Top features to look for in in-house bank software
This article is written by Nomentia Executive summary: For global businesses looking to harmonize their cash management and gain control and visibility over their payment operations, an in-house bank is an obvious choice. In this article, we answer the following questions: What are the core functionalities of in-house bank software, and how does in-house bank software centralize the control of cash management? We also cover the benefits and the most important features of an in-house bank solution and how it can help manage intercompany transactions and loans. Read on to learn more about the top features to look for in in-house bank software. In-house bank: Centralized cash management, cost efficiency, visibility, and control? As things stand, many globally operating companies are burdened by cash management and treasury operations, where each of their subsidiaries or business units manages its own banking relationships and cash management independently. The reasons for this are common, as are the results: Questions like what our consolidated cash position is, what our true foreign exchange exposures are, and even what our overall liquidity risk is are difficult, if not outright impossible, to answer. As treasurer or a cash manager, you know the risks involved. In the long run, the situation is unsustainable. Something must be done and done right. As luck would have it, I chanced a word with Nomentia’s top expert about the top features of an in-house bank: Jouni Kirjola Jouni Kirjola is the Head of Solutions and Presales at Nomentia, bringing nearly 20 years of expertise to the role. Specializing in payments, cash forecasting, in-house banking, and reconciliation, Jouni has extensive experience and deep knowledge of financial solutions, making him a key leader in delivering tailored solutions that meet clients’ needs. What is an in-house bank? An in-house bank is a centralized financial entity within a corporation that acts as an internal banking unit. It is typically established by large multinational corporations to manage and optimize the company’s financial resources more efficiently. Key features of an in-house bank In-house bank software: Can you do without one? In action, an in-house bank could operate as follows: A multinational corporation with subsidiaries in various countries might use an in-house bank to centralize all financial transactions. For instance, if a European subsidiary needs funding, the in-house bank may lend money from the cash reserves of an Asian subsidiary, avoiding the need for external loans. This set up can bring several benefits, like: But there are also challenges like: It’s up to each organization to discern if the benefits of an in-house bank outweigh the challenges. Let’s compare: Feature / Capability In-house bank software Disparate cash management and banking systems Global operations support A centralized platform simplifies global operations with a unified structure for managing payments, intercompany transactions, and cash positions. Fragmented processes across regions lead to inconsistent practices, manual interventions, and higher complexity. Cash visibility Comprehensive, real-time view of cash positions across all entities with drill-down capability to specific subsidiaries, accounts, or currencies. Limited, often delayed cash visibility; data needs to be manually consolidated from various sources. Liquidity management Consolidates financial data across ERP, banks, and TMS for full liquidity insights and optimized cash pooling and cash concentration. Decentralized cash management: It is challenging to allocate and pool funds across subsidiaries, often increasing borrowing costs. Payment processing Centralized and automated payment hub; reduces errors, delays, and manual processing with templates and workflows for consistency. Multiple manual payment systems; increased risk of errors, inconsistencies, and delays in payment processing. Intercompany financing & settlement Automated intercompany loan management and netting reduce the need for external borrowing and simplify internal settlements. Complex, time-consuming intercompany settlements require extensive reconciliation, often incurring extra costs. Cash flow forecasting Automated, accurate forecasts incorporating historical trends, seasonality, and real-time data, allowing precise planning and analysis. Limited forecasting capabilities; manual data consolidation reduces accuracy and delays in forecasting. Currency management Multi-currency support with automated FX handling for global cash positions, reducing currency risk. Inefficient currency management often requires external hedging, adding cost and exposure to FX risks. Fraud prevention & compliance Role-based security, fraud detection, approval workflows, and sanctions screening ensure secure transactions and regulatory compliance. Inconsistent security