Today’s corporate treasury professionals are being charged with ever-growing strategic responsibilities in an increasingly international business environment. They serve as internal consultants to improve working capital management, forecast cash to anticipate business issues that could impact earnings, and meet new audit and compliance requirements. Yet many companies have managed the expansion of treasury responsibilities without adding staff or other resources while continuing to use time-consuming manual processes to manage their treasury operations.
Another significant challenge treasury professionals must deal with is technology systems that don’t communicate seamlessly – a lack of systems integration which is often a result of corporate acquisitions and disparate tracking systems. In a gtnews report, a majority of companies cite the complications posed by multiple financial systems as their greatest obstacle to developing an accurate cash management picture.
According to a 2006 Association for Financial Professionals (AFP) survey, 91% report that the treasury department is playing a greater strategic role in their organization than it was five years earlier. Yet nearly half of the organizations surveyed maintained the same level of treasury staffing, and 15% have decreased staffing over the past three years.
Added to their traditional responsibilities, treasury professionals are now expected to:
- Strategically improve the bottom line.
- Identify solutions to daily cash management challenges in an increasingly complex and global environment.
- Work with limited staff to minimize expenses.
- Improve internal data control and meet increased compliance expectations.
All these factors have created a compelling business case for treasury automation – moving cash management online. However, a Treasury & Risk magazine survey shows less than 25% of its respondents use a treasury workstation.
Companies that conduct business worldwide know that timely and accurate tracking of their cash position throughout the day enables them to manage their funds most effectively – maximizing investment returns and decreasing interest on borrowed funds. Automation also reduces exposure to fraud by freeing up time to review more bank accounts and review activity in more detail.
Although cash positioning is a critical treasury function, gathering accurate, timely and consolidated information can be cumbersome, at best. Whether it’s copying and pasting or keying data from bank reports – not to mention waiting for data to come in from various business locations – positioning can be time-consuming, manual and inefficient.
Companies devote substantial resources to compiling information from multiple sources. Depending on a company’s structure, cash managers might not have direct access to all bank accounts and related information. They may have to contend with unreliable incoming data. This information constantly needs to be reformatted for translation and consolidation across multiple banks and currency formats. And all of this is performed with limited staff: more than a third of the companies in a Financial Executive’s Consulting Group survey had no staff at all reporting to their treasurer.
Adding to a treasurer’s challenge is the emergence of the global marketplace. In 2005, more than eight in 10 Wells Fargo commercial banking customers conducted at least one international banking transaction. Furthermore, one in seven middle-market companies traded internationally. Doing business globally greatly increases the complexity of tracking cash position information. A global view must include multiple currencies and the ability to convert them into a single currency.
Timely and accurate cash forecasting and analysis lays the foundation for a company knowing what it needs to borrow and invest. The 2006 gtnews survey found that sound forecasting has the greatest potential to improve cash management results. That’s confirmed by a corporate liquidity survey by Treasury Strategies, which reported companies that forecast earn 30 more basis points of portfolio return on average than their peers who don’t forecast. Shareholders, employees, and communities all benefit from this sort of improvement.
Unfortunately many companies only forecast when cash is tight or they are in a net borrowing position. This means that companies miss opportunities to take advantage of excess cash to improve their bottom line. Without forecasting, a company may experience reduced profits, insufficient bank balances, and inefficient investing. For companies who compete in the global marketplace, cash forecasting helps minimize foreign exchange risk, too.
One of the main reasons companies forego cash forecasting is their frustration with inaccuracy. Although companies believe it’s critical to have accurate cash forecasting, few are satisfied with the accuracy of their cash forecasts. Some companies are challenged by a lack of systems integration, with different financial systems collecting information but not communicating with each other. Treasury professionals also find themselves relying heavily on different departments to provide numbers. They simply don’t have the time or resources to devote to gathering all the data and information necessary to forecast with confidence. Adding to the complexity of analysis, global companies need to forecast in multiple currencies.
Because cash positioning and forecasting are critical to decision-making, companies must choose the best approach for their organization: spreadsheets, software-based treasury workstations or online workstations. Here’s a look at the options:
Spreadsheets
Although spreadsheets don’t provide a fully automated approach, they are one of the most common cash management tools. Spreadsheets typically appeal to companies that believe:
- Their needs are too specialized for an automated tool.
- Automated solutions don’t include advanced statistical calculations.
- They can’t automate uploading from multiple sources.
Spreadsheets have developed a big and loyal following because they’re inexpensive, easy to use, can be customized, and don’t require technical resources to maintain. On the other side of the ledger, spreadsheets are time-consuming, mistake-prone (an error can skew a cash position by millions), lack internal controls, and depend on the designer who wrote the formulas. And in today’s stringent regulatory environment, it’s best to use figures that were calculated using a controlled, visible, and audited process. Furthermore, auditors are increasingly raising concerns about spreadsheet-generated totals.
Software-Based Workstations
Traditional treasury workstations comprised software and treasury management modules of ERP applications and require a client server. Companies purchase these robust solutions to centralize cash and investment management, debt issuing and tracking, and risk analysis.
