Make Your Treasury Technology Work For You

“Technology is simply a tool – no more, no less,” a treasury friend told me recently. “If you get carried away with it then it will control you, and your treasury will operate around the technology when it should be the opposite.” Fundamentally, he was expressing the opinion that it is important that the technology you employ enables you to do your job without having to substantially change the structure of your treasury. I say substantially because it should be recognised that when you bring in a new system (whatever that might be) it is often an opportunity to look at existing practices and make changes for the better. Technology can therefore be an important driver in this process.

In a survey that Zanders carried out on the subject of ‘technology for treasurers’, we asked respondents what they aimed to achieve when they considered purchasing new technology for their treasury. The top three responses were:

  1. Improve efficiency within the department.
  2. Reduce costs.
  3. Become regulation compliant (e.g. Sarbanes-Oxley, IFRS, etc).

When companies that had implemented new technology were re-visited after a year or so of going live and asked if they had met their objectives, it was surprising how many felt that they were only partially met. This is disappointing because typically the technology promises so much. So what goes wrong? The research we carried out highlights a number of interesting observations.

  1. Expectations were not met. By this read: the technology failed to live up to expectations.
  2. Implementation was poor. When questioned further, two things stood out:
  • The people implementing the technology did not adequately understand the client’s requirements.
  • Implementation over ran the time allocated, exceeded the budget or both.

Experience teaches us that when it comes to any form of new technology, planning and change management are crucial. Understanding what the technology can do for you is the first step. The way we do this is to consider the major work processes that are performed in the treasury function and look at the technology available to assist these areas. I will classify these as:

  1. Processing in treasury.
  2. Information flows out of treasury.
  3. Information flows into treasury

Information Flows into Treasury

Information comes into treasury from a number of different sources and some of these are internal. Typically, a treasury receives information from group companies in the form of cash flow forecasts. These have to be aggregated and are used to plan funding, investment and foreign exchange exposure management. As many treasurers will be quick to point out, the technology is not the main problem here; it is getting the co-operation of internal group companies. Technology is still important, though. It can facilitate forecasting or make it a burden. It can help to monitor the accuracy of forecast (i.e. compare them post-fact to actuals). It can also help make forecasts by showing trends and patterns in business cash flows. And it can help the treasury consolidate and view the information in order to make good quality decisions.

The technology used here could be as primitive as, dare I say, spreadsheets and e-mails but many treasury management systems (TMSs) have developed sophisticated modules that enable subsidiaries to send cash forecasting information to a central base, for example, group treasury. Some banks have also recently started marketing specific cash forecasting systems, which stand alongside their electronic banking offerings. What technology offers here is the means to take control of a function, in this case, cash forecasting and provide the tools to make the process easy to perform and accurate to use.

Another source of information is external service providers, such as banks and brokers. The most information received is new information used in decision-making, most typically relating to cash received. Banks can provide information on account balances in many ways. The most proactive is information sent directly to the treasury real time from the bank. The least desirable is a week-old bank statement in the mail. In between are the mechanisms whereby the corporate contacts the bank and gets an updated report on the current situation. The objective of the corporate is to provide updates on cash positions as quickly and efficiently as possible. All banks nowadays offer some form of electronic balance and statement service typically on a previous day basis but also real time as well.

Independent providers (non-banks) have got in on the act in recent years and there are software vendors that specialise in bank consolidation of information. What this means in practice is that they have created interfaces to banks that allow you to download your bank statements and indeed make fund transfers across numerous banks. Of course, isn’t this what it is all about? The reality of treasuries is that they have numerous bank relationships and need to communicate with them all. What these systems offer is the ability to consolidate information across banks in a common format. And this is where technology really helps treasury. It is common practice today in treasuries to use systems that automatically download bank statements from multiple banks in common formats.

Banks also provide corporates with confirmation information about completed transactions. Reconciling these (and bank statements, which serve the same purpose) is an important control and should be done as quickly as possible, in order to be able to correct errors before they have any major negative impacts. Again, the information should be received electronically and in a format that will allow automatic reconciliation with the treasury’s own electronic information. With the use of a TMS or ERP system this process can be done automatically. The key here is that the information going out of treasury and the information coming back into it is controlled through one system. This is the reason why TMSs and ERP systems are so useful for treasury. They enable many functions to be linked together in an automated manner. That is why it is so surprising and disappointing when treasurers say that they do not get the benefits they expect from these systems.

