Real-time data is a significant focus for treasurers. In 2019, a survey of 400 treasurers carried out by IDC for Finastra found that 59% predicted that getting real-time data and payments would be a priority by 2022. And more recently, the pandemic has further sharpened treasurers’ focus on the importance of data.
“Having the most up-to-date accurate, integrated information is very important to businesses of all sizes to be able to effectively forecast and manage their funds at times when they need to closely monitor them, because revenue may be lower than it typically is, or because receivables are coming in slower,” says Christine Barry, Research Director at Aite Group.
Marcus Hughes, Head of Strategic Business Development at Bottomline, likewise points out the importance of real-time data in the current landscape. “The pandemic lockdowns, combined with the uncertainties of today’s business environment, have highlighted that it is mission critical for a treasurer to have real-time visibility of their cash position over multiple bank accounts, in order to have full control over their treasury, payments and receivables,” he says.
It’s clear that real-time data is an important topic for today’s treasury teams. But what does real-time data mean in the context of corporate treasury? How can treasurers benefit from real-time data? And how important is it for treasurers to have a real-time data strategy?
Which types of data?
In simple terms, real-time data is data that is delivered to the end user as soon as it has been collected. For treasury teams, which come into contact with many different types of data, the term ‘real-time data’ is one that incorporates a number of different topics and activities, from cash balances to foreign exchange exposures:
Cash position and liquidity
Having a real-time view over the company’s cash across different bank accounts is an important tool where decision-making is concerned. “Any latency in the availability of current cash balances can and will have a negative impact on the treasurer and CFO’s ability to make decisions,” explains Paul Bramwell, Principal & Founder of Treasury Tech Advisory. “The complete understanding of where your cash is, why it’s there and when it will be needed is critical to the business.”
Likewise, access to real-time data on the company’s cash position is an important component of the cash flow forecasting process. Out-of-date information will make it more difficult to generate accurate forecasts that can support effective liquidity planning and cash management.
Hughes notes that in today’s volatile markets, treasury teams need real-time data feeds of market rates to manage their foreign exchange exposure and hedging strategy, “as well as other financial risks and derivative instruments related to interest rates and commodity prices.”
Fraud prevention and compliance
Sanctions lists are becoming increasingly complex – and while sanctions screening remains an important focus for banks, treasurers are increasingly putting systems in place to prevent their businesses from sending payments to sanctioned countries, entities or individuals. Likewise, with the risk of payments fraud continuing to rise, real-time fraud prevention systems have an important role to play in screening payments for suspicious activity.
Across these different areas, the benefit of real-time data is not the data itself so much as the decisions that can be made as a result. For example, if treasurers are basing investment decisions on out-of-date information, there will be a greater need to keep excess cash readily available in case of unforeseen developments.
As Bramwell points out, “If a treasurer has access to data on cash balances, historical flows/trends and the ability to forecast with increasing predictability, the company is much better placed to manage capital markets activity, investments, debt and any risks inherent in the business such as foreign exchange, interest rate and operational risks.”
Consequently, says Bramwell, there are a number of ways that treasurers can benefit from real-time data. For one thing, treasurers can benefit from real-time cash data to place surplus cash in different instruments with better yields as early as possible. They can also use accurate and timely data on orders, expected inflows and outflows to place investments longer and thereby generate better yield, “given the predictability of cash flows.”
In addition, the real-time data resulting from business transactions may generate foreign exchange risks which need to be managed or mitigated, explains Bramwell. In addition, “the application of cash balances to business flows will tie into the sales pipeline where goods and services are sold on credit,” he says, adding that if this doesn’t happen in real-time “there is a risk of turning business away.”
Impact of ISO 20022
The opportunities brought by real-time data are also becoming more interesting as a result of the transition to ISO 20022 messaging, which will not only standardise payment formats, but also enable payments to carry more structured data than in the past.
“ISO 20022 will make it easier to ensure compliance with Anti-Money Laundering requirements because the format has many structured fields which can be made mandatory for including important details, such as the name and address of the ultimate beneficiary, the originator and the intermediary bank,” explains Hughes. “This means payments using ISO 20022 can include all the information necessary to comply with FATF 16 requirements and EU Wire Transfer Regulations.”
