Why SMEs are missing out on technological advances in the area of Treasury Management

By Peter Carlile | 19 October 2016

By taking the simple step of automatically migrating data to a Treasury Management System (TMS), cash control is improved, and the treasury function simplified.  With better information available at your fingertips, the Finance/Treasury functions are able to make speedy, accurate reliable decisions that benefit the overall business. 

The logic is sound, but many Small and Medium Enterprises (SMEs) continue to rely on spreadsheets for core treasury functions such as forecasting, cash visibility and bank account management. Changes however are on the horizon and they look positive for SMEs.

Technology based solutions answer the limitations of the spreadsheet:

Traditionally, TMS has been the preserve of large businesses. Owing to the fact that it is often an integral part of an ERP system, it comes with a large associated cost and sometimes lacks the flexibility required by a smaller business.  For an SME, the benefits of using a traditional TMS are outweighed by licence fees, implementation, and other project costs.

As modern business software continues to migrate to reliable cloud based platforms, solutions are now coming to market to overcome what in the past have presented challenges to SMEs. Costs have fallen dramatically. Usability and data security has responded to scrutiny and improved significantly. The result is a new generation of Treasury Management products designed specifically for SMEs. These are exciting times.

What are the Challenges for SMEs?

Focussing on some of the key challenges:

•    SMEs often operate with greater uncertainty with regard to cash-flow and this can lead to otherwise profitable SME businesses going bust due to cash flow problems; 

•    most Treasury Management Systems are too expensive and require up-front investment in both time and money;

•    for some, timing of cash flow can be much more susceptible to large binary impacts , particularly in project based organisations

Drawbacks of Excel for Treasury Management

Even with the known problems, it is estimated that three-quarters of SMEs have no dedicated Treasury Management function but instead rely on Excel spreadsheets. 

Without a viable alternative, SMEs are almost forced to use Excel to provide the cash flow capabilities due to limited functionality of their existing accounting system. Given that these tools were not designed specifically for this, neither option offers a satisfactory solution. 

In particular, 
•    it does not provide a reliable audit trail;

•    it is often subject to unique complex formulas developed by individual users who are responding to an immediate and very local specific need; and

•    accounting packages have basic, but restricted cash flow forecasting capabilities based on Sales Orders, Purchase Orders and Invoices.

Benefits of implementing TMS

As Finance/Treasury departments are doing more with less, technology and process improvements provide better data and remove the need to rely on Excel spreadsheets. 

Implementing TMS enables Finance/Treasury departments to focus on analysis, increase control and add value to the business, providing the ability to:

•    manage the true financial health of their business and the specific challenges outlined above;
•    make informed decisions on:
o    staffing levels
o    equipment investment
o    project management timing
o    funding requirements
o    resource management

•    carry out risk analysis which addresses the fundamental issues of cash flow timing, particularly arising from funding work in progress and deviation from planned invoicing and settlement dates; and 

•    focus on the non-cyclical forecasting needs that differentiate their organisation from those that follow a typical annual cycle with seasonality.

Companies that provide Finance/Treasury departments with enabling technology, provide a roadmap for success, better cash management, and are able to be more strategic in a business climate that is often volatile and ever changing.  

When discussing with companies already using TMS, the majority say their cash visibility was good to very good; demonstrating that it automates processes, improves cash visibility, and enables the Finance/Treasury department to spend more time on decisions that increase value to the business.

As SMEs begin to establish their treasury processes, their need for technology and automation increases as they grow. The introduction of affordable Software as a Service (SaaS) TMS offers significant opportunities for smaller Finance/Treasury departments to leverage the technology to improve performance and provide strategic advice to the business at a significantly lower cost than previously.

A new approach from TMS Providers

In response to the growing demand from SMEs for a viable TMS package that meets their specific business requirements, newer providers have adopted web based solutions based on a cloud computing model. SaaS providers offer a system from a secure site operated by a specialist hosting company, such as Amazon Web Services.  

The adoption of a SaaS business model hosted on a secure remote database, has enabled the introduction of new pricing models based on a rental fee by site or by user. A monthly charge replaces up-front license fees and annual maintenance charges.

Licensing software also allows the company to be creative with their budgeting.  As an operational expense, SaaS software solutions avoid the need for capital expenditure and are not included on the balance sheet.

In addition to a lower cost, TMS using the SaaS model offers companies a number of financial advantages including:

•    No implementation project
•    Monthly rental options from under £100 pcm
•    Purchase via Credit Card or Direct Debit
•    Simple Terms and Conditions
•    Monthly contract  
•    More responsive software
•    Automatic backup of data 
•    Data recovery
•    Secure web-site (https)
•    Traceability  

A further advantage is that the functionality of the software can be expanded as the users’ requirements grow.  Being cloud based, add-on modules and dashboards are easily implemented directly at the remote server, requiring no action by the users, other than to agree the cost.   

Conscious that the SME market involves providing the solution with limited budget for TMS, the challenge to SaaS providers is to price the monthly client rental at around the same price as a monthly business mobile phone charge, thus ensuring an attractive, affordable product and still provide a functional and competitive service.

In Summary

The benefits TMS offer against traditional spreadsheet cash management are undisputed, but until now have been the province of large companies. It means that SMEs have been unable to reap the benefits of technological solutions in the Treasury Management space and thus miss out. The market is moving forwards and SMEs can now also benefit from tailor–made, cost effective, technology-based solutions. The time to embrace these new developments has arrived. SMEs need no longer miss out.

By Pete Carlile, Owner, Pro Negotium Limited.

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