A third and very important class of information that treasury needs is market information, and there are two basic kinds of market data the treasurer uses. The first is current information on FX, interest rates and prices. This can be used to help determine the current outlooks for cash and risk management. At a simple level, such as a long dollar position and a strengthening dollar, the treasurer doesn’t have to rely on technology to know where they stand. But in large companies, market movements present a much more challenging measurement task, having varied and often offsetting implications for the treasury position. This information needs to be used as quickly as possible to determine the treasury cash position and exposures. Information providers, such as Reuters and Bloomberg, provide these services and when the data itself is fed automatically into the TMS or ERP system, this is where the benefits arise for treasury, especially when linked to accounting revaluations, etc.

There are other uses for market information, including rates and prices and the macroeconomic data that a treasurer may use to make strategic or tactical decisions on hedging and risk management. This is still probably fairly technology free, except that it is increasingly dependent on the Internet for distribution.

Processing in Treasury

Information gets processed within treasury to present results that allow decisions to be made to manage liquidity and risk, especially foreign exchange and interest rate risk. There are three types of systems that can basically be used to do this.

The first is an amalgamation of an historic accounting system, reporting the situation as it largely exists today, combined with some form of additional database processor (typically a spreadsheet) to allow the future position to be viewed and manipulated by treasury, based on the current markets and future expectations of cash and exposures. This can work, especially for simple treasuries, but have a lot of inherent risks when looked at realistically. Although workable, this method still involves some manual effort and with that exposure to errors.

The second two types of systems are professionally built for the purpose. The first is the (properly developed) ERP system, which has become an extension of the core accounting system into every aspect of corporate life…including treasury.

The third is the purpose-built TMS, which has been developed over the past 25 years into an information processing engine for the professional treasury. The TMS is really the treasury workhorse. With more than 50 different vendors to choose from, these systems can really cover what most treasuries need. What they don’t cover themselves they can usually include by interfacing with other systems.

Information Flows out of Treasury

Once the treasury has processed the information it has it should be presented in a manner that facilitates decision-making. This may be as simple as showing that there is cash shortage projected for the day, or it may be as complex as a series of reports showing the ‘what-if’ impact of a number of different forecasts and hedging strategies.

In any event, it is likely to result in some transaction activity by treasury. Transactions, such as loans, deposits, FX deals, futures contracts, options bought or written, result in information flows out of treasury.

But first let’s look at the technology available to undertake the transactions. What was once a phone call to the bank can now be completed online through electronic dealing systems such as FXall, Currenex or 360T. Many companies are using electronic dealing systems for their small or not so small FX deal requests. These systems automatically choose the best bank for the deal based on pre-defined criteria. The beauty is that all the information about the deal can be automatically fed back to the TMS together with data on the banks that were not chosen. This provides an historical picture that is used by treasuries to compare bank competitiveness. Such information is very useful and often would not be done if deals were generated manually.

When the transaction is completed, the method used may or may not require the sending of a separate confirmation. If so, this should be an electronic message to the counterparty. TMS or ERP systems have been developed with the capability of producing the confirmation and linking the messages to other systems, such as SWIFT or Misys, for forward transmission to the counterparty. The process also involves the confirmation messages coming back from the counterparties to the treasury system and being matched before any funds are transferred. These are the financial transactions of treasury and the use of technology.

Corporate treasury, however, is only needed because of the commercial activity of the corporate, and it is this that drives the vast majority of corporate transactions – payments. Information on payments (or specifically ‘instructions’ to pay) may not be a treasury responsibility but, in most cases, the infrastructure (banks, bank accounts and use of technology) usually is and the method of making payments may also be, as the cost impact can be significant, risk high and control paramount.

The technology of payments is by now familiar to everyone in the developed world (with the possible exception of a few million Americans still using cheques). As individuals we use the Internet for electronic payments and we can do the same as corporates, so I will not look at this in detail. This is not the aspect of technology that is interesting. The interesting aspect of payments technology is how it is applied and not what is being applied. The corporate world has, from the first days of electronic banking, bemoaned the fact that there were no effective standards, between countries or banks. This is finally changing.

