TMS buyers' guide: How the pandemic is accelerating treasury transformation

Aaran Fronda

7 October 2020

Technological innovation is helping businesses streamline existing processes and free their workers from the drudgery of many manual tasks. But despite there being lots of solutions in the market offering an abundance of functionality, treasury departments have been slow to adopt new technologies, with spreedsheets still remaining a standard tool for many treasurers.

The reason so many treasury departments have failed to adapt and embrace digital transformation is due to a litany of factors, with the main one simply being simplicity. Multiple spreadsheets containing large volumes of data and complex formulas are arguably antiquated. But for many companies the old adage of “if it ain’t broke, don’t fix it” still rings true. Spreadsheet software can be easy to use and extremely cost effective.

However, since the coronavirus outbreak took hold of our global economy companies have had to take drastic action, with many looking to strengthen their balance sheets and lower costs via a myriad of means whether that be raising additional capital, reducing their headcount or investing in technology to automate existing processes and improve overall efficiency.

Such actions are common in economic downturns. But the pandemic has not only plunged the global economy into recession, it has also fundamentally altered the way companies and their employees work. As such, treasurers have suddenly been forced to swap physical operations in exchange for virtual ones, prompting companies to accelerate their adoption of treasury technologies in order to adapt to this new normal.

The exceptionally challenging trading environment has also put treasurers front and centre, helping an often-underappreciated department receive additional funds to invest in the right tools to help them access and analyse company data to more adequately manage their organisations finances.

As companies adjust to remote working and unprecedented drops in revenue, cash management becomes the chief concern for business continuity, explains CEO of Salmon Software, John Byrne.

"Remote working and remote processes are here to stay and I think they’re going to be a part of our selling process from now on," he says. "Clients or potential clients will say to us ‘have you got the ability to do this remotely in the event of another coronavirus-type scenario?'"

According to Byrne, effective cash management is reliant on strong treasury management systems with a focus on data integration and automation of services.

“There’s no doubt that the acceptance of hosted solutions and treasury in the cloud, has increased significantly in recent years, but the pandemic has positioned remote working and automated processes as the saviour,” he adds. “If historically [firms] were putting stuff on the backburner or delaying projects that would give them access to data quicker, that’s now accelerated.”

Flexibility is paramount
But with so much political and economic uncertainty, treasurers are certainly eager to access new technologies to help them carry out their day-to-day activities more easily, but they are also too bogged down with putting out fires for a complete overhaul of their treasury management systems.

Therefore, the overall sophistication and functionality is less important amid the current backdrop, with treasurers looking for systems that are quick and easy to implement, as well as offering a high degree of flexibility.

Now more than ever, treasurers need software vendors that are flexible and can pivot quickly to ensure that their solutions are capable of adapting and adjusting to changes in the economic landscape, according to Naresh Aggarwal, associate director - policy & technical at the Association of Corporate Treasurers (ACT).

"Its less about the products vendors offer and more about how they can respond to the ever-changing ecosystem that treasurers operate in," says Aggarwal.

Speaking of ever-changing ecosystems, the  pandemic is just the latest - albeit one of the most exceptional - challenges that treasurers must contend with. But arguably their most common threat is the regulatory landscape, which continues to shapeshift each year.

The European Market Infrastructure Regulation (Emir) came into effect back in 2012 and with it brought more stringent reporting requirements for derivative contracts and risk management standards for treasurers to implement. In the years that followed Emir has been tweaked several times, with the most recent review of the regulation, known as Emir Refit, published in May last year. Then there was the introduction of the new accounting standard IFRS 16 from 1 January 2019 which significantly altered how businesses govern the treatment of leases. And the latest headache for treasurers is the London Interbank Offered Rate (Libor) reform, which is set to take effect at the end of 2021. 

Choosing the right TMS
Demand for treasury management systems is at an all-time high as businesses attempt to navigate a plethora of macroeconomic headwinds. But there are many different options out there for treasurers to choose from, all with varying degrees of complexity and functionality which can make it difficult to know which one to choose. The easiest way to simplify the decision-making process, according Karlien Porre, treasury advisory lead at Deloitte, is for businesses to identify the maturity level of their treasury and risk management function.

As such, for businesses on the smaller end of the scale and where their treasury function plays a more modest role, running Microsoft Excel alongside an open-source database management system like MySQL, developed by Oracle, is likely to be more than adequate to meet the demands of a business of that size and scale. Companies looking for a simpler and cost-effective treasury management system should also consider more “out the box solutions” which often offer a decent degree of functionality but without much in the way of customisation.

At the other end of that spectrum, large corporates that operate within the commodity trading space and, therefore, require a far higher degree of sophistication from their treasury and risk management function will likely see them employ a hybrid setup, according to Porre. This potentially sees corporates with in-house systems developed overtime supported by third-party software vendors that offer additional functionality to allow them to identify their net exposure and hedge risk more effectively.

"ERP systems can fall into this category and typically provide broad functionality for managing debt, investments and risk management. Because they are much more customisable, these systems are usually not deployed in as SaaS [Software as a Service] option," according to recent Treasury Management Systems overview by EY. "They are ideal for corporates who are looking for a complex offer that integrates well with ERP initiatives or are looking for best-in-breed systems."

"These systems are geared towards large Fortune 100 corporates and financial institutions with very complex treasury operations. They offer similar functionality and scalability to mid-market systems but allow for more customisation, are more risk-focused, can handle commodities and are built to handle higher transaction volumes."

Treasury rises to prominence amid pandemic
For businesses that have already embraced technology to support treasury and risk management functions, their return on their investment is being reaped amid the unprecedented levels of volatility across global equities, FX and commodities, with treasurers and risk managers better equip than ever to handle the challenges being thrown at them.

However, for those that have that are lagging behind in the digital transformation journey, the coronavirus pandemic has acted as a catalyst for investment in these technologies to better navigate the challenges that exist today and that will inevitably lay ahead as the political and economic landscape becomes increasingly complex and uncertain.

“As the novel coronavirus has spread across the globe, so has the need for a new way to work,” says Anis Rahal, CEO and founder of TreasuryXpress. “Virtually overnight, treasury teams have been thrust into a new reality of working remotely whether they were ready for it or not.”

“Further, businesses across industries are feeling the distress of slashed revenues and financial volatility,” she adds. “As such, cash forecasts are changing as quickly as the virus is spreading and access to liquidity is becoming paramount.”

So, while the global pandemic has certainly accelerated the adopting of treasury management systems for businesses large and small as a means of mitigating the economic impact of the virus, it will finally foster an interest among treasurers and the companies they work for to truly embrace their digitisation and automation journeys.

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