The Impact of Treasury Management Systems on Business
The role of treasury management systems (TMS) has changed. Corporate treasury was designed to manage bank accounts and the mechanics of receiving or making payments efficiently. However, this role has evolved to require more sophisticated talents to effectively manage liquidity, cash flow, and optimise use of financial credit mechanisms. The financial crisis has highlighted the need for corporates to have improved visibility into their cash positions as many of the traditional lines of credit have dried up. Treasury management technology is constantly improving and the new tools and applications now available are enhancing the ability of corporate treasurers to respond to the financial needs of a business.
Liquidity is essential to any business and lack of funds can naturally affect a company’s ability to function. Nowadays, superior integration of back office systems and applications means TMS are capable of providing valuable, real-time insight into a business’s financial circumstances and, as such, provide the ability to better manage cash flow and distribute funds to where they are needed within the organisation. Given the precarious nature of available funds, the ability to free up and transfer assets as and when needed is critical to the survival of businesses, especially in the current economic climate.
The new functionality available to corporate treasurers has in turn created new and more efficient ways of interacting both within the treasury function and beyond:
TMS provides the ability to bill clients electronically. Many businesses have begun the process of moving as many payees to receipt of invoices electronically as possible, to accelerate the payment collection process. Increasingly, multinationals are insisting all electronic ingoing and outgoing payments with their suppliers are done through e-billing and are actively enforcing this.
Until recently, the SWIFT network was closed. The global messaging network was only accessible by the member banks of the SWIFT cooperative. Corporate-to-bank communication was reliant on bank-distributed workstations and third-party operators connected through proprietary telecommunication lines. A corporate with three bank relationships could, in fact, have three different communication protocols to set up and maintain. The barriers to switching banks were significant. As SWIFT rules have changed, affording corporations direct access, these proprietary telecommunication lines are no longer required. And, once on the SWIFT network, it is easier for corporations to switch bank relationships. In response to this, banks have become increasingly more competitive with their pricing to win business.
Development of TMS has equipped treasurers with the ability to analyse and manage liquidity and risk, counterparty risk and enhance the receivables and payments process. As a result of TMS, treasurers can now benefit from the following:
The need for increased visibility and flexibility of transferable funds has acted as a catalyst for TMS deployments. The ability to view a business’s real-time financial status and transfer surplus assets to accommodate financial needs can significantly enhance business capabilities. Having complete knowledge of where funds are deployed means surpluses can be identified and put to more effective use. Now, instead of cash sitting idle, corporate treasurers can free up credit from within an organisation for more productive use, thereby enabling better planning and management of corporate liquidity.
Counterparty risk analysis can protect a company from working with businesses likely to default on payments. By monitoring counterparty limit utilisation, a TMS can prevent business dealings with an enterprise that has over-extended its financial means. According to a recent report from BACS, firms have seen their cash flow hit by £11bn in late payments. Furthermore, TMS can help comply with regulations such as the Foreign Corrupt Practices Act (FCPA) and other anti-money laundering (AML) directives that prevent interaction with fraudulent companies. This is critical to limiting financial damage to a business.
Corporations increasingly have to address compliance obligations. Single euro payment area (SEPA) Credit Transfers (SCT) and Direct Debit (SDD) schemes have moved out of pilot and into production. These schemes have a number of requirements, including the use of valid IBANs with the proper connected SWIFT BIC to ensure straight-through processing (STP) of the transaction and avoidance of non-STP fees. The FCPA and other AML directives require corporations to scrutinise their supply chains, their employees, and their distribution channels. Failure to comply with FCPA or AML regulations could result in the C-level officers of the corporation facing personal criminal prosecutions, in addition to steep fines.
Advancements in TMS technology and the inclusion of corporations on the SWIFT network have resulted in the consolidation of many corporate treasury operations. This means that treasurers can receive reports, send payments and confirm trades with all of their bank counterparties automatically, according to rules they’ve set up. Significantly, this reduces time spent processing bills manually. The move away from traditional paper-based billing reduces the chances of human error. These are key elements to avoiding unnecessary late payment fees.
The ability to automate and link numerous back-office systems through the TMS, such as enterprise resource planning (ERP) for example, means that information silos are removed and reporting can be done much faster. As a result, the accuracy and timeliness of management reporting should be much improved. Not only is it more cost effective and efficient, but much better for auditing purposes as information is easily recalled and analysed.
In summary, TMS have helped treasurers eliminate inefficiencies such as data re-keying and other manual operations, improving processing accuracy, and freeing staff to focus on treasury management.
Choosing the right TMS for your business is not a one-size-fits-all process. One of the greatest advantages of having a TMS is that it can be custom-built to your needs. Working in harmony with your existing ERP and other back-office systems, a TMS can be set up with the most appropriate applications in mind for your business.
In addition, the system needs to be robust enough to serve a multinational footprint and be able to work with multiple bank partners and multiple currencies, as well as multiple cross border suppliers and payees. Furthermore, the TMS must ensure organisational areas are addressed such as: IT, shared payment centres and bank relationship management. It should address counterparty risk and SEPA compliance as well as accommodate regulations such as FCPA or the various regional AML directives to ensure AML compliance.
Ultimately, businesses can achieve significant benefits through TMS deployment, as well as safeguard their financial and reputational standing. The ability to automate and centralise processes and provide a real-time view on liquidity is where TMS delivers real value for money, enabling superior cash flow management capabilities and enhanced ability to respond to the business’s financial needs.
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