protocols: higher risk of fraud and compliance issues due to lack of standardized control measures. Scalability Easily scales to support additional subsidiaries, transactions, and currencies as the organization grows. Difficult to scale; disparate systems need reconfiguration or replacements to handle increased transaction volume or new entities. Reporting & analytics Centralized, customizable dashboards with real-time reporting for monitoring, insights, and strategic alignment across the organization. Limited reporting: data consolidation is time-intensive, making it challenging to generate actionable insights. Operational efficiency Streamlined operations with automated workflows, reducing dependency on manual work, cutting operational costs, and improving speed. Higher operational costs due to redundancy, manual interventions, and inefficiencies across regions. Cost of implementation The initial investment may be higher, but it reduces long-term costs through increased efficiency, fewer errors, and centralized operations. Lower upfront costs but ongoing high costs due to inefficiencies, lack of centralization, and potential need for external services. Core features of in-house bank software: What to look for? Best Nomentia tools to set up an in-house bank Cash visibility, cash flow data consolidation and harmonization According to Jouni, companies should be asking: “What is our current cash position globally and by subsidiary? Or by currency? Are we accurately reconciling and clearing accounts on a daily basis?” Centralized cash visibility allows companies to manage liquidity, monitor bank relationships, and analyze cash movements on a global scale. By consolidating data into one view, the treasury can quickly assess cash positions and make informed decisions about liquidity allocation, funding needs, and investment opportunities. Payment hub for payment process standardization “What is the most efficient way to track and control our cash outflows? How do we ensure consistent and compliant payment processes across subsidiaries?” A centralized payment hub standardizes payment processes across subsidiaries, reducing manual intervention and enabling more effective cash and working capital management. Collection hub for collection-on-behalf-of (COBO) processes “How can we decrease banking fees and dependency on multiple bank accounts?” “Can we centralize payment processes to reduce…
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How to Tackle Troublesome Tariffs with 5 Savvy Working Capital Solutions
This article is a contribution from our content partner, Kyriba Widespread uncertainties surround the economic impacts of the second Trump administration, especially in regards to the potential for significant tariffs on the U.S.’s top three trading partners–Mexico, Canada, and China–as well as Europe. In response to Trump’s threat of 25% tariffs on goods, both Canada and Mexico have suggested imposing retaliatory tariffs on U.S. imports. One Canadian leader even floated the provocative idea of halting electricity exports to the U.S., while Mexican President Claudia Sheinbaum vows to coordinate, collaborate, but “never become subordinated” as Mexico prepares to negotiate tariffs affecting the 80% of its exports destined for the U.S. market. Canadian Prime Minster Justin Trudeau’s resignation announcement earlier this year introduces an additional layer of complexity to Canada’s handling of Trump’s tariff threats. In the face of ongoing volatility, financial leaders need effective strategies to safeguard their organizations’ fiscal health, and optimizing working capital is a key approach to counteracting the adverse effects of tariffs. By strategically managing assets and liabilities, finance experts can minimize tariff impacts, reduce costs, and maintain liquidity performance. Equipped with the five savvy working capital solutions outlined below, financial teams are well-positioned to navigate the complexities of tariff-induced challenges with confidence. Tariff Turbulence Will Cause Supply Chain Strain Trump’s proposed tariffs could have far-reaching effects, likely increasing the cost of goods. Businesses are expected to pass these higher costs to consumers, impacting inflation, supply chain dynamics, and market demand. Below are some top consumer goods that could become more expensive in the U.S. and globally if these tariffs are implemented. Automobiles A 25% tariff on all goods crossing the border under the United States-Mexico-Canada Agreement (USMCA) would have significant repercussions for the auto industry, which is deeply integrated across the three countries. Vehicles produced under the USMCA typically cross borders an average of eight times during production, compounding the impact of tariffs at each stage and leading to increased production costs, disrupted supply chains, and higher consumer prices. In 2023 alone, the U.S. imported $44.76 billion worth of vehicles from Mexico, making it the top import. Additionally, Europe is not immune from Trump tariff troubles, as the U.S. imported $42.5 billion worth of European passenger cars in 2023. Consequently, new tariffs could lead to production cuts and mass layoffs in several countries.Adding to the complexity, numerous automakers such as General Motors, Ford, and Stellantis have relocated production to Mexico to bypass previous tariffs on Chinese goods, turning it into a significant hub for car manufacturing. Notably, electric vehicles assembled in Mexico using Chinese and Canadian components could cost more. This reliance on non-U.S. parts, which are cheaper than U.S.