BankingCorporate to Bank RelationshipsHow is Technology for Treasurers Evolving?

How is Technology for Treasurers Evolving?

The technology priorities of treasurers evolve over time for several reasons. This includes responding to external pressures such as statutory regulatory and compliance demands, internal pressures such as the need to identify all available cash and working capital in an organisation, as well as new opportunities presented by evolution within the treasury technology business. Together, these changes reflect the evolution of defined best practice implementation in the general field of treasury technology.

Process Oriented Treasury Technology

There is increasing demand among new and replacement buyers of treasury management systems (TMS) to seek solutions that are focused on the efficient automation of their key treasury processes, as opposed to the transaction management focus of the past. This tendency is linked with control and compliance issues, and is based on the process mapping methodologies on which today’s management consultants and auditors are so keen.

Logically, it makes sense to treasurers to implement solutions that document and control entire processes, such as cash management and deal management – and in which the high level view of each process is linked into the actual component of operations that fulfil the detailed objective of the process. The daily operation of the process may be highly automated, but the treasurer needs to be confident that the process is in fact tightly controlled in accordance with treasury policy, is fully transparent via straightforward reporting, has ease of drill-down to the lowest level of data to make sure research needs are properly fulfilled.

Such best practice solutions are based on the principle that treasury processes (including control processes) must not just merely be done – they must be seen to be done. And process execution must be achieved efficiently and intuitively. This means that treasurers seeking technology best practice demand solutions that integrate treasury process management and control with transparent process monitoring and documentation, so that reference to relevant treasury policy is intuitively linked with the execution of that policy. In such an environment, treasury technology is deployed to maximise the benefits realised by the user.

Value of STP

Straight-through processing (STP) takes process oriented treasury technology to its ultimate level. STP may be seen as a luxury for low volume operations; but it offers hands-free security and efficiency to treasuries whose daily transaction volumes run into the tens and hundreds, and/or those who manage relatively high levels of financial risk. STP was once the preserve of banks, but it is now of increasing interest to corporate treasurers who find their teams are excessively occupied with unproductive manual labour that can in fact be eliminated by effective STP implementation. The very real benefit is that staff are liberated to focus on their professional activities of treasury and risk management, instead of struggling with spreadsheets and concerns about over-running critical deadlines such as payment cut-off times.

Today’s treasury technology combines sophisticated scheduling, process automation and process control functionality to enable more corporate treasuries to implement very secure and efficient best practice STP treasury workflows, gaining efficiency and throughput speed, and liberating staff to focus on professional, value-added activities. The resultant environment will have sharply reduced error rates, and may achieve further tangible benefits, such as reduced interest expense or hedging performance.

Focus on Management Reporting

The generation of monthly, quarterly and annual management reporting is in essence a routine, mechanical, data processing task – but only for those treasuries who have implemented an integrated, efficient, automated solution in a best practice operating environment. The burden of producing complete and accurate management reporting, however, has high relevance and priority for treasuries who are confronted on a monthly basis with the nightmare of collecting and verifying the required information – and then analysing and organising it into coherent, dependable and accurate reports summarising treasury position, policy compliance and risk for senior management. In such cases, the effective production of management reports (covering the corporate cash position, cash investments, future funding requirements, debt portfolio analysis and FX transaction and translation exposure) is a major technology change catalyst. Accordingly, many treasuries seeking more effective technology solutions nominate the efficient production of management reporting as a key justification for investing in superior technology.

SOX Revisited

The Sarbanes-Oxley Act (SOX) has provided the global back-drop for the way auditors are now approaching treasury automation, and next year’s advent of EuroSOX1 is again focusing the attention of those responsible for treasury technology on the classic best practice issues of control, transparency, security and robustness. SOX auditing has dealt ruthlessly with the use of spreadsheets as the central system in a treasury of any significant size – and ‘significant’ can now reflect annual turnover numbers as low as €0.5bn. In fact, companies that are large enough, complex enough or exposed to a sufficient level of financial risk to warrant the establishment of a treasury department are now under pressure to use professional treasury technology to support their operations as a best practice standard.

Why are spreadsheets unacceptable? For a start, spreadsheet systems are very rarely sufficiently robust to guarantee trouble-free performance in a sensitive financial department such as treasury. Treasuries based on such technology run the risk of basing important decisions using incomplete, out-of-date and even inaccurate forecast and exposure data. A further negative feature is that spreadsheet solutions tend to be designed by creative individuals whose main flair is not centred on documentation; consequently, when such people move on, it may become very difficult (or even practically impossible) to support and maintain the system.

Consequently, the impetus to implement professional treasury management systems is being seen among smaller and smaller companies, wherever the transactional volume and level of financial risk are judged to be high enough to justify the necessary investment.

Technology Hosting

Treasury technology acquisition projects – especially those at entry level – quite frequently investigate the application service provider (ASP) model as a solution option. In reality, ASP itself is a confusing and rather ambiguous term because it seems to define the vendor rather than the solution. The concept of ASP in the minds of the buyers involves two quite distinct components, the financial and the technical.

The financial component originates from the emergence of subscription based ASP offerings that are priced via a monthly or quarterly fee that encompasses both software licensing and maintenance. This approach is naturally attractive to companies who are averse to making relatively large capital expenditures. Essentially, this is of course a financing, not a technology, issue.

