Treasurers are facing turbulent and challenging times. The global financial crisis has caused treasury to re-focus on closely monitoring the financial markets, optimising cash flow and managing risk as its top priorities. Considering the speed of the developments, a comprehensive and real-time treasury management system (TMS) is essential to proactively manage financial positions and risks.
Treasury management has become more automated through improved straight-through processing (STP) and further integration with corporate financial systems. This decreases the required number of manual activities and makes the process more efficient and – if the system is implemented adequately – more secure. Ideally, this automation frees time for treasury teams to focus on areas where the greatest value can be added.
The increased focus on automation puts the TMS at the heart of an organisation. The requirements placed on the system in terms of functionalities, process transparency and security become higher each year. Given the critical functionality provided, companies need to fully rely on the system and the support provided by the vendor, which should be evaluated on a regular basis just as other key relationships are.
Rethinking Treasury Technology Needs
The recent economic turmoil raises the question what lessons can be learned and how the organisation can better employ technology to gain access to vital real-time information. For example, a well implemented system will provide strong and automated functionality through automated payment solutions, real-time balance information, automated reconciliations and confirmations. It can also provide strong analytical tools to effectively measure and monitor financial risk positions in a volatile market and execute hedging of exposures to amiable pricing. It may also offer the functionality to manage liquidity positions through integrating cash forecasts balancing of foreign currency cash accounts, managing collateral, controlling banking authorities, monitoring credit, as well as enhancing the control environment.
Although the fragmentation of the treasury system market has been reduced, treasurers still struggle with the choice of selecting a system that offers the required visibility and speed of management information while having the robustness for core treasury functionality. The key question for treasurers is two-fold: “What can I give up and what can I gain?” and ”How do I differentiate among the systems offered?”.
With companies seeking a single, integrated system solution for the bulk of their treasury activities, how does a treasury identify and evaluate the systems available and translate this information into a comprehensive vision on which system or systems might best meet their needs – for the lowest price – both today and tomorrow?
While technological developments within the treasury landscape have been evolving, the focus has been on offering solutions tailored to the needs of treasury departments. Although cost containment and improving profit margins is always top of mind, we are observing a slight increase in initiatives to support technology improvements to achieve cost savings. As such, a ‘single-system solution’ that either is or has the potential to be fully integrated with the banking, trading or other portals (such as SWIFT) and enterprise resource planning (ERP) systems has become paramount to achieving these cost reductions.
This ‘wall-to-wall’ approach on system selection is continuing to be popular as companies try to save costs on interface support and system licenses for a more efficient and visible financial value chain management.
Drivers in Choosing a TMS
What are the main drivers in choosing a TMS? What should you consider in a TMS in order to make a sound choice between the most popular systems on the market and the system that might best fit your needs? We believe there are several key drivers in evaluating your choices:
- Identifying and prioritising critical business requirements.
- Identifying and evaluating solutions that can adapt to a changing business environment.
- Identifying and evaluating costs and benefits associated with integration.
- Assessing the software delivery model that best meets your functional and economic needs.
- Assessing the system vendor and developing that relationship before, during and after implementation to best serve your needs.
Identifying Critical Business Requirements
Core functionalities must always include a system that accurately captures and monitors all required instrument types, provides access and visibility to cash flows, supports segregation of duty and enforces controls, makes confirmations and performs reconciliations. Executing hedges and payments should be as automated as possible, with a user-friendly and flexible report writer and supporting interfaces to other systems. But what else can a strongly implemented system provide?
Recent events have now called for systems that can provide useful real-time information to better control working capital levels, have visibility on global cash balances and the scope to robustly identify core, liquid and strategic levels of funding and liquidity. Every treasury function operates in a different risk environment and treasurers face a multitude of differing business drivers, which should be comprehensively covered by the TMS. However, should the system not meet the majority of the business requirements, should a company consider customisation? And if the system is customised, what is the risk the customisation will be too rigid to support new functionality as a company changes? What is the risk that the vendor will eventually decline to support these customisations or ‘unintended’ uses of the system?
Solutions to Meet a Changing Business Environment
What functionality do you require from a TMS today, how deep is your treasury footprint within the business and what functionality are you likely to require in the medium term? There is no doubt that cash has been firmly ensconced onto its throne; cash management and forecasting, covenant management and monitoring and supporting local funding solutions have all been revisited, expanded or further embedded.