-made alternatives, means that the proposed tariffs could dramatically alter the cost dynamics for American automakers. Gas The proposed 25% tariff on Canadian crude oil imports could have severe economic consequences for both the U.S. and Canada. U.S. imports of Canadian crude oil reached a record 4.3 million barrels per day in July 2024, a vital supply for American refineries specifically configured to process this type of crude for gas and heating oil. The proposed tariff could increase U.S. gas prices up to $1 per gallon. For Canada, crude oil exports constitute nearly its entire trade surplus with the U.S., and rerouting this oil is not feasible due to the immovable nature of recently expanded pipelines. Both countries face limited flexibility, as Canada has few alternative export options and U.S. refineries have restricted sourcing alternatives. Produce Due to climate change affecting U.S. growing conditions, the country increasingly depends on Mexico for produce. The United States is Mexico’s largest agricultural trading partner, importing $44.87 billion in agricultural products in 2023. For example, 91% of avocados consumed in the U.S. are sourced from Mexico. But the consequences of agricultural tariffs have much broader implications than the price of avocado toast: when the U.S. imposes tariffs on other countries, retaliatory measures typically target American agricultural products, which would drive up costs for domestic products as well as imports. Alcohol A 25% tariff on all goods crossing the border under the United States-Mexico-Canada Agreement (USMCA) would have significant repercussions for the auto industry, which is deeply integrated across the three countries. Vehicles produced under the USMCA typically cross borders an average of eight times during production, compounding the impact of tariffs at each stage and leading to increased production costs, disrupted supply chains, and higher consumer prices. In 2023 alone, the U.S. imported $44.76 billion worth of vehicles from Mexico, making it the top import. Additionally, Europe is not immune from Trump’s tariff troubles, as the U.S. imported $42.5 billion worth of European passenger cars in 2023. Consequently, new tariffs could lead to production cuts and mass layoffs in several countries.Adding to the complexity, numerous automakers such as General Motors, Ford, and Stellantis have relocated production to Mexico to bypass previous tariffs on Chinese goods, turning it into a significant hub for car manufacturing. Notably, electric vehicles assembled in Mexico using Chinese and Canadian components could cost more. This reliance on non-U.S. parts, which are cheaper than U.S.-made alternatives, means that the proposed tariffs could dramatically alter the cost dynamics for American automakers. 5 Savvy Working Capital Solutions In response to potential tariff impacts, implementing working capital solutions and reducing associated costs are crucial strategies. Tariffs can affect the cost of capital, but working capital solutions like supply chain finance, dynamic discounting, and receivables finance can help mitigate these effects. These approaches enable financial leaders to enhance cash flow, strengthen supplier relationships, and maintain sustainable growth amid economic uncertainties. 1. Supply Chain Finance (SCF) offers suppliers early payments at favorable rates based on their buyer’s credit rating. By using a third-party funder and providing payment options, supply chain finance facilitates a stable vendor base at a lower cost of capital compared to traditional methods. Supply chain finance is particularly beneficial for industries such as manufacturing, automobiles, and retail, which often have extensive and complex supply chains across multiple markets. By insulating buyers from market volatility, supply chain finance reduces financial risks and provides the flexibility needed to adapt to changing tariff landscapes. Supply chain finance supports supply chain stability by providing suppliers with access to funding and minimizing the potential of disruptions caused by tariff-induced financial strain. How Supply Chain Finance Accelerates Growth for…
Treasury Contrarian View: Treasury Dashboards — Are We Tracking the Wrong Metrics?
