Why hosted reconciliation can give retailers the upper hand

Financial Control & Risk management for retailers

by Marcus Jeffery

UnaVistaONE VIEW OF YOUR DATA

Introduction

As retail organisations surface from the global recession, many of these companies look to further increase efficiencies in their finance department. With technology utilised by many companies already, how do these organisations look to further increase savings in their business.

This paper explores how effective reconciliation controls can improve organisations’ ability to meet the tight cash constraints placed upon them. It also investigates how these solutions can improve the operational risk and financial transparency associated with cash management. The paper looks at what role the London Stock Exchange, as a trusted institution, can play in providing solutions that alleviate and enhance the finance reconciliation function through the use of services such as UnaVista.

Control & Risk Management – Retailers White Paper September 2010Page 2

A new decade

The last few years have seen unexpected turmoil in the financial markets with interest rates dropping to all new lows, as governments attempt to stimulate their respective countries out of recession. Nowhere has this been felt more than in the high street. Retail organisations throughout the country have always been a yardstick to gauge public spending appetite. Retailers are beginning to search for new strategies to offset the impact on P&L that the recession has had. Some expand into new business areas in their search for diversification. Others embrace new technology as it arises, such as web presences to enrich the efficiency of the organisation.

One subject that stands true across all retail organisations is the lack of liquidity available in the market. The effects of the banking crisis have left many treasurers searching for more efficient use of technology, ensuring that Funds within the organisation are utilised to the optimum and waste is kept to an absolute minimum.

This increase in pressure on treasury functions, and the wider finance function, to improve efficiency has led to a rise in the awareness of technology solutions within the market. These solutions assist retail organisations in gaining greater control over their cash flow, operational efficiencies, and transparency of information.

Yet, the conundrum exists – how does a retailer justify the large expenditure on technology solutions at a time when money is rarely available for large projects?

Previous years have shown a contraction of IT spending across businesses, highlighting the uncertainty that organisations face during a recession. But as companies begin to see the signs of recovery, this IT spending is set to normalise back to pre-recession levels .

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1 http://news.cnet.com/8301-13846_3-10405357-62.html - Survey by Goldman Sachs – IT Spending2 Taken from Goldman Sachs survey: “Survey : IT spending to recover in 2010” by Dave Rosenburg

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Finance function

As companies scrutinise which departments to focus their technology spending on, the finance function is often seen as an area where efficiencies can be gained. Platforms such as ERP’s and treasury control applications are implemented as a means in gaining operational efficiency and greater control over cash management within the retail organisation. In the drive to improve, the finance function has looked at improving through niche solutions as well. Reconciliation has long been seen as the poor relative of the finance function, an end product of the more value based treasury and cash management operations. Yet effective reconciliation technology can be effective in many ways including:

• realising efficiency gains in staff utilisation through automation of the process, • realising lost revenue by increasing throughput and transparency of information,• changing the focus of the process onto investigation of exception items,• improving onward management reporting, • Easily identifying those key risk areas within the cash flow.

The implementation of best practice reconciliation technology dramatically improves the effectiveness and value a retail finance function can provide to the overall organisation.

Retail organisations often look first to the general ledger application to resolve all reconciliation problems, integrating the branch banking process in the GL with various POS systems and in house developed branch systems to ensure straight through processing. Yet with further investigation discover that personnel often perform the most critical component of the process – reconciliation, manually, with companies not realising the full benefits of automating the reconciliation.

Many retail organisations, upon further analysis realise the company is permeated with a multitude of differing types of reconciliation. Whilst the branch banking process and bank accounts are semi-automated on a GL application, other reconciliations such as supplier statements are still managed on excel spreadsheets – if performed at all. Therefore, the organisation

does not realise any synergy from standardising the process, or gains in transparency across the financial organisation. Automated reconciliation applications allow for multiple processes to be incorporated. Allowing companies to transfer Branch Banking, supplier statement, duplicate invoice matching, PSP processing (integrating to web application and GL) all to a single solution, thus gaining further efficiency gains through the process. Automated reconciliation solutions all allow for file based integration back to General Ledger systems, therefore closing the loop and ensuring that the General ledger is synchronised throughout the process. This alleviates many concerns held by customers when adopting a reconciliation technology platform.

The automated reconciliation process has evolved considerably in recent years to incorporate operational workflow and management reporting capability. Some vendors offer differing solutions to meet these distinct challenges. With retail organisations now focusing more on automated investigation of exceptions and analysis of late banking and banked not lodged. Balance sheet control and the transparency and audit of point in time reporting, with electronic storage has become the latest requirement for these niche solutions.

