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Embracing Innovation through Digital Transformation in Treasury


Discover how companies are utilizing technology to embrace treasury transformation and benefiting from it.

Contents

Chapter 01

Treasury digital transformation: All that you need to know

Chapter 02

Areas to consider for digital transformation in treasury

Chapter 03

Treasury solutions: A way to get started with digital transformation

Chapter 04

Benefits of treasury digital transformation

Chapter 05

Summary
Chapter 01

Treasury digital transformation: All that you need to know


What is digital transformation in treasury?

Digital transformation is the integration of digital solutions into the very core of a business, significantly changing how it operates by creating:

  • New business processes
  • Customer experiences
  • Organizational culture

It is not only improving traditional methods but also reinventing them for the digital age to meet changing market expectations. As technologies such as artificial intelligence, machine learning, and automation become more prevalent, businesses are focusing to reimagine and reinvent themselves faster than ever before.

Treasury digital transformation is more than just a shift in a company’s technological or operational solutions. It is also a significant cultural shift that necessitates the transformation of the entire organization. By the end of a successful digital transformation implementation, all areas of an organization are influenced – from how the organization operates internally to digital customer experiences to the value clients receive from the company’s services.

According to the PwC US Pulse Survey – CFO, August 19, 2021, 68% of CFOs plan to invest in digital transformation over the next year, using technologies such as cloud and analytics. Treasury must remain competitive and meet shifting market demands in the digital age by ensuring that the right people are involved in the implementation of emerging treasury technologies.

Factors driving today’s treasury transformation

To meet the demands of a varied and complex business environment, corporate treasury’s job has evolved from basic cash forecasting, payment processing, hedging, and financial risk management to a strategic view of the entire organization and its long-term needs. There are many drivers that affect the digital transformation of an organization:

  • Organic growth of the organization leads to new requirements.
  • Artificial Intelligence is taking center stage. Companies aim to be innovative and best-in-class
  • External factors- In recent years, treasury transformation has been fueled by a shifting regulatory environment and growing financial market volatility. Corporate treasurers require a better understanding of enterprise risks as well as faster access to information.
  • Covid-19 impact- The COVID-19 crisis has resulted in years of change in the way businesses in all sectors and regions conduct business. It has highlighted the connection between strategic input and treasury setup. Companies have significantly accelerated the digitization of their internal and external operations. Treasuries with advanced systems and data capacity are better positioned to add value to the rest of their organization. Most executives, when asked about the crisis’s impact on a variety of measures, believe that funding for digital initiatives has increased more than:
    • increases in costs
    • number of people in technology roles
    • number of customers
Chapter 02

Areas to consider for digital transformation in treasury


Areas to consider

Today’s treasurers must deal with volatile markets, increased regulatory scrutiny, and reduced budgets in an increasingly complex environment. To address these and other issues, more treasurers are looking to implement sophisticated systems and best practices in order to achieve the following goals:

  • Process transformation
    Surprisingly, many firms still rely on relatively manual processes and technologies for cash flow management and forecasting, such as spreadsheets. Many businesses are recognizing the need to alter core processes in order to reduce operational risk and foster the agility required to adapt to economic shifts and technological advancements that may impact revenues, interest rates, credit ratings, and borrowing costs.
  • Transforming business model
    By adopting treasury transformation through technology digitalization, treasurers are seeing a compelling need to digitize treasury and investment IT infrastructure, replace old, custom developed solutions with off-the-shelf vendor packages, and re-engineer excessively manual procedures.
  • Domain transformation
    Most companies undergoing a digital transformation in treasury should be aware of the new opportunities for domain change that come with new technologies. Implementing corporate treasury software can help companies reach the following goals:

    • Reshape products and services
    • Blur industry lines
    • Create new value
  • Organizational transformation
    A successful digital transformation requires more than just upgrading technology or reimagining products. Treasury digital transformation attempts that aren’t connected with a company’s internal values and habits might have a detrimental influence on the culture. The following are the negative consequences:

    • Slow adoption of digital technology
    • Loss of market competitiveness
    • Initiative’s ultimate failure
    • Loss of productivity and money

Focus for digitalization

For treasurers, technology is opening up a whole new world of possibilities, and making better use of working capital can result in welcoming additional revenue. True transformation, on the other hand, is multi-faceted and necessitates more than just technology. Transformational leaders know that the integrated digital treasury is quickly becoming a reality, allowing them to accomplish more with less. The outcomes a recent survey obtained in terms of finance leaders’ prioritizing of finance processes to introduce digital intervention in their organizations are given below:

Percentage of respondents on area being top 3 priorities

Source: EY Digital Survey

Current corporate treasury trends

The treasury transformation is changing the way businesses operate. To keep up with changing digital technologies, next-generation treasury organizations will need to operate in real-time, using AI cash flow forecasting and cash management cloud. Treasury teams will have to adapt to a more digital environment and expect to build capabilities that go beyond the current treasury management technology landscape. For instance, although using spreadsheets for cash flow forecasting could save on software license costs, the cost-benefit analysis is low because it is entirely manual and time-consuming. Treasury can benefit from digitalization to stay up with the following trends:

  • Becoming value-added strategic partners to the CFO and other business areas through the use of digitalization as a key driver
  • Focusing on liquidity risk management
  • Increasing the cost-effectiveness and efficiency of Treasury operations
  • Taking the lead on initiatives to boost working capital
Chapter 03

Treasury solutions: A way to get started with digital transformation


Emerging treasury solutions

Here are a few examples of recent technological advancements made feasible by the software-as-a-service approach:

  • TMS in the cloud
    TMS deployments in the cloud and managed services are becoming more popular, allowing treasury departments to centralize their functionality in one off-site location and customize the software to match their individual needs.
  • Open banking and APIs
    Open APIs, in simple terms, allow one piece of software to interface with another, allowing authorized third-party developers to build products and services on top of software applications to access data and execute transactions.
  • Blockchain
    At this time, the usage of blockchain in treasury departments is largelytheoretical. The world’s most popular cryptocurrencies, including bitcoin, are built on distributed ledger technology (DLT), which allows providers to store data without relying on a central clearinghouse.
  • Big data and analytics
    The ability to effectively manage, analyze, and process large datasets can aid treasurers in improving both diagnostic and predictive capacities in a variety of areas, including liquidity planning, cash forecasts, and foreign exchange hedging.
  • Automation and artificial intelligence (AI)
    Artificial Intelligence has been dubbed the “Fourth Industrial Revolution”! While the steam and electric revolutions had a limited impact on the shop floor, the information technology revolution was the first to change the working patterns of treasurers. ERPs, TMSs, and spreadsheets made information more accessible, collaboration is easier, and efficiencies – higher. As a result, improved cash-flow forecasting was achieved, which was a major factor in attaining precise working capital management and meeting treasury goals.

As a result, businesses of all sizes now have greater access to the innovative technology at a fraction of the cost and with minimal risk to existing systems.

Steps before implementing corporate treasury software

A new treasury system, or a significant upgrade to existing ones, will almost certainly necessitate a lot of processes and may take a long time to complete. This means that a well-defined roadmap is essential for tracking progress and ensuring the successful implementation of treasury technology.

Real-world scenarios of adopting AI cash flow forecasting

Cash flow forecasting, which remains a major difficulty for treasurers, is one of the most compelling use cases for RPA and AI. According to PwC’s Global Treasury Benchmarking Survey, 75% of treasurers still fail to provide a reliable cash-flow forecast at any given time, much alone in real-time.