Dashboards have become a staple in corporate treasury—colorful visuals, real-time updates, and dozens of KPIs all packed into a single screen. But here’s the question: Are treasury dashboards helping us make better decisions, or are they just digital wallpaper? Are we tracking the right things, or are we so focused on reporting that we’re missing the big picture? The Case for Dashboard Overload Dashboards are often backward-looking, summarizing what’s already happened instead of predicting or prescribing what should happen next. The Case for Strategic Dashboards They can help track progress against internal benchmarks or market standards, driving performance and accountability. Rethinking Treasury Dashboards Rather than packing dashboards with every possible metric, treasurers should ask: Let’s Discuss We’ll be sharing examples and expert opinions from board members and treasury tech partners—join the conversation and let us know what metrics matter most to you. COMMENTS Sebastian Muller-Bosse, Treasury Masterminds board member, comments: Everyone knows what a furniture maker or a potter creates, but what about a treasurer? What does a treasurer work with, and what is their masterpiece at the end of the day? For me, it’s the report that transforms financial data into actionable information, ultimately leading to wisdom for financial decision-making. Too often, when creating reports, the question is “What do we want to report?” or “Which information should we show?” However, it’s more effective to start with “Why?” If I understand the purpose of the report, I can build it more efficiently instead of just displaying the requested information. Often, these details are presented in plain tables because they’re just numbers. The second crucial question that brings clarity is “How do I present the data so that the information reaches the recipient quickly and efficiently?” This requires exploring various visualization options. Is a bar chart or a pie chart better? Could it be a waterfall diagram or even a treemap? Have you ever heard of Sankey diagrams? Can colors and sizes be used effectively? Which tool should I use to present it—Excel, PDF, PowerPoint, Tableau, or Power BI? Does my recipient have specific preferences? Answering these questions will help you build a good dashboard that presents information in a targeted manner and might even tell a data story. Because if the treasurer’s work at the end of the day is a report, we should all know our tools to craft a masterpiece that is admired. Alexander Ilkun, Treasury Masterminds board member, comments: In my worldview, dashboards are an instrument that is integral to an effective and efficient Treasury team – on both operational as well as strategic level. Why does a visualization tool beat analyzing raw data in Excel? People are quite bad at consuming information in tables – carefully crafted visuals help tremendously in understanding what the data tells us. Instead of your team member taking an Excel spreadsheet on a regular basis and putting it into a pivot table or chart to glimpse insights it saves a quite a bit of time and effort when the information can be accessed effortlessly in a visualization. Then there is also an argument of missing the datapoints. It will be hard to find a person who was looking at the pivot trying to make sense of the data only to realize that some of the datapoints got filtered out or were not displayed. Further, once the data is visualized, it spurs thinking about how to get inputs automatically – in my experience, a vast portion of input retrieval can be automated and data can be transformed consistently and systematically before it is visualized in exact same way as it has always been. The final argument I will make is in the realm of business continuity – it is much easier to train someone new how to read a properly developed dashboard (with built-in tooltips and manual, if needed) than to transition an Excel model, where you have to worry about the skill level of the individual taking over the data model as well as its integrity going forward (since, lets admit) even experts can accidentally break a model). Dashboards can also serve as an excellent communication tool. By displaying information to Treasury team members and other stakeholders, it is possible to allow them to self-serve in order to find answers to many questions without relying on someone reading the email, manually checking the data, and then responding. These are just a few questions that come to mind that could be effectively answered 24/7 by dashboards that are tailored for that specific purpose. As you can sense from the direction, I’m a big proponent of having various reports tailored for a specific need, which means there are various functional reports, from which select information may be combined into a smaller number of strategic dashboards or even a single one (although avoid overcrowding your visualization). It will raise an inevitable question – how much time is spent gathering data for these? Is it really worth it? The answer is that in the current technological era, a lot (if not all) data retrieval can be automated by API, RPA, or another kind of interface. When you take out the time investment to gather inputs, you are only left with the benefit that report gives you. Therefore, you can afford to run those reports as often as you need, getting close to near real-time information, without incurring additional cost (the costs of many tools are often fixed). What is even more – once you have the inputs and the reports automated, you can start thinking about combining the data from various reports to initiate trigger-based action or automate business workflows, which raises your game to the whole next level. Also Read Join our Treasury Community Treasury Mastermind is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice:…
How Embedded Finance is Changing Bank Reconciliation
