There’s no getting away from the fact that cash forecasting is a vital, core functionality for treasury operations. No organisation, regardless of their size and sector, can afford to lose sight of their cash and liquidity positions – yet in an increasingly complex business landscape, this can be easier said than done.
This view is backed up by a report, sponsored by SAP, which surveyed CFOs, controllers, treasurers, and other financial leadership at companies with more than $250m in revenue about the state of their office. The 371 finance executives who were surveyed identified a clear and pressing need for the office of finance and treasury to step up its game when it comes to cash management, control management, and overall finance functions.
- 80% said that the increased complexity and volatility of modern business has made cash management, reporting, and forecasting even more important.
- 62% said their office would need to increase its ability to contribute to high-value activities within their company.
- 83% said their company would need better forecasting and understanding of its cash positions to succeed in the future.
- 76% said that they expect cash management to become even more difficult over the next five years.
Respondents also revealed their top priorities for implementing improvements in the near future:
- 33% said that increasing the accuracy, quality and consistency of their data about cash flows was paramount.
- 34% said their top priority for the future was improving the accuracy of cash forecasts.
- 33% said having real-time access to cash information and treasury analytics was their first priority.
An evolving solution
With the above in mind, it’s unsurprising that organisations are increasingly looking to invest in a treasury management system (TMS) to automate, record and control many core treasury functions.
Greg Person, vice president, global presales and strategic value for tech vendor Kyriba, says that the investment is a no-brainer. “The modern TMS has evolved to encapsulate treasury’s needs in a superior, secure and compliant framework,” he says. And it’s true that TMS solutions have come a long way since their introduction in the early 1990s – when they were only implemented by the treasuries of the very largest corporates.
“Cash flow is the lifeblood of an organisation – they must have the right cash position, accurate forecasts, and be able to measure and analyse cash flow performance and explain any variance,” explains Person. “Technology helps facilitate that analysis and adapt as needed. Today’s treasury management software should provide a holistic view of not just current day cash positions, but also deliver tools and insights to provide reliable forecasts. Comprehensive treasury and risk solutions, integrated with ERP, provide the CFO with the necessary information and intelligence to not only identify and often predict market shifts, but proactively manage this volatility through timely execution of a company’s risk management program.”
While some organisations still rely on Excel for their treasury management function – a 2017 report by Strategic Treasurer found that 31% of organisations surveyed used only Excel for managing treasury-related tasks, including forecasting – others are turning to treasury management systems as they become more versatile and adaptable than ever before.
In their most basic form, treasury management systems automate critical financial operations – such as treasury management in banks or pulling cash flow data in real time – while ensuring finance data remains secure. However, systems now offer so much more functionality – and it’s the complexity of treasury demands, however – such as the need for high-level risk management analytics, complex product coverage, and compliance with federal finance standards – that makes a TMS the ideal solution for dedicated treasury support.
A specialist TMS will typically help treasurers with the following functions:
- Real-time management and a full 360° view
- A comprehensive view of global cash balances for central and regional treasury centres
- Full security and data confidentiality
- Forecasting, including contracted transactions and business flows
- Cash pooling, zero balancing and in-house banking
- Debt management including loan portfolios, mortgages and lease finance
- Transaction management
- Straight Through Processing (STP) with intermediate checking points
- Extended customisation and configuration (workflows, task automation, scheduling)
- Easy administration and maintenance (lower TCO)
- Increased control of the likes of audit tracking, workflow management and user access definitions
One of the main benefits of treasury management systems, especially given the often complex and global nature of the treasury function, is ability to manage variance analysis. Treasurers can spend excessive amounts of time trying to uncover the reasons for forecast error, scouring through bank statements and accounting entries to determine timing and classification of receipts and disbursements – an exercise that is extremely challenging within a spreadsheet model.
Person suggests that the superior value that a TMS offers over Excel-based stems partly from the fact that cash flow forecasting is an iterative process, in which inputs are received, trends discovered and assumptions made.
“One certainty with cash flow forecasting is that there will be variances,” he notes. “Based on month-to-month actuals, or updates to cash flow timings, the initial cash flow forecast will evolve into a new version.