For years SWIFT has been ‘encouraging’ banks to apply their standards more directly to originating customers. The banks, however, have enjoyed using proprietary variations of the standards to make it more costly for their clients to go to another bank. As corporates now have the opportunity of accessing the SWIFT network directly, the SWIFT file formats are emerging as de facto standards for payments. Corporate accounting systems can now produce files in formats suitable for transmission to multiple banks and do not have to produce files of payments individually formatted for each bank. Corporate access to SWIFT is gaining popularity and the fact that corporates can use the renowned security of the network and the message standards that SWIFT imposes means that the ability to achieve straight-through processing (STP) of payments is a reality.

The final category of treasury information is reporting. This is an area where technology is being applied more actively now than at any previous time. Reporting is an essential requirement for control and decision-making. Early technology was used to consolidate and summarise large volumes of transactions in different ways. In this way, reports could be quickly produced to show all outstanding positions by bank, currency or subsidiary. They could be used to summarise the cash flows by currency, subsidiary, week, month or year. Now, the technology is being applied to produce ‘dashboard’ reporting. The term, borrowed from the motor car, is appropriate.

The reports show certain critical data in real-time detail (e.g. rpm and speed) but other information is displayed only if further examination or attention is needed (e.g. brake pad wear and washer fluid level). But unlike the car, which is after all a fairly standardised machine, the corporation is not. The technology is designed to be easily configured for the individual corporate’s requirements. In fact it is more than this, it can be configured to the individual person’s requirements within the corporate. Just like configuring one’s own Google home page.

Evolving Role of Technology

Technology plays a vital role in all of the above processes. In fact, it is true to say that without technology much of what treasury departments do today could not take place. Technology is an enabler and it has changed the nature and structure of treasury departments. It is difficult to imagine a company moving from a decentralised treasury environment to a centralised one without the use of technology to perform the tasks necessary to achieve centralisation. In recent years, much effort has gone into integrating and connecting systems so that human intervention, and hence time and error, is no longer required to manage interfaces. To equate this to the above, technology has enabled information and instruction flows to work together seamlessly and automatically process the results into reports that are tailormade for the treasurer. All of this is done in a fraction of the time it takes to do the same process manually and without having to employ the same number of resources. Let’s consider the following case study to illustrate the point.

Implementation Case Study

A large telecoms company recently looked at its treasury requirements and realised that, while they had previously implemented a TMS, they were also using other technologies including payment and dealing systems. The problem was that these systems were not being fully utilised or integrated together. They realised that they needed to change and put together some objectives including:

  • System integration: The TMS should be the centre of all treasury processing so payment systems, balance reporting, accounting, etc should all flow through the TMS resulting in improved communication between the front, back and middle offices.
  • Where possible, processes should be ‘one touch’ only, i.e. transactions should be keyed in only once and the resulting flows should be automatic and straight through.
  • There was an emphasis on controls and ensuring that security, accounting and other standards were met and/or exceeded.

A TMS selection process was initiated and a vendor chosen. The company was keen to use the SWIFT network for its payments and deal confirmations, and they chose a cash management bank to work with. Having implemented the system, they have seen immediate benefits. Overnight, bank statements are received via the SWIFT network and uploaded into the TMS where they are reconciled and where the opening dealer positions are generated. Cash position screens show dealers expected transactions for the day and they are able to perform ‘what if’ scenarios. Once deals are completed, confirmations are made and matched, and payments created. All the accounting entries are generated and posted automatically based on pre-defined rules. Subsidiaries have been given access to the system as well and they input their deal requests, which are acted upon by central treasury.

The important thing to think about before starting any project that involves technology changes is to ask yourself what the expected benefits are and what changes are going to have to take place internally to realise those benefits? Anyone who has ever undertaken such an exercise will tell you that it is never straightforward. A lot of energy needs to be put into the planning and good project management is essential. The right technology, however, does produce huge rewards if you are prepared to put in the effort.

Key Points

  • Before starting any project that involves technology changes, ask yourself what the expected benefits are and what changes are going to have to take place internally to realise those benefits.
  • Planning and good project management is essential.


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