Besides the desire to have a solution that meets current and future functional requirements, technology is playing an increasingly important role in decision making. In particular, the evaluation to either adopt an enterprise resource planning (ERP)-integrated or a cloud-based solution has become a key focus. Based on work it has conducted with hundreds of clients, Hanse Orga aims to provide guidance for decision-making in this process.
First of all, every company is organized differently and faces different challenges - meaning what is good for one company may not be right for another. Many factors influence decision-making, including coverage of current and future functional needs, availability of in-house expertise and the IT landscape and strategy. In order to determine what is most suitable for a specific treasury organization, a thorough understanding of the existing processes and the desired future state of the treasury organization is needed based on industry best practices.
Finding one’s way through the jungle of available treasury technologies can be daunting when beginning the search. To narrow the choice down, there are three main approaches for treasury solutions that treasurers should consider in their search for the right system:
In addition to the options shown above, there is also the possibility of developing in-house solutions. However this alternative has come to play only a minimal role, as its drawbacks outweigh the positive aspects. The custom development initiatives typically require continuous IT involvement to keep the system running and up-to-date, and maintenance is a critical element due to the typical lack of documentation and dependency on particular key resources.
The scope of treasury functions varies largely between the different treasury systems. Again, having a clear understanding of the requirements is of great importance. Is a high-end treasury system really required for the simpler treasury transactions, and what are the options to scale up in functionality and volume if needs change in the future? Each system has its advantages and disadvantages that need to be taken account of when evaluating the different possibilities.
ERP systems usually cover much of the financial supply chain - from managing the underlying business operations to hedging the treasury and risk impact of these transactions. It is the base system for companies where all relevant data is stored and connected with each other. As no interfaces are required, data security and auditability are very high. In many cases, treasury features are already included in the acquired licenses, although unlocking some of the functions is not always that obvious. Despite the evolution of many ERP systems in the treasury space, the functional coverage may not be sufficient for some organizations.
External Treasury Management Systems
Treasury systems that are deployed outside the ERP environment appear in many different forms. The most common deployment method over the past few years has been the cloud-based setup. This model is likely to gain further market share compared to the on-the-premise installations. The external TMS is farthest away from the ERP system, requiring an interface to connect with key data from the ERP system for treasury operations. However, it also provides highly specialized technology for treasurers allowing for flexibility in terms of features and access as such systems often come as a web-based or hosted solution. Data security might be an issue, but can be overcome with a stringent authorization and approval concept.
ERP-Integrated Treasury Management Systems
Treasury solutions that are integrated in an ERP can offer the best of both worlds. On the one hand, they provide specialized and configurable treasury management functions and, on the other hand, they seamlessly align with the ERP system; avoiding risk-prone interfaces and standardizing master data and user experience. Due to the specific focus on treasury operations, such systems are usually leaner and consequently faster to implement while being fully embedded in the central ERP system.
To evaluate which system bears the greatest advantages for a company, it is vital to first understand exactly what is needed. There are a number of issues that have an effect on what the right choice would be for a company. The different factors and considerations that have an influence on what is needed for the treasury operations of a company should be thoroughly evaluated before making a strategic investment in any treasury system. These include:
Company objectives and structures:
The role of the treasurer often varies from one company to the next. Their responsibilities can range from the mere administration of financial instruments to a broader approach including cash management, liquidity management, reporting, risk management, credit management and collections.
Type of financial instruments:
Depending on the business operations, the financial instruments may vary significantly. For example, commodities are items that have a great relevance for industries such as the manufacturing of cars or the coffee industry. Thus, functionalities for managing the risks of volatile commodity prices would be vital for these companies, while they are of less importance for the service sector.
The greater the company, the greater the risks it may face and the more hedging possibilities are likely to be required.
Local branches and different currencies have an effect on what treasurers need to keep under control.
Compliance with regulations:
Increasing regulatory requirements following the financial crises of recent years contribute to a higher demand for software to keep the regulations in check.
In addition to the above criteria, the selection of the system depends a lot on the scope that a company wants to cover with the treasury technology. Does the focus lie on the administration of financial instruments or should the treasury system also deliver comprehensive features for cash management, liquidity planning as well as automated accounts receivable and payable processes and efficient risk management?
What may the requirements be in the mid- or long-term? Will the company change or expand?
In many cases, the individual corporate structures and processes are highly complex and require carefully thought-out strategies for efficient treasury management. It is highly recommended that companies look for the support of experienced experts to help in the analysis and to determine a best-in-class future treasury state. Once this future state has been defined, it is important to create a clear roadmap which all stakeholders buy into. Managing the organizations, processes and systems towards this future state should be carefully defined, with clear milestones that give constant benefits during the deployment process.
When looking for experts to guide through this process, we advise involving a party that has a holistic view and can analyze and assess all dimensions within the company.
Where the treasury role is to provide visibility and control on treasury activities and manage risk of the company, the same view should be taken when searching for a new treasury solution. There are different types of deployment options, each one with their particular benefits and drawbacks. There is no default answer to which option best fits your organization. Experienced treasury experts with a holistic approach and a sound understanding of how to migrate the organization to best-practice treasury processes can help you to get there, which is a cost-effective way with limited risk.