How to make treasury solutions your strategic planner?

A treasury management system automates the process of managing a company’s financial activities, such as assets and liabilities.

What is the purpose of a treasury solution?

Treasury solutions provide high visibility to the CFOs to manage liquidity, bank accounts, investments, and debts and mitigate risks (operational and financial). A treasury solution tracks a company’s ability to convert assets into cash to meet financial obligations. Cash management, investment & debt management, cash forecasting and risk management are the treasury functions that can be automated with treasury management software. 

What are the challenges faced by the treasurer?

The following are the common challenges a treasurer faces daily:

• Risk management

Treasurers are responsible for developing a holistic value of business risk exposures such as foreign exchange, interest rates, liquidity risk, credit risk. They also are responsible for identifying and managing the occurrences of the risks. 

Challenges in risk management:

• FX Management
• Tax Compliance
• Liquidity
• Fraud
• Cash flow management

Treasurers are in charge of developing a strategic banking structure that is both efficient and cost-effective, optimizing cash resources, and maintaining access to short-term financing to boost working capital and cash visibility. 

Challenges in cash flow management:

• System redundancy and bank volume
• Manual processes are time-consuming and prone to errors
• Many currency settlements or transactions
• Manual bank reconciliation
• Regulatory changes
• Cash flow forecasting

To improve accuracy, treasurers must maintain a well-structured cash flow forecasting method supported by validated data sources.

Challenges in cash flow forecasting:

• Manual data aggregation and spreadsheet-based cash forecasting
• Time-consuming collaboration between teams to gather data
• No or minimal variance calculation between forecast and actuals
• Lack of accurate scenario analysis
• Inability to create timely reports 
• Regulatory changes

The updates made to laws and regulations are regulatory changes. Treasurers must be aware of the most recent regulatory changes, such as: 

• Basel III and Payment Service Directive II (PSD2)
• Anti-money laundering (AML)
• Hedging and Credit Value Change
• Mutual fund reform and knowing the KYC. 

These keep changing and it can be difficult to keep track of them.

Challenges in regulatory changes management:

• Increased human error by manual documentation and process management
• Tracking upgrades to ensure compliance with the latest standards and rules is difficult
• Poor management of processes and workflows
• Policy and procedure content is not disseminated and communicated across the organization
• Changes in agenda

Treasurers are expected to play a larger role in advising the CFO on complex investments, taking into account country-specific risks, expanding the company’s debt portfolio, funding strategies, impediments from restrained cash, preparing for a potential market downturn, and continuing to support the development of the capital agenda and dividend payout. But this can be difficult due to some challenges.

Challenges in changing agenda:

• More responsibility and monitoring
• Less bandwidth due to a lean team
• In-house banking

Treasurers are primarily focused more on identifying and managing internal funds to reduce their organization’s reliance on banks for public investment. But some issues lead to poor in-house banking.

Challenges in in-house banking:

• Balance sheet management
• Unhedged forex exposure
• Inability to keep track of capital adequacy

What are the priorities of a treasurer?

The following are the key priorities of treasurers today:

• Managing liquidity risk: 

Liquidity risk can be reduced by:

• Planning and analyzing finances carefully
• Forecasting cash flow regularly
• Monitoring and optimizing net working capital
• Managing existing credit facilities
• Getting access to the financial market for growth financing:

Financial markets play a critical role in the economy’s efficiency and growth. Treasurers need to pool capital, select projects, track and enforce contracts, manage risks, and mobilize savings. Moreover, information gathering, processing, and management are essential for well-functioning financial markets.

• Becoming a strategic advisor to the company:

A strategic advisor oversees every aspect of a business to ensure that it operates at optimal efficiency. The strategic advisor monitors every area of a company to ensure that it is running well. Communication with high-level management on ways to move outcomes forward, ensuring that all internal functions are performing at the highest level, and suggesting smart business tactics are all part of the job of a strategic treasurer.

• Shifting from the transaction processing:

Transaction processing systems provide an environment for executing code that ensures data integrity, availability, and security. They also guarantee a quick response time and high transaction volume administration of the system.