Autonomous treasury is now employing rules-based logic to gather, analyze, and visualize enormous volumes of data extracted from many internal and external sources, as well as layer on diverse aspects to build a cash flow prediction. Payment run timing, recorded customer payment behavior, historical trends, and patterns/seasonality, work in progress, rebate schedules, and factoring criteria are all examples of these elements. Users can also utilize these platforms to simulate a variety of different future cash-flow scenarios and examine how changing important variables (such as historical payment behavior) affects future cash flow.

 

Chapter 04

Benefits of treasury digital transformation


A major digital transformation was already underway before the pandemic caused far-reaching changes in the way business is conducted. This digital disruption has impacted nearly every business sector and aspect of business operations.

Enhanced efficiency

Treasurers can significantly improve the timeliness, consistency, and completeness of cash-flow forecasting information by using application program interfaces (APIs) to access both bank and internal systems, especially when combined with robotic process automation (RPA) and artificial intelligence (AI). According to a Euromoney survey, 57% of corporate treasurers expect to use APIs to help their cash forecasting and cash concentration operations across various banking partners. Here are some outcomes of increasing efficiency:

  • Reduced errors
  • Revved processes
  • Consume less time
  • Increased productivity
  • Improved safety

Centralized treasury

Real-time aggregate snapshots and precise forecasts of global cash flow and risk positions, organizations may better define and monitor centralized policies, execute decisions, and make better-informed judgments by consolidating treasury solutions. By streamlining in-country cash management and decreasing costly bank charges by consolidating funds among fewer financial institutions, centralization shields multinationals from stalling regional economies.

CENTRALIZED TREASURY
Centralized treasury

Granular visibility

Through technology, treasurers can gain continuous and granular cash visibility. They are no longer required to estimate their cash positions based on incomplete or out-of-date information. Treasurers benefit from accurate and automated data because it provides a clear picture of the company’s cash position. Timely data access and granular visibility are the outcome of centralized/bottom-up cash forecasting and automated data collecting.

Improved understanding in companies growth

A stage of business growth occurs when a company has reached the point where it needs to expand and is looking for new ways to increase profits. The business lifecycle, industry growth trends, and the desire to create equity value are all factors that influence business growth. Here are the following areas of companies growth:

  • In hedging interest rate risk
    When a derivative instrument is used to reduce interest rate risk, it is called a hedge. A derivative is a financial instrument whose value is derived from the value of other assets. Stocks, bonds, interest rates, and currencies are examples of these assets.
  • Foreign exchange risk
    Foreign exchange risk refers to the potential losses from currency fluctuations in an international financial transaction. Foreign exchange risk can also affect international traders and companies that import or export goods or services to multiple countries.
  • Working capital management
    Working capital management is a business strategy that ensures a company operates efficiently by monitoring and maximizing the use of its current assets and liabilities.
  • Tangible financial gains
    It is a monetary asset with a physical form that has a finite monetary value. Intangible assets, on the other hand, have a theorized value rather than a transactional exchange value.

Efficient actionable insights

  • Cash forecasting
    The process of estimating the flow of cash into and out of a business over a set period of time is known as cash flow forecasting. A precise cash flow forecast aids businesses in predicting future cash positions, avoiding crippling cash shortages, and maximizing returns on any cash surpluses.
  • Fraud risk management
    Simply put, fraud risk management is the process of evaluating fraud risks within your organization and then developing an anti-fraud program to prevent fraudulent activity from occurring.

Accurate variance analysis

Variance analysis is a quantitative method for keeping track of your company’s finances. The best practice is to plot variances on a trend line so that any significant shifts can be quickly identified. Variance analysis has a number of advantages for businesses, including:

  • Planning
    Assists managers in making more informed and precise budget decisions.
  • Control
    Assists in departmental and budgetary control in a more significant way.
  • Responsibilities
    Assists in the assignment of trust within a company.
  • Monitoring
    Aids in the tracking of success and failure.
  • Sets Expectations
    Promotes foresight and aids in the establishment of benchmarks.
Chapter 05

Summary


How does HighRadius cash flow forecasting software help?

