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Treasury management software primer: How and why to buy

The corporate treasury space is changing fast, analysts say, and more companies are beginning a push to standardize and optimize treasury functions across the enterprise. The right treasury management software, if implemented well, enables the treasury department to do its job better and more efficiently.

But buyers shouldn't go into the process blind. Experts caution that organizations aiming to make the best use of cash while managing risks more efficiently by deploying treasury management software should carefully choose a partner vendor and take a look behind the curtain to know what they're truly buying. Armed with the right questions and a clear idea of the potential advantages, buyers can confidently enter the market as informed consumers.

The advantages of automating treasury management

For too many organizations, treasury functions are still mostly manual and fragmented among bits and pieces of legacy software scattered across the organization, according to Nigel Raynor at Stamford, Conn.-based research firm Gartner Inc.

"If you're trying to track all of your debts and investments in a bunch of spreadsheets, that's far less effective and far more prone to errors than doing it in a single piece of sophisticated software," he said.

But a paradigm shift is occurring in the way companies look at treasury management, said Justin Brimfield, executive vice president of corporate development and strategy at Reval, a provider of Software-as-a-Service treasury and risk management systems based in New York City. There's now demand for "an all-in-one, comprehensive system that allows treasury to automate, manage and report on all elements of cash, liquidity and risk management," he said.

According to Gartner's Raynor, treasury management software automates treasury processes, which helps companies optimize the use of cash and other liquid assets generated by business operations.

But managing working capital isn't the only benefit of treasury management software. "Treasury is also really important in understanding what the current cash position is and managing liquidity in the short term," Raynor said. "It doesn't matter how much money you're making or losing; if you haven't got the cash to pay the bills, you're going to go out of business."

Treasury management software can also be key in better managing risks like currency exposure and exposure to interest rates, Raynor said.

Reval's Brimfield underscored the importance of this benefit. "Risk management is by and far the most significant driver that we've seen recently in the need for treasury technology," he said.

Brimfield pointed out that risk awareness permeates throughout the whole company. Particularly since the financial crisis in 2008, regulatory changes like the Dodd-Frank Act have caused organizations to evaluate their systems and realize that they're insufficient in meeting regulatory needs.

"There's a problem if you lose track of the money," said Bruce Lynn, managing partner of Darien, Conn.-based The Financial Executives Consulting Group (FECG). "But the right tool can help you keep track."

The financial crisis made it clear that no one knows what's around the corner, Brimfield said. "Since the crisis, the spotlight was put on the treasury department to provide answers to questions around counterparty risk and liquidity risk, as well as the effective management of working capital.

"The role of corporate treasury continues to expand," he said, "and treasury solutions need to accommodate that increased responsibility."

Dig deep when selecting treasury management software

There are three key elements to look for when evaluating a treasury management software system, Brimfield said:

  • Comprehensive functionality. Clearly identify the organization's functional requirements, and find a product built on proven industry best practices that can deal with those needs today and down the road.
  • Expertise. Partner with a vendor that can offer insight around the changing dynamics of the treasury space and provide sound knowledge about how the application can adapt.
  • Platform. Choose a platform that can nimbly adjust to the environment.

Apart from these primary factors, Brimfield recommends asking additional questions that dig deeper when choosing a vendor.

"I would look behind the curtain," he said. What percentage of the vendor's revenue is put back into developing the application you're using? What’s the lifecycle expectancy of the product versus others offered by the vendor? What's the product roadmap look like? "You don't want to get down the road a year and wish you did more digging," he added.

To help do this, Brimfield advises enlisting a third party's expertise. "There are extremely knowledgeable third parties out there who understand the treasury space and your requirements, and they can help you ask the right questions as you're assessing potential providers," he said.

Brenda Morris, CFO at Irvine, Calif.-based 5.11 Tactical couldn't agree more. She is in the process of choosing a treasury management system for the global technical apparel company, and she opted to work with a third party after determining that in-house staff didn't have the necessary expertise.

Morris said 5.11 used to be a "back-of-the-envelope, rudimentary-spreadsheet type of organization" when it came to treasury functions. "When I came on board, I said, 'Obviously this isn't going to work for us. We need a more robust system,'" she explained.

The first critical step was trying to pinpoint what the questions were that needed to be answered by the technology, Morris said. "For us, it was, 'What are our cash positions around the company?' and 'What should we do with our funds?'"

Next, Morris said, make sure you get what you're promised in a software package. "Really test what the vendor promised. Check references closely. Are the references using the software the way the vendor described?"

Evaluating ERP treasury modules against specialty systems

Some would argue that they don't need specialized software for treasury functions, said FECG's Lynn. "I have an ERP system already. I have SAP, or Oracle or JD Edwards. Why do I need a special piece of technology to help me manage my business?"

While these ERP systems do have treasury modules, "they are more interested in the transactions than they are in balances," Lynn said. "I don't think [ERP] systems are really designed to be the special-purpose tools treasuries need."

Lynn pointed out that there is a plethora of special-purpose, best-of-breed-systems on the market, such as SunGard, Wall Street, Kyriba and Reval, in addition to dedicated risk-management software from Fire Apps. Raynor said these specialty products deserve consideration.

"Don't implement your ERP vendor's treasury functionality without evaluating against the specialist solutions out there," said Gartner's Raynor. "Just because you might have committed to SAP or Oracle, don't implement them without at least looking at the specialist vendors." At 5.11, Morris hasn't necessarily ruled out using the company's ERP system for its treasury functions, but she knows it doesn't have all the functionality the company's treasury requires.

More on the CFO role

Learn why the CFO is gaining influence in IT spending

Read a Q&A on the CFO's role in risk management

Find out how strategic and transactional finance are diverging

But one thing is sure -- Morris expects a much more efficient future once treasury management software is in place. While compiling the cash position and forecast currently takes four hours a day, she estimates this time will be cut back to a half-hour after implementing a new system.

In addition, Morris is also looking forward to having more real-time information. "Information is power and it allows you to make the best decisions," she said. "We won't have to wait until the end of the day to understand what our cash position is … to understand what we do for the rest of the week, month or year."

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This was first published in July 2013

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