Treasury Today Country Profiles in association with Citi

in association with

Sungard

Introduction to treasury management systems (TMSs)

Maintaining visibility of cash and liquidity positions has never been more important – and technologies designed for this purpose can be vital to a treasurer’s role. Treasury management systems are more versatile and adaptable than ever, and this article explains what they can bring to you.

Functionality and benefits of a TMS

Treasury management systems consist of a suite of software applications that facilitate the management of all aspects of treasury. Traditionally, corporates have used spreadsheets and manual processes to maintain cash visibility. However, these can suffer from an inherent inaccuracy – as SunGard’s Vice President, AvantGard, Chang Mingmei explains, “Spreadsheets have insufficient controls for true segregation of duties with a reliance on manual paper based documentation and workflow. The removal of manual process and elimination of reporting and documentation errors allows the treasurer to focus on managing the companies’ cash and risk rather than focusing on operational issues.”

A TMS lends itself to the more specialised and specific roles in treasury and will typically cover the following functions:

  • Cash management.

    Comprehensive view of global cash balances for central and regional treasury centres.

  • Forecasting.

    Including contracted transactions and business flows.

  • Liquidity management.

    Cash pooling, zero balancing and in-house banking.

  • Debt management.

    Loan portfolios, mortgages and lease finance.

  • Transaction management.

    Deal input, settlement and confirmation.

  • Deal management of specific instruments.

    Money market, securities and derivatives.

  • Accounts management.

    Transaction reporting, accruals and revaluations, eg for hedging.

  • Security and control.

    Audit tracking, workflow management and user access definitions.

  • Risk management.

    Exposure limits, authorisation levels, scenario and sensitivity analysis giving a cohesive and holistic view of risk management.

  • System interfaces.

    Bank systems, dealing systems, market feeds and accounting.

When TMSs were first developed they were standalone systems, sold by companies who do not offer full enterprise resource systems. That situation initially led to difficulties in integrating treasury with other parts of the business – though that issue has been overcome in recent years as TMS vendors have developed software which integrates with a range of other systems.

Flexibility, too, has developed noticeably in recent years. Where corporates may once have worried that a TMS was a relatively monolithic installation, now treasurers have more freedom to pick and choose the relevant capabilities, adding functions as required and adapting to existing systems. This is particularly important when purchasing a system that the treasurer might expect to last at least five years before a review – buying an inflexible system does not allow for any changes in requirements over the system’s lifespan and can result in the department receiving poor value for money on the investment. These smaller modules do not always even have to be added to an existing TMS; whilst a fully installed workstation might cost upwards of \,000 it is possible to purchase simple FX software for a few hundred dollars. These developments clearly benefit companies with budgets of all sizes. That point is stressed by SunGard’s Chang Mingmei, who told Treasury Today in China, “There is no ‘one size fits all’ TMS but they tend to be highly configurable and enable the treasury department to create an environment customised to their own business practices whilst simultaneously taking advantage of built-in best practice.”

The TMS market in China

At the highest level, factors including globalisation, rapid business growth and increased competition have made treasury automation a priority for many Chinese corporates. As a result, TMS adoption is on the rise. In this environment treasurers have a greater ability to impact on the bottom line. That has given rise to a significant shift in the treasurer’s role, putting a renewed focus on global cash and risk management, and in particular FX risk management. This focus drives the need for automation and collaboration across the broader treasury function.

“There is a clear trend towards TMS adoption in China,” says Chang Mingmei. “The automation of key functions makes treasury centralisation possible and that gives treasurers real-time access to data, providing a clear view of cash flowing across the entire organisation.”

“Today’s market and business climates require treasury professionals throughout China to implement automated solutions in order to optimise cash, drive predictable and free cash flow and improve the bottom line. Charged with mounting pressure to do more with less, spreadsheets and ERP systems no longer remain a viable option for the corporate treasurer.”

In terms of the types of corporate using TMSs in China, the flexibility provided by the systems’ structure allows a huge range of firms to benefit from their implementation. That arc runs from mid-sized firms with relatively straight-forward cash management and funding or investing requirements, right through to large multi-nationals with highly sophisticated treasury needs. As vendors can implement only the functionality the corporate requires as well as tailoring its service level to each customer TMSs are increasingly affordable for smaller companies which need only basic capabilities and have a small number of end users requiring access to those functions.

