It’s fair to say that the choices available to treasurers and their teams continue to be buoyant. This buoyancy is coupled with a growth in available technology deployment options which can initially seem bewildering. Typically, a treasurer is looking for the most cost-effective means of getting access to technology that will allow him or her to effectively create, manage and control all of the information needed to enable strategic decision-making around a corporation’s cash balances, debt, currency and commodity positions, in addition to ensuring adequate controls exist around processes to avoid error and fraud.
The technology specification decision is not always simple and there are pros and cons to the various providers and deployment options available. The treasurer’s role is often to cut through the confusion and invest in a solution that can, and will, provide capabilities required to meet growing business demands, while acknowledging that IT budgets are flat or declining and external cloud-based support options may be necessary. For this reason, treasurers going through technology specification procedures are increasingly looking closely at total cost of ownership (TCO) considerations; an often hidden component of technology evaluations.
The first choice a treasurer is faced with is whether his interests are best served by leveraging one of the largest investments most companies make, the enterprise resource planning (ERP) system. ERP systems invariably have some elements of treasury functionality available, and some smaller firms may rely on it totally. This is virtually always the first and default option that a treasurer is faced with when commencing a search for technology – namely, whether to stick or twist and assess if they are able to operate on a single instance across all entities. There are many seemingly obvious pros that would make the ERP system almost the perfect solution given the level of investment and commitment that the corporation has already made in the technology, including its rollout and the sheer amount of information that resides within the ERP database. However, several cons come to the fore when drilling down further into exactly what can be provided to the treasury specifically, and used and accomplished with an ERP system.
The first issue the treasurer will face partly comes down to the fact that the ERP system is so large within the organisation. The treasurer could find that they are competing for IT time against the accounts payable (A/P) or accounts receivable (A/R) procedures or the payroll department – assuming these functions aren’t in-house at the treasury – which even if they are will still eat into the available IT time for other purposes as they too need to use the ERP system. Paying people and A/P, A/R processes tend to get much higher visibility and priority within most organisations, versus other cash management or predictive procedures.
Drilling down a little more, the treasurer will typically uncover the fact that an ERP system is most likely very mature and has been implemented over a significant time period taking into account business requirements that actually aren’t ideal for a treasury. An ERP doesn’t necessarily lend itself well to aggregating information for generating a cash position, for instance, forecasting cash flows, and recording treasury transactions – not to mention assisting in making hedging decisions. Change does not come easy within an ERP system environment either, so flexibility is a commodity that will be in short supply with the treasurer having to make do with what is available.
RFP Procedure and Examining TMS’
The inflexibility of a typical ERP system is an area in which a TCO analysis could potentially uncover hidden costs both in the present and in the future as each new treasury deployment may require retrofitting custom development work. There are many other factors that should be considered when looking to the ERP vendor for treasury functionality, not the least of which is the ERP vendor’s limited focus on treasury to something as critical as the mission of running a company. This is an area where a dedicated and focused point solution such as a treasury management system (TMS) may offer a better alternative if a request for proposal (RFP) technology specification procedure is underway.
Once the initial analysis has been done on the ERP system, the treasurer will start to look at the treasury solution market. There are many options and the availability of a sizeable number of non-ERP solutions underscores the fact that there is a significant need for treasury technology residing outside of the ERP solution’s capabilities. The most common route a treasury department can take is to look at several vendor offerings and narrow down the choices before issuing an RFP. The goal remains the same in that cost and functionality are very often competing goals and this can be mitigated by moving forward with a mature solution and with a vendor that has a sizeable number of clients similar in nature.
The ability to minimise the number of external vendors to achieve the goal of a holistic treasury solution is a major factor in order to ensure there won’t be a need to excessively integrate disparate systems in the event a company needs more than a couple of point solutions to address the complex needs. An ideal vendor will be a true partner; one that has a mature system and multiple deployment options that enable cost reduction. An ideal vendor will also provide a broad spread of functionality that will address most, if not all of the treasurer’s requirements, and will bring years of experience and expertise to the table.
Central to the requirements for treasury technology is usually the ability to generate a cash position, not just domestically but increasingly internationally. Pulling together a cash position is not always as straight forward as collecting and aggregating bank balances globally. There are many layers to a cash position. Having strategic control and management of the various debt and investment instruments may allow the treasurer to achieve a better yield and allow for adequate time bucket planning to ensure the company has access to sufficient cash at all times. Only in managing this process effectively can the treasury forecast future cash requirements and manage debt facilities on a committed basis to ensure the company can meet financial obligations at any time – even if they are somewhat unexpected. So, in addition to collecting bank data it is important to collect business forecasts for short, medium and long term expectations.
While short term forecasts, linked primarily to booked business in the AP/AR systems may already reside within the ERP it is the longer term forecasts that provide the most strategic information for the treasury. TMS solution vendors have become very proficient in taking information that is fed from an ERP system (in fact usually from multiple ERP systems and versions) to build the long term forecast. This can then be overlaid with forecast information from the business along with strategic planning data on business growth objectives and plans. This information in turn is then used to manage risk within the business related to foreign exchange (FX), commodities and interest rate risk, among others.
TMS v ERP
The next step in using the cash data detailed above is to identify and manage the exposures in the business that will affect the treasury’s ability to remove volatility and ensure debt and investment positions are optimal. This is another area where TMS can help by providing quick and easy reporting along with tools to report on debt cost, investment returns and scenario analysis around possible outcomes before and after a hedging program. This ‘what-if’ analysis is essential to successful treasury management and is very complex by its nature. The skill set residing within a treasury solution vendor’s professional services group is very often a differentiator over an ERP system where external consultants are used to implement a project. A good treasury partner will employ their own group of consultants who are not only proficient in the treasury domain, but very familiar with the tools being deployed and how they are used across a broad base of clients.
The third differentiating feature of a good TMS versus an ERP solution is the ability to deploy the application in a variety of ways ranging from Software-as-a-Service (SaaS) all the way up to dedicated private cloud hosting, which for a fee mitigates the need for extensive internal IT infrastructure and time from a company’s IT department. Conducting a TCO study around the deployment options, as well as long-term application maintenance and management supporting costs, will likely uncover additional hidden costs. Other considerations include whether the vendor is responsive with meaningful service level agreements (SLAs) for not only the solution, but also the environment in which it resides.
These types of cloud-based agreements can vastly improve the uptime and usefulness of a solution if they are specified correctly. This is a holistic approach to the provision of a treasury solution where the choice of vendors is reduced. The holistic approach capitalises on the addition of peripheral services such as SWIFT capabilities (through ownership or partnership), professional advisory services, hosting, and business process management. All of these add value to the treasury by ensuring it is able to focus on the goal of effective treasury management without having to give a second thought to the technology, the architecture or the availability of IT staff to assist in the event of an issue with the system.
Cutting through the ERP and treasury solution confusion is easy if you have a good RFP and follow some of the suggestions above. The aforementioned differentiators coupled with the ability to draw on a mature, seasoned pool of treasury experts who have extensive technical knowledge will ensure that the technology selection process will leave you with a partner in the future, if you go down the cloud-based option, or at the very least a correctly specified and supported internal system. The TMS option gives you treasury-specific capabilities and the investment needed to obtain this should pay off in terms of extra efficiency and functionality, especially if it is properly integrated with any existing ERP system. Treasury solutions providers focus solely on ensuring treasurers have the right tools, designed by fellow treasury professionals, with that as their single focus so if this is what you want it is the path to follow.
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