eBooks

A Kyriba Guide to Corporate Payment Workflows An efficient and secure corporate payment workflow is the backbone of a successful modern enterprise. Every financial transaction – from routine supplier payments to critical intercontinental transfers...

A Kyriba Guide to Corporate Payment Workflows An efficient and secure corporate payment workflow is the backbone of a successful modern enterprise. Every financial transaction – from routine supplier payments to critical intercontinental transfers – relies on a seamless and reliable payment process. However, within the whirlwind of modern financial operations, the complexities of transactions and the persistent threat of payment fraud and cybercrime can create a perfect storm for payment catastrophes. These catastrophes not only disrupt financial operations but also jeopardize your reputation, erode stakeholder trust and undermine the overall stability of your organization. To shield your organization from these ominous risks and optimize your payment workflow, you need to adopt a proactive and comprehensive approach. In this eBook, we unveil a five-step strategy that helps prevent payment catastrophes and also elevates payment workflows. The Pitfalls of Unstandardized Payment Journey Creating a standardized and efficient journey is paramount for organizations to ensure smooth financial operations. Acting like a well-constructed highway, the payment journey encompasses various stages, including payment initiation, authorization, validation and reporting. When payment workflows are ad hoc and differ from one region or bank to another, companies can fall victim to various issues that can ultimately hinder productivity and increase risk. Inefficiency and Inconsistency: The lack of standardization means that every payment initiation and approval becomes a unique case. This inefficiency can lead to redundant efforts, time-consuming manual interventions and inconsistent practices, all of which can hinder collaboration and growth. Increased Errors: Without a streamlined journey, errors are more likely to occur. Variability in data entry, approval mechanisms and formats can lead to data inaccuracies, resulting in failed payments, delayed transactions and reconciliation challenges. Vulnerability to Fraud: A fragmented payment workflow increases the opportunities for fraudsters to exploit security gaps. Inconsistent authorization processes and a lack of standardized controls can leave organizations exposed to fraudulent activities, leading to financial losses and reputational damage. Operational Delays: Payments stuck in approval limbo or tangled in complex workflows lead to delays in fund transfer, supplier payments and customer refunds. This strains the relationships with vendors, customers and partners, and, ultimately, impacts the business’ credibility. Lack of Transparency: A patchwork of payment processes often results in limited visibility into payment status and history. This lack of transparency can deter effective financial decision-making, cash flow management and auditing processes. A standardized corporate payment workflow is therefore essential to enhance efficiency and consistency while reducing risk and fostering growth and stability. It brings uniformity to data entry, approval processes and formats, minimizing the chances of errors. Key practices for standardization include mapping the payment journey, identifying variability, establishing clear procedures, implementing automation and ongoing monitoring and adjustments. The Hazards of Neglecting Automation and Technology A recent Forbes article reports that executives struggle to get real-time key financial metrics and much of the work is still manual and error-prone with financial institutions using different software systems. Table 1: Challenges with payments process in the US and across the globe reported by the recent Forbes article In the USA Globally 50% use five or more systems for payment operations 40% report payment operations are manual 30% lack real-time insight into their cash balances 51% lack payment digitization 49% reply on manual payment processes 44% have disconnected accounts receivable and accounts payable processes Both automation and payments technology are critical components for optimizing payment workflows. Without automation, routine tasks such as data entry, payment validation and reconciliation are time-consuming and error-prone. This results in an inefficient allocation of resources and limits the capacity for strategic financial planning. Additionally, relying solely on manual data entry processes heightens the risk of human errors, including data inaccuracies and improper approval routing. Automation also plays a critical role in enabling real-time tracking of payment statuses, which is imperative for accurate visibility into cash positions and transaction progress. Another, often overlooked, aspect of a robust payment journey is the ability to address and resolve payment disputes and exceptions swiftly. Failure to manage these situations in a timely manner can have far-reaching consequences that extend beyond just financial losses. Inefficient dispute resolution processes can destroy relationships with vendors and partners, tarnish the company’s reputation and, in some cases, result in legal disputes. Embracing automation and technology are vital for staying competitive. When building automation for treasury, start with a thorough needs analysis to identify repetitive or error-prone tasks and design an RFP to look for a Treasury Management System (TMS) that can help centralize data and integrate with existing systems like ERP. It is also recommended to use Robotic Process Automation (RPA) for routine tasks like data retrieval and report generation, while incorporating advanced analytics and AI to improve cash forecasting and detect payment fraud. The Pain of Being Tangled Up in Bank Connectivity An interconnected network is not just a luxury; it’s a necessity. Bank connectivity is the lifeline of financial operations. A comprehensive connectivity network enables organizations to transmit payment instructions, receive acknowledgments and access account information without interruption. Whether it’s done through H2H, SWIFT network or Bank APIs, the ability to seamlessly communicate with banks underpins the entire payment and bank reporting process. The path to establishing robust bank connectivity is riddled with challenges. With every