Maintaining a corporate treasury software that includes a digitized financial automation system is critical for creating accurate cash predictions and progressing along your digital transformation path. The treasury department benefits from ‘HighRadius’ cash forecasting automation software in the following ways:

  1. Increased forecast accuracy
    Because data is acquired directly from data sources, the scope of human errors is decreased. Customer-specific information and external components such as raw material price changes are collected to increase the accuracy of the sales forecast. Additionally, the AI-based software allows for a closed feedback loop model that examines past and present results and adjusts projections to enhance cash forecast accuracy by up to 95%.
  2. Improved variance analysis
    The drill-down and dashboard capabilities give you a more detailed look at your financial flows. The disparities between projections and actuals for various currencies, cash flow categories, locations, and time periods can then be examined by treasurers. Furthermore, by identifying the variance drivers, proper variance analysis aids in improving the accuracy of cash projections.
  3. Accurate scenario analysis
    By adjusting cash forecasting, treasurers may examine numerous scenarios and understand their impact on the business’ cash flows. This makes it easier to put decisions into action in a proactive manner. Furthermore, the system allows for frequent cash flow forecasts in order to make fast decisions.
  4. Data-driven decision-making Treasurers can use automated reporting and continuous data access to make data-driven decisions for managing capital, risks and improving corporate treasury management.
Chapter 01

Treasury digital transformation: All that you need to know


What is digital transformation in treasury?

Digital transformation is the integration of digital solutions into the very core of a business, significantly changing how it operates by creating:

  • New business processes
  • Customer experiences
  • Organizational culture

It is not only improving traditional methods but also reinventing them for the digital age to meet changing market expectations. As technologies such as artificial intelligence, machine learning, and automation become more prevalent, businesses are focusing to reimagine and reinvent themselves faster than ever before.

Treasury digital transformation is more than just a shift in a company’s technological or operational solutions. It is also a significant cultural shift that necessitates the transformation of the entire organization. By the end of a successful digital transformation implementation, all areas of an organization are influenced – from how the organization operates internally to digital customer experiences to the value clients receive from the company’s services.

According to the PwC US Pulse Survey – CFO, August 19, 2021, 68% of CFOs plan to invest in digital transformation over the next year, using technologies such as cloud and analytics. Treasury must remain competitive and meet shifting market demands in the digital age by ensuring that the right people are involved in the implementation of emerging treasury technologies.

Factors driving today’s treasury transformation

To meet the demands of a varied and complex business environment, corporate treasury’s job has evolved from basic cash forecasting, payment processing, hedging, and financial risk management to a strategic view of the entire organization and its long-term needs. There are many drivers that affect the digital transformation of an organization:

  • Organic growth of the organization leads to new requirements.
  • Artificial Intelligence is taking center stage. Companies aim to be innovative and best-in-class
  • External factors- In recent years, treasury transformation has been fueled by a shifting regulatory environment and growing financial market volatility. Corporate treasurers require a better understanding of enterprise risks as well as faster access to information.
  • Covid-19 impact- The COVID-19 crisis has resulted in years of change in the way businesses in all sectors and regions conduct business. It has highlighted the connection between strategic input and treasury setup. Companies have significantly accelerated the digitization of their internal and external operations. Treasuries with advanced systems and data capacity are better positioned to add value to the rest of their organization. Most executives, when asked about the crisis’s impact on a variety of measures, believe that funding for digital initiatives has increased more than:
    • increases in costs
    • number of people in technology roles
    • number of customers

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The HighRadius™ Treasury Management Applications consist of AI-powered Cash Forecasting Cloud and Cash Management Cloud designed to support treasury teams from companies of all sizes and industries. Delivered as SaaS, our solutions seamlessly integrate with multiple systems including ERPs, TMS, accounting systems, and banks using sFTP or API. They help treasuries around the world achieve end-to-end automation in their forecasting and cash management processes to deliver accurate and insightful results with lesser manual effort.