Insight & Analysis

SAP’s working capital journey

Published: Nov 2017

The software giant has become a leader in the working capital management space. CFO for North America, Todd McElhatton explains how SAP has done this.

Working capital has, in recent years, become a key area of focus for many organisations around the world. However, as Treasury Insights reported last month, few corporates have been able to readily drive meaningful change in their working capital performance.

One company that has managed to do this is SAP. The software giant has made efficient working management one of its core objectives as it looks to meet shareholder expectations and efficiently fund the future development of the company.

Shifts in culture

SAP has not held back. The company has taken a comprehensive approach to drive better working capital performance that has touched every part of the business. The cornerstone of this project has been a transformation in the company’s culture that has made cash front of mind and a key part of every strategic conversation. “Cash generation is the clearest measure of success for an enterprise and this is why we have decided to place such an emphasis on working capital,” says Todd McElhatton, CFO at SAP North America.

Transforming the culture in an organisation as large as SAP is never going to be an easy task and often requires some fundamental changes to how the business operates. McElhatton explains that the biggest change it has made is shifting the KPIs of various departments to ensure that staff are incentivised to work, based on first-class working capital management principles.

To provide an example of this, McElhatton explains how the company has used a creative set of KPIs to turn its sales team into an effective cash collection team. “Our sales reps receive their commission payment for a sale once we have received payment from the customer,” says McElhatton. “Through linking cash collection and commission in this way, our sales reps are now engaged with finance to understand who has and hasn’t paid and chasing up any late payments.”

Empower with technology

This change in KPIs clearly has a big impact on the day-to-day work of the sales teams and can, if not managed correctly, create unrest in the business. Indeed, Treasury Today has spoken with numerous companies that were unable to improve their working capital performance because they have failed to receive buy-in for the project across the business.

What then has made SAP successful? McElhatton has a simple answer: technology. “At the same time that we have focused on working capital management, we have also focused on building a world-class finance department to support these efforts,” he says. “Core to this has been the adoption of new technology that has created efficiencies and provided enhanced visibility allowing us to better align the goals of the different departments within the business.”

On the collections side specifically, the use of innovative tools powered by machine learning and AI have allowed the finance and sales teams to better work together to pinpoint who has not paid and hone in on these customers. “These tools have provided us with a real-time snapshot of our customer’s historical payment performance and every open transaction,” says McElhatton. “This data is invaluable because it means our finance team can see which customers have outstanding invoices. They can then ask the sales team to reach out to these customers and chase for payment or begin to resolve any issues that exist.”

Future improvements

The use of innovative technology has clearly been vital in helping SAP transform its culture and empower its staff to deliver on their working capital objectives. And despite the progress the company has already made it is not resting on its laurels and McElhatton states that working capital will continue to be a big focus.

“With more access to real-time information there will be lots more opportunity to improve our working capital performance,” he concludes. “Working capital will, therefore, continue to be a big area of focus across the organisation over the coming years, especially in a rising rate environment.”

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