bank or network having their own specifications, bank connectivity carries a high level of complexity, especially when companies start to connect their payments initiation systems such as ERP or AP systems to the banks for realizing Straight-Through-Processing (STP). A single error can have a multitude of negative consequences including payment delays and even data breaches. The following data came from a Gartner Pulse survey with 100 IT leaders, and the results indicated that most ERP integrations with a new bank would take 1-6 months to complete. Most ERP Integrations with a new bank take 1-6 months to complete. Mitigating the challenges associated with bank connectivity requires a strategic approach and a roadmap. Start with your most important banks and identify current bottlenecks and inefficiencies in your corporate to bank connectivity. Opt for a unified platform or payment hub that offers Connect-as-a-Service to streamline multi-bank connectivity, ensuring compatibility with both internal systems like ERP and various banking protocols. Embrace API integrations to achieve real-time data exchanges, enhancing reconciliation and payment processes. The Looming Specter of Security Breaches and Fraud As organizations traverse the landscape of payments, security emerges as a crucial concern. The ramifications of security breaches and the constant looming specter of fraud are enough to send shivers down the spine of any financial professional. The stakes are more than an organization’s finances; the reputation and trustworthiness of a business are also on the line. When security measures are compromised, a cascade of detrimental outcomes follows. Theft of financial data can lead to unauthorized access to sensitive information, putting financial assets at risk and, potentially, violating data privacy regulations. The aftermath of fraud can undermine the integrity of an organization’s financial health. Table 2: Companies are being targeted by payment fraud attacks Payment Fraud Statistics Percentage U.S. Companies affected by fraud in 2022 >60% Companies targeted multiple times >50% Companies targeted >15 times 5% Source: U.S. Companies and B2B Payment Fraud Report by TrustPair and GIACT, 2023 Organizations face a multifaceted battle against cyber threats, and a reactive stance is insufficient to ward off these challenges. Cybercriminals are becoming more sophisticated, using advanced tactics to exploit vulnerabilities in payment systems and networks. Ransomware attacks, identity theft and phishing scams are just the tip of the iceberg. And, these attacks are on the rise, according to a PYMNTS.com article, “Ransomware attacks reached record-breaking numbers in March 2023, with a 91% increase compared to the previous month.” Ransomware attacks typically target any accessible data – including payment information and personal identifiable information. A single successful breach can lead to massive financial losses, legal penalties and lasting reputational damage. To counter this multifaceted threat, a proactive strategy is essential. Ransomware attacks, phishing schemes and evolving tactics demand a resilient defense. Integrating encryption, tokenization and robust authentication forms the first line of defense. Regular monitoring and swift responses to anomalies are pivotal. When it comes to payments, we recommend bank account validation and fraud and compliance screening before any payments are sent to the banks. The Hidden Cost of Organizational Silos Collaboration and partnerships are essential for organizations aiming to streamline corporate payment workflows. However, the persistent existence of silos presents a significant impediment to effective collaboration. Silos, marked by compartmentalized data repositories and disjointed workflows, create substantial communication gaps that obstruct the smooth information flow in an organization’s financial operations, leading to lack of transparency and hindered accessibility to data. According to a year-long study of more than 100 global businesses conducted by Roland Berger, nearly 80% of surveyed respondents report “strongly pronounced” silos that negatively impact their company’s costs, innovation potential, culture, and profitability. Despite this, only 54% have made breaking bad silos a top company priority, the study found. Regardless if respondents had more than 5,000 employees or under 500, the results were largely the same — most respondents didn’t have the confidence or know-how when combating the problem. Just 20% report having the right measures in place. The consequences of these silos undermine the efficiency of payment workflows. With data locked away, the flow of information becomes stilted, leading to redundancies, delays and errors. Silos also limit the extent of shared insights and knowledge among the teams who are actually working to achieve the same KPIs, hampering their ability to collaboratively and proactively respond to market fluctuations, changing regulations and emerging opportunities. Finally, silos contribute to security vulnerabilities. Data dispersed across fragmented systems may be more challenging to protect effectively, increasing the risks of data breaches and fraud. Silos don't have a one-size-fits-all solution, yet modern finance thrives on collaboration. Recognizing the issue both from top-down and bottom-up perspectives is essential, but it's just the starting point. While a centralized treasury and payments platform promotes collaboration, the heart of the challenge lies in reshaping the collaborative mindset of leaders, managers and employees. Final Remarks Preventing payment pitfalls requires a diligent, encompassing strategy. The quest for efficient and secure corporate payment workflows never truly ends. With the fast pace of tech evolution, shifting fraud schemes and a mutable financial environment, success favors those with the agility to adapt and the courage to innovate. If you are interested in learning more about the steps to cut redundant costs and accelerate your bank connectivity projects, check out this on-demand webinar where Beam Suntory and Kyriba discuss the best practices that have helped Beam Suntory transform its payments process.

Bank API Best Practices for Bank Partners For two decades, Kyriba has forged a reputation as the industry's frontrunner in corporate-to-bank Connectivity-as-a-Service. With robust integrations with 1000+ global banks, Kyriba is the world's most...