This article is written by Embat Embedded finance is revolutionising the way businesses and banks interact with each other, as well as with consumers and users. Advances in new technologies and the support of APIs have completely changed the current financial paradigm, altering many of the business processes we encounter daily. But how exactly is such a fundamental process like bank reconciliation changing? What advantages does this new reality bring? Discover more below. What is embedded finance? The term embedded finance refers to the integration of financial services into platforms or applications that traditionally do not belong to the financial sector. In other words, it is the merging of banking and financial services within non-banking applications, allowing these applications to offer services such as payments, loans and insurance more directly to their users. The idea behind embedded finance is not entirely new. For years, companies have sought ways to simplify the user experience by reducing friction in their payment processes. However, with technological evolution and the emergence of fintech, this integration has become deeper and more diverse. Now, we are not just talking about payments but a complete range of financial services that can be integrated into e-commerce platforms, mobility applications, social networks, and more. Technology has been the catalyst in the rise of embedded finance. Open Banking in general and APIs in particular have allowed non-financial platforms to connect securely with financial service providers. This has democratised access to financial services, enabling companies of all sizes and sectors to offer their customers embedded financial solutions. Advantages of embedded finance for a business The advantages of adopting embedded finance are multiple and can significantly impact a company’s growth and profitability. Below, we explore all these benefits in detail: Advantages for banks Embedded finance is not just an attractive option for businesses. Banks can also benefit from its full potential: APIs & UX Embedded finance could not have reached its peak without the power provided by APIs. Application Programming Interfaces (APIs) are essential within embedded finance, allowing different software to communicate with each other. In the financial context, APIs enable platforms to integrate banking services securely and efficiently. In this regard, UX is also important. A smooth and simple user experience can be the difference between the success and failure of financial service integration. It is essential that transactions are intuitive and that the user feels confident when using these services. Exemplary cases of embedded finance in the world Embedded finance has enabled numerous companies, both within and outside the financial sector, to innovate and offer solutions that were previously unthinkable. These exemplary cases demonstrate the power and potential of integrating financial services into non-traditional platforms: How to implement embedded finance Implementing embedded finance in a company or platform may seem like a complex task, but with proper planning and the right tools, the process can be smooth and effective. Below are the key steps and considerations for successful implementation: Tools for implementing embedded finance A successful implementation of embedded finance requires specialised tools and platforms that facilitate the integration of financial services into non-financial applications and platforms. Some of the most notable tools in this area are: Banking API platforms: Integrated payment solutions Loan-as-a-Service (LaaS) Platforms: At Embat, we have a flexible and customisable automatic reconciliation system. With this solution, you can automate bank reconciliation using criteria tailored to your business’s specific needs. With an agile and intuitive interface and verification and approval processes that ensure traceability and compliance with requirements at all times. Conclusion In conclusion, embedded finance is transforming bank reconciliation and the way businesses and banks interact. With benefits for both businesses and banks, this trend is here to stay and continue revolutionising the financial world. Also Read Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below. Notice: JavaScript is required for this content.
CBDC vs Stable Coin for Treasurers
The rise of Central Bank Digital Currencies (CBDCs) and stablecoins is a hot topic in the world of treasury and payments, particularly with the push toward faster, more efficient international transactions. Here’s a comparison of CBDCs and stablecoins, focusing on control and their potential usefulness for corporate treasurers: 1. CBDCs (Central Bank Digital Currencies) CBDCs are digital versions of a country’s fiat currency, issued and regulated by central banks. They’re essentially a government-backed digital asset, often with the same legal status as physical cash. Key Aspects: Usefulness for Corporate Treasurers: Challenges for Treasurers: 2. Stablecoins Stablecoins are digital currencies designed to maintain a stable value by being pegged to an underlying asset (like a US dollar, gold, or a basket of assets). They’re typically issued by private companies rather than central banks. Key Aspects: Usefulness for Corporate Treasurers: Challenges for Treasurers: Comparison of CBDCs vs Stablecoins for Corporate Treasurers Feature CBDCs Stablecoins Control High (centralized control by govts) Low (private issuers or decentralized) Stability Very high (tied to national currency) High (tied to fiat currency, gold, or basket of assets) Regulation Strong government oversight Varied (some issuers may be subject to regulations, but not by central governments) Use for Cross-Border Payments Potentially faster and cheaper than traditional banking, but may face issues of interoperability Faster, cheaper, and decentralized cross-border payments with fewer intermediaries Liquidity Management Allows treasury to manage cash within a highly stable framework Allows treasury to manage liquidity with some flexibility, especially if there’s a stable backing asset Risk Management Limited risk exposure (depends on gov’t policy) Potentially higher risk exposure (issuer solvency, regulatory risks) Conclusion: For corporate treasurers, both options hold potential, but each comes with its own set of risks and challenges. The key will be closely monitoring the regulatory landscape and adoption trends as these technologies continue to evolve. Also Read Join our Treasury Community Treasury Mastermind is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
Are You Checking Your FX Trade Time-stamps?
