Treasury management is the act of administering cash flow and governing procedures and policies within a company to ensure that the company successfully manages risk (risk management). Treasury management is sometimes referred to as cash management because a primary function of treasury management is to make sure a company meets their financial obligations on time by establishing levels of cash.
A Treasury Management System (TMS) is a software application or enterprise resource planning (ERP) software component that automates the repetitive steps needed to manages a company’s cash flow. While a TMS can offer benefits such as, increasing productivity, tackling fraud and improving visibility into cash, liquidity and financial transactions, many organisations struggle to find the perfect TMS to suit their needs in terms of maintenance, time, cost and function. With insights from experts at Kyriba and Finpacific, Nicole Miskelly explains how choosing the right TMS can greatly improve your organisation’s ability to measure risk and manage regulatory requirements.
How important is the treasury function within organisations?
According to Bob Stark (VP of Strategy, Kyriba) the treasurer has long been viewed as a tactical member of the corporate finance team. However, given new market dynamics and the emergence of new technologies and processes, the treasury function has evolved into a strategic internal business partner to its own organisation—an increasingly critical role that is counted upon to deliver corporate value.
Today’s CEOs and CFOs are increasingly asking treasurers to collaborate with other departments, adding meaningful insight and analysis impacting the organisation’s strategy and financial results in a number of ways. This includes offering insights on risk management, cash flow forecasting and management of all financial processes and decisions.
As the treasury function evolved into a more integral role within the organisation, treasurers should be empowered to make a strategic impact on their organisation. Treasurers and CFOs need to have a 360-degree view on current and future cash positions, giving them the visibility to make informed and accurate financial decisions.
What benefits does a Treasury Management System provide?
A TMS can be managed in-house or purchased as a service from a third-party provider. A TMS delivers many benefits including, greater cash visibility, financial risk management, improved treasury accuracy and efficiency, and the ability to make better strategic decisions. Stark believes that today, treasury has become more strategic and although a TMS provides treasurers and their organisations increased efficiency through automation, audit control and visibility over all treasury processes, it also has the ability to determine what a treasury team can deliver. “While automation is important, it is what a treasury team can deliver to the business by improving the productivity of their team that is significant. Many treasurers are now able to help make strategic decisions around supplier and customer financing, viability of servicing new markets, costs of acquisitions and divestitures, and implementation of payment strategies to enable efficient movement of goods and services for the entire business. This all starts, however, with a more efficient and effective treasury team, which necessitates investment in a TMS and other treasury technology.”
Rangaswami Balakumar (Director and Co-founder, Finpacific) believes that the main benefit corporations receive with a TMS is automation. “An effectively implemented Treasury Management System, one that is fully integrated in to an organisations operations and provides a powerful engine to automate the many manual processes that currently exist. From the automated capture of trade information from trading platforms and market data to automated electronic confirmation matching, automated generation of accounting and integration to the General Ledger, and automated settlement via SWIFT or automated integration into banking platforms. Not forgetting automated workflows and approval processes, document management, Risk Management and accounting practises. Automation provides efficiencies in resource allocation, reduces the risks associated with manual processes and allows treasury teams to focus on core business critical functions. The more Automation we can achieve the closer we are to true STP.”
What should companies look for when choosing a Treasury Management System?
According to Bala, the top three things companies should look for is Integration, Integration, and Integration. Whilst treasury system functionality has become commoditised with most solutions delivering 95% of typical treasury requirements, it is important for corporate treasurers to understand how these systems will (or wont) interact with the multitude of underlying systems that run modern corporations. The broader reach of today’s Treasurer is driving the need for accurate, up to date information from a system providing a holistic view of the entire business operation, a single point of truth so to speak. Any gap in integration will result at best in a loss of confidence at worst costly expense. The closer we come to eliminating the need for manually handling and transferring information the closer we will come to achieving true straight through processing (STP) and single point of truth.
Alongside integration Stark believes that there are several things that organisations should look into when considering TMS vendors, from both a solution and a business perspective. Some of these include:
Product and Vendor Viability – a Treasury Management System is a long-term investment, so you want to be sure that the product you choose will be around for the long term. There have been several TMS mergers and acquisitions over the past few years, and this has often led to vendors stopping support for the acquired systems or putting them on product life support.
Review of the vendor itself and its ability to survive financially as well as the revenue derived from subscription to the specific product you are considering investing in are both necessary analyses to give comfort that the product will continue to be viable for the coming years.
