What is a Treasury Management System?

A Treasury Management System (TMS) is a software application that allows companies to process cash flow, manage banking relationships and enhance the value of their cash flow. A Treasury Management System can help companies manage their assets, liabilities and bank accounts through automation and integration with third-party applications.

A TMS provides real-time visibility into cash positions, enables better decision-making, and improves overall operational efficiency. The system includes a range of features and functionalities, including cash and liquidity management, risk management, and payment processing.

Understanding Treasury Management Systems

Treasury management is the process of managing an organization’s liquidity, money market instruments, banking, concentration and disbursement activities. The goal of treasury management is to constantly monitor cash inflows and outflows in order to optimize the company’s liquidity position. This includes managing all the financial risks associated with running a business.

Treasury management also plays an important role in financial planning: If you want to know when your business will be profitable or how much debt or equity funding is needed for expansion plans over the next few years, having accurate projections about your company’s financial health is essential.

Treasury management is especially important for large organizations that need to ensure they are never short on cash but also don’t have too much cash available at any time. Examples of these organizations include:

• Banks and other financial institutions
• Governments
• Major corporations

A treasury management system is a powerful tool for organizations looking to streamline their treasury operations, manage financial risk, and improve cash management. By providing real-time visibility into cash positions, automating routine processes, and providing tools for managing financial risk, a TMS enables treasurers to make informed decisions and drive business growth.

While implementation of a TMS requires significant investment, the benefits of improved operational efficiency, reduced financial risk, and improved compliance can be significant, making it a valuable investment for any organization. It is also important to understand the risks of not adopting a TMS.

Advantages of a Treasury Management System

A treasury management system automates and streamline the financial activities of companies. They automate tasks, like payments and invoicing, which can be time-consuming and require multiple people to complete.

A treasury system can be used for both domestic and international payments and can handle multiple currencies. For example, if your business imports products from overseas suppliers or exports goods to other countries, then having a TMS in place can help you manage the different currencies involved in those transactions correctly.

A treasury system also provides real-time reporting of financial data. It allows you to create customizable reports to meet your specific needs.

A treasury software provides tools for managing financial risk, including foreign exchange risk, interest rate risk, and credit risk and helps organizations achieve regulatory compliance and improve their relationships with stakeholders, such as lenders, investors, and suppliers.

Why Do You Need a Treasury Management System?

First of all, a treasury management system provides improved efficiency.

Automated payments save time and reduce errors by eliminating manual data entry, as well as automating reconciliation processes for accounts payable systems. Also, automated inventory tracking allows businesses to keep track of their current stock levels without having an employee manually update them every day or week. This means fewer errors on orders.

Secondly, a good system will provide real-time information about everything from cash balances down through individual purchase orders, so companies know exactly where all their money goes—and when it comes back into play again.

Thirdly, it is an important tool for achieving regulatory compliance. Many countries have stringent regulations around treasury operations, including cash management and payment processing. A treasury system can help organizations comply with these regulations, reducing the risk of fines and reputational damage.

How a Treasury Management System Works

A treasury system is a comprehensive solution that automates and streamlines the financial processes of a business.

It works by aggregating data from multiple sources, including bank accounts, payments and investment portfolios, providing a complete and accurate picture of a company’s cash position. This information enables treasurers to make informed decisions about cash management and investment strategies, reducing the risk of cash shortfalls and minimizing borrowing costs.

It also provides tools for managing financial risk, including foreign exchange risk, interest rate risk, and credit risk. The system enables treasurers to monitor and manage these risks in real-time, providing a comprehensive view of the organization’s risk exposure and enabling proactive risk management strategies.

A treasury system usually includes different modules, each focusing on an important aspect of your finances:

• Cash Management: A TMS tracks incoming and outgoing payments, including those made through ACH transfers. The system ensures that funds are available when they’re needed by monitoring the company’s accounts receivable and payable balances as well as its bank balances.
• Cash Forecasting: A TMS helps identify trends so treasury can adjust budgets accordingly in order to meet goals without encountering unexpected costs along the way.
• Risk Management: A TMS provides a comprehensive solution for identifying, assessing, and managing financial risk, including advanced analytics and reporting capabilities.
• Liquidity Management: A TMS monitors cash flow on an ongoing basis, allowing organizations to plan ahead for future expenses like payroll or vendor payments in order to avoid overdrafts at the bank or costly loan fees from third parties like credit card companies or payday lenders.

Choosing the Right Treasury Management System

Choosing a treasury system is a multi-step process. Cost is always a factor, and can vary greatly depending on your organization’s desired functionality. That’s why it’s important to:

1. Evaluate your needs. Convincing the CFO to approve the adoption of a TMS almost always requires the treasurer to carefully build a strong business case. But treasurers can have greater success if they know how to position a treasury solution as a necessity.
2. Decide which features are most important to you, and then look at the available options from different providers. You can compare different solutions based on those criteria, then choose one that works for your business today and into the future.
3. Implement a TMS that will work for years to come by meeting all of your current requirements while also allowing room for growth as needed over time.

Other Capabilities of Treasury Software

Treasury management largely encompasses cash management, bank account management and financial transactions. Treasury management systems provide CFOs and treasurers with the visibility and reporting needed to optimize cash, control bank accounts, manage liquidity, deliver compliance, and oversee investments, debt and intercompany loans.

• Cash Pooling and In-house Banking: Organizations can easily manage notional and physical cash pools to offer real-time intercompany positions, interest calculations and reporting.
• Multilateral Netting: Treasury management systems help calculate net payables and receivables positions by participant, delivering optimized exposure management and integration with in-house banks.
• Bank Relationship Management: Bank account management, signatory tracking, FBAR reporting, and bank fee analysis enable improved control of bank accounts and better transparency into bank fees.
• Financial Transactions: Industry-best treasury management systems fully track treasury financial transactions with complete integration to payments, accounting and cash forecasting modules.
• Accounting and Compliance: Automatic generation of journal entries, support of all ERP solutions for automated integration with the general ledger (GL) and GL reconciliation makes it easy to comply with industry and internal regulations.

Essential Treasury Software

Treasury and risk management applications are essential tools for any business looking to increase cash flow and reduce costs. By automating your financial processes, they allow organizations to save time while becoming more efficient and secure.

Usually evaluating the return on investment for a treasury transformation project is a complex undertaking that goes far beyond evaluating productivity savings versus the cost of the solution. Companies need to ensure that they consider all potential value components of a treasury project and its impact across the entire organization to ensure that a full value assessment is included in the decision-making process.

With such intricacies and value components that are often neglected, many treasury teams look for outside guidance in calculating the potential ROI of such projects in order to ensure that they are comprehensive in their evaluations.

Road to Treasury Transformation

There are many different paths companies can take to achieve treasury transformation. You can start with process standardization, or payments transformation, or simply reduction of bank fees. Below are three great examples from Kyriba’s client community.

Kyriba client Beam Suntory chose to modernize their operations in a decentralized environment. They worked with Kyriba to future proof cash and liquidity management to protect their future growth. The interconnected ERP, TMS and Payments systems ensures business continuity, visibility and confidence in liquidity optimization.

Kyriba client Lowe’s has an extremely large bank account environment with over 2000 bank accounts at 33 banks. With Kyriba’s Bank Fee Analysis, Lowe’s is able to pull reports on a macro scale to immediately identify any outliers by comparing services across banks and drilling down to a micro-level for any out-of-policy store activity.

Kyriba client Align Technology built an FX Hedging Program in alignment with senior management’s goals by integrating Kyriba FX with SAP ERP and implementing Data Integrity Analysis to validate exposure and identify inconsistencies.