Treasury Today Country Profiles in association with Citi

Treasury management systems

For the modern treasury department managing the financial activities of a business manually with spreadsheets can be an extremely risk-laden and time-consuming task. This is particularly true for many multinationals operating in the Asia region, many of whom have to contend with constantly changing regulations and region-specific requirements. Investing in a treasury management system (TMS) is one option that could help corporates meet such challenges.

What is a TMS?

A TMS, sometimes referred to as a ‘treasury workstation’ in the US, is a software platform used by corporates to automate, record and control a host of core treasury functions. In addition to these functions, a TMS also acts as a database for core information, such as bank account data, that passes through the treasury department.

The TMS was first pioneered in the mid-1980s with the ultimate goal of bringing about full straight through processing (STP) – that is the complete automation of all standard or day-to-day treasury processes.

These processes, when performed manually, can expose treasuries to a substantial level of operational risk, says Pole Yu, Regional General Manager for IT2 Treasury Solutions, Asia Pacific. “Spreadsheets can be complex to manage,” he says. “They do not offer a controlled workflow and are dependent on the accuracy of human data inputs. As a result, they expose treasuries to the operational risk associated with highly manual processes.

“A critical eye and high levels of attention and expertise are required when using treasury spreadsheets,” he adds.

The ultimate objective of STP is to minimise manual requirements and allow treasurers to focus more energy on activities that really make a difference, says Mike Fullmer, SunGard’s Senior Vice President for the Asia Pacific region. “The things a treasurer can impact,” he says, “are the things that are coming in the future – tomorrow, next week or next month.”

“Treasurers should be focused on where the market is moving,” Fullmer adds. We put systems in place that removes the need for manual intervention, which can cause errors, and instead get the treasury team focused on where they can actually impact the forward planning for their company.”

An overview of the current market

For corporations looking to make an investment in TMS software, there is a wide range of products available on the market, with substantial variations in terms of both complexity and price. However, most TMS products on the market will include the following basic functions:

  • Static data storage (database).

  • Reporting facility.

  • Automation of standard treasury transactions and accounting entries.

  • Workflow and security controls.

  • Access to trading facilities.

  • Back office processing facilities.

Since TMS technology was first introduced, the cost of purchase and implementation has fallen considerably – partially as a result of technological advancements. The market has also expanded substantially over this period. In the beginning there were relatively few vendors and nearly all the products were ‘high end’ – targeted for use by the largest corporate treasuries or banks. But now there is a lot more choice in the market, from expensive bespoke solutions tailored principally for the demands of large multinationals to much cheaper off-the-shelf packages that are designed for smaller organisations’ use.

There is no single TMS solution that is right for every corporate. The particular type of solution that a corporate adopts will largely depend on what they are trying to do. “We don’t try to put the same solution in for everyone,” Fullmer says. “We always look closely at the particular requirements of the company we are dealing with. Are they going into multiple markets? Do they have FX exposure? Do they have a lot of money in different countries and with different bank accounts? How are they forecasting their cash and how are they managing the receipts coming in?”

The particular type of TMS solution a corporate chooses to adopt, says IT2’s Yu, will largely depend on the degree of organisational complexity. This can be measured by a number of different factors, such as the dealing volume, international and multicurrency profile, subsidiary structure, funding and compliance requirements.

“Every business is different,” Yu says. “Quite often a treasury will find itself struggling with daily workflows, unable to provide sufficiently timely, up-to-date answers to the key treasury questions. Although the buck stops with the auditors, senior management may require better reporting or have specific concerns, perhaps over the impact of FX exposures on earnings volatility or efficient use of capital or bank facilities.

“In the Asia Pacific business environment, where growth may depend on engagement in a dynamic, multicurrency environment, it’s a situation we encounter more and more frequently,” he adds.

Spreadsheet, ERP system and TMS – a comparison

Tool Advantages Disadvantages
Spreadsheet. Flexible. Not robust.
Cheap. Not secure.
Easy to use. No value-added functionality.
Enterprise resource planning (ERP) system. Enterprise-wide. Expensive to implement.
System not specific to treasury; common data available across the organisation. Not mission-specific.
Treasury management system (TMS). Mission-specific. Separate investment needed.
Robust. Design effort needed.
Ease of integration.
Ease of use.
Dependable reporting.
Best practice for treasury.

Source: IT2 Treasury Solutions

Benefits for corporates in the Asia Pacific region

According to Yu, uptake of TMS solutions in the Asia Pacific region has yet to reach the level of Western counterparts, and many are continuing to rely on older, spreadsheet-based or legacy systems developed in-house. However, since the 2008 financial crisis there has been a noticeable spike in demand amongst Asian corporates for new TMS. One of the reasons for this, Yu says, could be the increased focus on liquidity management which resulted from the financial crisis. In an economic environment where credit has become increasingly scarce and expensive, corporations globally have had to focus, more than ever, on gaining up-to-the-minute visibility of their working capital, in order to reduce their dependence on external credit lines and to optimise investment returns.

“This information is of maximum value when it reflects the current and near-term position of the enterprise,” he says. “TMS offer mission-specific tools to display and report this information completely, accurately, on-demand and, if appropriate, in real time. The TMS can automatically assemble, organise and report the information from all relevant sources, including bank account balances, opening and maturing treasury transactions, treasury flows such as interest payments and dividends, and commercial payable and receivable flows.” And achieving greater global visibility of cash, he adds, is essential in order to gain timely visibility of financial risk.

The vast majority of corporates in Asia operate across multiple markets and, as a consequence, are regularly dealing with different currencies, different regulatory regimes, as well as needing to co-ordinate with different business units. In such a complex environment having the correct treasury technology in place becomes increasingly vital, SunGard’s Fullmer says. “To be able to manage that effectively you often need some assistance to pull that data together, otherwise you are going to be the ones running around manually trying to deal with that.”

This requirement is linked to the arguments concerning centralisation and decentralisation, he argues. An effective TMS solution can provide corporates with the means of centralising certain information without necessarily centralising power. He gives the example of a company operating within China: to operate in such a tightly controlled market will often require relationships and funds to be managed by a team within that country. With the right TMS solution, Fullmer says, a company is able to centralise these functions without excluding headquarters from the decision-making process. “What we have seen is that companies operating in some heavily regulated Asian markets are able to have local controls and make local decisions – but management is getting better visibility over what is going on.

“A TMS can enable a multinational to have one central source of truth when it comes to information so that, at the group level, the CFO can clearly understand where the company stands and they are not just chasing after reports,” he says.

Looking ahead

There is little doubt that the TMS technology has changed substantially over the past decade, with today’s platforms providing tools for the automation of a wide range of treasury responsibilities including dealing, reporting and risk management. But how can it provide even greater support to the corporate treasurer?

Although it remains a relatively new concept yet to be fully validated from a security perspective, mobile technology, Fullmer believes, may well be the next big thing in the TMS market.

“Mobile technology is definitely one of the areas that vendors are looking to expand into in the future; but speaking to companies it is clear that there are still security concerns,” he says, explaining that there remains a degree of resistance from IT departments within some multinationals to the idea of allowing a treasurer to access their network over a mobile device.

Notwithstanding the concerns Fullmer alludes to, there is agreement that the optimisation of TMS for use on mobile devices is an important advancement – indeed, both IT2 and SunGard already provide mobile apps to their clients. “It is a major development and a natural evolution,” Yu says. “We expect to see more treasurers picking up where they left off across a variety of devices.”