In addition, Hughes points out that ISO 20022 messaging will increase efficiency, thereby resulting in lower costs and higher straight through processing rates. “The increase in information provided can also be used to make it easier to track payments in real-time across multiple banks and payment systems,” he says.
“It will also reduce the risk of errors, as users will be able to include additional payment details and references. Using rich data in a structured way will also make it easier for parties receiving payments to achieve higher levels of automated and real-time reconciliation.”
When it comes to accessing and using real-time data, treasurers need to have the right tools and systems in place. “A starting point will be a treasury management system that is connected to the banking world where balances can be obtained with as little latency as possible,” says Bramwell. “With the advent of APIs and the PSD2 directive, this is becoming far more prevalent.”
While sourcing data is important, treasurers also need to have the ability to analyse that data effectively in order to support better decision making. Hughes notes that data analytics, and techniques such as machine learning and predictive analytics, “are becoming a key tool for treasurers and other financial decision-makers.” He adds, “Treasurers greatly benefit from analytical tools which enable them not only to measure their KPIs (DSO, DPO, customer payment performance) but also to improve these metrics and therefore have a positive effect on overall financial performance.”
Barriers to real-time data
While the benefits of real-time data are clear, getting access to the necessary data isn’t always straightforward. As Aite Group’s Barry explains, “Sometimes banks have legacy technologies in place that make it a challenge to get real-time data, especially when you are looking for that data to be integrated and accurate.”
In order to optimise access to real-time data, Barry says that treasurers may need to put pressure on their financial institutions and technology providers. “I think a lot of banks, especially for real-time information, have historically had more of a tendency to focus on the retail or consumer side,” she comments.
One reason for this, says Barry, is that corporates have accepted near-real-time or next-day information until recently – “but that’s no longer the case.” As such, she suggests that corporates should put pressure on financial institutions to understand their needs and understand the challenges they face with older data, such as not being able to make the right financial decisions. Further challenges may need to be overcome when it comes to aggregating data. Hughes points out that it can be challenging to aggregate real-time data from a range of disparate business and bank systems – although he also says that the use of APIs is helping to make data aggregation and analysis easier and faster.
Real-time data and cash forecasting
Where cash forecasting is concerned, data from systems such as the treasury management system, ERP system and bank accounts needs to be combined in order to generate accurate cash flow forecasts. As Hughes explains, this data typically includes: future inbound payments relating to outstanding sales invoices, maturing deposits and investments, and tax refunds; future outbound payments relating to outstanding supplier invoices, payroll, maturing loans, interest and tax payments due and existing and up-to-date cash balances and uncleared items on multiple bank accounts in multiple currencies.
“These cash flow forecasts must be constantly reviewed against actual cash flow by performing variance analytics in order to improve the accuracy of these forecasts,” Hughes says. He notes that some inbound and outbound flows, such as loan repayments, are highly predictable – but others, such as when a customer will pay an invoice, are less easy to predict. “It is also essential to constantly reconcile bank statements against the ERP ledger to allocate cash correctly and take revenue to profits,” he adds.
For Bramwell, a key enabler when it comes to making the most of real-time data is having a plan and vision in place setting out “what data to collect, what to use it for, who to provide it to and how to harness the value to broader decision making.”
As such, he says it is “incredibly important” for treasurers to have a data strategy in place. “Data is everything and the tools required to handle the sheer amount of data available are easily able to package and present the data into usable dashboards and KPIs to enable decision making and action,” Bramwell says. “It’s also important to bear in mind the usability of data across the organisation which transcends the treasury department.”
Bramwell adds that a data strategy should include “every aspect of the treasurer’s world – cash, forecasts, debt, investments, hedges etc. All are of broader use to the CFO’s organisation and indicate the health of the treasury function in servicing the business.”
Hughes agrees that having a data strategy is increasingly important. “This should cover the aggregation and analysis of data from multiple sources, such as treasury, AP/AR, CRM, debtor management and collections,” he says. In addition, advanced techniques such as artificial intelligence and predictive analytics “can be applied to historic performance and improve the accuracy of forecasts.”
In conclusion, real-time data brings real opportunities for treasurers to improve visibility over cash, manage risks more effectively and support better decision-making. But to harness these benefits, treasurers first need to be able to access and aggregate the data they need – and having a strategy in place is an important enabler for companies looking to get real value from their data.