This article is a contribution from our content partner, Just The UK Financial Conduct Authority (FCA) has released a statement confirming its recognition of the updated FX Global Code. As part of that statement, the FCA also clarified its view that it is not consistent with the principles in the Code for FX providers to delay a client’s trade request beyond the time needed to complete price and validity checks as part of a “last look policy” in order to see if future price changes would increase FX provider margins. Specifically, the FCA stated, “Market participants should not prolong the duration of the last look window for the purpose of seeing if future prices move in their favour in relation to the client’s trade request.” This kind of practice has occurred in the marketplace and has meant that companies have paid unfair prices for their FX trades. An example of a particularly egregious abuse of this practice was the recent case in the U.S. where Wells Fargo was fined 72.6 million USD for unfair and fraudulent FX practices, which included delaying a client’s trade execution to find a price that better suited its margins. These practices also highlight why it is important to pay attention to timestamps that relate to when a trade is ordered and when it is executed. What is the FX Global Code and what does it say about time-stamps? The FX Global Code was developed as an effort between central banks market participants in 20 jurisdictions around the globe to promote principles of good practices in the wholesale foreign exchange market. The FX Global Code addresses time-stamps, and was written “to apply to all FX Market Participants that engage in the FX Markets, including sell-side and buy-side entities, non-bank liquidity providers, operators of FX E-Trading Platforms, and other entities providing brokerage, execution, and settlement services.” According to Principle 36 in the FX Global Code, “Market Participants should apply sufficiently granular and consistent time-stamping so that they record both when an order is accepted and when it is triggered/executed… Information should be made available to Clients upon request, to provide sufficient transparency regarding their orders and transactions to facilitate informed decisions regarding their market interactions.” You can search whether your FX provider has signed up to the code here. Detailed time-stamps on FX trade confirmation receipts help protect corporate FX customers A key part of controlling corporate FX costs and managing corporate FX is ensuring that trades are executed in a timely manner in alignment with customer agreements and expectations. This is why it is particularly important for corporate FX customers to ensure that their FX provider is including the trade execution time-stamp in the receipts confirming their trades. The trade execution timestamp is information corporate FX customers have a right to view, but some FX providers exclude this information unless specifically requested by the customer. FX providers should also provide the time-stamps with sufficient detail, such as including the seconds (and not just the minute) in the time-stamps they provide, and also making clear the timezone. In a previous Just FX Blog, we have provided further detail for corporate FX customers on how to review trade confirmation receipts. Time-stamps on FX trade confirmation receipts give corporate customers the power to get fair rates and fair margins By checking trade confirmation receipts to review the time-stamps, corporate FX customers can monitor whether trades were completed in a timely manner and whether they received the prices they expected. It also enables customers to check whether they received fair rates through a process known as FX benchmarking, as the time-stamp is critical for such analysis. In a related Just FX Blog, we explain the importance and process of FX Benchmarking. Also Read Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below. Notice: JavaScript is required for this content.
