Global treasury is currently in the midst of a proverbial big data renaissance. Corporates, CFOs and their teams now have more data, facts and figures at their disposal than ever before. Yet while this vastly improved capability has the potential to radically enhance many critical aspects of business, it also means that treasurers and financial leaders are facing enormous pressure in order to demonstrate better value for money.
Shifting trade winds, socio-political uncertainty and an influx of trapped working capital have recently pushed shareholders across many industries to demand for plain and simple proof of ROI for all major strategic business decisions – and while treasurers have long celebrated the indisputable merits of investing in a centralised Treasury Management Systems, the fundamentals of calculating and reporting the ROI of those systems back to stakeholders isn’t always straightforward.
Trying to itemise the returns that could be generated by investing in a new TMS solution is normally pretty tricky, and historically treasurers have attempted to justify costly new systems by pointing to generated statistics that revolve around time savings, productivity and improved efficiency. Unfortunately, that argument tends to fall flat in the boardroom. That’s because time savings doesn’t have a direct value, and so it’s a soft cost savings that won’t sway many approval committees.
So, where does that leave treasurers? Simple: instead of focusing on what a Treasury Management Systems or ERP system saves in time or productivity, teams can make a substantially more convincing case for investment by quantifying and highlighting what these systems enable.
Cash optimisation and scalability
There are several critical metrics treasurers can call upon when cataloguing and presenting the business benefits of investing in a new treasury management system, and the first metric is cash management and visibility.
Every board member will know cash visibility is one of the key drivers that enables bold decisions to be made that will subsequently go on to impact a company’s bottom line. But solid visibility can be incredibly problematic to achieve without efficient and timely forecasting capabilities that can illustrate a corporate’s ability to pay down debt, make borrowing decisions, utilise underhedged cash programmes or capture additional yields on investments.
Luckily, just about any white label TMS solution on the market offers that sort of forecasting capability – and there are several ways treasurers can quantify the positive impacts of this functionality.
One method is to report investment idle cash sums overnight against how that same sum could be invested more productively. Cash optimisation can also be quantified by calculating the ways in which improved visibility into cash positions would enable various departments within a respective organisation to improve oversight of their individualised excess cash pools.
Another way for treasurers to quantify the benefits of investing in a new system is to forecast its scalability. Automation and time savings might not necessarily sway CFOs, but there is a fantastic case in a treasury management system’s ability to make future hires redundant. Because the vast majority of TMS solutions are designed to scale as companies grow in size, spikes in transactions or business activity should not create any additional work for treasury departments.
As a result, any agreement concerning a foregone hire can be easily factored into the ROI contribution of a dynamic management system.
Eradicating bank fees
A huge win for treasurers attempting to justify investment in a new system will also be to calculate the inherent bank fee reductions that can be generated. Bank fees are the bane of every treasurer’s existence. They tend to account for a fairly large proportion of a team’s annual budget and can be pretty high – which is why any opportunity to slash them will be celebrated at the C-level.
Thanks to the centralised bank reporting functionality of a TMS, user access is typically drastically reduced. This saves departments a tidy sum, which is simple to report because bank portals ordinarily charge based on user registration numbers. Likewise, many financial institutions will charge a company for keeping hold of payment templates and reports that extend beyond 90 days. Any TMS or ERP system worth its salt automatically stores this data indefinitely – which renders these banking service and associated fees utterly pointless.
It’s also fairly simple for teams to quantify the monster savings a business can make in transaction netting and FX trades. The enhanced cash visibility that a TMS solution brings to the table provides an opportunity for companies to hedge more efficiently against any potential currency fluctuations – protecting assets, balance sheets and cash flows. Yet on a more practical (and day-to-day) level, investing in a new system capable of netting payments means less payments or trades are needing to go out separately.
Again, this translates into quantifiable transaction fee reductions that start to add up quickly indeed.
Quantifying financial controls
Heightened financial controls are business critical for any corporate in this golden era of cybercrime and payments fraud. Fortunately, investing in a new TMS solution will offer enhanced controls designed to protect against fraud and reduce otherwise costly errors. With the help of IP address filtering, payment watch list screening, multi-factor authentication, separation of duties and so much more, companies will be better protected against a wide array of risks.
That protection can then be quantified by tallying up the reduced likelihood of fraud and multiplying it by the overall cost of any given incident. It’s also worth benchmarking this functionality against the potential monetary loss in reputational value that could directly follow such a breach. The same principle can and should be applied to the cost of human error.
Finally, the major TMS advantage of superior business continuity is another point worth quantifying and including as part of any justification to invest in a new management system. Employee turnover, loss of access and loss of facilities can all be mitigated to a certain degree with the added functionality of quicker onboarding procedures, enhanced authentication and cloud-based dashboards, respectively.
While the quantification of these net benefits might not be super obvious, there are a couple of tried-and-tested methods treasurers can call upon to prove a system’s ROI contributions. One is to work out the cost for an alternative solution that offers similar levels of business continuity for a given area, and then cross reference that against the cost of TMS deployment. The second option is to calculate the anticipated costs for each hypothetical scenario (such as the financial cost of forecasted turnover rates) against the probability of such a scenario.
What you should be left with is an itemised list of the potential cost of business continuity risks that could be effectively mitigated by investing in a new management system.
By identifying, prioritising and quantifying the combined benefits of enhanced financial controls, bank fee reductions, cash optimisation and scalability, treasurers should be able to prove beyond any reasonable doubt the major impacts a new TMS solution should bring to a company’s ROI. As part of a wider business case outlining the vendor selection process, implementation and evaluation, the numbers should be incredibly difficult for even the most cautious board to ignore.