Bank API Best Practices for Bank Partners For two decades, Kyriba has forged a reputation as the industry's frontrunner in corporate-to-bank Connectivity-as-a-Service. With robust integrations with 1000+ global banks, Kyriba is the world's most connected enterprise liquidity platform. Having connected Bank APIs with more than 20 major banks (detailed list available at Kyriba Marketplace) across the US, EU and APAC regions, Kyriba was the first treasury management system to successfully go live with a customer with Bank of America and J.P. Morgan. Our close collaborations with bank partners have yielded invaluable insights into the myriad challenges and nuances of Bank API integration. This guide encapsulates the knowledge amassed by Kyriba's Bank API product team. Product managers, business analysts, engineering leaders and infosec teams from any bank partners will find actionable insights on: How to craft API specifications centered around treasury and payments use cases How to reduce integration time for partners such as Kyriba How to enhance developer experiences and streamline the developer onboarding process How to accelerate the onboarding-to-production for corporate clients   Download the complete guide to learn more.

B2B payment fraud is one of the top concerns keeping CFOs and treasurers up at night, having increased in importance due to the proliferation of spear-phishing, data breaches and the resulting loss in company...

B2B payment fraud is one of the top concerns keeping CFOs and treasurers up at night, having increased in importance due to the proliferation of spear-phishing, data breaches and the resulting loss in company value. In addition to the direct financial losses, the indirect losses can be devastating. Falling stock market value, loss of confidence from investors, customers and partners, lawsuits and fines are all possible. The reputations and careers of you and your colleagues could also be in severe jeopardy. You needn’t become the next victim. This eBook outlines how a more educated, better-trained treasury team, combined with the right process and technology solution in place, can effectively protect your organization from both internal and external payments fraud. 56% of US companies were affected by payment fraud in 2022 43% of organizations have been targeted more than once. 55% of successful fraud attempts are perpetrated through credential or information changes on legitimate payments. 33% of companies indicated that business email compromise (BEC) and phishing were the methods used to perpetrate the fraud attempts. 24% of companies that fell victim to fraud lost more than $100,000, and more than 5% lost more than $1 million. Companies still rely on manual and inefficient processes to prevent fraud. 82% of senior leaders consider fraud prevention to be a top priority for 2023. Source: US Companies and B2B Payment Fraud Report by TrustPair and Giact, 2023 A Multi-Layered Approach Necessary to Combat Fraud Threats are ever-evolving, so should be the measures being taken to tackle fraud. However, as the survey data above  indicates, even in the year of 2023, many companies still rely on manual and inefficient processes to prevent fraud. Some may have a system in place, yet a system alone is not enough to holistically prevent fraud. We find the following Fraud Risk Management Process framework from the European Court of Auditors a great guiding principle for any global organizations who are in the process of bringing their fraud defense to the next level. It is important to remember that encompassing prevention, detection and response is crucial for safeguarding an organization's financial integrity. In this ebook we will also elaborate on some of the most important best practices in each area. Prevent: The first line of defense, prevention involves implementing robust internal controls, stringent policies and technology solutions. Education and training staff to recognize fraud risks, employing multi-factor authentication and setting up firewalls are part of this proactive approach. By creating a hostile environment for potential fraudsters, organizations can nip many threats in the bud before they materialize. Detect: Despite the best prevention efforts, some fraud attempts may penetrate the defenses. That's where detection comes into play. Continuous monitoring of transactions, regular audits, employing artificial intelligence to recognize unusual patterns, and establishing whistleblowing mechanisms can help in early detection of fraudulent activities. The quicker a potential fraud is detected, the lesser the damage it is likely to cause. Respond: A well-orchestrated response strategy is crucial for minimizing the impact of a fraud incident. This includes having a clear plan in place, with designated responsibilities and protocols for escalation. Timely legal action, communicating with stakeholders, recovering lost assets, and taking corrective measures to prevent future incidents are part of this phase. Together, these three pillars create a comprehensive, ongoing and dynamic process against B2B payments fraud. By combining vigilance with proactive measures, organizations can stay ahead of fraudsters, protecting both their assets and reputation in the increasingly doom and gloom scenario of corporate fraud. Future 1: Fraud Risk Management Process framework from the European Court of Auditors What are the Different Types of Payment Fraud? There are a broad range of both internal and external threats that can breach the integrity of an organization’s corporate cash. In order to understand how your organization can become more secure, it’s critical to know what vulnerabilities you may be exposed to. Examples of vulnerabilities: External hacking of treasury systems and files by third parties, exploiting data security flaws. Inappropriate employee access to server rooms / internal networks, resulting from weak physical and data security processes. Fraudulent payments sent by employees to banks, both willfully or based on bad judgment (often as a result of social engineering, “phishing” attacks). Fraudulent purchase orders and invoices created by internal employees to related third parties. Settlement instructions direct funds to unauthorized accounts. Suboptimal financial trades being made by employees in return for personal gain. Non-employees remaining signatories on current bank accounts after their departure / termination. Infrequent or inefficient reconciliation of accounts, leading to fraudulent transactions remaining unnoticed. Protecting your organization’s financial integrity is of the utmost importance – especially in today’s digitally connected business and IT landscape, where fraudsters constantly seek vulnerabilities to exploit. Understanding the various types of fraud that can pose a threat to your organization is crucial for implementing effective preventive measures. How to Build Application Security Strong Password Controls Weak login and user authentication procedures are among the most common vulnerabilities exploited by potential fraudsters. Attackers prey on weak passwords. The first priority for organizations should be to eliminate a single point of failure – e.g., one hacked password