Dynamic Discounting
This article is a contribution from our content partner, PrimeTrade Dynamic discounting is a form of supplier finance – often grouped with supply chain finance, SCF, and reverse factoring. These are arrangements that help suppliers to get cash early when buyers do not want to pay invoices immediately. Dynamic discounting is different though Supply chain finance uses an external financier to bridge the time gap between when the supplier wants the cash (now) and when buyer wants to pay (later). In dynamic discounting, the buyer uses its own money, pays the invoice early and gets a discount. Really? Yes – the buyer first negotiates a payment delay with the supplier (e.g., 90 days) and then, for a discount, pays the supplier more quickly. But why not just pay more quickly from the start? There can be a buyer benefit. Typically the buyer team that places orders with suppliers and negotiates prices (“Procurement”) is not the team that manages the buyer’s cash (“Treasury”) and who can price the benefit of early payments. Splitting the negotiation into two separate conversations can benefit the buyer. “Dynamic discounting” can be dynamic. First, procurement teams require suppliers to accept deferred payment terms (e.g., 90 days delay). Second, in many cases, suppliers who want cash early bid for it from the Buyer’s treasury team. The higher the bid, the more likely the supplier will get the money and the bigger the return earned by the Buyer. Using an auction can maximise the buyer’s return on their money. Is there a catch? We think that dynamic discounting is not helpful for suppliers. There’s no guarantee on the cost and availability of early payments. If suppliers have to bid each time, they might win, or they might lose. This leads to financial stress for suppliers. Suppliers have costs to meet (e.g., payroll) and often no choice on financing. Dynamic discounting can offer the worst of all worlds, leading to uncertainty, risk, and cost for the supplier, which ultimately will be included in the price they charge the buyer. Should dynamic discounting be not dynamic? In most platforms, enabling supplier discounts to be dynamic is straightforward. But we recommend making supplier financing simple and “static.” The benefit generated by squeezing the last bit of margin out of suppliers is typically more than offset by the uncertainty that suppliers can experience. How might static work efficiently? What’s needed is a way to guarantee liquidity at a sensible price whilst still enabling the buyer to book a return. There are three innovations here: Take these three points together, and you can have the best of all worlds. Buyers get to maximise their earnings on all the supplier finance arranged – using their own cash and via funding provided direct to suppliers, all in one program. And suppliers get certainty on the cost and availability of early payments. Dynamic discounting that is a bit less dynamic. Also Read Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below. Notice: JavaScript is required for this content.
Treasury Contrarian View: Will AI Replace Treasury Analysts?
With the rise of artificial intelligence (AI) and automation, corporate treasury is experiencing a technological transformation. AI-driven forecasting, reconciliations, and fraud detection are becoming more advanced. But does this mean that the role of treasury analysts will soon be obsolete? Or is AI simply another tool to enhance efficiency rather than replace human expertise? The Case for AI Taking Over Treasury Analyst Roles The Case for Treasury Analysts Staying Relevant The Future: AI as an Assistant, Not a Replacement Rather than eliminating treasury analyst roles, AI is more likely to redefine them. The future of treasury will involve: Let’s Discuss We’ll be sharing insights from treasury leaders and industry experts—join the conversation and share your perspective! COMMENTS Nena Koronidi, Treasury Masterminds board member, comments: AI will not replace treasury analysts; it will enhance their efficiency. Rather than spending hours in repetitive tasks, young treasury teams have the opportunity to focus on developing their decision-making and analytical skills much earlier in their careers. Instead of spending countless hours on data crunching and spreadsheets, they can focus on risk analysis and risk assessment and collaborating with senior members of the team to interpret the insights, ultimately becoming more valuable assets to the team. The transactional treasury role is long gone; this time, young treasury teams will be the ones driving the change. Bojan Belejkovski, Treasury Masterminds board member, comments: The future isn’t AI vs. Treasury teams—it’s treasury utilizing AI to drive better insights, efficiency, and value creation. Treasury teams that embrace AI as a tool, rather than a threat, will be best positioned for success. While AI enhances forecasting, risk management, and general automation, it lacks the human judgment needed for strategic decision-making, relationship management, and navigating complex regulations specific to an organization. Treasury is more than just data processing; it requires business acumen, adaptability, and financial expertise. James Kelly, Treasury Masterminds board member, comments: If all you do is press buttons, be worried. If you’re curious, open minded and collaborative you’ll always have a role AI opens the door to fixing the gaps in systems that have required a lot of manual intervention. Many of these vary from company to company and so require a degree of problem solving and creativity, but doing so will allow more time for strategy and supporting the business AI only works off historic data and so will not be able to accurately predict in the event of a major shock which would require human judgement Equally an AI-only treasury future is also a more unstable future – imagine if all were trained to fully draw loan facilities in the event of market disruption, we’d see more bank runs. AI also makes errors and so again imagine if a major trade was entered incorrectly- it may result in a loss for that company but may also trigger disruption in the market. A skilled analyst knows not to trade $200m via a trading portal asking 10 banks – AI may not AI isn’t homogenous. There will be well trained effective AI and bad AI. At this stage we don’t yet know if good AI will eventually be able to replace analysts entirely – at present it can’t as the error/hallucination rate is way too high and we don’t know if all the data silo challenges can be resolved (which will probably vary by company), and that’s before thinking about the people side of things. Because people don’t make decisions solely based on data – data informs decisions but people make decisions based on emotion and connections. Also Read Join our Treasury Community Treasury Mastermind is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
FX: Is Hedging Expensive?