Both domestic and international providers of TMSs are available in China. The local providers predominantly focus on the lower end of the market with foreign vendors giving more sophisticated offerings. A key benefit of using an international supplier, however, is their knowledge of ‘best practice’ globally and exposure to other markets giving them expertise not available to local firms.

TMS vs ERP

Enterprise resource planning (ERP) systems are designed to offer a wide range of functions throughout the business. Whilst a TMS is treasury specific, ERPs are more comprehensive. Such systems do offer treasury modules, providing much of the functionality of a TMS. When selecting a TMS, treasurers of companies already using an ERP system will certainly see the IT department leaning towards the adoption of that existing supplier’s treasury module. This is because the ERP system provides visibility across the whole company, and the treasury module integrates easily with that. An additional benefit to this ‘single system’ approach is that employees can be effectively monitored and the ERP can log all transactions, making the audit trail more standardised and manageable.

However, TMS providers have adapted to the competition provided by the ERPs’ treasury modules. As well as interfacing effectively with bank and third party software allowing straight-through-processing (STP), they offer real-time cash position reporting and forecasting. Furthermore, the level of treasury-specific functionality is significantly above that offered by ERP systems. For example, critics point out that key features typically ‘missing’ from ERP systems include certain risk management analytics as well as the capacity to cope with complex product coverage.

“Whilst ERP systems are good at managing business operations and processes where change is infrequent and can be planned, they are not efficient at handling the dynamic and more complex treasury functions associated with cash and financial risk management,” continues Chang Mingmei. “The value of a TMS lies in its ability to support fast growing and global treasury operations with support for sophisticated cash management, bank connectivity and complex financial instruments. Traditional tools struggle to meet the growing demands of today’s corporate treasury, so the growth in specialised TMSs among corporates in Asia is not surprising.”

In terms of company process, when using a separate TMS treasury should have more control over the system. While the IT department may choose when and how to update an ERP, a treasurer with control over the operations and budget has more power to update and adapt a TMS at the best time for their department. The level of potential conflict with IT departments is decreasing, however.

The role of the treasury is becoming increasingly widely known, and the critical nature of the information collected, managed and acted upon requires reporting from multiple sources in a timely fashion. Failure to report that information puts the company at risk and that gives treasuries greater leverage in securing the funds and support to implement industry-leading solutions. Integration is clearly important – when the aim of buying a TMS is to increase visibility, the last thing a treasurer will want is to purchase a system which limits their ability to access the rest of the company’s data.

However, there are relatively few areas where the TMS needs to be integrated into the ERP system. These areas include: export of forecast business flows; payroll and expense information; and bank account and legal structure information for correct accounting treatment of financial transactions. Also, most TMS solutions include a sub-ledger for treasury activity and this is interfaced into the ERP system at least once per month.

Vendor hosted solutions

At the same time as costs to corporates have been cut by the introduction of more configurable TMSs, the way in which treasurers implement the systems has also changed. Traditionally the TMS was a fully installed service, hosted on the corporate’s own servers.

Now, however, treasurers can often opt for solutions under which a third party hosts the service and access is provided remotely to the user. Corporations in China can elect to deploy a TMS in a hosted mode where the vendor is fully responsible for the application and acts as a single point of contact. Another option is the application service provider (ASP) model which is a viable choice for many SMEs. The ASP model can be tailored to meet the specific requirements of each customer.

For any TMS, when collating information and providing remote access to treasury centres and subsidiaries for treasury management and reporting, a secure connection is essential. This is often done through a Citrix connection, which offers the ability to connect to a server within the company’s own firewall. Most TMS vendors offer configurability for these offerings that are both efficient and secure.

With vendor-hosted solutions, corporates looking to reduce costs can pass the burden from internal IT resources onto the supplier. The features to look out for include:

  • Secure virtual private network (VPN) and outbound communications for remote connectivity.

  • Dedicated 24/7 customer relationship support team.

  • 24-hour technical support including monitoring of systems.

  • Operating system and database management.

  • System backup and data storage.

  • Fully audited (eg SAS70) and hardened facility.

  • 99.999% network reliability.

  • Hardware provisioning and installation.

  • Disaster recovery services.