shouldn’t allow access to treasury and financial systems. Industry practice is to – at a minimum – implement dual-factor authentication. Bank portals often use this technique, offering tokens (or key fobs) that randomly generate a second password when the original User ID and password are correctly entered. Most software platforms support bring your own device (BYOD) so that your smartphone can be used to receive the one-time ‘second’ password. Other options include YubiKey, which is often used in EMEA. However, dual-factor authentication alone is not considered best practice. Multi-factor authentication techniques combine different login and authentication strategies together to provide the best possible protection for corporate systems. Implementing multiple levels of user authentication simultaneously can significantly enhance the security of treasury data and systems, offering robust protection against unauthorized access. It is recommended to combine two or more of the following to prevent unauthorized access: Dual-factor authentication – use an independently generated one-time password from your smartphone or independent token. Single Sign On (SSO) and LDAP authentication. Internet Protocol (IP) filtering – restricting login to predefined IP addresses. Numeric keypad, where numbers within a password must be selected by mouse instead of being typed. Dedicated Virtual Private Network (VPN) access. Digital Signatures Digital signatures are a critical tool to help banks authenticate transmitted payment files sent from third party systems, such as TMS or ERP. Digital signatures are personal digital identity solutions based upon a Public Key Infrastructure (PKI). SWIFT’s 3SKey, considered the industry-leading digital signature solution, can be applied: Internally as part of a payment approval workflow, and Externally to authenticate the payment batch, confirming to the bank that all payments are accurate and valid. This not only helps validate the payment but also decreases propensity of repudiation by the bank. Externally as part of an eBAM workflow to authenticate bank account changes. Use of digital signatures, combined with strong password controls and a centralized payment workflow, dramatically eliminate opportunities for payments fraud. Improving Data Security In the Cloud For cloud service providers, data security is top of mind, especially in mitigating internal fraud risk for financial teams.  The right cloud service provider will have servers housed in fully redundant, secure global data centers, offering optimal physical and data security, as well as industry-leading uptime, backup and data recovery processes. In addition, treasury teams should invest in a provider that can fully support data encryption at rest. It is also important to use a provider that works with respected data security technology providers. Regular SOC1 and SOC2 Type II reporting is also critical for data security and should come into play when looking for a cloud service provider. CIOs and CTOs are the first to agree that cloud solutions can improve data security, presuming the right investments by a cloud solution provider are made to protect treasury data. The following are some measures a cloud service provider can leverage to keep your data safe. Make sure you include those into your RFP when evaluating potential vendors. High performance disaster recovery Data encryption at rest SOC1 and SOC2 audit reporting Frequent penetration testing The median duration of corporate fraud – the amount of time from when it commences until it is detected – is 12 months. Source: Association of Certified Fraud Examiners bi-annual survey on corporate fraud, 2022 Visibility and Control Over Global Bank Accounts Insufficient visibility into bank accounts and bank signatories are a recipe for disaster in treasury management. Too often, bank account approvers and signatories aren’t centrally known – or worse – may have left the organization years ago. Organizations are yet to recognize that ‘offboarding’ is as important as ‘onboarding’, especially when it comes to the staff members who have the payment approval rights. Maintaining visibility and control of bank accounts also becomes extremely difficult as organizations grow geographically or via acquisition. Best practices can be used to reduce risks and increase controls: Centralizing visibility into accounts, authorized signers and all bank account documentation. Structuring workflows to require all bank account activity to be tracked and approved using predefined controls and limits. Setting up reconciliation procedures, both with your banking partners, and your corporate HR system, ensuring account signers are tied to employee lists. Employing these processes not only reduces your organization’s potential exposure to both internal and external fraud, but also helps you comply with local and international regulations, such as FBAR reporting. Further, visibility into bank accounts combined with effective bank fee analysis enables your organization to identify and close underused or dormant accounts, not only reducing your banking costs but also removing the risks of those less active accounts being exploited for fraudulent purposes. Ensuring Standardized Payment Workflows Spear-phishing in treasury is the most dangerous fraud attempt because cybercriminals are specifically targeting you. It focuses on payment workflows because success offers immediate payoff – a fraudulent transfer of funds to the wrong bank account. While implementing strong password controls improves protection, standardizing payment workflows to ensure payment procedures are consistently followed is also critical. Targeted attempts prey on a single exception to policy; only one mistake is needed to create a fraud opportunity. Standard practice is to implement multiple, standardized levels of approval and ensure approvals are electronic, tied to the separation of duties within the treasury system, and aligned to dollar limits. Many treasury teams will use digital signatures for internal payment approvals (as well as for external authentication of payments). Organizations that separate the payment workflow – e.g,. use internal systems and bank portals separately for initiation and approval – increase the risk of exploitation. It was simply unsustainable to continue logging in to each individual e-banking platform in order to approve payments.” —Andrew Nicholson, Graff Diamonds CFO Best practice is to manage the complete workflow for all payments in one system which offers a complete electronic ‘paper trail’ for that payment, from initial request through to transmission. This also allows the payment acknowledgements (up to four levels) to be integrated with the payment workflow. Many organizations also centralize treasury and supplier payment transmission via a central payment hub to ensure treasury has complete transparency of every outgoing payment, globally. This allows complete oversight over all outgoing cash flows, in addition to saving costs. Standard Settlement Instructions (SSI) Settling financial trades is an increasingly exploited opportunity for internal financial fraud. Entering into financial trades – investments, foreign exchange, derivatives – is a daily activity for treasury teams. For typical trades with your bank, it is common for standard settlement instructions (SSI) to be implemented in advance at the bank. However, for non-typical trades or for transactions with non-bank counterparties, SSI may not be in place. This creates an opportunity for fraud where wire transfers to settle trades can be fully or partially redirected to unauthorized bank accounts. Standard settlement instructions (SSI) within your financial systems improve efficiency as well as avoiding redirection of funds to unauthorized accounts. It is best to find a solution that supports electronic workflows and integration of trading and payments activities to help minimize the potential for internal fraud. Key steps to implement include: Electronic recording of financial transactions in your treasury system, with approvals and limits applied so a full audit trail is available for review. Payment templates should be automatically attached to each trade. Additional approval should be required to edit/remove the payment template, with all activity tracked in the audit trail. Reconciliation of the trade tickets between the counterparties and the treasury system should be performed on a standard frequency – with oversight of the process to ensure no exceptions slip through. Never Lose a Battle, and Win the War A robust technology solution is a critical element of the security equation. However, even with a sophisticated payment fraud prevention solution in place, treasury teams need to ensure they are not the weak link, inadvertently exposing the organization to fraud. Therefore, it’s essential that companies educate their staff about the ways that fraudsters can dupe employees via social engineering, either into revealing sensitive banking data, or even into sending cash and payments themselves. Employees must be aware of internal processes for creating and sending payments, how to spot a potentially fraudulent request, and even more importantly, where and how to report any suspicious activities. To reduce internal fraud, leveraging AI technology that monitors and singles out potentially fraudulent transactions is no longer an IT heavy duty, as there are many turn-key solutions that can be readily deployed. It is also critical to maintain thorough audit trails to ensure that any investigation can run as swiftly as possible in case of a fraud incidence. You can also work with your organization’s Chief Information Security Officer (CISO) – or, even better, a third-party security organization – to try and exploit flaws in your system. These results can then be fed back into the organization to improve your processes. In the face of increasing fraud risks, having the right processes, technology and staff awareness in place, all under a well-defined framework to prevent, detect and respond, your organization is ready to orchestrate a battle-ready defense against fraud. Check out this on-demand webinar and learn from cybersecurity experts from Corelight and Kyriba on how to build B2B payment fraud defense programs to maximize end-to-end protection.

In the dynamic and rapidly evolving business landscape, the role of a Chief Financial Officer (CFO) has transformed from a traditional financial controller to a strategic driver of growth. Today, CFOs are expected to...

In the dynamic and rapidly evolving business landscape, the role of a Chief Financial Officer (CFO) has transformed from a traditional financial controller to a strategic driver of growth. Today, CFOs are expected to go beyond accurate financial reporting and financial controls, actively contributing to organizational strategy, talent management, technology adoption and financial policies. In one of their Perspectives articles, Deloitte published a framework of “Four Faces of the CFO”. The framework states that modern CFOs are expected to play four diverse and challenging roles. The two traditional roles are “steward”, preserving the assets of the organization by minimizing risk and getting the books right, and “operator”, running a tight finance operation that is efficient and effective. Meanwhile, today’s CFOs also need to be “strategists”, helping to shape overall strategy and direction, and “catalysts”, instilling a financial approach and mind set throughout the organization to help other parts of the business perform and grow. These varied roles make a CFO’s job more complex than ever. Source: Delotte “Four Faces of the CFO’ Framework Underpinning a CFO’s tactical and strategic decision-making role is information. The ability to access data from many systems in real time is widespread, but ensuring the optimization of the quality and completeness of that data for decision-making remains a constant challenge. To thrive in this changing environment, modern CFOs must ask themselves critical questions to unlock the full potential of their organizations and maximize growth. In this ebook, we will delve into the five key questions every modern CFO should ask to chart a path towards sustainable growth. Do I Need 100 Percent Visibility? This question goes beyond a mere reporting exercise, as the lack of global visibility over cash and risk has a direct impact on earnings, profitability and competitiveness. In today’s digital age, the use of smartphones, tablets and advanced data visualization tools has given the impression that we have achieved a comprehensive understanding of cash and risk on a global scale. Many CFOs have access to reasonably accurate information about their organizations’ positions in major currencies and traditional markets. However, relying upon the ‘80:20’ rule, where 80 percent of outcomes might be good enough for making an informed decision, is no longer a viable business approach. In a world marked by globalization, market volatility and new growth dynamics, what used to be the remaining 20 percent of information is now rapidly increasing, in some cases, to 25 or 30 percent or even more. Previously overlooked markets, once deemed less significant, are now emerging as key drivers of growth in many cases. Consequently, a complete view over cash and risk is imperative, as it not only encompasses the relatively easier 80 percent, but also extends across the entire 100 percent of balances and exposures. Without this comprehensive perspective, it is increasingly challenging to make well-informed, reliable strategic and operational decisions with confidence. In order to thrive in the current business landscape, organizations must go the extra mile and ensure they have a holistic understanding of cash and risk across all relevant dimensions. It’s not just about the visibility, it’s what you do with this data that matters.” —Frédéric Marret, Group CFO, Webcor Group How Does My Finance Function Compete? The absence of visibility into surplus cash balances and their availability to fund deficits in other areas of the business can indeed lead to increased borrowing costs. For large multinational corporations, with easier access to the borrowing markets and the ability to benefit from low interest rates in many currencies, this issue might not appear significant on the surface. However, even for these large entities, maintaining efficient cash