“This is where the TMS provides unique value compared to Excel or other reporting and data visualisation tools, given that the bank statement activity is seamlessly integrated within the TMS.”
Added to this, a well-deployed TMS will achieve 90%-plus cash visibility on a daily basis while integrating cash flow forecast data from enterprise resource planning (ERP) systems, financial planning and analysis (FP&A) systems, or internal data warehouses with a TMS is dramatically simplified – and often automated.
A further benefit offered by a comprehensive TMS is that it can also house all capital market activity so that investment, debt and currency derivative flows – both principal and interest payments – are automatically included in the forecast. Modern TMS solutions include forecast predictive treasury analytics to leverage historical actual and existing budget plans to produce intelligent, data-driven cash flow forecast versions.
Human error and compliance
The primary goal of all TMS products is to enable full straight-through processing (STP), i.e. complete automation of all standard (day-to-day) treasury processes.
Another benefit of introducing automated corporate treasury management is that it removes human error. Traditionally, corporates have used spreadsheets and manual processes to maintain cash visibility. The removal of manual process and elimination of reporting and documentation errors allows the treasurer to focus on managing the companies’ cash and risk rather than focusing on operational issues.”
The team at Treasury Intelligence Solutions (TIS) add another good point here – where organisations use manual payment processes or even the semi-automatic transfer, there are numerous risks and therefore the danger of compliance infringements. It’s a way of ensuring TM best practice.
“If the accounting system produces a CSV-file for the payment run, an employee must upload this manually to the banking system, where it is signed,” a spokesperson outlines. “Fully manual payments are inefficient, as they always mean more work. They are, however, also critical from compliance points of view for the treasury. Each media break represents a potential source of error and danger. The employee can make a typing error in the bank details or in theory even carry out incorrect entries with fraudulent intent.”
TMS solutions have come a long way since their launch, when they were generally standalone systems, sold by companies who do not offer full enterprise resource systems. That meant they were difficult to integrate across businesses – especially with existing ERP software. Happily, TMS providers have developed software which integrates with a range of other systems – and functionality within solutions has grown dramatically too.
That means organisations now have the freedom to pick and mix the relevant functions to suit their needs, ensuring they’re more cost-effective than ever before. Solutions are also increasingly scalable and can be rolled out globally, thanks in no small part to cloud technology – indeed, providers such as SAP offer a choice of on-premise, cloud, or hybrid deployment of their TMS products.
Purchasing a TMS is a huge investment for a treasury department. The process is informed by the company’s priorities, and it’s complicated by the ongoing evolution of technology.
A survey conducted by Strategic Treasurer and TreasuryXpress found that while 72% of companies expected their corporate treasury management system implementation to take no more than nine months, only 41% of implementations were finished within that time frame.
The good news is that technology development over the years – whether hardware capability enhancements or connectivity improvements – has made the challenges of installing a TMS much easier to overcome – TMS best practice is simpler to achieve. In the past, a corporation would have to factor in the initial set-up and running maintenance costs of onsite servers and hardware when installing a TMS, requiring heavy internal IT support. Nowadays, with Cloud technology and e-mobility, setting up a TMS is less complicated and less costly.
Selecting a TMS
There are a host of choices for the CFOs or Group Treasurers when it comes to the selection of a TMS. Depending on the requirements of the treasury, corporate structure and the aims of management, each TMS provider will have its own pros and cons and it is definitely not an easy task for any treasurer.
The selection process for a TMS usually starts with a business plan, and then an RFP. Today’s financial professionals should perform their due diligence before getting into a long-term relationship with a TMS provider.
Typical questions to ask when selecting a TMS include:
- Has the chosen TMS got the appropriate instrument coverage?
- Can it do what you need it to do? Does it have the relevant functionality?
- Does it offer seamless integration with other systems?
- At the proper security and controls included?
- Does the TMS encompass dynamic, variable and rich reporting capabilities?
- Is it cost-effective?
- Is it future proofed?
- What maintenance support is there?
Further information on selecting a TMS can be found here.
Overall, treasury management systems play a critical role in keeping corporate finances on track, providing both enhanced agility and control to maximise the efficiency and accuracy of all cash reporting. And that’s a very welcome benefit as globalisation continues apace and the role of the treasurer become increasingly complex.
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