The following article is an excerpt from AFP's latest Treasury in Practice Guide, underwritten by Kyriba.
It may be difficult for some treasury departments to shed old, manual practices in favor of utilizing their treasury management systems (TMS) to their full potential. But doing so can result in practitioners reaping serious benefits.
Jennifer Dale, CTP, assistant treasurer and director of treasury services for Sprint Nextel, sees most treasury departments as having an ‘if it’s not broken, don’t fix it’ mentality. “I think that, if something is working, treasurers aren’t very motivated to go out there and try to update the system,” she said. “It’s just one more thing to do. Most treasury departments are leanly staffed. And to do a treasury system implementation takes a significant amount of resources and time. So most treasury departments are going to shy away from anything that involves new implementation and significant retraining of a team.”
Carrie Horton, treasury manager of ACCO Brands Corporation, noted that for some tasks like interest expense calculations, treasury systems often lack certain advantages that Excel has. “It’s a good system for seeing how much debt you have outstanding, but for the calculations for interest expense, it’s not as flexible as Excel,” she said. “It would take 30 seconds to throw in the number of days or rates into an Excel spreadsheet. But when you have a system perform these calculations, it’s more difficult. It’s not impossible, but it takes a lot of time.”
That said, taking the time to do the calculations in a TMS has plenty of benefits as well, and that’s why Horton’s team now uses their TMS for them. For example, using Excel creates a greater propensity for users to make errors than a TMS. “We’ve had those problems; somebody would use the file and make a change later and call it, ‘version 2’. But someone else would have had the earlier version bookmarked and didn’t realize there was a new version, and that creates problems. When you have a TMS, you always know when changes are made and who changed them,” she said.
Though most treasury systems do a great job of cash forecasting, many treasury departments still do this manually because it tends to be so complicated. Treasurers are always looking for ways to refine cash forecasting; that’s why every year at the AFP annual conference, there are multiple sessions on the topic. “It’s not typically a technology issue; the technology generally can do it. It’s a matter of the process,” said Bob Stark, vice president of strategy for Kyriba. “The current way of forecasting was likely influenced by the technology used. Treasury teams need to ask themselves if they can take advantage of the TMS to build and measure the forecast differently.”
Fraud attempts on companies continue to increase overall; the 2019 AFP Payments Fraud and Control Survey revealed that a record 82 percent of organizations experienced incidents in 2018. It’s no secret that treasury departments tend to hang onto their systems for a long time, sometimes decades. But with the threat levels being what they are now, treasury departments need to make sure they are updating their treasury systems to combat fraud, rather than just relying on the protections that were put in place during implementation.
Many organizations consolidate all corporate payments through the TMS so they have one platform managing all payments to the bank, standardizing controls, while also simplifying internal technology footprints and increasing the visibility of outgoing payments to treasury. If corporate payments are still being done in bank portals, they are a potential fraud risk.
“If you use your treasury workstation to process things like wires, then you have a consistent portal to send the data through,” said John Dourdis, CTP, vice president and treasurer for Conair. “So you don’t have to worry about what BofA’s or JP Morgan’s or HSBC’s systems look like. Everybody’s payment portal looks a little different; if you use a workstation, it’s standardized.”
While foreign exchange (FX) has often been manual for many treasury departments, the current volatility in the marketplace is making some treasurers rethink their strategy. Movement in the U.S. dollar and continued instability in British pound for example, have been impacting corporate earnings per share. As a result, many treasury departments are now using the tools available to them to mitigate this ever-changing risk.
“The issue for many corporates is that they start their FX planning based upon the cash flows they can see,” Stark said. “Treasury decides, ‘We’ll hedge only our most impactful forecast cash flows—payables, receivables, large contracts—in part to minimize the complexities of hedge accounting. Yet, there is more that treasury can do.”
Through a TMS, treasury departments can uncover the depth of their currency exposures. “In Q4 of last year, U.S. corporates reported an average earnings impact due to currency volatility of five cents per share, which is huge,” Stark said. “Best practice is one cent or less.”
As a result, CFOs are intent on understanding the impacts of FX, because they have to be able to explain those numbers. “Losses due to FX in 2018 were the highest recorded in the past five years, which drives CFOs and treasury teams to leverage the data in their TMS to better understand currency impacts, find natural offsets, and make more effective hedging decisions,” Stark said. “But many CFOs aren’t aware their treasury teams have these tools available.”
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