How cash management is usually set up in finance and ERP systems

Cash management usually spans the ERP's bank or cash module, a treasury workstation in larger organisations, and each bank's own portal. Statements flow in automatically and get matched to ledger entries. The matched results feed a daily position and a rolling forecast that treasury uses to decide where money moves.

Where the data comes from

Everything starts with bank accounts set up as master data. Each one is mapped to a general ledger cash account, and often to one or more clearing accounts that hold items in transit. When this mapping is wrong, every downstream report is wrong too, so it deserves more attention than it usually gets.

Bank statements arrive as files through a direct connection, a bank network or a manual download. Prior-day statements drive reconciliation. Intraday reports, where the bank offers them, drive the morning position. Many organisations have a mix: the main banks are connected and a handful of smaller or foreign accounts are still keyed in by hand or pulled from a portal.

Reconciliation and the cash position

The ERP applies matching rules to statement lines. Rules look at amount, reference, payer name and value date. A good set clears most routine items without a human touching them. Whatever fails lands in an exceptions queue.

Receipts cause the most work. Customer payments must be tied to open invoices, and some arrive with no usable reference at all. These sit in a suspense or unapplied account until someone researches them. Where a payment covers several charges, there may be a defined order for applying it, for example penalties and fees before principal. Returned cheques and failed direct debits need their own handling: the original application is reversed, the customer balance reopens, and someone decides whether to charge a fee.

Once the queue is worked, treasury builds the position. In a smaller setup this is a spreadsheet that pulls balances from each bank. Larger setups let the treasury system assemble it, layering in expected flows for the day.

Payments and transfers

Outgoing electronic payments mostly originate in accounts payable or payroll. A payment run produces a file in the bank's required format. Approval happens inside the ERP, inside the bank portal, or in both, and duplicated approval steps are common and rarely questioned.

Treasury-initiated transfers are different. Funding moves between entities, top-ups of payroll accounts and investment placements are usually entered directly in a bank portal or treasury system. Physical cash concentration and notional pooling are configured at the bank, so the ERP only sees the resulting entries.

Controls worth checking here include segregation between people who set up payees and people who release funds, sanctions screening, and how changes to supplier bank details are verified.

Forecasting

Short-range forecasts draw on known items: scheduled payment runs, expected customer receipts, tax and debt service dates. Longer-range views lean on budgets and sales plans. Despite what ERP vendors promise, much forecasting still lives in spreadsheets that someone rebuilds by hand.

Business units are often asked to flag large expected deposits or disbursements in advance so treasury can line up funding or avoid idle balances. Whether they actually do is another matter.

Short-term investments and accounting

Surplus cash goes into deposits, money market funds or similar instruments. These are tracked in a treasury system where one exists, and in a register maintained by the team where it does not. Interest accruals, maturities and fair value changes need journal entries, which may be automatic or posted manually at month end.

Bank fees, interest and other charges that appear only on the statement are usually posted through statement rules that create entries directly against expense or income accounts. Reporting covers balances by bank and entity, forecast against actual, and investment holdings.

Banks and fees

Relationship management is mostly outside the ERP. Account opening, signatory mandates and know-your-customer reviews tend to live in shared folders and email. Banks send account analysis statements itemising service charges, and comparing those to the agreed fee schedule is tedious work that often lapses. Errors found there are disputed with the relationship manager and credited later, sometimes without anyone confirming the credit arrived.

Questions to ask the people who run it

• Which bank accounts are not connected to the ERP, and how do their balances get into the position?
• What share of the exceptions queue is the same kind of item recurring, and why has no rule been written for it?
• How long do unidentified receipts stay in suspense, and who decides when to escalate or write them off?
• Where do payment approvals actually happen, and has anyone released a payment outside the normal workflow recently?
• When a supplier changes bank details, what evidence is required before the change is accepted?
• Which forecast numbers come from systems, and which are typed in from memory or a phone call?
• When did someone last check an account analysis statement against the fee agreement, and what happened to the discrepancies?
• Who holds the current list of authorised signatories, and does it match what the banks have on file?
• Which steps depend on a single person who knows how the spreadsheet works?

APQC's Process Classification Framework® (PCF) is an open standard developed by APQC, a nonprofit that promotes benchmarking and best practices worldwide. To download the full PCF or to view definitions and measures, please visit www.apqc.org/pcf.