- Integrating working capital solutions directly into ERP systems enables corporates and banks to access real-time data through a single, streamlined platform.
- Legacy, siloed processes, and outdated ERP infrastructures have created inefficiencies that limit access to trade finance, particularly for SMEs.
- New technological solutions are transforming ERP systems into seamless ecosystems, although organisational resistance to change remains a hurdle.
Enterprise resource planning (ERP) in the trade and working capital space is expected to bring a ‘single source of truth’. Siloed solutions and processes make this utopia near impossible.
ERP refers to the software that integrates core business processes into a single system. These systems allow for information to flow between departments and centralise data, making the software notorious for boosting both visibility and efficiency.
For banks, ERP systems also serve as an enabler. They allow banks to connect natively into client environments, receiving the purchase orders and invoice data needed to offer financing solutions.
ERP systems, thereby, serve as the foundation through which banks build and tailor their working capital solutions.
From supply chain finance (SCF) to inventory financing, working capital solutions are reliant on real-time data like invoices, payment terms, and supplier and buyer records. By integrating into ERP software, banks harness information that powers their working capital solutions, inserting them directly into their clients’ business relationships and processes, enabling them to morph into a financial intermediary.
However, working capital solutions have been fragmented, making it difficult to fully integrate within ERP systems; a caveat that came from a mix of a lack of technology and human hesitancy. J.P. Morgan’s Working Capital Accelerator is closing this gap, but its success hinges on corporations embracing the change that the current economic landscape demands.
The rise of tech (supply and) demand
Since the 1970s, SAP and Oracle have been the two leading ERP powerhouses.
Yet, despite the many decades of technological and economic change they have experienced, these systems have historically prioritised streamlining supply chain and risk management. Although working capital solutions didn’t sit entirely outside of ERP operations, they weren’t fully integrated.
Banks resorted to alternative methods to manually bridge the gap. These work in creating a direct communication line between a bank and a business and automate data exchange, but fail to present the holistic view that an ERP system can offer. Legacy connectivity solutions, like host-to-host (H2H), have been commonplace.
Data would also be sent daily, which may sound frequent, but is not nearly enough. The trade finance world changes exponentially faster, both economically and technologically.
With payment rails operating far beyond the nine-to-five that humans cede to working, client expectations have shifted. The previous dynamic between ERP systems and working capital is simply not enough to satisfy client demands, nor is it capable of scaling the solutions needed for the future.
Businesses are navigating a trade ecosystem defined by friction: a global pandemic melted away, only for shifting geopolitical dynamics to take its place.
As a result, the expectation is no longer to determine the technology according to an internal project, ex post. Banks are expected to provide scalable, connected, and streamlined working capital solutions ex ante; ones that can simply be activated within an existing ERP system.
The question of technology preceding its demand is something of a chicken and egg: is the world changing because of technological innovation, or is technological innovation merely happening to cater to an ever-growing population and an ever-changing economic environment?
In the case of ERP integration, it appears to sit in between. The evolution of technology, particularly towards a cloud data structure and cloud computing infrastructure, has created the capability for banks to open source their technology into their client’s technology.
Working capital: trapped or tried?
The global trade finance gap of $2.5 trillion implies that there isn’t enough money to finance international trade.
However, the latest Asian Development Bank (ADB) update on the gap represented 10% of global trade, lower than the 10.6% it accounted for in 2023. The trade finance gap, ADB found, isn’t a capital problem, but rather an allocation problem: particularly at the expense of small and medium-sized enterprises (SMEs), shaped by a multitude of factors such as weak credit histories and banks’ low risk appetites.
In a similar vein, on the payments side, working capital that was previously disconnected led to some opacity in terms of business-wide cash flow. Harnessing and analysing data were once labour-intensive processes, creating additional hurdles that would introduce bottlenecks for banks providing trade and supply chain financing solutions. Embedded ecosystems are simply unlocking money faster and with less friction.
While it’s difficult to quantify the exact amount of capital that this could ease access to, what’s clear is that these platforms will allow for a working capital story bigger than ever before – something of an ERP fairy tale.
Coupling with existing ERP environments
For corporates, particularly multinational, multi-bank corporates, accessing working capital solutions through traditional ERP systems once involved implementations across numerous platforms, evoking cybersecurity concerns. An ERP security breach could destroy a business, demanding heightened security measures.
Having one provider for all working capital solutions, where the solutions are built into the ERP system, reduces these concerns significantly. Moreover, corporates no longer have to manage working capital solutions from their side – they merely have to activate them. Digital, touchless, and seamless consolidation.
Companies used to cautiously approach working capital programmes. Now, whether a company uses SAP or Oracle, programmes can move onto one platform.
Just by signing in, a corporate can see their SCF programme, their sales finance programme, and even the SCF programme of another corporate they supply, all in one place. It enables corporations to obtain a single source of real-time data for all of their working capital solutions – the supposed ‘single source of truth’.
To integrate with existing ERP environments, specific adapters can be tailored to a client’s environment. For ERP providers like SAP, these include embedded solutions and SAP add-ons that can pre-configure whatever the corporate wants to implement. There are presets that latch the ERP and the bank’s system through proprietary application programming interfaces (APIs). On the bank side, solutions like J.P. Morgan’s Working Capital Accelerator provide this specificity and personalisation.
J.P. Morgan’s Working Capital Accelerator includes specific adapters tailored to a client’s environment. For instance, for SAP, there are embedded solutions and SAP add-ons that can pre-configure whatever the corporate wants to implement.
A human hurdle?
Change introduces uncertainty. Solutions must thereby exist to reduce complexity.
The more tangible obstacles to innovation – the legal, technological, or regulatory barriers – often appear much more poignant than the psychological or anthropological hurdles. However, for corporations with a senior management full of industry veterans, navigating the very human sentiment of “we’ve-always-done-it-this-way” must be managed with clarity. Connecting working capital solutions into ERP systems aims to simplify, which sometimes comes at the expense of being incremental.
Technology is accelerating; artificial intelligence (AI) is projected to boost trade by 40% by 2040. What is perhaps holding technology back is the organisational psyche lagging behind. As technology expands, it becomes increasingly important for an organisation to digest the changing solutions sitting in front of them.
There is still a way to go for clients to migrate to newer solutions, especially in the ERP landscape. There are legacy versions of SAP and Oracle that haven’t moved over to the newer tech stacks.
This makes it crucial to collaborate with clients in aligning ERP journeys, ensuring that corporates are positioned to take advantage of the technology available to them.
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ERPs are designed as a centralised space, where every aspect of a corporate’s operations is gathered in the same location. Until now, working capital solutions were left out of the equation – neither technology nor the conventional attitudes to working capital allowed for them to be included.
Integrating the two will revolutionise the relationship corporates have with banks and the financing solutions they offer, allowing ERPs to live up to their potential and become the ‘single source of truth’.