Further advances are being made by treasurers towards more effective liquidity planning and management. This means treasury has more influence and impact over accounts receivable (A/R), collections and the order-to-cash cycle – with particular focus on the time value of money and credit risk, but does the current TMS provide greater visibility and control over this cash and liquidity management process for the group and it’s subsidiaries?
Evaluating the Costs and Benefits of Integration
How well does your system enable you to obtain the information you require directly from other corporate system applications? How does your system allow you to interface directly with an internet dealing platform without the need of another application? Does your system facilitate the single euro payments area (SEPA)? Can you easily run a multilateral netting programme?
These questions are sometimes ignored during the implementation of a TMS, but are critical in achieving an integrated solution that provides visibility and access to information that allows the treasury department to analyse and take prompt action that benefits the organisation. Prioritising the connectivity between systems should be part of considering existing and future requirements, as companies begin the selection process and certainly as implementation proceeds.
Evaluating the Software Delivery Model
In the past 10 years, many well-known names in the treasury market have disappeared and others have come forward. Through consolidation, system vendors have become larger and expanded their global presence. Potentially these consolidated vendors will be able to invest more in development to improve their solutions, meet the increased expectations of their global customer base and to provide better service levels. However, many treasurers are justly concerned with the lack of competition in this market if the consolidation trend were to continue.
In the past, most TMS were either locally installed applications that had the advantage of the company being able to control the IT security, environment and data. The disadvantage, however, is that IT department resources are needed to implement and support this specialty application used by a relatively small population of users within the organisation. When your IT organisation is also outsourced, it becomes even more challenging to prevail on internal relationships and hierarchies to achieve your technology objectives.
With the advent of improved network security, an increasing number of vendors are offering other software delivery models. Two models have increased their prominence and acceptance – the web-based software-as-a-service (SaaS) solutions or the ‘hosting’ services. The SaaS model has the advantage of standardised processing, potentially simpler implementations and a per-user/per-function pricing model that is budget-friendly. However, some companies have struggled with security and data privacy concerns as dictated by their internal security policies. Another alternative is to have your installed application hosted by your vendor, which has the advantage of having your hardware installed, implemented and maintained at the vendor’s location.
Assessing the Vendor Relationship During Selection
One area that seems to be most in need of improvement centres on the support given to existing customers and control over apparent ‘development’ costs. This has become a constant source of frustration with many treasury departments. If you have a good working relationship with a high level of support from your TMS vendor, then it is most likely that you are a large company with a large budget or you have a highly dedicated vendor.
An important part of the selection process must focus on selecting a vendor that will offer the most rewarding client relationship package. In addition to assessing system capabilities, there is a need to view the commercial risks and the financial stability of the TMS provider, as well as the possibility of it being acquired and/or its TMS no longer being supported. The emphasis the vendor puts on after-the-sale customer support is also a question that requires affirmation during the selection process. The vendor may allocate (development) time (via invoices) on existing customers instead of focusing mainly on new business to drive revenue growth. The vendor may offer extended support once you ‘go live’ on the system as your team transitions to its new roles. You may also expect your system vendor to have a vision on, and a solution for, the latest treasury business developments. Finally, you may expect that system developments are not only focused on enhancing the core system, but also focused on enhancing the integration with other systems in your organisation.
Assessing the Vendor – Implementation and Post-sales Support
Some of the distinguishing features of a successful implementation are the level of engagement on implementation by the treasury team and the vendor, as well as the quality of implementation resources available. However, resources are always stretched. What level of resources and implementation support are offered by the vendor and are they independent enough to help ensure a smooth implementation?
Often, if vendor information is reviewed during the selection process, it is mostly on financial stability and geographical location. Vendors understand that it is the client who is the least experienced and conscientious vendors have redesigned their implementation approach. The best way to shorten implementation time and effort is to leave out choices, which need decisions and time. Therefore, some vendors sell their system with an industry standard parameter set. If your treasury is organised according to industry standards, the benefit is that system can be implemented quickly because many choices have already been defined that allow you to achieve ‘go live’ in significantly less time. In this regard, the vendor is more or less assured of a well-defined project with minimal risks. However, making educated choices is of paramount importance in implementing a TMS that offers your organisation the power to drive through efficiencies and improvements in the way your treasury thinks and manages its cash, funding and risks.
In assessing the differentiators of a TMS, companies should not only consider their critical business requirements but also whether the solution can adapt to your changing business environment, the cost effectiveness of establishing integration points, the most beneficial software delivery model and make a careful assessment of the vendor before, during and after implementation.
The authors would like to thank Emma Beccio from Ernst & Young for her contribution to the writing of this article.
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