These are collections from super market chains, that follow erratic patterns.
  • “Payment Class 1″: These are the payments that must be done on time, or else there is a danger for business interruption. Examples are: Salaries, VAT, income Tax, other Taxes, payments to Government agencies, payments to key suppliers etc.
  • “Payment Class 2″: These are the payments that can be delayed, if such a need arises, without fear for business interruption.

The company has a constant need to run every week the following “What if” scenario:

  • If super market chain A delays its payments to us by XA days and pays only YA% of the amount owed, and
  • If super market chain B delays its payments to us by XB days and pays only YB% of the amount owed, and
  • If … If … If …

then

  • what is our CashFlow going to look like, on a present day plus six months (or more) horizon?
  • what will be our new Bank loan situation, on a present day plus six months (or more) horizon?
  • what kind of payment delay, are we might be forced to impose on vendors of “Payment Class 2”?

In the years before SAP, the job was being done thru spreadsheet, and the process had all the inevitable shortcomings that are associated with performing CashFlow on a spreadsheet. The company wanted to automate that process, and achieve accuracy and time efficiency.

Stick around, as we are going to see why this turned into a complete fiasco.

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Why do Financial Analysts perform CashFlow on spreadsheet and don’t use the CashFlow module of their ERP?

Posted on September 11, 2010 by CEO

There is general consensus that the CashFlow calculation is the most useful Financial tool to evaluate a company, and also that it is the most important health indicator. Almost every ERP in the world has a “so-called” CashFlow module. Yet throughout the world, Financial Analysts are still doing the CashFlow on a spreadsheet. And I don’t mean some of them. I mean all of them. At first glance, that looks like a first class inefficiency. ERPs have huge capabilities to automate our work. Why do people choose not to use them?

The answer to that question is because all ERP CashFlow modules actually manage to perform less than half the work needed. Or in other words, all ERP’s are insufficient for the management of the CashFlow. In order to better understand this, imagine that we are in April, and we need to create the company’s CashFlow up to December.

In the ERP one can find registered the actual “invoices receivable” and “invoices payable” of the company (for the period January to April), along with their actual dates and their credit policy. Based on that, the ERP can create a daily projection of the sums that are scheduled to be collected and paid, on a daily basis. So far, every ERP in the world can handle the first half of the job.

In order to reach all the way to December, we must also incorporate values (sales, purchases, expenses etc) for the period from May till December. These values have not been registered in the ERP, because they have not taken place, and so there is no invoice about them. However, their values exist in the Budgeting module, but in a concentrated form (example: Forecasted sales for September = 10 mil USD). The challenge is to process those forecasts, and derive from that concentrated form, data that are compatible with the structure of the first half of the data (daily values). This is the part where every ERP in the world, including even the global leaders, have totally failed. The required operation is very complicated, and a casual glance is not enough to reveal the number of circumstances that need to be addressed in order to arrive at a meaningful, accurate and verifiable result. Having the benefit of knowing the volume of info that is actually created by C2BII, I can tell you that it runs in the hundreds of thousands of “Analytical Lines”, and in many cases, in the millions.

And of course, there is the obvious issue that the creation of the CashFlow is only the starting point, after which we will do the really important work, which is the evaluation of the “What if” scenarios. To that end, again no ERP in the world has any meaningful tools.

These are the reasons why, on a global scale, Financial Analysts are still performing the CashFlow on a spreadsheet, using the “Monthly Average” method.

Stick around, as we are going to see a real life story, where the global leader in ERPs failed to offer anything meaningful to the CashFlow calculation needs of a company.

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