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Corporate treasurers and their use of treasury management systems

Corporate treasurers fully agree they can (and must) count more in their company. The financial crisis - now turned into economic crisis in many European countries - has elevated the corporate treasurer to the status of information steward of the chief finance officer (CFO), when not of the chief executive (CEO) directly. The corporate treasurer is accountable for the quality and validity of answers to questions related to the company’s financial stability, cash flow projections, availability of liquidity, quality of bank relationships, actions to take to improve working capital requirements, just to name a few. It is even more frequent that corporate treasurers are expected to take direct decisions that can affect corporate financial outcomes, such as deciding on accounting structures, allocation of surplus cash, identify sources of liquidity, and assign threshold targets to payables and receivables.

To do so, corporate treasurers need information rather than raw data for better decision making. Often times, they must 'sell' options and solutions to their CFO/CEO. Effective communication and proper 'packaging' of data are strongly demanded skills. Software solutions for treasurers should therefore be capable of 'educating'
treasurers on how to use best practices to be effective in building the internal business case (i.e. to sell solutions and decisions internally). The ability to package practitioners’ workflows and data modelling into reusable applications may represent the software solution corporate treasurers are expecting.

These conversations have validated my prediction that treasury management systems (TMSs) will morph into treasury intelligence management systems (TiMSs). These are platforms that will integrate and extend the operations-driven functionalities of a traditional treasury workstation with features that provide better information in order to generate intelligent decision-making.

Of the topics discussed with event participants I am reporting on a few that I believe further validate these concepts:

• TMSs are evolving into decision support platforms for the treasurer, who can now control all the company's sources and destinations of cash from a single point of observation.
• Simplicity and standardisation are key to treasurers’ decision-making today.
• Treasurers require a technology capable of retrieving pertinent information from various and independent data sources, regardless of underlying technology foundations. Expanding the reach of a basic TMS by turning information into intelligent decision support keeps the treasurer informed, empowered, and engaged.
• Regulatory compliance is still high in the treasurer’s agenda, and technology should be capable to offer a document compliance repository for auditing controls.
• The TMS must be flexible and adaptable to accommodate any new regulatory requirements. The technology should compile and consolidate data silos, and allow the user to format the resulting data so that it can be presented in a more direct and effective way to decision makers.
• A TMS should support the treasurer in identifying issues, running scenarios to test various options, and then support with data aggregation and analysis to proceed with recommendations.

The continuously evolving landscape of supply chain finance

Although supply chain finance (SCF) is a well-renowned and debated topic, still many treasurers are focused on more 'operational” tasks such as cash pooling, liquidity management, risk avoidance and bank account management. It was quite apparent in my conversations however that corporate treasurers are well aware of SCF and expect clear solutions from their bank partners.

While the conversations focused on various aspects of SCF, I have summarised below the items I think are of most interest to explain how SCF is continuously evolving:

• Banks involved in SCF programmes are challenged with the task of translating the potentially intangible concept of corporate value into a series of action plans that practically build value to the corporate client. It is therefore important for a bank deeply involved in SCF programmes to identify areas of attention to its corporate counterparty and offer the appropriate solutions.
• SCF still lacks a clear business model. Banks consider it essential to have business requirements for SCF before even offering SCF products. A significant critical area for both banks and corporate clients is represented by the difficulty of creating a business case that proves the value and return on investment (ROI) of a SCF programme.
• One practical answer to closing the gap between corporate demand and bank supply goes through breaking down silos in the corporate-to-bank relationship. The visibility of supply chain processes is a key factor that banks recognise as an important step that will take them closer to 'speaking the same language' as their corporate counterparts and addressing the solutions truly needed to fulfill expectations. The inhibiting factor, though, that emerged almost constantly in my conversations is the perception of risk among banks.
• It is well-known that banks are not lending to small companies because the risk perceived is too high. However, the way that banks assess risk is mainly based on financial data and on some basic overview of operational performance. If banks were instead capable of having statistics on a company's performance throughout the end-to-end supply (i.e. value) chain, then the risk profile would be more accurate and banks could decide what portion of risk they want to take and how to price it accordingly. One topic extensively discussed during meetings regarding the ability to risk-profile steps of the supply chain process was the concept of 'actuarial tables' for supply chain management (SCM).
• Just as the lifecycle of a vehicle or of a person are mapped to then identify specific 'trigger points' that are statistically measured to determine the likelihood of certain events to happen - and therefore calculate correspondent actuarial values to properly price the insurance premium - the same should be possible for supply chain processes (e.g. procurement, manufacturing, shipping, distribution). My assumption is that an insurance company is already capable of slicing and dicing the lifecycle of a vehicle's value chain thanks to the actuarial table values of that value chain. Insurance premiums are then calculated and offered to clients. Why should the same not be possible for a supply chain?
• Some banks are creating advisory roles that use data and quantitative market research to explain clients the reasons to change and consider SCF solutions. Benchmark data appear the best approach to help clients understand the gaps from best practices and quantify the cost of the gaps.
• Fact-based discussions with clients are the best source for a bank to gather information and to prove its capability to understand the needs of that company. A SCF programme begins with exchanging ideas and knowledge, not with selling products.

SEPA and what will happen after the February 2014 deadline

Many of the conversations and session titles on the single euro payments area (SEPA) were pointing to the operational aspects of 'what still must be done to meet the deadline'. My interest, though, was in understanding what it will happen after the 1 February 2014 deadline. Most likely the vast majority of corporations will use workarounds and patches to 'keep the lights on'; a scenario not so different from the 'Y2K syndrome' that turned out to deflate all feared catastrophic consequences of (supposed) poorly planned changes. While corporations will not want to overspend until they understand the real benefits from doing so, my recommendation to corporate treasurers is to select the bank partner that will offer the best SEPA solution in line with the company’s planned pace of change.