It is interesting to observe differing opinions as to what the focus of IT spending will be in 2010. Previous years have seen focus on increasing efficiency, improving business process and reducing overall enterprise costs – all attributes that lend themselves to the adoption of automated reconciliation solutions.

Top 10 Business in 2009 Top 10 Business Priorities Ranking

Business process improvement 1Reducing enterprise costs 2Improving enterprise workforce effectiveness 3Attracting and retaining new customers 4Increasing the use of information/analytics 5Creating new products or services (innovation) 6Targeting customers and markets more effectively 7Managing change initiatives 8Expanding current customer relationships 9Expanding into new markets and geographies 10

3 Source: Gartner EXP (January 2009) http://www.gartner.com/it/page.jsp?id=855612

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Hosted Vs In house

As highlighted above, Business focus has remained centred on improving the business process, increasing workforce effectiveness and reducing cost. To drive these requirements through this year will require further adoption of the latest reconciliation technology available. As retail companies move into the next decade, the cost to achieve the Nirvana of a fully automated reconciliation and exception management solution increases. Many vendors, with User based licensing, tends to have a negative impact in utilisation of their software. With companies visualising an increasing licenses cost associated with utilisation of the software. Implementation costs increase exponentially to the utilisation of the software. Whilst IT leaders have looked to increase the utilisation of enterprise applications, stories of these implementations taking ‘years’ to complete are widespread, thus negating any operational or efficiency gains initially identified. Finance functions are looking for more value for money.

As Retail companies look to implement new reconciliation strategies, organisations often neglect to incorporate the large internal IT costs of any project. Physical servers, software, integration into the network environment, personnel and ongoing maintenance costs, all pay a heavy burden on the total cost of ownership a specialised reconciliation software will have when implemented. Modern trends dictate a move towards hosted solutions, offering retail companies the same functionality from existing solutions but without the heavy cost of data storage and infrastructure cost. New web based solutions allow companies to access their solutions globally with minimum IT overhead. Field based auditors can access up to the minute information pertaining to a particular store or supplier. External audit can access company’s reconciliation process information, further reducing the cost of time spent with the organisations staff. The introduction of web based, hosted reconciliation services has maintained the finance functions drive to efficiency and operational control, while further reducing the costs of ownership of outmoded locally deployed reconciliation systems.

Many reconciliation software vendors have recognised the need to provide some level of ‘hosting’ as a service. Yet retail companies feel uncomfortable entering into partnership with vendors who operate data centres in conjunction with other organisations, or operate in unstable regions of the world. The hosted software model calls for a more trusted relationship between supplier and customer. New participants in the market, such as the London Stock Exchange, with it’s UnaVista solution, now offer retail companies the best of all worlds - “best in class” reconciliation software, with up to date web access, and with the added extra of the unrivalled security that the Exchange can offer. UnaVista is not just capable of managing the demands of standard retail reconciliation requirements, but also integrating workflow and dashboard style reporting, taking practices such as balance sheet control and supplier statements, and providing new methods of risk mitigation, audit and control around what is historically regarded as a paper based manual process.

The London Stock Exchange has a long history of providing quality hosted solutions to thousands of organisations across the globe, coupled with its strictly regulated infrastructure and trusted environment, the exchange is firmly positioned to address all the concerns that retail organisations have concerning hosted reconciliation solutions.

Historically, the best reconciliation and exception management solutions would be ones which provide a blend between cost reduction, business control and risk mitigation. Now with deeper scrutiny over costs and business looking to increase efficiencies further, organisations are now looking at other areas where they can gain advantages, including hosted and web based solutions. In addition, uncertain markets lead to risk adverse strategies towards vendors, and institutions are well positioned to fulfil this problem, becoming both supplier and trusted partners.

About London Stock Exchange

The London Stock Exchange is at the heart of the global financial market and is home to some of the largest, most successful and dynamic companies in the world. The Exchange has built on a long history of integrity, expertise and market knowledge to become the world’s most international stock exchange.

The Exchange has utilised their unique knowledge of finance and technology to build hosted technological solutions that power exchanges, depositories, brokerages and finance departments across the world.

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About UnaVista

UnaVista is a data matching, validation and reconciliation platform that can be used across a whole range of organisations, from tier 1 banks, to retail organisations, to small brokerages.

It highlights exceptions so that you can resolve them quickly. It’s web-based, so you don’t need costly infrastructure to run it. And because it’s securely hosted at the London Stock Exchange, you don’t need to use your own resources to support and maintain it.

It gives you clear, accurate, up-to-date views of your data – and you decide what those views should look like. So when you’re closing your books, you can be confident that you’re signing off on a true position – and that you won’t be caught out later on.

For further information on UnaVista from the London Stock Exchange, please visit the website at www.londonstockexchange.com/unavista or call 020 7797 1214..