management practices is pivotal to ensure a healthy balance sheet and optimal financial performance, not to mention the fact that interest rates have been rising rapidly in all major global markets. What many businesses overlook is the opportunity cost of not leveraging their surplus cash balances efficiently. Cash that sits idle in a bank account is not just dormant, it is potentially losing value due to inflation and missing out on potential earning opportunities that could be realized through investments or by reducing existing liabilities. One of the ways companies can avoid this pitfall is by practicing effective cash pooling. Cash pooling is a strategy that enables companies to balance their cash across different accounts, so as to reduce the need for borrowing. It involves combining the credit and debit positions of several accounts into a single account to optimize the interest outcome. By using this method, companies can ensure that their surplus cash is being utilized to fund deficits in other areas of their business, thus reducing borrowing costs. However, the competitive landscape in the financial function gets even more intricate when we look beyond multinational corporations. Mid-size businesses, for example, often encounter greater difficulties in securing bank loans due to their relatively smaller scale and less established credit histories. Under such circumstances, maintaining adequate liquidity for operational needs while ensuring that surplus cash is being optimally used becomes a challenging balancing act. Am I Managing Risk, or Is Risk Managing Me? The importance of efficient financial risk management, including foreign currency risk, underscores the need for complete visibility. Even large corporations equipped with skilled and well-resourced treasury departments and sophisticated treasury systems have experienced significant earnings reductions due to FX volatility. These losses not only result in financial repercussions, but also damage the company’s reputation, ultimately impacting its share price. Achieving 100 percent visibility over exposures extends beyond hedging 100 percent of those exposures. Instead, it empowers CFOs and treasurers with comprehensive information, enabling them to manage these risks in alignment with the company’s risk policy. By having access to complete data, they can make more informed decisions and implement risk management strategies that mitigate potential losses and safeguard the organization’s financial stability. Am I Gaining Value from ‘Trapped’ Cash? ‘Trapped’ cash, i.e., funds that cannot be exchanged or transferred cross-border, poses a challenge for companies operating in highly regulated markets. It is important to recognize that the visibility over these balances is just as significant as managing cash in more accessible currencies or countries. Many CFOs recognize the issue of ‘trapped’ cash; however, they often overlook the possibility of connecting this cash into a notional pool or interest optimization arrangement to offset deficits at a regional level. Staying informed about evolving regulations that can change the restrictions on the exchange or transfer of funds is crucial. There may also be opportunities to leverage in-country balances more effectively, such as funding liabilities or financing growth. Additionally, statistics show that interest rates in certain countries and currencies often outperform those of more readily tradable currencies, presenting the potential to generate higher yields that can be reinvested to drive further growth. The current interest rate environment plays a crucial role in unlocking the value of trapped cash. As highlighted in Deloitte’s Working Capital Roundup report, interest rates have been on the rise after a historically low period. The Federal Reserve has implemented multiple rate increases since March 2022, resulting in the highest levels seen in more than 15 years. This shift not only amplifies the relative value of trapped balance-sheet cash, but also redefines the business case for operational transformations aimed at releasing additional working capital. With the growing burden of increased interest expenses, companies are now even more focused on minimizing additional borrowing and leveraging trapped cash as an alternative source of funds. Free cash flow was essentially life or death. From a corporate standpoint, we had to get this right.” —Nathan Lorton, SVP & CFO, Feld Entertainment Could the Business Be Worth More? In the realm of mergers and acquisitions (M&A) as well as divestments, corporations are increasingly tapping into global markets, aiming not only for revenue growth but also for strategic expansion and diversification. M&A deals can unlock immense value by leveraging financial and operational synergies, such as streamlining processes, reducing redundancy and expanding market reach. However, the process of merging businesses, particularly those with diverse organizational structures, disparate technologies and different reporting mechanisms, is an intricate task. A misstep could lead to value leakage. For instance, if the integration of systems and harmonization of information flows are not well planned and executed, the anticipated value from the acquisition can significantly erode. Conversely, when considering a divestment, a comprehensive understanding of the business's assets, including cash reserves, is crucial in accurately determining its value. Uncertainty over financial elements can often lead to a conservative valuation, as finance executives prefer to err on the side of caution. However, this approach might undervalue the business, leading to potential value loss during a sale. What Is Your Answer to the Questions? In an ever-changing, increasingly complex global business environment, there's no 'one size fits all' answer to these questions. What matters is your capacity to use these introspections as a catalyst for change and adaptation. Maximizing visibility over cash and risk is no longer an option; it's a necessity for strategic and tactical decision making. In the competitive financial arena, leveraging surplus cash and practicing effective cash pooling can make all the difference. Proactively managing risk rather than being governed by it can significantly enhance your business's financial stability. Understanding how to unlock value from 'trapped' cash and exploring unconventional ways to use it can add to your financial prowess. Recognizing the potential value in M&As, divestments and growth markets, even amidst complexities and uncertainties, can redefine your strategic direction. As you reflect on these questions, remember, it's not just about finding the answers; it's about taking actions. Leveraging advanced tech tools can significantly enhance data collection and analysis, optimize financial controls, streamline operations and foster informed decision-making. Remember, the digital revolution is not just about keeping pace with the times. It's about harnessing this power to redefine the role of the modern CFO and position the finance function as a strategic driver of growth. Check out how Nathan Lorton, CFO of Feld Entertainment, talks about a CFO’s perspective on liquidity in KyribaLive 2023.