Software-based workstations deliver a host of automation benefits for cash management. They alleviate spreadsheet inefficiencies and inaccuracies by streamlining day-to-day financial transactions. They increase reliability of financial reporting and decision-making. They also save time by reducing manual input, eliminating multiple spreadsheet systems, and improving the quality and flow of cash positioning and cash forecasting. These traditional workstations also include security and compliance features that reduce risk.
While software-based workstations provide many treasury benefits, they’re best-suited for larger companies with the hefty information technology resources needed to install and maintain them. They’re not necessarily user-friendly, nor are they inexpensive. Upfront costs can total US$1m or more and implementation can take months. Recurring charges can include monthly fees and annual licensing per user costs.
Online Workstations
The Internet has completely redefined the way companies can approach cash positioning and forecasting. Unlike 10 years ago, when treasury management involved paper reports and slow dial-up connections, companies today can instantly conduct paperless financial transactions. A new generation of online workstations now provides the type of cash flow visibility and forecasting that traditionally was available only by buying and installing more expensive software-based treasury systems. And online workstations can be much more affordable.
Unlike their server-based predecessors, online workstations’ applications are delivered via the Internet. Since there’s no software to install or maintain, online workstations eliminate software and information technology costs. They avoid large upfront costs, too. The more affordable price of online workstations makes them accessible to more than just the largest companies. In addition, online systems offer convenience and functionality, streamlining communication and disparate systems for a fraction of the cost of a software-based system.
Online workstations deliver unparalleled benefits: anytime, anywhere access; detailed real-time information about global cash positions; automation of common cash management functions; and compliance with security rules and regulations. What’s more, online workstations provide access to an array of applications and data in one place. They also reduce reliance on information technology support, since there’s no in-house software to maintain. Bottom-line savings are enhanced with pay-as-you-go access, with access typically billed as a monthly service fee, as opposed to a six-figure upfront cost.
Online cash positioning and forecasting instantly give treasury professionals access to critical financial information so they can make informed investment decisions, allowing them greater control of worldwide financial accounts and transactions. Treasury professionals are able to focus more on strategy, while their online workstations provide effective solutions for the fast, reliable, and secure execution of daily cash management tasks.
For a company that’s at the beginning of the search process for a treasury workstation, it’s best to set goals when evaluating possible solutions. First, identify and include project stakeholders. Second, evaluate what’s happening today in your company’s approach to treasury management. And third, set measurable and specific goals.
When selecting and implementing a solution, evaluate providers based on reliability, data security, high availability, and customer service and support. Meanwhile, consider the impact of an online workstation in terms of:
- Productivity, expedited data collection and analysis;
- Improved visibility of bank account balances, activity;
- Improved internal, external controls and compliance;
- Reduced borrowing costs;
- Improved returns; and
- Reduced currency risk.
As another step in your solution selection and implementation, evaluate products in terms of your key needs, cost, time to implement and IT resource requirements. The new generation of online workstations provides key setup and maintenance features, including guided setup flow for quick and easy setup, the ability to tailor display information to company hierarchy, and user-friendly administration tools. Key cash positioning features include auto-population of domestic and international account information, account balance monitoring tools, and automatic matching for manual entries of expected transactions with bank posted items.
Key cash forecasting features include the ability to automatically populate a forecast based on historical data, forecast based on customized business categories, report card and other tools to evaluate forecasting accuracy, and cash flow reporting. Key journal entry features include automation of time-consuming journal entry creation, ability to create rules to auto-fill offsetting journal; entry information, and support for multiple charts of accounts.
Although online treasury workstations have significant advantages, less than a third of corporate treasuries have invested in Web solutions, according to a 2006 Deloitte Global Treasury Managements Systems survey. Reasons for reluctance include:
- Uncertainty – companies might be nervous about investing in the wrong type of technology.
- Security – with the increasing importance of security and privacy laws, companies could be hesitant about the control standards of new applications.
- Availability – since positioning is a critical daily need, some companies worry that the application will be unavailable at important times, due to server or other technical issues.
To alleviate these concerns, many companies turn to their banks to provide an online treasury workstation solution, because:
- Banks have stringent security standards.
- Banks have a commitment and a track record of making sure online applications work when their clients do.
- Companies rely on bank reports as the central tool in cash positioning – banks already have this data for their customers and have experience gathering financial data from other financial sources through secure file transfers.
- Most banks already provide corporate clients with online access to treasury services.
- Online workstations are a value-added service that companies can give their syndicate banks.
- Banks are also an accessible and reliable partner for online treasury workstations challenges. When needs or questions arise, a company can rely on its relationship manager at the bank to provide quick support, especially when time-critical decisions are in the balance.
Treasury automation offers unprecedented competitive advantages to companies whose treasury professionals are tasked with optimizing cash returns. By reducing the time and effort required for cash positioning and forecasting, automation lowers borrowing costs, earns better investment returns and saves staff time. Treasury automation makes it possible for companies, especially those doing business globally, to centralize their management function. In addition, automation helps reduce the risk of non-compliance with recent rules changes, such as Sarbanes-Oxley.
With mounting pressure on treasury professionals to optimize cash, companies sense it’s the right time to automate cash management. Fortunately, technology advances offer improved choices. Companies now have better options than ever when looking for a reliable and efficient cash management method that meets their organizations’ needs. Online solutions fill a void by providing an affordable alternative to traditional software-based workstations, offering more efficiencies and functionality than spreadsheets can deliver.