As your company expands its global reach, its liquidity structures become more complex and its banking providers increase. In response, your treasury and finance teams may consider a treasury management system (TMS) to automate cash management operations and elevate treasury’s strategic footprint. But is a TMS the right tool for your company?
Many treasury and finance organizations assume a TMS can solve all their operational cash management issues and eliminate the need for manual processes. In reality, a TMS provides distinct functions and adds value in specific circumstances.
A TMS can be a useful way to organize your treasury to become more strategically relevant, but for many organizations, it’s not the only path. A critical step in identifying whether a TMS is right for you is understanding the root causes of your treasury’s pain points. Only then can you determine if a TMS will be worth your investment.
If you determine a TMS is your best option, it’s worth noting that the treasury technology landscape is ever evolving. There are many niche alternatives that can alleviate the cost burden and long implementation timelines associated with a traditional TMS.
The chart depicts options in the treasury technology landscape. The x axis shows implementation requirements and effort from low to high. The y axis shows and the efficiency gains from low to high.
Spreadsheets have the lowest implementation requirements and effort and the lowest efficiency gains; online bank portal is slightly higher for both. Fintech/Niche has low implementation requirements and effort with higher efficiency gains. A standalone TMS has a medium level of implementation requirements and effort with higher efficiency gains. ERP Treasury is high in both categories. Best of Breed has the highest implementation requirements and effort and highest efficiency gains. Home-grown has high implementation requirements with medium level efficiency gains.
Treasury management system capabilities
Some of the key functionalities of a full-suite TMS include:
- Cash positioning, forecasting and liquidity management
- Electronic Bank Account Management, bank relationship management and bank fee analysis
- Payments
- Risk management and derivatives
- Trade solutions
- Investments and debt management
- Accounting and reconciliation
- In-house bank, payment factory
- Connectivity
Implementing a TMS is a massive undertaking—it can take up to three months to get one entity or module up and running. Achieving full functionality with a TMS can take anywhere from 12 to 18 months. Your technology team should be engaged early in the selection process for successful design specifications, implementation and rollout.
The TMS technology best suited for your treasury organization is based on many factors, including:
- Pricing
- IT costs and complexity
- Compatibility with existing systems
- Implementation lift
- Speed and security
- Upgrade management
Treasury challenges beyond the scope of a TMS
While a TMS can provide robust functionality, there is no substitute for best-in-class employees, processes and existing systems. Although it’s not an exhaustive list, there are three key components of the organization to analyze for outside issues that a TMS won’t solve.
- People: Your organizational structure and delineation of responsibilities can have a major impact on the effectiveness of your cash management practices. A TMS cannot solve issues stemming from:
- Your staff’s skill set and enablement; for example, is the staff assigned goal-driven tasks? What is the staff’s level of common interest?
- The effectiveness of internal parties' communication
- A lack of ownership due to inadequate incentives and ineffective performance management
- Segregation of duties
- Your organization and staff structure’s level of centralization
- Processes and controls: The efficiency, accuracy and level of controls your processes have are core to the treasury organization’s output. Focusing your efforts on controls and processes can often result in positive change without necessitating new technology. A TMS won’t add value to your organization if:
- There is no transition plan or playbook for acquisitions and their accounts and systems.
- Tasks are centered around institutional knowledge and are redundant. For example, a flawed process can cause excessive daily exception items.
- There is lax controls enforcement due to an inadequate understanding of roles and tasks.
- Legacy systems and banking structure: Your existing technology infrastructure and banking setup can enable or inhibit your scalability. They also influence the ease of viewing and moving cash when it’s critical. A TMS has limited benefit if:
- Your banking relationships are spread out among too many accounts or banks. In this case, an account rationalization may help you consolidate cash without the implementation of a TMS.
- There is a suboptimal account structure in place, which requires manual intervention or booking of entries.
- Your enterprise resource system (ERP) has untapped potential. For instance, you may not be using your ERP’s cash management or accounting modules.
- Your existing systems lack connectivity to one another and provide insufficient system functionality to meet your specific business and treasury needs.
- Your technical support requires more experience or availability to make the system usable or your staff hasn’t received proper training on system functionality.
A TMS can be a useful way to organize your treasury to become more strategically relevant, but for many organizations, it’s not the only path. To avoid investing time and money into a TMS that isn’t used to its full potential, you must first analyze your people, processes and technology infrastructure for fixable issues. Leverage trusted relationships, such as those with peer companies, consultants or banking providers to understand your full range of options before you make a final decision.