Total Cost of Ownership (TCO) – this is an important factor to consider, regardless of whether a cloud (SaaS or hosted), or an on-premise solution is implemented. Obvious costs include subscription or license cost to use the software, support and maintenance costs, as well as the implementation and training required to get up and running. Costs that aren’t as obvious include:
- Cost of upgrades – both internally for your treasury and IT time but also any costs to the vendor to perform the upgrade on your environment. This should be zero for a true cloud partner, but guarantees in writing are important to be sure
- Hardware costs – does any hardware need to be purchased or leased? Some hosting providers offer different tiers of service that may charge extra for dedicated hosting
- IT support – is there any initial or ongoing internal IT support needed to setup and maintain the product, including for updates to internal interfaces or for upgrades
- Audit reporting – are there any additional costs to receive full reports for SOC1 and SOC2 audits. Your IT team will want this information, so ensure there aren’t additional charges. The same question applies to regular penetration testing activities and reports
Support and monitoring – support is critical for a complex, business-critical platform such as a TMS, so ensuring the offered support aligns with your business needs is critical. If you are a global treasury operation, multi-region (and possibly multi-lingual) support options are a must. Does the vendor provide 24x7 application support or are such SLAs only applicable to the platform and not the actual software?
Understanding the support resources dedicated to your specific system is important (a provider may have five people assigned to five systems, meaning one resource per system).
Troubleshooting time will also be directly affected by the number of versions of the software that are supported (less is obviously better) as well as whether all aspects of the solution – including connectivity – are proactively monitored. Proactive monitoring is the difference between you telling your vendor about a problem and the vendor telling you about it, meaning they are working on solutions before you are even are.
One system or multiple systems – many TMS providers actually have multiple systems acting together to act as a single solution. It is important to know which actual products (and sometimes in the case of connectivity, actual vendors) are involved, so that you understand if it is truly one solution or a harmonious blend of systems and technology (along with implementation and support teams).
How should a Treasury Management System deliver short, medium and long-term corporate risk strategies and investment decisions?
According to Bala, a good Treasury Management System can be judged by not only what you put in, but what you get out of it as well. He believes that a fully integrated TMS should analyse data from various sources that is easy to extract by the business and enables the company to make intelligent and informed decisions. “A fully integrated TMS will be extracting data from many sources for analysing. From risk engines to cash flow forecasting and liquidity analysis to compliance reporting, credit risk controls and audit trails. As a central repository of all financial information, a single point of truth, users at all levels of the business must be able to quickly find and easily extract the relevant data that is needed to make intelligent, informed decisions based on up to date factually accurate information for all strategies including risk and investments.”
Stark believes that a treasury system should deliver both greater visibility and an accurate measurement of risk. “A TMS delivers visibility into risk exposures - currency, interest rate, counterparty, operational - to help treasurers implement effective solutions to reduce or eliminate risk. Whether it is a hedging programme, fraud prevention, or a disaster recovery plan; a TMS offers risk mitigation for treasury teams. TMS also measure the effectiveness of risk management programmes, which is critical to a programme's success. Measurement is the most important part of a risk management programme, as it provides the feedback loop necessary to refine and improve risk strategies.”
What do treasurers need from a Treasury Management System?
Today, treasurers require different functions from a treasury system in order to keep up with digitalisation, regulatory compliance and to make sense of and find value in data. According to Stark treasurers now require business intelligence and analytics functions, more transparency in system integration, and the ability to perform key tasks via smartphone and tablet. Treasury teams are also finding that new guidelines and regulation are causing disruption and diversion of resources to manage. Because of this, they want their TMS to help manage regulatory compliance in cases such as FBAR in the US and SEPA in EMEA.
Stark believes that a cloud-based TMS offers cost benefits, ease of use and the ability to centralise processes for an organisation and according to Bala, treasurers now also require better mobility and cloud-based services. “We are all now so used to composing an email on the bus or editing documents on a train that we expect this same functionality in all our business functions. Many have been swift to adapt to this but treasury seemed to be lagging behind. This is quickly becoming no longer the case with the advances in cloud computing technology and security many treasurers are starting to shout for this functionality now.”
Treasury challenges and solutions
According to Bala, technology will always be advancing, regulation will always be evolving and good treasury solutions will always be around. But it is still often a challenge for even the most advanced and compliant treasuries to get access to the critical data needed for effective management and decision making. Getting operational business units and divisions to part with the information can still be the biggest challenge facing the treasurers. Change needs to be embraced, encouraged and even mandated at the CFO or Board level down if treasuries are to reach their full potential.
By Nicole Miskelly, bobsguide Lead Journalist