Cash and liquidity management have always been the primary objective of any treasury department. But over the past 12 months, the importance of these activities has been made more apparent to the rest of the business.
“The pandemic and other events that drive uncertainty really stressed the strategic importance of treasury to the organisation,” says Michael Kolman, chief product officer at Ion Treasury.
“If you are a treasurer, I don’t think this is anything new. The challenges of cash forecasting and liquidity management have always been there. It has always been in the scope of their responsibilities. It is just now getting awareness of it’s greater importance within an organisation.”
With effective cash and liquidity management so crucial to the continuity of a business, the pressure to get timely and accurate forecasts has intensified. However, forecasting is not the best descriptor of what is being asked of treasury departments, according to Samuel Guillon, senior vice president of strategy a Kyriba.
“Forecasting, in this situation is not the right word.”
Guillon, who previously worked as the CFO of a multinational French construction firm Colas, says with last year’s level of uncertainty, forecasts turned into scenario planning.
“What we were asked about by the management and the board wasn’t forecasting it was simulation.”
“[Treasurers] were asked to simulate with various maturities, what will happen in different scenarios. This was partly a nightmare for treasurers, because they had to simulate with new scenarios and with new data every morning, sometimes even twice a day.”
However, even despite his best efforts, in retrospect none of the simulations he made were accurate to what happened.
“We developed a very comprehensive model. But we realised, none of the simulations we made are accurate when you look back at the track record after one year.”
Guillon’s own experiences echoes that of many others within treasury and the wider finance department, with 55 percent of treasurers surveyed by the European Association of Corporate Treasurers stating that cash flow forecasting will become a priority for the next 12-24 months. Meanwhile, 62 percent of those surveyed indicated that data analytics would be something they would be looking into over the next year.
Utilising data
Data integration will be key to enable more timely reporting and better modeling for future crises.
“When it comes to sharing data, with the treasury department, we have lots of clients that are struggling with very heterogeneous system landscapes,” says Christian Mnich, vice president and head of solution management at SAP.
“Some run their treasury totally separated from the ERP. They are in a somewhat difficult situation and end up collecting data on excel, which is always not as good as expected.”
Companies for the most part are not developing their own tools for data analytics but looking to ERP and TMS providers for out of box solutions.
“Treasurers don’t want to build something that’s custom to their own needs,” says Kolman. “The reality is that treasury, whether you’re working with one company that builds cars or another company that manufactures fertiliser, treasury is fairly similar.”
Previously, onboarding and implementation for an on-premises solution could have taken years, but using a software as a service (SaaS) model allows integration to be completed in in weeks, says Mnich. While more corporates are embracing the SaaS model due to ease of implementation; many are still using a mixture of cloud and on-premises software.
“We see for the majority of our clients they adopt a kind of a hybrid approach,” he says. “Parts that can be built in a modular way, combining on-premise with intelligent cloud solutions that can complement the solution portfolio.”
Gullion goes further, saying a managed multi-tenant cloud solution is the future of treasury technology.
“The promises of the cloud in terms of innovation, cost efficiency and security are found when you are in a multi tenant solution, but you don’t have them when you’re a single tenant with the same cost efficiency.
“The cloud is one of the best tools for operational continuity.”
The pandemic has across the board accelerated digital trends within finance and the treasury department is no exception. As such, treasurers are spending more time tracking technology. In a survey conducted by the Association of Corporate Treasurers, more than half of treasurers surveyed said they were spending an increasingly larger amount of time on “technology advances” – the most out of any category.
Similarly, more than half of those surveyed also believed that over the next 12 months, technology advances will continue to take more of their time.
ISO 20022 and APIs
ISO 20022 will be a key enabler for technology to automate and process data, with tech providers eager to integrate new messaging standards into their product offerings.
“We are absolutely focusing on standardisation,” says Mnich.
“We always recommend our clients start at the source of the payment factory, to build the international payment standard based on ISO 20022, which are best practices, to leverage it because it’s an investment into the future.”
By being ISO 20022 compliant now, corporates can futureproof for a world where APIs are commonplace. Treasury tech providers are also closely watching bank APIs, tying them into ERP and TMS solutions.
With data being crucial for cash and liquidity management, automated data capture is quickly becoming a must have for treasurers. Kolman says integrating data points into liquidity software has been a key theme over these past 12 months.
“Through API integration, you get real time data across platforms,” he said. “Companies are building out their data lakes, their data strategies, and leveraging business intelligence tools to aggregate data from a number of different areas.”
However, corporate adoption of APIs is not spread equally. Many mid-tier firms still rely on bank portals. For firms who do utilise APIs, some tasks are still completed manually. This remains a common theme in the digitalisation of treasury, that a legacy or operational process hinders adoption of new technologies.
“The main obstacle for a CFO in deciding to go to the cloud is because he is used to a proprietary system,” says Guillon. “An on-premise system that has been adapted fully to the operational processes of the company.”
He believes the mindset of the finance department should not be tailoring a solution to existing practices but to think of it as an opportunity to adapt.
“At the end of the day, you can have a totally tailor-made solution where you did not change your processes at all – that’s a mistake.
“Such a project is the only opportunity you will have as a CFO or treasurer for change,” adds Guillon.
By relying on legacy software, companies become “sticky”. They can’t fully benefit from new innovations because the new offerings might not be interoperable with old systems. Not adapting to processes just delays the problem.
“You will end up in 15 years with software, which will be outdated by 25. It will not be a differentiator for your company.”