A Treasury Management System (TMS) is no longer a luxury but a necessity for organisations seeking to thrive in today’s dynamic business environment. The benefits of a TMS are far-reaching, providing streamlined cash and risk visibility, enhanced regulatory compliance, and self-service reporting capabilities. Furthermore, automation drives operational efficiency, scalability, and risk mitigation while positively impacting profitability and the organisation’s balance sheet. To stay competitive and excel in the ever-changing financial landscape, implementing a robust TMS should be at the forefront of any company’s strategic priorities.
So how do you convince the C suite to approve your quest for a TMS? CFOs and treasurers, as numbers-driven individuals, often require a thorough Return on Investment (ROI) analysis before making significant expenditures. However, quantifying the benefits of a treasury management system (TMS) can be challenging, as many of its advantages are qualitative. So, how do you persuade management of its worth when tangible metrics are harder to define? The answer lies in crafting a well-defined plan, beginning with a clear vision of the TMS’s potential impact on optimising financial operations, risk management, compliance, and overall business efficiency.
Determine your vision, goals and objectives.
What are your aspirations? What goals and objectives do you aim to accomplish? Identifying the major pain points within your company is essential. Treasury systems encompass many areas, from banking, payments, and capital markets to forecasting, liquidity management, regulatory compliance, and risk management. While specific TMS-related goals differ among companies, particular objectives hold consistent importance for many organisations.
- Cash and Risk Visibility:
Attaining cash and risk visibility is vital for any organisation’s treasury department. The demanding and fast-paced world requires on-demand access to a global cash position, cash forecast, and even a 12-month liquidity forecast for strategic decision-making. Having this information complete, up-to-date, and presented in both base and local currency equivalents is crucial. Without a streamlined system, generating these reports can be time-consuming, leading to outdated information delivery. To effectively manage risk, ensure liquidity, and enhance overall efficiency, it is essential to instantly view all entities’ cash balances, bank accounts, and counterparty positions worldwide. This visibility extends beyond cash and includes credit, commodity, foreign exchange, and interest rate exposures, ensuring real-time insights for informed decision-making in the present and future.
- Audit, Policy & Regulatory Compliance
The growing responsibility of treasury includes meeting stringent regulatory compliance and reporting demands. Are you required to comply with SOX, FBAR, Dodd-Frank, Basel, FATCA, and GAAP? If so, relying solely on spreadsheets is inadequate. While spreadsheets are useful, they need more robustness to ensure standards compliance and reliable reporting, which can be a concern for auditors due to the difficulty in maintaining a clear audit trail.
Audit support is crucial, necessitating consistent and up-to-date reference data across banks, payments, or deals. Manually assembling and reviewing data from multiple sources, like bank statements and spreadsheets, for FBAR filing increases the likelihood of errors or omissions, exposing the company to potential risks.
Do you have well-defined policies and procedures for each functional area within your treasury? Are they aligned with best practices to meet auditor expectations, or are they a disorganised collection of documents and spreadsheets? Effective risk mitigation requires a structured approach with clearly defined responsibilities and limits. Ensuring compliance with debt covenants is essential; failure to do so can lead to severe consequences and financial costs.
Among all areas, compliance stands out as the strongest motivator for implementing a Treasury Management System (TMS). By centralising and automating critical processes, a TMS ensures smooth compliance with regulations, mitigates risks, and enhances the overall efficiency and credibility of the treasury department.
Efficiency and automation are paramount in a world where straight-through processing (STP) using technology and bank connectivity experts are easily achieved and, over the long run, much more cost-effective and accurate than a human performing mundane, error-prone tasks daily.
Moreover, automation facilitates rapid scalability, an invaluable asset for handling company growth. Replacing manual, time-intensive tasks with automated processes is the key to achieving appropriate scaling, as there are more viable solutions than relying on multiple spreadsheets. Embracing automation equips your treasury team with the agility and efficiency required to tackle growth challenges effectively.