These security features are maintained rigorously by the vendors – very little could damage their reputations more than data leaks. Indeed, as they operate in a wide range of countries the vendors must comply with a variety of strict data protection rules to keep corporates’ information safe.

In addition to the safety features, vendor hosting allows the maintenance burden to be taken off the internal IT department and placed on the vendor, saving internal resources. Upgrades can be made by the supplier and the installation process is far simpler, reducing costs and demands on time.

Overview of the selection process

Once the treasury is certain it has the IT budget to spend on a TMS, the preparation for commissioning can begin. This should be a comprehensive process, and can be lengthy so some corporates enlist the help of consultants who have the relevant expertise and experience.

The first step is to thoroughly review the treasury department, its existing systems and its needs.

The project leader should gain a good feel of the current system’s set-up and its benefits and drawbacks. Assessing the current situation allows a strong picture to be built of what the department needs. Any stakeholders in related departments should be consulted as to the impact a new TMS may have on them. “Including stakeholders from the start of the process ensures the removal of potential roadblocks in the implementation process. Parties that should be involved include treasury staff, accounting and audit representatives, IT and any remote treasury or business users who interact with the treasury department on a regular basis,” explains Chang Mingmei.

An inventory of the technology within the treasury can also be taken at this stage.

Following this the treasury’s future needs should be assessed – it is clearly best to purchase a system that will last for years to come rather than have to be replaced in the near future. Although systems are much more flexible than they used to be it is still best to buy wisely – at the planning phase it is possible to wrongly purchase either a very rigid system or one which far exceeds the department’s needs and will never be fully utilised.

Once this assessment has been carried out, corporates should write a requirements definition document outlining treasury requirements. With these needs established, it is time to look to the market and see which TMS vendors may be suitable partners for the project. Reading trade literature can assist at this stage, finding out details of the services provided by different vendors. Similarly attending industry conferences can help, as they will be attended by a range of both vendors and corporates – who can advise other treasurers on their experience of choosing and implementing TMSs.

After narrowing down the field of potential suppliers to somewhere in the region of five, the next ‘formal’ stage is to send a request for information (RFI) to those vendors. This is typically a short document inviting vendors to provide more information on their TMSs. The RFI should include an overview of the treasury function and its needs, as well as a description of the larger business.

In response vendors usually give a half-day presentation to demonstrate how their system works and to take questions from the treasury team. This information should allow the project manager to remove the vendors which do not meet the department’s needs from the short-list and move onto the next stage: the request for proposal (RFP).

This is a more comprehensive document, detailing specific treasury requirements as well as the performance of the current system. It is vital at this stage to understand how closely each supplier’s TMS capabilities fit with your needs – both currently and in the future. The current and future desired state of the treasury department should be detailed, along with key objectives against which the success of the TMS project implementation will be measured. Key elements of data such as the number of banks, bank accounts, the intercompany lending structure and a good sampling of reports needed should be included. This allows vendors with several offerings to select the most appropriate solution to your needs.

Many treasuries then hold a workshop with each of these final-round vendors. All stakeholders in the corporate – like the CFO and the IT department, not just the treasury team – should have a part in this thorough testing stage. It should be made clear which requirements are the most important so that the relevant modules are examined. The treasury’s own data is often used as it gives the most realistic results. The vendors present should be examined on key areas like technical support, implementation and upgrades, and further reference clients should be consulted.

Overall, it cannot be stressed enough that treasurers need to make their priorities clear in this complex and sometimes lengthy process. As Chang Mingmei concludes: “Priorities and considerations should include: viability of the vendor, scope of each vendor to satisfy as many requirements as possible through a single product or integrated suite of products, scope of each vendor to offer hosting and connectivity solutions to reduce the total cost of ownership and guarantee system resiliency, global reach and presence (if the treasury has international requirements) and finally price. Look and feel is important but it is too easy to be swayed by a solution that looks good but lacks the comprehensive capabilities of a world class TMS. It is also worth ensuring each vendor submits a detailed implementation plan that is accurate and comprehensive, customised to an organisation’s specific requirements.”

After the RFP responses and pricing proposals have been received and workshops completed, the results should be evaluated and compared against the department’s initial assessment of needs; the selection process is over and the implementation of the chosen system can begin.