Corporate treasurers and their use of treasury management systems
Corporate treasurers fully agree they can (and must) count
more in their company. The financial crisis – now turned into economic crisis in
many European countries – has elevated the corporate treasurer to the status of
information steward of the chief finance officer (CFO), when not of the chief executive (CEO)
directly. The corporate treasurer is accountable for the quality and validity
of answers to questions related to the company’s financial stability, cash flow
projections, availability of liquidity, quality of bank relationships, actions
to take to improve working capital requirements, just to name a few. It is even
more frequent that corporate treasurers are expected to take direct decisions
that can affect corporate financial outcomes, such as deciding on accounting
structures, allocation of surplus cash, identify sources of liquidity, and assign
threshold targets to payables and receivables.
To do so, corporate treasurers need information rather than
raw data for better decision making. Often times, they must ‘sell’ options and
solutions to their CFO/CEO. Effective communication and proper ‘packaging’ of
data are strongly demanded skills. Software solutions for treasurers should therefore
be capable of ‘educating’
treasurers on how to use best practices to be
effective in building the internal business case (i.e. to sell solutions and
decisions internally). The ability to package practitioners’ workflows and data
modelling into reusable applications may represent the software solution
corporate treasurers are expecting.
These conversations have validated Aite Group’s prediction
that treasury management systems (TMSs) will morph into treasury intelligence
management systems (TiMSs). These are platforms that will integrate and extend
the operations-driven functionalities of a traditional treasury workstation
with features that provide better information in order to generate intelligent
Of the topics discussed with event participants I am
reporting on a few that I believe further validate these concepts:
- TMSs are evolving into decision support platforms for the treasurer, who
can now control all the company’s sources and destinations of cash from a
single point of observation.
- Simplicity and
standardisation are key to treasurers’ decision-making today.
- Treasurers require a
technology capable of retrieving pertinent information from various and
independent data sources, regardless of underlying technology foundations.
Expanding the reach of a basic TMS by turning
information into intelligent decision support keeps the treasurer
informed, empowered, and engaged.
- Regulatory compliance is
still high in the treasurer’s agenda, and technology should be capable to
offer a document compliance repository for auditing controls.
- The TMS must be flexible and
adaptable to accommodate any new regulatory requirements. The technology
should compile and consolidate data silos, and allow the user to format
the resulting data so that it can be presented in a more direct and effective
way to decision makers.
- A TMS should support the
treasurer in identifying issues, running scenarios to test various
options, and then support with data aggregation and analysis to proceed
The continuously evolving landscape of supply chain finance
Although supply chain finance (SCF) is a well-renowned and
debated topic, still many treasurers are focused on more ‘operational” tasks
such as cash pooling, liquidity management, risk avoidance and bank account
management. It was quite apparent in my conversations however that corporate
treasurers are well aware of SCF and expect clear solutions from their
While the conversations focused on various aspects of SCF, I
have summarised below the items I think are of most interest to explain how SCF
is continuously evolving:
- Banks involved in SCF programmes are challenged with the task of translating
the potentially intangible concept of corporate value into a series of
action plans that practically build value to the corporate client. It is
therefore important for a bank deeply involved in SCF programmes to identify
areas of attention to its corporate counterparty and offer the appropriate
- SCF still lacks a clear
business model. Banks consider it essential to have business requirements for
SCF before even offering SCF products. A significant critical area for
both banks and corporate clients is represented by the difficulty of
creating a business case that proves the value and return on investment
(ROI) of a SCF programme.
- One practical answer to
closing the gap between corporate demand and bank supply goes through
breaking down silos in the corporate-to-bank relationship. The visibility
of supply chain processes is a key factor that banks recognise as an
important step that will take them closer to ‘speaking the same language’ as
their corporate counterparts and addressing the solutions truly needed to
fulfill expectations. The inhibiting factor, though, that emerged almost
constantly in my conversations is the perception of risk among banks.
- It is well-known that banks are not lending to small companies because the risk perceived
is too high. However, the way that banks assess risk is mainly based on
financial data and on some basic overview of operational performance. If
banks were instead capable of having statistics on a company’s performance
throughout the end-to-end supply (i.e. value) chain, then the risk
profile would be more accurate and banks could decide what portion of risk
they want to take and how to price it accordingly. One topic extensively
discussed during meetings regarding the ability to risk-profile steps of
the supply chain process was the concept of ‘actuarial tables’ for supply
chain management (SCM).
- Just as the lifecycle of a
vehicle or of a person are mapped to then identify specific ‘trigger
points’ that are statistically measured to determine the likelihood of
certain events to happen – and therefore calculate correspondent actuarial
values to properly price the insurance premium – the same should be possible
for supply chain processes (e.g. procurement, manufacturing, shipping,
distribution). My assumption is that an insurance company is already capable
of slicing and dicing the lifecycle of a vehicle’s value chain
thanks to the actuarial table values of that value chain. Insurance
premiums are then calculated and offered to clients. Why should the same
not be possible for a supply chain?
- Some banks are creating
advisory roles that use data and quantitative market research to explain
clients the reasons to change and consider SCF solutions. Benchmark data
appear the best approach to help clients understand the gaps from best
practices and quantify the cost of the gaps.
- Fact-based discussions
with clients are the best source for a bank to gather information and to
prove its capability to understand the needs of that company. A SCF
programme begins with exchanging ideas and knowledge, not with selling
SEPA and what will happen after the February 2014 deadline
Many of the conversations and session titles on the single euro payments area (SEPA) were pointing
to the operational aspects of ‘what still must be done to meet the deadline’.
My interest, though, was in understanding what it will happen after the 1 February
2014 deadline. Most likely the vast majority of corporations will use
workarounds and patches to ‘keep the lights on’; a scenario not so different
from the ‘Y2K syndrome’ that turned out to deflate all feared catastrophic
consequences of (supposed) poorly planned changes. While corporations will not
want to overspend until they understand the real benefits from doing so, my
recommendation to corporate treasurers is to select the bank partner that will
offer the best SEPA solution in line with the company’s planned pace of change.