The following is an excerpt from the latest Treasury in Practice Guide, Best Practices in Treasury Connectivity, underwritten by Kyriba.KEYS TO CONNECTIVITY
Four factors matter most for connectivity: security, automation, cost and reliability. Treasury departments need to consider all of these as early on as possible.
Regarding security, treasurers move money every day, and if that movement is not secure, there’s no telling whose hands it could end up in. If your connections are secure, then the risk of unauthorized activity is reduced. But it is an issue that needs to be addressed, so that all parties involved can have confidence that no outside actors can come across a file that is being exchanged between systems.
Jennifer Earyes, director of treasury risk for student loan company Navient, recommends applying payment controls in which one person is only granted the ability to set up payments, while another individual only has the ability to release payments. Additionally, Navient’s treasury requires RSA tokens and two-factor authentication for those individuals to log into the TMS. “So we’re mimicking bank security,” she said.
Surprisingly, many businesses aren’t employing this method, despite the rapid rise of business email compromise (BEC) scams. “It was a no-brainer for us, but it’s not a common trend from what we’ve been hearing from our developers,” she said.
Using Secure FTP (SFTP) also adds another layer of protection. “We value data security and try to have the best options available at the time for processes,” Kyle Kremser, CTP, treasury systems and controls principal for FedEx said. “Our info security team does periodic flow-ups with vendors to ensure all connections are maintained.”
For more insights on security, be sure to download the TIP Guide from AFP and Kyriba that focuses on securing bank connections.
Automation is incredibly important when it comes to connectivity. It cuts down on manual processes greatly, freeing up treasury to add more strategic value to the organization.
Mack Makode, vice president and treasurer for sports apparel and footwear manufacturer Under Armour, noted that treasury processes could be placed into “four big buckets”—collecting data, consolidating data, analyzing data and creating business intelligence. “Most people start with a spreadsheet, and 80 percent of their time usually goes into collecting and consolidating,” he said. “My goal has always been to reverse that, and target only 20 percent of the time for collecting and consolidating and 80 percent for analysis and creating business intelligence. To achieve this reversal, you have to create connectivity to the ERP system or where the information is coming from and automate the entire data gathering process.”
For example, when it comes to cash management and cash flow forecasting, the basic goal of the treasury department should be to eliminate spreadsheets and build an automated stream of information, Makode explained. “You need to connect to your ERP system and pull in all your expected receivables and payments and then consolidate that information to create your short term forecast,” he said. “People will do that on a spreadsheet, but there is room for automation. There are a lot of pockets within treasury where this type of connectivity could bring operational efficiencies.”
FedEx is moving to a SWIFT connection, and treasury expects to shift away from many of its current manual processes to more automation. Kremser expects this to not only make the process easier but also much more efficient. “We’ll get a lot more standardized data coming through,” he said. “This will also help us to be more bank agnostic.”
For example, one of FedEx’s treasury divisions has a TMS that runs on a server that has not been updated. So the division has to manually download CSV files for bank balances and upload payment files to the bank. “That’s how they communicate with the bank,” Kremser said. “So efficiencies will be driven based on the communications network that we’ll establish. And it will also add security because there won’t be anyone who touches those data files.”
Cost is, of course, a big factor when it comes to connectivity. As is always the case today, treasury departments need to do “more with less.” So the more you know before making that final decision, the better. And the most important thing to know is what you actually need.
Having the connectivity conversation with vendors can be overwhelming for treasurers. Therefore, it’s a good idea to outline what you need and how much you can spend. For example, if you want to connect to SWIFT, you’ll first have to determine what version of SWIFT you want. And you may find that SWIFT isn’t actually needed.
Wine and spirits company Brown-Forman has a lot of international bank accounts, but it only has three banking partners. Thus treasury determined that there wasn’t a need to be on SWIFT. “I think if you have five to 10 or more international banks, I think you could justify a SWIFT connection,” said Robert Waddell, director of global treasury.
So it’s a good idea to shop around. This will help you come up with an idea of what you really need. “Different people may tell you different things, because not every TMS or ERP provider has all of these different options built into their platform,” Stark said. “As a result, a salesperson will sell what they have—not what’s best.”
And it’s important to make sure you’re getting your money’s worth when it comes to connectivity. In Sprint’s case, treasury doesn’t have much direct connectivity right now aside from payment files on its payroll and AP systems. But those connectivity costs are necessary. “It’s worth it, just given the volume and frequency of activity,” said Howard S. Smith, CTP, treasury manager. “So for that stuff—the ACH and check files—there is definitely enough to justify the cost.”
Lastly, the capabilities of your connections are incredibly important. If your connections are faulty and aren’t able to deliver on your needs, you obviously have a big problem on your hands.
“When you look at the SWIFT network, and it’s 99.9 percent reliable; you know that when you make a payment, it gets done,” Waddell said. “So whatever network or process that you’re using, you want to make sure it’s not like you’re in a third world country.”
This is another reason to ensure the right questions are being asked of treasury technology and bank connectivity vendors. Having a clear understanding of what efforts your service providers are making to ensure bank connection issues are handled without disruption to your business should be a key decision point.
For more insights, download Best Practices in Treasury Connectivity here.