- Risk Management
Treasury holds the critical responsibility of overseeing various financial and operational risks. A robust TMS offers a comprehensive toolkit to address financial and operational risks. It empowers financial risk management through real-time reporting on counterparty exposures, automated liquidity positions and forecast scenarios calculations, and comprehensive support for hedging programs involving FX, interest rates, and commodities. Moreover, a dependable TMS effectively mitigates operational risks by providing alerts for fraud detection, streamlining and automating processes to reduce errors and minimise reliance on individual employees, enforcing limit and responsibility compliance, and offering built-in redundancy mechanisms to handle office facility, network, or system outages with resilience. By adopting a proper TMS, treasuries bolster their ability to navigate risks confidently and safeguard their organisation’s financial stability and operational integrity.
- Profit & Loss and Balance Sheet Impact
Treasury can be instrumental in reducing cash usage and lowering costs for the organisation. By implementing cross-bank cash pooling programs, actively managing cash balances, and having a deep understanding of the company’s future liquidity needs, Treasury can significantly reduce the company’s use of cash with positive balance sheet implications.
For most companies, bank charges are a significant expense. It is virtually impossible to manage bank fees manually in a multiple-bank environment, each with a complex pricing schedule. A TMS automatically records and monitors bank charges, validates volume charges, alerts any fee changes and shows apple-to-apple fee comparisons among banks and to industry benchmarks. These analyses benefit companies with substantial retail operations that require substantial bank account usage.
If you’re involved in any hedging activity, your goal is to ensure the stability of earnings. Treasury ensures revenues don’t lose value through foreign currency exchange due to insufficient or inefficient hedging. Imagine interest expenses as a pendulum, swinging gracefully when conditions are calm, with gentle fluctuations akin to a slow, steady rhythm. However, when faced with market turbulence, that serene pendulum transforms into a wild, unpredictable swing, creating sudden and drastic changes.
Foreign exchange rates mirror this behaviour, too – tranquil in stable times but subject to rapid shifts when faced with market volatility. To safeguard financial stability and align with forecasts during turbulent periods, it becomes essential to implement effective hedging strategies. As a skilled conductor orchestrates a symphony, treasury professionals must expertly manage risks to harmonise financial outcomes and navigate challenging market conditions. A hedging strategy may also be needed for other P&L exposures, such as credit (trade counterparties or accounts receivable) or commodity inventories.
- Quantifying Intangible benefits
There is no doubt that a TMS yields significant value above and beyond automation. Therefore, it is essential to incorporate these benefits into any ROI analysis. Benefits include real-time cash visibility, mandate implementation, improved quality, reporting reliability and the performance of various risk mitigations. For many companies, these benefits are even more important than automation savings.
How to assign a value to these intangible benefits? First, compile a list of the important benefits using your vision, goals, and objectives as a guide. Then assign a value to each benefit according to how much that benefit is worth annually to your organisation. Although this assignment may be somewhat subjective (and the numbers below may be too high or too low for your organisation), the process is transparent, detailed and clear in a way that senior management can understand
Determine your TMS cost
You must calculate the capital and reoccurring costs to implement and install a TMS. How the TMS is deployed and licensed will impact the price of the system. Some systems are provided as a service (SaaS), some are installed (within your IT environment), and still others may be a hybrid.
That means costs will be either a monthly fee or a one-time fee with annual maintenance. Additionally, you should expect to incur implementation costs to get the software up and running and configured for your company’s specific use. Depending on whether or not you will be using a vendor’s infrastructure will determine if you need to add your own hardware costs.
TMS costs will therefore vary depending on a number of factors, including the deployment model (SaaS or installed), the functional modules required, the number of licenses, and interface complexity.
Calculating the ROI
Now you have outlined goals and objectives and understand the benefit of a TMS. What’s the next step? How can you create an ROI that reflects the benefits of your vision? The following framework may be used:
For a technology investment that might incur initial upfront costs for implementation and integration, an ROI calculation over 5 years is widely accepted in the industry.
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We can help
The TreasuryONE technology team is highly experienced in helping treasury departments select the right treasury technology for their treasury needs. All our technology offerings are implemented and supported by our team locally. Our current track record speaks to our title as SA’s leading treasury technology provider:
- 80+ successful TMS implementations to date
- 2000+ treasury users supported daily
- 8000+ bank account statements received daily
- Custom-built API integration tool
- We implement and support 3 world-class treasury management systems