Why you need to control your cash

Time is money. The credit crunch has given this old aphorism a new importance as companies look to increase access to and control of their cash. Without control over cash, everything from an organisation's expansion plans to its very existence can come into question.

Technology-based solutions are banks' and corporates' preference for keeping tabs on their accounts. While electronic systems that integrate an organisation's accounts with its bank have been around for years, they are no longer limited to the realm of global multinationals but are increasingly being embraced by regional corporates. Singapore-based Straits Asia Resources, a subsidiary of Australia's Straits Resources and Thailand's PTT, is one such company. It has implemented an advanced SAP software solution to integrate its internal accounts with those at its bank, Standard Chartered, to improve its cash management.

"If you go back to 2007, we had a very much cheque-based or written instruction type system," says Straits Asia chief financial officer Graeme Tivey. "The problems were speed and the obvious input errors; invariably you pulled something up on the word processor and ended up sending it to the bank with a slightly wrong date or company name. It was very frustrating." And that's not to mention the added headache of the cross-border cash flows between the company's Singapore headquarters and Indonesian mines.

Multi-million dollar customer payments arrive twice-weekly in Straits Asia's accounts and its two mines need cash for operating expenses on a twice-monthly basis - a complicated payables and receivables structure not uncommon among today's companies. Between the tightening business market and its plans to grow, the company needed to upgrade its working capital supply chain infrastructure to take control.

Last year, the company moved from the manual system Tivey describes to a SAP platform in July. Following that migration, Straits Asia, already a user of Standard Chartered's Straight2Bank electronic portal, decided to create a single point of entry for all financial transactions at the bank by implementing SAP's Netweaver Exchange Infrastructure (SAP XI) in January. "In the SAP system, we only have to control the creditors' information," says Tivey. "Previously we had to maintain it in our system and update it in the Straight2Bank system. Now, what's in SAP gets transferred across to the bank automatically when the transaction goes through, so we only have to keep creditor information in one place."

With the new SAP XI infrastructure in place Straits Asia took control of its financial supply chain. Under the integration with its bank, the company has faster and more effective control of payment initiation and automated payments reconciliation. "We could see that we were growing and needed a very scalable solution," says Tivey. "The computer systems that we were using here were at the top end of their scalability, now we're probably at the lower end of the size of uses of SAP."

The prior system was maxed out with 20 to 30 incoming and 100 to 130 outgoing transactions a month. With the upgraded infrastructure and integration with its bank, Straits Asia can now handle 50 to 70 incoming and 300 to 400 outgoing transactions. As for clients, the solution appears to be a win-win. "Optimally clients haven't noticed a thing," says Tivey. "Are we paying them any quicker? No, but we're able to hold onto the money in our account longer and pay them in the same time."

Increased control of working capital is important to any regional corporate, especially in today's tough economic environment. Companies from Hong Kong to India have been forced to shut down because of the lack of credit and the slowing business environment. Last October, US donut maker Krispy Kreme closed all of its Hong Kong outlets after the local franchisee entered liquidation, and this February, Indian discount retailer Subhiksha shuttered its 1,600 stores.

"Driving integration of information across the business units and geographies is ever more critical to superior financial performance and risk management," says Sumit Aggarwal, Standard Chartered Bank's transaction banking head for Singapore. "By tightly integrating the physical and financial supply chains with this type of solution, we enable companies to release hidden value, reduce operational risk and improve efficiency." According to Tivey, the biggest benefits of integration with its bank are speed and accuracy. Both are things that any company, large or small, is looking for.

"Driving integration of information across the business units and geographies is ever more critical to superior financial performance and risk management," says Sumit Aggarwal, Standard Chartered Bank's transaction banking head for Singapore. "By tightly integrating the physical and financial supply chains with this type of solution, we enable companies to release hidden value, reduce operational risk and improve efficiency." According to Tivey, the biggest benefits of integration with its bank are speed and accuracy. Both are things that any company, large or small, is looking for.

Financing expansion

In Straits Asia's case, greater control of its working capital supply chain has not only allowed it to operate more efficiently but also to continue with its expansion plans In Straits Asia's case, greater control of its working capital supply chain has not only allowed it to operate more efficiently but also to continue with its expansion plans In December 2007, the company purchased the Jembayan coal mine in Indonesian Borneo for a reported $350 million. With the acquisition, coal production jumped 146% year-on-year to 8.6 million metric tonnes and revenue 133% to $585.2 million.

Despite the economic crisis and associated drop in commodity prices, CLSA research estimates Asian demand for thermal coal will grow at an average of 2% to 3% annually for the next five years. Drivers of that growth will be new coal-fired electricity generation planned or under construction in China, India and Indonesia.

Tivey has no hesitation about future demand from the company's clients. "[The Asian power generators] are such long-term operators that they know exactly when they want a delivery from us [and] as long as we're providing the right quality coal at the right time then they'll just keep coming back and picking up," he says.

Straits Asia's expansion plans demonstrate its confidence. The company is currently expanding capacity at both its Jembayan and Sebuku mines with plans to be able to produce 11 and 8 million metric tonnes of coal per year respectively. In 2008, Jembalayan produced 5 million metric tonnes and Sebuku 3.5 million metric tonnes. At the end of 2008, the company was also engaged in three exploration projects to map out future mining potential.

Cash, of course, is king. It can help you expand when others are closing down, or simply enable you to ride through the recession. Bottom line, control of cash is greater control of your company's future and what corporate board doesn't want to hear this from its CFO?