THE IT-SAVVY TREASURER

This article is written by Pecunia Treasury and Finance

We cannot switch on the news without hearing about technological advancements that, supposedly, make our lives easier, better, or smarter. We all embrace them, get used to them, and cannot do without them anymore. Sometimes we think back to the time before these advancements and cannot imagine how we lived without them. The same applies to the Treasury.

I am 35 years old; my experience in treasury was always linked to IT. I sometimes hear stories from older treasurers who worked without computers, later tabulating or punching cards, and still managed to do a good job in their field. Of course, times have changed; information is faster than it is these days, as is the need to process it. We all had to embrace the new technology. In this blog, I will try to analyze the link between IT and the Treasury and try to make predictions about the future, or at least where I wish the future would go (in Treasury terms).

Payments

In the old days, payments were a manual process, with people entering them into the banking system or sending them to the bank via fax. Nowadays, we link our ERP system with the banking system and have a batch file automatically added to the bank. With bulk payments, a payment hub can be used, which will make the whole process bank-independent, fast, and cheap. If wanted and needed, the whole process can be made straight-through by automating it from creating a payment to approving it.

The future will make payments even faster (instant payments should be possible in the Sepa region from November onwards), cheaper, and more bank-independent (PSD2 regulation allows non-banks to link with your bank and provide payment services). Maybe we will be using our Facebook account for payments sooner or later. Bitcoin could be an alternative payment currency and/or be used to hedge non-deliverable currencies (to achieve this, volumes need to increase significantly).

Risk management

An important part of the treasurer’s work is risk management. Hedging FX, interest rates, and commodity prices is daily business for a treasurer. Doing the deal is easy; doing the right deal is more difficult. A treasurer can only hedge correctly if he knows what he is hedging: exposure. Knowing the exposure information of the business is key. The reason for the exposure originates in sales (FX) or procurement (FX and commodities). These departments need to be aware that the actions they take might have consequences for the treasurer, and therefore the treasurer needs to have some information. I have been at companies where sales were daily, generating a lot of USD exposure at a EUR company. They were supposed to let finance know about positions. Often, this was done at day’s end or forgotten and done a day later. Result: an exposure to USD without the treasurer knowing it; a risky position. IT helped to fix this. Sales entered a deal in a program, and the relevant FX exposure was automatically shared with the treasurer via an API to the Treasury Management System. The treasurer could decide directly whether he needed to hedge or not and even aggregate deals to get better rates at the bank. For small deals, a link was set up with an FX trading platform to STP them at the best rate.

The future of risk management will be even more automated within the company (internal), but also with connections to banks and risk solution providers. Prices are becoming more transparent due to the fact that bank-independent solutions are available that compare prices in real time. Risk management sales are becoming less of a bank business. Brokers are having fewer hurdles to enter the market, due to IT platforms in the cloud. Why pick up the phone and call your bank for a EUR/USD quote when you can compare prices via an online platform and directly trade them? Often, you don’t even have to settle via your own bank accounts, but you can have it directly sent to your customer or supplier.

For trade finance, blockchain will become the new standard. The financing and shipping of commodities is a rather paper based process that is inefficient and slow. Blockchain could automate and improve speed massively. The challenge to achieve this is big as there are many parties involved, but initiatives have started, so the future is beginning now.

Information

As the above examples show, information is key to a treasurer. Even more so, as the Treasury is often a small team and most of the information comes from other departments. To get this information, the treasurer can use several nice IT solutions. The ERP system helps, but the Treasury needs to know where to find the information. A treasury management system is often used to sort all treasury-related information. TMS can link with ERP systems or other systems to gather information. The TMS will sort this information so that the treasurer is well informed and can make decisions. When I started in Treasury 10 years ago, the market for TMS was small; systems were expensive and limited in use (payments only, FX only, etc.). Nowadays, a TMS does not have to be expensive anymore. A SME (small or medium enterprise) could use it to upgrade their Treasury information. Most TMS can be used for all aspects of treasury (cash management, risk management, corporate finance, guarantees, etc.). This will give the tech-savvy treasurer an edge. The treasurer with the most information can make the best decision. In treasury, taking decisions while being well-informed often means either cost savings (e.g., a better cash position, lower working capital) or lower risk. The IT-savvy treasurer contributes to an optimally functioning company; they should be considered a business partner; he knows your cash position, your risk position, and your balance sheet, hopefully in real time at all times.

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Comments

  1. Gavin

    In large comapanies Treasury is not normally at the top of the list when is comes to the allocation of IT resources. The Accounts Payable, Accounts Receivable and General Ledger functions within finance tend to get thelions share as these they are often regarded as more critical. Can we pay suppliers? Can customers pay us? Can we account for everything? Fair enough.
    Treasury is often at the bottom of the list as IT do not normally understand what the function does and it’s IT requirements. So instead of being the heart beat of the finance funtion with the all singing all dancing IT solutions the treasury function tends to have to make do with stop gaps and excel spreadsheets.
    Having a Treasury IT person makes sense to fight for resources and articulate the requirements in IT speak.
    SaaS solutions allow Treasury a far easier route to meeting their requirements than in-house development. Connectivity via API brings all the data together and the workflow needed to streamline treasury processes. Of course IT will be involved in these deployments but mainly from a security and connectivity perspective, the heavy lift and support is done by the vendor.
    Treasury functions are niche and are not catered for by ERP systems, they need specialist systemes for Cash Management, Debt / Investment Management and FX Risk Management. Having an IT savy team member in treasury helps point it in the right direction.

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