SAP Central Finance delivers on the promise of pulling data from multiple sources into a single view for reporting and analysis. Channeling disparate data sources into a single source of truth can be massively valuable to organizations, especially those that have a sprawling number of billing, accounts payable and general ledger components, or even multiple ERP implementations.
But while the value proposition of Central Finance is strong, implementation does come with a certain element of risk, as would any major project of this kind. Critical data is at stake, and companies that fail to follow a few key best practices could end up not only failing to maximize the value of Central Finance but actually damaging the operation of their financial systems.
Learning about Central Finance from SAP
While attending the SAP Central Finance Bootcamp in Chicago, November 7-8, my associate and I learned quite a bit about how companies are beginning to look at better ways to generate their internal reporting requirements in a way that localizes all of their global deployments throughout many different regions. The event provided key concepts, capabilities, and architectural components to help teams better prepare for a Central Finance initiative in order to modernize their finance functions and ensure a single source of truth.
I won’t get into the technology specifics or examine on-premise, cloud, or software-as-a-service solution deployment options here, as SAP does a nice job of providing that info for attendees. However, I did want to share with you some important considerations and hidden risks that could derail your project if you’re not aware of them.
Here are three important considerations to help you avoid some pain when you take on this initiative:
1. Implementing SAP Central Finance is NOT an IT project. It is a collaborative enterprise business transformation journey.
One point that my associate and I heard over and over was that implementing Central Finance is NOT an IT project. So while understanding how Central Finance can serve as a stepping stone to implementing SAP S/4HANA Finance without disrupting existing source SAP ERP systems, the project as a whole goes much deeper than an IT operation. As with any digital transformation, business transformation and change management are key components. But it’s the governance component we see most organizations struggle with, and it’s the main reason they engage with Sovos during ERP migration projects.
So, what can SAP shops do to ensure business transformation and avoid falling into the trap of treating Central Finance implementation as a pure IT play?
Ultimately, updating and leveraging the efficient reporting functionalities of Central Finance should enhance, not encumber, end-user experiences. Leverage ideas and opportunities from colleagues who would like to see enhanced functionalities or drill-down capabilities on a macro-level.
Survey key personnel with a functional understanding of what data sets should be migrated in order to meet compliance needs locally. Check if they are missing key data points that could enhance efficiencies if it organized or linked in a new manner. The global strategy to enable instant reporting and real-time analytics could come at a cost if departments once segmented by operations are not bridged by this IT transformation. This is collaboration at its best.
A. Engage local and regional business teams – Make sure to engage local business teams across regions to ensure local governance requirements are not interrupted or impacted.
Are you incorporating the insights and knowledge of your local finance, tax and accounting teams to identify tax, e-invoicing and regulatory reporting compliance requirements into your ERP migration planning meetings?
Do you have a global partner concentrating on tax and regulatory reporting, as well as e-invoicing, compliance obligations, which is capable of providing software to automate governance needs?
B. Harmonize with those teams – Scheduled carefully. As you try to leverage shared services and efficiencies of having global reporting and analytics for ERP, give the local teams time to address complex fiscal obligations within markets. Central Finance’s predictive closing, for example, can be run in parallel with local period-end closing activities until the local business team has full confidence in the new reporting functionalities.
2. Find out how Central Finance functionalities such as central posting will impact local obligations.
A. Central Finance functionality that enables shared services for Accounts Payable and Accounts Receivable could be detrimental to the fiscal obligations in markets:
- Are you planning to post transactions in Central Finance that have to be reported locally?
- If so, how does this impact custom reports required locally if the “full picture” is no longer available in the original source of data?
B. Make sure your new source of truth is capable of conveying data back (back post) to the original system.
- As governments concentrate on closing tax collection gaps, how and where cash is applied matters. If central payments are applied in Central Finance, tax reporting should be executed centrally as well.
3. Continuous Accounting
A. Central Finance consists of one physical document for real-time processing and analytics, and merges financial accounting and controlling together into a singular line item table for “single source of truth” known as the “Universal Journal.” Enabling the Universal Journal delivers system efficiencies such as reduced latency, real-time access, and predictive analytic closing. The new single source of truth has the ability to aggregate global data to facilitate real-time reporting, ensuring transparency on cost and profit analysis. However, replicating data to Central Finance could have the following challenges:
- Historic financial comparatives and GL reporting implications (Trial balance reports or SAF-T): SAP allows summarized load from the FAGLFLEXT or ALL documents as of a point in time. You may need custom manual journal entries to selectively restate history. How does this impact archiving and audit requirements within jurisdictions?
- Statutory and parallel ledgers: Central Finance is focused on leading ledgers as a global strategy. This could be a risk for your opening balance sheet load on open items.
Remember, government agencies are adapting to what private firms have been doing for decades. Sharing information to enable business growth has encouraged incredible efficiencies with multinationals; real-time reporting and predictive analysis increase the expectations of what information governments can expect and when they can collect it. The opportunity to modernize the IT infrastructure could change the way compliance obligations are managed for the next decade in multinational firms. Additionally, a solution architect for S/4HANA Central Finance recommends in a post that tax reporting should only be done from your source systems rather than the Central Finance system.
Contact us to speak with a tax compliance expert to learn how Sovos is helping customers prepare SAP for the digital future of tax. With more than two decades of experience with SAP, Sovos has built its solutions to make sure tax doesn’t disrupt your ERP initiatives.
Learn how to minimize business disruption during an SAP S/4HANA upgrade project in the wake of modern tax: Read Preparing SAP S/4HANA for Continuous Tax Compliance and don’t let the requirements of modern tax derail your company.