Nowadays treasurers are expected to take on more responsibilities, while also using fewer resources. In addition to managing cash, they are now required to handle more strategic functions such as debt and investment management, interest rate and currency risk management, along with the accounting for such complex transactions. As the role of the treasurer has become increasingly more sophisticated and multifaceted, so too has the supporting technology. Today’s powerful treasury management systems (TMS), alongside foreign exchange (FX)/trading platforms, electronic bank account management (eBAM) and short-term investment portals, are providing corporate treasuries with the right tools to address cash, liquidity and risk management in this fast-paced environment.
Why Automate with Treasury Technology?
There are a variety of reasons why companies decide to automate their treasury functions through introducing a TMS. A primary one is that manual cash and risk management and reliance on spreadsheets are both time-consuming and prone to error. Manual processes can also present issues in terms of control over data, segregation of duties, accuracy of calculations, auditability and the sharing of information within the department and across the greater organisation. Similarly, using enterprise resource planning (ERP) systems can be a gamble considering they are not designed to support the more complicated and less predictable functions of treasury, such as managing FX risk and hedging.
Treasury’s increasing ability to impact the bottom line has resulted in a renewed focus on cash forecasting and global cash management, interest rate and foreign currency risk management, and overall working capital management. Through such measures as fostering automation and connectivity, as well as offering improved control and visibility over data, a TMS helps treasurers meet the demands of their role, while drastically improving the quality of operations. Treasury technology is becoming a priority for many corporations because it is flexible enough to support basic cash management, as well as complex debt and investments. In fact, many of today’s best-in-class treasury systems are truly global in nature and able to support everything from Brazilian tax calculations through to double-byte characters.
The functionality provided by a TMS can help treasurers meet the demands of today by empowering them to easily consolidate and aggregate disparate sources of data and pinpoint global cash positions for better decision making. Automation provided by a TMS expedites data collection of bank balances and transactions (domestic and international) enabling information to easily be exchanged and made actionable. This supports the treasury in accurately forecasting cash and liquidity requirements and making better investment and borrowing decisions. Furthermore, the ability to pinpoint a global cash position facilitates corporations in identifying surplus cash, which may then be used to pay down debt or even reallocated to provide inexpensive finance for new initiatives.
Value of Portals for Treasury, Risk and Investment Management
One of the key responsibilities of a corporate treasurer is to ensure that the company has access to sufficient liquidity to meet its financial obligations. It is also essential that this liquidity is managed efficiently. Furthermore, sound treasury management implies that the cash that the company generates is invested wisely and is used efficiently to minimise reliance on third-party providers of finance.
Risk management plays a crucial part in this strategy, as budgets are set on assumptions around market rates and changes in these rates can have a profound effect on the performance of a business. Without the proper risk management techniques in place, even the most profitable company can fall into difficulty. A significant change in market FX and interest rates could have huge implications for a business if, for example, it affects covenants on debt agreements. This is why a holistic view of risk across the organisation, including price risk, currency risk and interest rate risk, is imperative.
FX trading portals are increasing in popularity amongst corporate treasurers as they offer real-time quotes from liquidity providers and a secure staging area to execute FX trades. These portals provide the flexibility for users to select which liquidity providers can bid on a request, based on streaming, competing quotes. From there, treasurers are able to execute trades in real-time. FX portals can also be integrated with a TMS, thereby improving straight-through processing (STP) rates and making it easy to access information on the import, confirmation and settlement of a given trade.
For managing investments, such as money market funds (MMF), it is equally important for treasurers to have one-stop access to timely information. However, they often rely on disparate information from multiple parties, statements and reports, and struggle with the time and effort required to compile and reconcile this information. Meanwhile, overlapping regulatory requirements command the need for consolidated information in order to help reduce credit, market and operational risk, while increasing transparency and streamlining processes. It is therefore crucial that treasurers have access to the right tools that will support them in improving productivity and introducing controls into the investment process.
For these reasons, many forward-looking treasurers are adopting trade and investment portals, which allow them to obtain a real-time view of exposures through a single web-based connection. These portals serve as a staging area, helping treasurers to execute, import, confirm and settle trades – all with minimal manual intervention. Many of these online portals are built on market and vendor-neutral platforms and allow treasurers to access data on-demand, enabling more timely and accurate decision-making. Offering direct connectivity with market rate providers, portals can also serve to dramatically improve STP rates by seamlessly passing information related to trade import into the TMS.
To further improve connectivity and keep operational costs low, many treasurers are also introducing bank connectivity platforms to accompany a TMS, which provides real-time and secure integration between a corporation’s financial applications and their banks. This can allow for more timely access to balance and transaction reporting, helping treasurers to gain a more up-to-date view of their bank accounts.
Treasury Applications Delivered via the Cloud
Until recently, many organisations were skeptical about the capability, security and value of delivering applications via cloud technology. However, this line of thought is rapidly changing as the realisation sets in that the cloud can play an integral role in helping organisations to position themselves for growth in the midst of this uncertain, yet dynamic, business environment. And regarding security, many are realising that private cloud environments and hosting facilities need to operate with high security and data integrity standards.
The nature of the cloud is such that it can enable corporations to increase the mobility, productivity and success of their business operations. Businesses can build and run their own cloud, with all of the associated costs, or outsource to a specialist provider and pay only for the resources they use in terms of software, bandwidth and storage.
Treasurers can rest assured that the private cloud environment used to host financial applications is secure, with controls built-in to ensure data integrity.
The cloud can act as an enabler for consumable treasury services. For example a service such as eBAM can be hosted in the cloud and used by corporations on an as-needed basis. The process of consuming services can be compared to the concept of an online library, in which, for example, the user checks out eBAM, performs a series of functions as needed, and then returns the service back to the library. Fees are based entirely on usage and transactions as opposed to monthly maintenance. Furthermore, these services do not require a license, which eliminates the related paperwork and costs.
The primary benefits of the cloud for treasurers are its agility and elasticity. For example, do you need more computing power, memory, storage, bandwidth or users on the network? These are all achievable almost immediately in a cloud environment. In fact, corporations that choose to deliver treasury technology via the cloud are more agile and flexible. Cloud helps take the pain out of managing disparate applications that need to be constantly monitored, updated and patched, freeing up highly skilled IT staff to refocus on core business projects and initiatives. Furthermore, treasury applications hosted in the cloud are inherently secure, as they are often are required to adhere to the same level of compliance, scrutiny, demands and stresses as do systems that are hosted internally by corporations.
Numerous advancements are taking place in technology as vendors strive to offer more advanced and fine-tuned systems that can meet the diverse demands of today’s treasurer. With treasurers now being asked to handle everything from cash management through to strategic functions, such as debt and investment management, interest rate and currency risk management, relying on manual processes and spreadsheets is simply a thing of the past. Today’s TMS, alongside such innovations as FX/trading platforms, (eBAM), short-term investment portals and cloud-based delivery of applications are defining the future of treasury management. Ensuring that these tools are integrated and communicating seamlessly with each other is equally important. Many of today’s leading technology vendors are positioned to offer services to corporations based on open, flexible standards making the concept of true integration a reality.
Corporate treasuries equipped with advanced tools that are tightly integrated will ultimately be successful through having the ability to drive growth and maximise profits, all while maintaining control and visibility over their data, systems and processes.
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