TMS Feature Part 1: The Evolving Treasury Landscape

By Nicole Miskelly | 14 August 2015

Today’s treasury landscape is evolving rapidly and so is the role of the corporate treasurer. According to the ACT’s Contemporary Treasurer 2015 survey, treasurers are spending much more time on risk management, capital and liquidity management and business strategy in recent years than ever before, and to keep up with these changes firms are needing to invest in innovative and up-to-date TMS’ to help address some of the key challenges.

Jeff Diorio, Principal at Treasury Strategies, Bruce C. Lynn, Managing Partner, The Financial Executives Consulting Group LLC, Justin Brimfield, Chief Marketing Officer and EVP of Corporate Strategy at Reval and Mark O'Toole, Vice President Commodities and Treasury Solutions at OpenLink give their opinions on the biggest challenges treasurers are facing and the benefits of installing a TMS.

According to Bruce C. Lynn, Managing Partner, The Financial Executives Consulting Group LLC, over the last few years treasury functions have been forced to evolve and become more strategic. “Treasury was traditionally a cash management function charged with tracking cash balances and executing transactions, however the last few years since the ‘Great Recession’ has forced treasury to evolve and become more strategic. During the 2009 period banks were cancelling credit lines and operating cash flow slowed forcing some companies to treat liquidity as importantly as it treats profitability.”

This shift in approach has meant that treasurers are now facing different challenges within the treasury management space, particularly due to an increase in regulation and the risks presented by digitalisation and big data.

Jeff Diorio, Principal at Treasury Strategies, Inc says that, “Cyber security and interest rate/FX risk management are primary focal points that materially impact earnings per share. Companies that have experienced a big data breach have watched revenue drop; those with a large FX exposure have suffered unwelcome earnings volatility.”

Mark O'Toole, Vice President Commodities & Treasury Solutions at OpenLink, says that treasurers are finding big data a challenge. “Companies that are taking raw materials and producing finished goods are now starting to combine both treasury and procurement into one holistic view so they can accurately view their cash flow at risk. That’s a lot of data to handle, so finding the right solution to handle and process this data and provide the relevant analytics is becoming increasingly important.”

According to Lynn, treasurers are also facing challenges with liquidity and measuring success. “According to a recent AFP survey only about half of companies have specific liquidity or risk metrics. Without proper metrics how can treasury answer the questions, ‘Am I successful?’ Without a means to its usefulness Treasury will be unable to make a business case for resources which could be a mistake especially for ‘liquidity challenged’ companies in certain industries.”

Compliance is another challenging area for treasurers and Lynn says that the host of new rules may force treasurers to take their eye off their primary goal, which is to provide liquidity and manage risk.

Lynn says that regulations such as FBAR and Basel III are just some of the rules affecting corporate treasurers and believes that, “Basel III will force treasurers to take another look  at their bank relationships because bank want to know about their own liquidity and whether deposits levels at their institution by its customers are for operating or non-operating purposes. Non-operating deposits will become more costly which can have a ripple effect on both corporates and bankers."

When it comes to addressing these challenges, treasurers are increasing looking to technology to help provide solutions and Diorio believes that the use of technology within treasury is helping to position the space as a value creation centre. “Treasury is now organisationally well positioned and technologically empowered to become a value creation centre, and is expanding its strategic scope, supported by advancements in infrastructure, technologies, and well-defined processes.”

“The appropriate technology not only enables you to streamline day-to-day operations, it also empowers you to answer strategic questions and provide insightful business analysis related to liquidity and capital planning, as well as financial risk management,” he says.

According to Lynn a TMS provides a variety of benefits to professionals working in different sectors. “A TMS allows non treasury financial professionals (operating units, FP& A, Audit, Tax and even investor relations) more frequent and more complete visibility toward managing liquidity and risk. With its real time connections to the markets (rates, prices) and banks (cash, investments) it allows others a common platform to manage cash, debt, investments and risk in time to take corrective actions.”

But with so many TMS offerings out there, what should treasurers be looking for when they decide to invest? Justin Brimfield, Chief Marketing Officer and EVP of Corporate Strategy at Reval says that when choosing a TMS provider, corporates should look for a company with a proven track record that is investing in innovation. “When I go shopping for a major purchase as a consumer, I look for a strong track record and a company that is investing in quality and innovation.”

O'Toole says that with transparency being a big requirement from treasury departments today, finding a TMS solution that sits on one platform is essential and helps to reduce the amount of time spent on manual processing throughout the day. “We have been increasingly seeing treasury departments looking to reduce many manual steps and increasing transparency into their process, with a focus on doing more with less. Certainly finding a TMS solution that sits on one platform with a single code base is optimal. Not only do you avoid multiple integration points, but you can take advantage of straight through processing (STP), allowing you to create automated workflows and reduce the amount of manual steps in your daily process,” he says.

There is also often a debate about whether treasurers should be using an installed or cloud-based TMS. Diorio says that this choice depends on factors such as the size of the treasury department and their level of IT support. “A number of factors might impact this decision, including Treasury’s level of IT support, Treasury staffing levels and skills, budgets, etc.  Numerous vendor solutions, capabilities and delivery options can support a robust, global solution. Solutions may be installed, hosted or software-as-a-service (SAAS) to match a firm’s need for control, outsourced IT, or lower cost, enabling mid-sized companies access to technology only large firms could previously afford.”

Lynn says that cloud based systems are good for companies with “generic needs” and while many companies feel their businesses are unique, treasury is very similar from company to company. “Over time TMS vendors have been able to design their products to service many different industries. Cloud based systems should be considered the default mode,” he says.

Lynn also believes that installed systems should be considered as “exceptions” and work better when there are very specific needs (e.g. trading) or a company has a complex organisational structure (real estate companies or companies with many joint ventures). He also says that usually, “cloud based systems cannot handle situations where a company owns less than 100% of an asset or where cash cannot be rolled up to a parent level due to legal restrictions.”

Brimfield says that treasury departments are choosing to move their TMS to cloud just like other sectors have. “The market has chosen cloud versus installed for all the same benefits that other market segments, like CRM and HCM, have. We are seeing many of our clients moving over to Cloud ERP as well.”

However, Lynn says that that the most important thing to remember when choosing either a cloud-based or installed TMS is the service and having enough support and training to use it properly. "Regardless of where the 'box' is installed a company must have support/training appropriate to its use of the tool.”

Don’t miss ‘TMS Feature Part 2: How should treasurers deal with new challenges? next week…

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