Technically, companies who are attracted to ASP solutions will be suffering the consequences of IT resource constraints. In reality, the core requirement of this type of technology buyer is for treasury technology outsourcing, achieved via a third-party hosting solution. Buyers in organisations operating in this mode increasingly tend to thoroughly investigate the quality of the hosting organisation, given the sensitivity, value and inherent risk underlying treasury operations. The areas that are researched include security, robustness, and quality of service level agreements, data protection, contingency facilities and disaster recovery procedures. There is also demand for stringent contractual arrangements – including the critical question of ownership and even access rights to the database after the hosting agreement has been ended.

TMS versus ERP

Most treasurers see ERP systems to be complementary to their TMS, rather than as a competitive alternative. In some organisations, there is top-down pressure to implement the chosen corporate ERP as broadly as possible; but when applied to treasury, this type of solution looks unattractive versus the scope and flexibility offered by a mission-specific TMS. TMS solutions seem to outperform ERP systems in a broad range of treasury operations, including cash forecasting, risk analysis, real-time access to critical information such as facility utilisation/availability and advanced counterparty, settlement and VaR limit position. A further issue that affects TMS/ERP evaluation is the relatively expensive elements of configuring and upgrading ERP solutions. Such issues appear quite differently when analysed in the special environment of the treasury department compared with the broader corporate production and finance departments.

On the other hand, TMSs and ERP systems co-exist symbiotically in many corporate treasuries, and the key here is the implementation of efficient integration between the two, for the exchange of essential information. In summary, ERP systems export different kinds of cash forecast data to TMSs, and TMSs export accounting journals to ERP systems based on treasury cash flows and accounting calculations such as accruals and revaluations.

The general picture is that treasuries will invest in value-added specialist TMSs, and will integrate them as necessary with corporate ERP systems.

Functional issues

In the past, functionality was a key differentiator between TMSs. Today, all the successful systems basically fulfil ‘standard’ functional requirements with respect to cash management, FX hedging and money market debt and investment. There are a few functional areas where systems do in fact differ, and these are of great importance to a number of treasuries. Examples include:

  • Hedge accounting completeness (for example, availability of regression testing);
  • Commodities management;
  • Investment management;
  • Equity management;
  • Leasing;
  • Multilateral netting;
  • Trade finance (letters of credit and guarantees);
  • Process management; and
  • Management reporting.

Integration

The integration between TMSs and ERP systems is part of the broader issue of technology integration that is a clear and growing requirement of treasuries. Multiple data re-keying operations are simply unacceptable according to today’s best practice standards of corporate governance – judging by the demands for properly integrated solutions as enhancements to existing TMS implementations, or as deal-breaking ‘must-have’ requirements in system selection projects.

The classes of system-system integration that are generally requested with respect to the TMS system are summarised below:

  • Bank systems: for the daily and intra-day upload of balance and transaction information, and also for the export of payment messages.
  • ERP and accounting systems: for the export of accounting journal entries, and the import of accounts payable and receivable summaries if required for cash forecasting.
  • Cash forecasting systems: for the import of forecasting information, which can involve browser based 24/7 forecasts, and also data sourcing from in-house and third party forecasting, budgeting and planning systems.
  • Online dealing systems: for the export of FX and interest rate transaction execution requests, and the import of the execution details of the deals executed.
  • Confirmation matching systems: for the export of deal confirmations prepared by the TMS, and the import of confirmation match status information.
  • Microsoft Office: i.e. Word, Excel, Outlook, and Access.
  • Market data systems: for the import of FX and interest rates, and volatilities.

It is apparent that, in an effectively integrated TMS environment, the TMS can act as a control hub for all critical treasury operations based on effective integration. Automated interfaces allow secure, controlled treasury business processes to be implemented, in an STP environment if required. For example, a rules-based transaction management process could be implemented in which transactions flow automatically through to the settlement process on the settlement date – provided that a matching counterparty confirmation message has been received and authenticated.

Conclusion

This article has outlined some of the solutions that an increasing number of corporate treasuries are now implementing, as they seek to maximise the benefits that are now available though contemporary technology. The broadening acceptance of the importance and value of investing in best practice control technology and management reporting has generated increased levels of interest in investing in such technology.

1EuroSox is the EU’s equivalent of SOX. It consists of three directives due to become part of member states’ law this summer: the Fourth Directive, 78/660/EEC, Seventh Directive, 83/349/EEC and Eighth Directive, 84/253/EEC. The last of these was passed for implementation in April 2006.

Comments are closed.

Subscribe to get your daily business insights

Whitepapers & Resources

2021 Transaction Banking Services Survey
Banking

2021 Transaction Banking Services Survey

2y
CGI Transaction Banking Survey 2020

CGI Transaction Banking Survey 2020

4y
TIS Sanction Screening Survey Report
Payments

TIS Sanction Screening Survey Report

5y
Enhancing your strategic position: Digitalization in Treasury
Payments

Enhancing your strategic position: Digitalization in Treasury

5y
Netting: An Immersive Guide to Global Reconciliation

Netting: An Immersive Guide to Global Reconciliation

5y