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Driving Straight-Through Reconciliation

by Vairavan Ramanathan, Head of Innovation and Mobile, Transaction Banking, Standard Chartered Bank and Amit Vyas, Director, Product Management, Transaction Banking, Standard Chartered Bank

Deep process-level integration between corporate clients and their banks enables straight-through reconciliation, facilitates informed decision-making based on the data available directly in the corporate ERP systems, and helps corporate clients maximise their ROI on ERP systems, according to Vairavan Ramanathan and Amit Vyas of Standard Chartered Bank.

As physical and financial supply chains always co-exist, streamlining and automating only one and not both will result in limited benefits.

In the past decade many companies have made significant investments in eliminating inefficiencies from their physical supply chains. Enterprise resource planning (ERP) applications have contributed significantly in streamlining the information flows and providing basic information to decision-makers.

The initial focus on centralising transaction processing to gain scale and reduce costs has delivered some expected benefits.

The ability to optimise the process becomes even more important in the light of the move towards shared service centres (SSCs) and regional treasury centres (RTCs). Companies are seeking ways to improve the efficiency of their finance and treasury centres by moving common processes to SSCs and setting up RTCs.

That initial focus on centralising transaction processing to gain scale and reduce costs has delivered some expected benefits. The next phase involves collaboration between corporations and their banks to build up financial and operational efficiencies through process-based integration and straight-through reconciliation (STR).

The need for process-based integration

Companies looking to maximise the return on investment on their ERP and treasury management systems are actively seeking process-based integration with their financial services providers. Specific focus is placed on integrating the receivables, payables and trade-related processes.

While banks continue to offer online services combined with file-based integration, the inherent constraints of such an approach often limit the benefits. Modifying the ERP system to capture a richer set of information is not always feasible – giving rise to the need for an intermediate, process-based layer between the banking systems and the clients’ ERP systems.

The benefits of such process-based integration include trend-based cash application and posting, auto-reconciliation of payments and reflection of payments and trade processes in the cash flow – so that letters of credit (L/Cs) are clearly linked to the corresponding invoices/purchase orders.

This approach enables banks to provide their clients with a seamless integration of their trade flows into their financial flows, while eliminating the need for clients to make sizable investments in enhancing their ERP or treasury systems.

Straight-through reconciliation

Historically, straight-through processing (STP) was aimed at achieving automation, cost reductions and facilitating the flow of information. Today, the focus is shifting towards better working capital management.

With STR, companies will be able to realise their sales proceeds faster, achieve better control of their payment processes and fully integrate their cash and trade functions to optimise cash-flow forecasting.

Apart from the benefits listed above, STR will help achieve the stated benefits of STP, namely cost reductions, more efficient reconciliation, full visibility of cash across entities and regions and greater operational efficiency.

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