Clearly defined core banks, electronic trading systems and fully automated payment runs are just a few of the topics major corporations have been tackling for the last two decades or so. And they have tackled them well: These days, managing the complexity of payment streams and exchange rate risks would be inconceivable without a professionally run treasury department. Perhaps the only surprising thing is that this development seems to have bypassed many small and medium-sized enterprises (SMEs). For many of these firms, telephone trading, a bouquet of banking partners and the good old hoard of cash stashed away in a cupboard are still business as usual. This article briefly explains what steps must be taken so that smaller companies too can get in shape for the treasury needs of the 21st century.
- Choice of banking partners: The work of treasury departments often begins with the definition of a global circle of core banks. Experience shows that this can easily shave 15-20% off bank charges while delivering a better level of service. It also considerably simplifies downstream coordination and centralisation processes within the system landscape.
- Cash pooling: Without their global cash pool structures, many large companies would these days effectively grind to a halt. The inefficient distribution of cash and chunky buffer stocks in each currency and country are thus a thing of the past. The result? Highly efficient central investment strategies and the availability of liquidity specifically where it is needed. SMEs would do well to follow this example and think about cash pooling if they operate at multiple locations across Europe or even worldwide. Doing so would bring them, too, a step closer to the vision of a "daily financial status at the push of a button".
- Electronic trading platforms: Ten years ago, the majority of daily currency and hedging transactions were handled over the phone. Today, electronic trading platforms dominate the proceedings. Apart from providing a far better pricing structure for individual transactions, platforms such as FXall and 360T also offer automated reporting and validation with regard to market terms and conditions. Different banking partners can also be compared transparently for specific transactions at any time, with the information readily available for the next meeting with each bank.
- Treasury management systems (TMS): The choice of a suitable TMS depends first and foremost on the needs of the company. Having said that, almost all customers will benefit from dovetailing their ERP systems with all external banking processes, as well as from the ability to centralise all treasury data in a single system. At the same time, customers receive convenient and clearly structured reports which, for example, allow changes in market prices to be identified in the balance sheet and income statement. In the future, TMS providers will further optimise the support they provide in relation to third parties, enabling external systems to be docked on and TMS to be used as an open platform. This will give customers greater flexibility, as companies can adjust their processes and methodologies at any time in line with changing exogenous circumstances. Equally important is the fact that modern TMS systems no longer cost the Earth!
- Automated posting of account statements: To this day, many companies still post account statements manually. Thanks to standard treasury management systems, however, this task can be automated very conveniently, saving a lot of time and lending greater stability to processes.
- Bank account management: The aim is to achieve transparency across all enterprise-wide bank accounts and authorisations at any time and in any place around the globe. On a technical level, this can be achieved without difficulty using software as a service solutions. Apart from the benefit of establishing internal control systems, such solutions are also eminently advisable in particular with a view to cyber-crime.
Today, all these measures empower companies to handle their financial transactions much more centrally and much more strictly than was possible only a few years ago. Blind spots and inefficiencies are eliminated, simplifying the decision-making process and allowing better use to be made of available resources.
To inject professionalism into treasury processes and organisations, made-to-measure solutions are now available on the market for corporate customers of every shape and size. Standard TMS systems – available only at enormous expense not so very long ago – can now also be scaled down. Which is good news, as smaller firms in particular often do not need the full spectrum of modern treasury functionality for their business. A global value-at-risk model, for instance, is better suited to large corporations. On the other hand, virtually every business will derive benefits from system-based scheduling, liquidity forecasts, the inventorying of derivatives and loans, an electronic trading solution and a central payment transaction platform.
Source: KPMG Corporate Treasury News, Edition 67, May 2017
Author: Tatjana Schäfer, Manager, Finance Advisory, firstname.lastname@example.org