This article is a contribution from one of our content partners, Bound The myth of hedging costs Maybe the title of this section gives away my conclusion, but here we go. Foreign exchange volatility can mess up any company’s financials. Companies not wanting to be held hostage by FX should consider hedging—i.e., taking the volatility from FX out of their finances. What I keep hearing though is that hedging is expensive. So let’s attempt to drill down into the costs of hedging versus executing foreign exchange transactions via spot conversions. It’s important to note that the specific components of hedging costs can vary based on the type of financial instruments being used, the markets involved, and the strategies employed. The below focuses on standard hedges via forwards and other vanilla instruments. Transaction Costs These are the direct costs incurred when executing a hedge, such as provider fees, commissions, and any other fees associated with trading financial instruments. In our experience, hedging instruments are a few basis points (1 basis point = 0.01%) more expensive than spot, but in most cases well below 1% (unless you hedge with your bank and have not negotiated, or there are implications for margin postings). Bid-Ask Spread The bid-ask spread is the difference between the buying (bid) and selling (ask) prices of a financial instrument. In the Interbank Market for major currency pairs, these tend to be marginal for forwards—think single-digit basis points or even fractions of a basis point. Spot transactions also have bid-ask spreads, so this doesn’t usually make hedging much more expensive than spot. Margin If a hedge involves trading on margin, there may be interest costs associated with borrowing funds to support the margin position. Margin tends to be more of a cash flow issue rather than an actual cost for most companies. Slippage Slippage occurs when the execution price of a trade differs from the expected price. This can happen in fast-moving markets or due to low liquidity. Slippage costs can contribute to overall hedging expenses, but this is usually for very large transactions or if transacting in very illiquid currencies. Most company’s hedging transactions will fall well below the threshold where slippage applies if transacting in major currencies. Time Time can be a major factor to impact your hedging costs. It depends on the solutions implemented and how they are dealt with, though, and luckily there are providers out there that are very easy to implement and offer flexibility to adjust hedges. Here is how I think about the time commitment buckets for hedges: Exposure and Hedge Modeling Costs If complex financial models or derivatives are used for hedging, there may be costs associated with developing and implementing these models. This can be mitigated by simplified exposure calculations and easy-to-implement and monitor hedges such as forward contracts. Once a company knows the exposure and has a hedging strategy, with solutions such as Bound, time commitment is similar to the execution of a spot. Maintenance Costs The ongoing monitoring and management of a hedge position may involve additional time. This includes the costs associated with adjusting the hedge to maintain its effectiveness over time. Again, if implemented via a self-service platform, the time commitment is down to a similar amount a company would spend on ad hoc spot transactions. Reporting Costs: Compliance with regulatory requirements and the associated reporting and documentation procedures can contribute to the overall cost of hedging. Conclusion If summing up all the potential costs of hedging versus spot, we are talking about basis points rather than percentages. On the flipside, FX markets tend to move in multiple percentage points and that volatility then goes through a company’s financials. So the costs versus benefits are very limited—not enough as an excuse not to hedge. This assumes that a company is not in the business of speculating in foreign exchange, as markets can go up as well as down. Just be aware that FX is one of the most traded capital markets and the larger players tend to be professional investors and institutions whose day job it is to trade these instruments. Recommended Reading Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below. Notice: JavaScript is required for this content.