Sapa’s three steps to centralized cash management
”Instead of following behind, we are able to adapt up-front. We are a lot calmer in our cash management now.”
Cash Management Director Hans-Erik Trulsen sums up one of the major advantages resulting from the extensive cash management centralization project carried out in Sapa Group, the leading global supplier of aluminum solutions. To improve their control of cash management, the Corporate Treasury established an entirely new financial infrastructure and created harmonized, group-level processes together with OpusCapita.
The situation now is very different from September 2013, when Sapa AS, the joint venture owned in equal shares by Hydro ASA and Orkla ASA, was formed, and Trulsen, from Hydro, started as the corporate Cash Management Director.
“When you merge large operations, you are bound to discover a lot of differences. We used different bank and cash pool solutions, and there were major variations in both transaction processing and forecasting. Plus, we had a very diversified system structure with dozens of ERP and other systems, which added to the complexity.”
Present in around 40 countries and in more than 100 locations, Sapa decided to embark on a determined journey toward more simplified, streamlined, and centralized cash management, and focused on developing group-level processes, integrations, and standardization.
“These goals were all very good arguments for implementing a payment factory, in-house bank, and liquidity forecasting solution as the platform to build our future financial processes on.”
As their partner for the journey, Sapa chose OpusCapita.
Getting rid of surprises in cash outflows
The first order of business in the newly formed Corporate Treasury was to achieve visibility for cash by implementing an integrated and automated liquidity forecasting solution.
“It is easy to understand why this was a priority for us as we are not a cash-rich company, and the existing forecasting process was highly manual and not that accurate. Gaining an overview of what goes out of our cash pools made it possible to get rid of the frequent nasty surprises in our cash outflows,” Trulsen states.
The accounts payable data for the forecasts is collected from Sapa’s six core ERP systems, and on top of that, some manual processes concerning taxes and salaries, for instance, are included for a comprehensive overview. The forecasting span is two weeks, and 110 entities are included in the forecasts.
The highway to streamlined payments
The next step in Sapa’s cash management project was to implement a payment factory. They chose OpusCapita’s cloud-based solution with the integrated SWIFT Alliance Lite2 solution. The outgoing payment files from the core ERP systems and treasury system are transferred in various formats to the payment factory, converted into ISO 20022 XML files, and sent via SWIFT to nine banks covering 15 countries.
“I call the setup our highway. It is the streamlined and simplified way that all the financial and commercial transactions in Sapa should be processed, with common security solutions and a single channel for communication with the banks,” Hans-Erik Trulsen describes.
In the payment factory, over 19 000 transactions are processed each month. The straight-through processing rate is up to 96 percent, which is a considerable improvement on the previous situation with manual processes and e-banking tools.
“The centralized payment hub has meant increased control and efficiency as well as reduced costs for our payment transaction processing. It also supports system centralization as we now have an ongoing project to drive more and more entities to the core ERPs, thus making them able to join the payment highway.”
120 entities in the in-house bank
Sapa made the decision in principle that cash is a corporate asset. With that, the Corporate Treasury needed not only comprehensive visibility for the Group’s cash, but also access to it. Sapa decided to implement zero balance accounts all the way through their companies in order to concentrate the cash physically in corporate top accounts.
“We considered both netting and in-house bank solutions from OpusCapita. In the end, in-house banking was a good fit for the zero-balancing structure and for maintaining the subsidiaries’ cash positions,” Trulsen says.
At the moment, Sapa has close to 120 entities with accounts in their in-house bank, expecting it to fully cover the group’s operations in Europe and North America by summer 2017.
The main function of the in-house bank is to keep track of the intercompany borrowing and lending positions. The daily physical cash balance sweeps from the operational accounts to the Corporate Treasury top account are mirrored in the in-house bank, where the interest calculation takes place automatically. In addition, the in-house bank accounts have pre-agreed overdraft limits, which are used to cover the subsidiaries’ short term financing needs and to control spending.
“The in-house bank has significantly simplified the administration of our internal funding. In addition, the in-house bank is the channel for all the intercompany financial and commercial settlements. When fully implemented, we estimate savings of up to 200 000 euros per year in banking fees and float alone.”
An agile partner for cash management
Simultaneously with the in-house bank implementation, Sapa performed bank simplification and focused on a smaller number of core banks.
“With all the steps we have taken, we have been able to improve cash discipline in the Group. The number of our cash pools has been cut from 15 to six, and we have considerably reduced the need for cash pool transfers,” Hans-Erik Trulsen states.
The evolution does not stop here: Sapa is already investigating the possibility of implementing payments-on-behalf-of functionality in their in-house bank, and is exploring the benefits of building a country-specific branch structure for their in-house bank.
“Going forward, I regard OpusCapita as an important strategic partner for Sapa in the cash management area. We have solid relationships with the team in OpusCapita, good access to their expertise, and we know they are agile and also listen to our wishes and requests,” Trulsen says.
“We are quite demanding and have a habit of pushing the solution development even further. It is usually well received by OpusCapita, and we have developed functionalities in cooperation. I appreciate the open and trustworthy partnership we have.”
›› Published in OpusCapita Journal Spring 2017. Read the whole magazine here.