On September 30th, Excel turned 30. I thought this special anniversary was a good time to take a look at the various systems corporate treasurers have at their disposal – Excel, ERP and TMS – and how to determine what is best for your treasury. Let’s dive in and start with Excel.
Excel is one the most used programs in the corporate treasury. And there’s nothing wrong with Excel – it is a great engine for complex calculations. However, it was not built to serve complex processes, run audit routines, communicate with other systems or serve as a complex and multidimensional database. Excel is nothing more than an empty page waiting for numbers to be crunched. On the other hand, a TMS is a process-oriented, complex application using database technology and communication abilities to interact and provide. When Excel works alongside ERP and TMS, it is a great complimentary tool. But if you are still relying solely on Excel, it is time to raise questions about efficiency, reliability, process optimization and the availability of data for what is treasury responsible for: risk management.
What about ERP? What are the differences between ERP and TMS? Well, the name – Enterprise Resource Planning – explains the differences already. ERP offers the reflection of the entire process of the product chain, from procurement to sales. And what role does treasury play in this game? Treasury is responsible to control the future, to hedge the coming volatility, to ensure secure and reliable processes – which are then reflected in the ERP. If financials are covered in the ERP, the realization of treasury activities takes place in the account statement, which again is processed and recorded in the ERP. However, the ERP system is not built for treasury and treasury is not built for ERP purposes. Granted, ERP can handle some treasury requirements, but it is never efficient. Specific functionalities are even labeled “Treasury” – and IT loves it – but IT is not responsible for treasury operations.
For complex organizations operating with many group companies around the world, a TMS is really the best solution. However, the perception in the market is that a TMS is too expensive, difficult to implement, requiring significant resources from both the treasury and IT. Keep in mind that SaaS applications are available for even less than EUR 1,000 per month. With a SWIFT connection included and a larger range of capabilities, EUR 2,500 per month may be required. But it does not require tens of thousands any more. And even the one time investment is feasible for every corporate. Implementing an ERP is way more expensive and time consuming. If it is expected to implement the application on a larger scale, it requires the commitment of the CFO. Otherwise local managers tend to reject even the most generous offer only because they feel they have been overruled. Those circumstances will not bode well for the efficiency of the project.
Let’s look at some basic treasury activities that are best served with a TMS.
|Cash Forecasting||Requires real time information and the integration of “guesses.” Flexible and fast. Needs direct connectivity to banks for statement collection and payment processing.|
|Hedging||Future outlook for a longer period and requires data which is not available in ERP systems in a way that would lead to any value for longer term forecasting in foreign currencies.|
|Financial Reporting||This kind of Reporting refers to B/S and P/L. This is for sure the task of the ERP world. In terms of treasury there are two different kinds of reporting. The one I need to perform my daily tasks and the one I present to the board. The latter will be prepared with dedicated reporting engines. The other should be out of the box coming along with the TMS.|
|Payments/Reconciliation||Must be part of the TMS. The TMS is the interface between the corporate and the world – mainly the banking world. No money shall leave the corporate without being processed through the TMS. This is not an option, but a fundamental requirement.|
|Trade Finance||Trade Finance is the new payment. When payment came into focus for TMS, it was almost in the same stage of development like Trade Finance is today. In 5 years’ time, we will experience that Trade Finance will be much more digitalized and treasuries around the globe will taking over the responsibilities to organize the bank-related part of Trade Finance within their treasury systems.|
So, where do you begin? The following steps will help you when looking to transition.
Determine your strategy.
You first need to look at your treasury’s strategic goals. What your treasury is looking to accomplish will determine the systems required. Depending on your business and requirements, different systems will serve you best.
Understand the complexity of your company today and in the future.
This is something which can be elaborated tighter with capable consultants or other people who have done this before. But please make sure that you still know what you want and what is best for the company. I have seen too many solutions implemented, where most of the benefit is with the consultants contributing many days to help to comply with the complex structures the consultant have based their business case on. Also, does your company work with multiple systems across borders and subsidiaries? How should these legacy systems be incorporated in the solution? If you want my advice – don’t do it. Consolidate them. There is no necessity to cope in treasury with different systems anymore. So start the project of consolidation. There is no plan B.
Run an effective RFP process to ensure the best vendor for you.
Don’t forget that you know your business best, but you may not know what solutions are available to be most effective. Don’t ask for features; ask for solutions for a general issue. For example, asking for automated sending of facsimiles is not a feature which is required for web-based systems. Instead ask how the information is distributed amongst the group of companies. In addition, make sure you find the right long-term partner you can trust with a professional reputation and a certain track record. For example, if somebody tells you that the implementation of payment processing is simple, quick and easy, be full aware that this project will turn out as a nightmare with completely unfulfilled expectations. However, keep in mind, it is feasible and required for every corporate, but not simple and easy.
Find satisfaction in the selected solution.
If you believe in the proposed solutions, it will work. If you do not, it will not. It does not matter what has been delivered. Did you end up with the right product? If you believe so, yes. If you do not have a benchmark to compare, you have to believe in it. By the way, this is why ERP systems are considered in treasury - IT is happy, therefore treasury has to be, no matter how.
Today, TMS is no longer a luxury, but a necessity for every corporation operating on a global scale. The impact - and benefits - of implementing a TMS can be huge. You now can consider tasks which have not been performed before at all. This leads to a dawn of a new period in treasury operations of your global treasury.