In today’s highly volatile economic landscape, treasurers are confronted with a new set of challenges, including soaring global inflation, elevated interest rates and an uncertain economic outlook. These obstacles significantly impact financial decision-making and...

In today’s highly volatile economic landscape, treasurers are confronted with a new set of challenges, including soaring global inflation, elevated interest rates and an uncertain economic outlook. These obstacles significantly impact financial decision-making and require CFOs and treasurers to devise robust strategies to tackle them effectively. Treasurers grapple with significant challenges amidst economic volatility. Rising inflation erodes purchasing power and necessitates effective cash and liquidity management to mitigate financial risks. High interest rates further add complexity to the equation, making it harder to secure affordable financing, manage debt, and optimize working capital. Treasurers must evaluate the impact on financial stability, explore interest rate hedging, and adapt to uncertain economic outlooks affected by geopolitical events, regulatory changes and market fluctuations. In this climate, treasurers must take advantage of the available tools, techniques and technology to overcome these challenges and operate as efficiently as possible. By staying agile and proactive, treasurers can optimize financial performance, manage risks effectively, and position their organizations for long-term success. Treasurers can focus on the following five areas to give themselves a competitive advantage in this challenging market: Planning For the Next Major Upheaval Standardizing Global Payments Integral, Essential Fraud Prevention and Detection Optimizing Liquidity Through Working Capital Solutions Reducing Intercompany Transactions with Multilateral Netting Read on to find out how treasurers can leverage these topics to standardize, centralize and optimize across people, process and technology. Planning For The Next Major Upheaval Business continuity can be disrupted for various reasons, from staffing mobility, shortages or externally caused factors like the ongoing global pandemic. Having measures in place to mitigate risk and minimize the impact of these and other unforeseen disruptions is essential. Treasurers must ensure critical daily tasks, such as core safeguarding activities like cash positioning, operating liquidity, investing, supporting strategic decision-making, regulatory compliance and risk management continue to take place without interruption. Treasurers should therefore have suitable measures in place and should document these with a robust business continuity plan. In particular, treasurers should consider the following: Standard procedures for remote work This should now be considered essential in a successful business continuity plan. A recent Fortune report found that 71% of employees now prefer a hybrid or entirely remote schedule due to various factors such as a better work-life balance, not having to commute and having more time for family/personal obligations. With full-time remote work now a norm post-COVID, treasurers and organizations need to enforce detailed processes for daily treasury workflows such as payments, cash reporting and bank account management. Procedure documentation This ensures that treasurers have documented steps needed to complete critical daily tasks. The implementation of a treasury management system (TMS) can help to facilitate this effort by providing outlined next steps for each workflow that can be documented with related reports and data. With a documented process in place, treasurers can enhance cross training for new employees and provide clear instructions for employees backing up absent team members. Employee cross training Employee cross training establishes a basic understanding of how to execute essential workflows. In the case that an employee is sick or leaves the organization, teams can be sure that daily operations will continue without any gaps in necessary processes. A strong system with robust security and controls This ensures that teams can continue their daily workflows without the fear of external attackers accessing valuable information – especially with more employees now working remotely. Since most solutions are now cloud-based, it is imperative that organizations can rely on their systems to protect treasury workflows and information. Some controls that teams can implement include dual-factor authentication, digital signatures and audit trails. Business continuity is critically important to treasury - employee cross training, documenting critical daily tasks, having employees work remotely – and testing all of these elements, contribute to a strong business continuity program for treasury teams.” —Treasury Manager, Manufacturing Company Standardizing Global Payments Payments is a major focal point for modern treasurers seeking a competitive advantage. Without centralization, a company’s payment processes tend to be fragmented and inconsistent. Manual processes are associated with a higher risk of error and fraud, while the need to integrate multiple different systems can lead to higher costs and greater inefficiency. Payment centralization, which can be achieved using shared services or payment-on-behalf-of (POBO) structures, can be used effectively to standardize companies’ payment processes. This can result in several benefits, including greater visibility over outgoing cash flows, streamlined banking relationships, reduced costs and improved control over the timing of payments. Risks can be reduced by expanding payment controls, digitizing audit trails, and introducing intelligent and automated workflows to manage exceptions. Treasury will need to work with representatives from other parts of the business, including accounting, accounts payables and supplier management to map out how payment workflows, including approvals, will operate to ensure that payment processing automation is uninterrupted. Companies will also need to consider