TMS and ERP – which to choose for your treasury management

By Bob Stark May 19, 2014

The financial crisis of 2008-2009 heightened the need for treasurers to have real-time, 24/7 cash visibility. Both enterprise resource planning (ERP) systems and treasury management systems (TMS) offer solutions to this requirement, but which option is best for treasurers?

The ERP vendors’ argument was, why should corporates bother spending money and time implementing a complex, expensive, standalone treasury platform when ERP systems can offer the same functionality at a fraction of the cost, with no integration headaches? If this was not enough, there was also the possibility of the treasury functionality being thrown in at a significant discount, just to eliminate any doubt in the buyer’s mind.

However, the use of ERP platforms as the primary tool for treasury management remains relatively low, even though anecdotal evidence suggests that about four in five companies with a dedicated TMS also have an ERP solution in place. Recent research of UK corporates showed that just 13% of those with revenues of more than £1bn (US$1.7bn) use an ERP-based treasury module as their primary treasury management system. This compares to 15% who use a cloud-based platform and 39% who use an on-premise treasury workstation. In fact, twice as many large companies (27%) still use spreadsheets for treasury management, than an ERP module. In the US, the use of ERP modules for treasury is likely even lower. 

Most treasury departments who exclusively use their corporate ERP system’s treasury module do so not through choice, but at the behest of their IT departments, eager to extract the maximum value out of their investment. This can certainly lead to some friction between treasury, which may think that IT is putting cost ahead of functionality and productivity and does not understand its needs, and IT, which is looking to bring treasury more into the corporate environment.

So why is this the case? There are four primary reasons:

  • Total cost of ownership
  • Implementation
  • Functionality and innovation
  • Support.

Total Cost of Ownership
An ERP implementation can easily run into the millions of pounds and take several years to complete. Although the CIO may say that now that much time and money has been invested into an ERP platform, all departments should use it, it is by no means a free after that point. Some corporate ERP systems are starting to move towards a cloud or SaaS-based model – NetSuite being a frontrunner in this space – but in general, they are complex on-premise software installations, which require considerable in-house IT resources and funds to support and maintain. An additional cost for ERP systems is the need for frequent upgrades, to ensure the treasury module stays up-to-date with the latest regulations, and treasury and risk management practices. 

The SaaS delivery method, with a single, multitenant, version of software being delivered to all clients via the web, eliminates these costs. There is no need for hardware purchase and maintenance, IT support, upgrades or replacements of outdated technology. A single monthly subscription fee covers all these costs, and when new versions of the software are rolled out, the functionality is available to all clients without the need for addition expense. 

An ERP system typically has a 12-18 month implementation period, compared to 3-6 months for a treasury system. The lengthy implementation time for complex ERP systems means that, to some extent, there is already a level of obsolescence when the system goes online. The scale of the implementations means that there can be considerable resistance among the IT department to perform an upgrade until absolutely necessary, making it even further behind the curve. With TMS installations being significantly smaller, the upgrade process is somewhat less complex, and can be performed more frequently. The benefit is even greater with SaaS platforms. As the software is hosted by the vendor and accessed via the web, upgrades can be rolled out to all clients on a frequent basis, and it becomes available to all clients simultaneously. 

Functionality and Innovation
While ERP systems perform daily reconciliation and general ledger (GL) accounting as well as dedicated systems, few treasury professionals would argue that more complex tasks, requiring deep analytical capabilities, can be performed as effectively by an ERP treasury module as a dedicated treasury platform.

By their nature of focusing on a single area, treasury software vendors can often be quicker to respond to evolving market requirements. Treasury-focused companies have the advantage of being closer to the market, and can pick up on trends earlier. In addition to this, their product development teams are focused on one area, giving them both a deeper understanding of the challenges and issues, as well as a stronger technical understanding of how to integrate new elements into the platform. As a result, TMS vendors can often bring new functionality to market more quickly than their ERP counterparts. In addition, there is no need from the end-user’s IT team to perform any type of upgrade to benefit from the latest version of the software. It becomes available to all subscribers the next time they log in through their browser. 

ERP systems are highly customised technology installations that touch many different aspects of the business. The vendor’s own support team may not have specialised knowledge of an individual company’s implementation or have treasury experts on-hand to answer specific questions. As such, they are very complex to support, and require skilled in-house staff to maintain and provide help-desk capabilities. This means that on top of license fees, hardware costs and maintenance fees, companies will have to commit considerable spend to a support team – often on top of the vendor’s maintenance fees.

Dedicated treasury platform vendors obviously have much of the treasury-specific knowledge in-house, and can provide more knowledgeable answers. The most important issue for support, however, comes with SaaS-based software. Support is provided entirely by the vendor, as part of the subscription fee – no need for additional support headcount. On a more technical level, SaaS vendors provide a single instance of software to all clients (there are different modules available, but all clients use the same version). This eliminates many questions about how a system is configured – the only technology required at the client’s side is a web browser – and also means that if an issue is identified by one user, it can be fixed system-wide on the code level and rolled out automatically.

Despite the high-level cost and technology advantages that ERP vendors will claim over standalone treasury systems, there is still certainly the need for highly sophisticated treasury systems within the corporate environment. The sheer scale of ERP systems, combined with the focus on overall operability rather than niche expertise functionality, means that there will always be room for specialist vendors. This is especially true given that nimble, innovative SaaS-based treasury platforms are gaining in popularity, while the vast majority of ERP systems remain rooted to the on-premise server room. In fact, some cloud-based ERP vendors – NetSuite being another good example here – are opting to partner with likeminded treasury system vendors for TMS functionality, instead of building out their own technology.

However, this does not mean that the two systems need to be in constant conflict. Dedicated treasury systems and ERP solutions can – and must – have a symbiotic relationship, even though vendors of both are competing for mindshare and revenue from the treasury department. The vast majority of TMS users will continue to export data into their corporate TMS, such as GL and accounting journals, and therefore the two still need to be closely aligned to deliver a successful treasury and broader financial process. For both the treasury team and the wider finance department to be successful, the two systems have to work in concert, not in competition.

This article initially appeared in gtnews.

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