The Risks of Not Adopting a Treasury Management System

When evaluating the implementation of a treasury management system (TMS), there will always be the inevitable question of why? Each company has processes in place that have worked up until now, so why should we fix today what isn’t broken?

Although current processes have worked in the past, there are many risks associated with maintaining manual and disparate treasury practices that can impact the company’s reputation and bottom line. In this blog, which is part of our Value Engineering series, we explore some of the top risks that are often overlooked when evaluating status quo versus the future state of a TMS.

Lack of Insights into Global Liquidity

CFOs face daily decisions that can impact the financial stability and longevity of their organization. They require access to timely and reliable insights into the company’s global liquidity position to ensure effectiveness and alignment with strategic objectives. Ever-changing economic, political, and social factors create volatile conditions often resulting in small windows for decision-making. The treasurer must be able to provide updated insights at a moment’s notice and have the confidence that the information is complete and accurate.

Without a TMS in place, data is often stale, or market conditions may have changed by the time it reaches the CFO. This can result in a strategic business opportunity no longer being available. In addition to the risk of delayed insights, there is also the heightened risk for human error. Keying mistakes, formula errors and file corruptions are all risks that could halt a treasurer’s ability to operate efficiently without impacting an organization’s bottom line or its reputation.

As a former practitioner, I worked at an organization that closely monitored the release of payments to ensure compliance with quarterly debt covenants. Before the adoption of a TMS, this required labor-intensive and manual review, selection and release of payments each month end or quarter. Although policies and procedures were in place to ensure that only approved payments were processed, it came down to the wire with emails requesting the urgent holding or release of payments. In one instance, this practice resulted in a $2.5 million payment being sent without a division CFO’s approval. A TMS with systematic analysis of available liquidity and payment controls would have prevented the release of this payment, saving the company and the treasurer’s career.

Business Continuity

Businesses with an antiquated treasury process are unable to optimize human capital, often resulting in reduced employee satisfaction, elevated turnover and an inability to develop and grow talent. The cost associated with ongoing staff training, as well as reduced operational efficiency due to turnover, needs to be evaluated. Additionally, the potential for increased overhead must also be assessed when analyzing how the current structure would be able to support continued growth and expansion. How will the organization manage operations with a 10%, 20% or 30% growth trajectory with the current team structure? Automating processes through treasury software enables a strategic competitive advantage with talent retention and development, reducing the risk of employee turnover, as well as the organizational risk associated with overreliance on subject matter experts.

Heavy Reliance on IT for Maintenance & Support

IT departments may be stretched thin and often struggle to provide adequate and timely support across the organization for various projects and executive-level initiatives. In addition, the constant threat of the newest cyberattacks means that IT must constantly ensure that its policies, procedures and safeguards are up to date.

Unfortunately, competing demands can mean delays in treasury maintenance to make sure that all bank-to-ERP connections are encrypted, maintained and supported for change management. Bank connectivity is one of the most complicated and time-consuming demands a treasury department can ask of IT. When a new relationship or account is formed and an ERP connection needs to be established, internal IT departments can spend up to 1,500 hours developing, testing and then deploying bank files in coordination with the bank’s implementation teams for just one format. During this transitionary period, treasury departments are forced to create workarounds, struggling to do so without operational disruptions.

Business operation disruptions have a reputational impact to the organization. During my time as a treasury manager, our bank-to-ERP connection failed and suddenly, payment files were not being processed. Payment timing was essential to keep the just-in-time manufacturing lines of our customers going. This file failure put one of our customers at risk of shutting down production due to lack of payment, which would have caused us to lose preferred supplier status and could have destroyed our reputation in the industry. A TMS with a global support staff that constantly monitors and maintains connections and proactively alerts organizations if there are any issues would have solved these problems.

Compliance & Controls

Regulatory and compliance requirements continue to evolve, putting considerable pressure on the treasurer to verify that their treasury processes and procedures are up to date. Ensuring that all reporting obligations (OFAC, J-SOX, FBAR, KYC, internal/external audit, etc.) are met is a laborious task. If not constantly monitored and maintained, it can have detrimental financial and reputational impacts to the organization. With a TMS in place, all reporting and systematic audit trails are in a centralized location. Payment validation through a TMS ensures that all payments are legitimate and meet the most recent regulatory requirements. This protects the company from the release of any transaction that does not meet policy or regulatory guidelines. Standardizing controls and supporting compliance reporting enable treasurers and CFOs to focus their energy on more strategic concerns.

Next Steps

Evaluating the risk associated with status quo can be a painful process. Change is scary and no one wants to acknowledge pitfalls in their current processes. Although certain situations or consequences may not have occurred, with manual and disparate practices, it is a matter of when something will break and how the company can protect itself and recover when it does. Since we are often blinded to the possibility of the potential impact of our current treasury processes, many organizations choose to seek external help in assessing the risks associated with their status quo.