what type of software and connectivity are needed to efficiently centralize, including the use of APIs. Integral, Essential Fraud Prevention and Detection The risk that companies will fall victim to fraud is considerable. The AFP Payments Fraud and Control Survey found that 90% of organizations saw the level of payments fraud as the same or worse than the previous year. In addition, 74% of organizations reported to be the target of attempted or successful payments fraud. As fraudsters adopt increasingly sophisticated techniques, it is more important than ever for corporate treasurers to understand different types of fraud and take appropriate measures to safeguard their companies. Specific threats include business email compromise (BEC) scams, whereby criminals send an email to a company’s employee requesting that a high value payment is made into a specific account. AFP research reveals that BEC scams were the primary source of fraud attacks in both 2019 and 2020, and as these types of scams increase in sophistication, cybercriminals will certainly continue to use BEC to target at risk organizations. Some of the recent refinements in BEC attacks include: Adapting lures to target human resources departments for PII, such as W-2 tax forms to commit stolen identity return fraud, rather than requesting wire transfers. Widening money laundering networks, including domestic transfers prior to laundering the money overseas, which presents challenges and opportunities for countering BEC scams. Fabricating fake merger-and-acquisition scenarios that require a two-fold impersonation scheme involving the target organization’s CEO and external legal counsel. Cybercriminals will then ask target employees to work with “external legal counsel” to coordinate the payments needed to close the purported acquisition. Payments fraud prevention can be improved through the use of machine learning (ML) and artificial intelligence (AI) rulesets and logic to catch not only fraud attempts, but anomalies and errors – both common and uncommon. The use of these tools can enable real-time detection that stop suspicious payments before being sent out by banking partners. ML and AI can also facilitate centralized alerts and data visualizations to ensure that only authorized transactions are executed, thus addressing a concern that most treasurers have about potential internal and external attacks on their payment processes. Digitizing organizational payment policies to automate policy compliance and improve internal governance can ensure that suitable security measures are in place to reduce the risk of fraudulent payments. A system, such as a TMS, can implement pre-defined detection rules to screen for suspicious payments that may need further attention. For example, a solution can define international payments being made to countries where there is no supplier as a transaction that needs to be flagged for further review. In this case, the corporate policy of not making payments to new, foreign countries can be enforced without the need to manually check each outgoing payment. By digitizing fraud detection controls and rules, treasurers can seamlessly automate internal governance and compliance that might be inconsistently adhered to. Recent advancements in technology can help businesses stop payments fraud before it happens: Data visualization can identify and manage exceptions so that payments can easily be reviewed and cleared to minimize delays. Artificial intelligence and machine learning algorithms can compare outgoing payment requests to historical payment patterns, identifying and isolating any anomalies. Application programming interfaces (APIs) built into your payments platform allow real-time connection to apps that can match payments against third-party data. Such data allows you to verify ownership of the account you’re paying and confirms that you’re not paying an entity on the Office of Foreign Assets Control (OFAC) sanctions list. Optimizing Liquidity Through Working Capital Solutions Treasurers can gain competitive advantage by using payables finance and receivables finance structures to reduce supply chain risk and fully optimize liquidity. Working capital programs allow companies to mobilize liquidity and inject cash into supply chains so that suppliers receive a financial lifeline, while strategically supporting business growth. Such programs can bring a number of benefits for both buyers and suppliers: Buyers can fully leverage their supply chain to optimize payment terms, enhance cash visibility and provide a financial incentive for sustainability sourcing. Suppliers can increase free cash flow, reduce financing costs and increase sales by utilizing early payment working capital programs. Different working capital solutions are available, including dynamic discounting, supply chain finance and receivables finance programs: Dynamic discounting programs allow early payment discounts to be managed in a more flexible way. Sliding scale discounts enable buyers to choose payment dates in accordance with cash availability, while sellers can choose which invoices to offer for discount. Supply chain finance programs allow buyers to enable their suppliers to optimize payments terms for invoices via the buyer’s bank. Buyers can therefore improve liquidity for their suppliers, even if payment terms are restructured. Receivables finance programs empower suppliers to access early payment on outstanding receivables due from buyers. This type of solution allows suppliers to remain in control of obtaining the most efficient funding sources for its receivables, while increasing sales and reducing the corporate credit risk position. This is the most exciting area for the treasurer that wants to be a key strategic business partner across all functions of the corporation. [...] You can build stronger relationships down the chain and increase your competitiveness up the chain, all while increasing profits - it is the true win-win that comes from using technology to do things smarter.” —Global Treasury Director, Fortune 500 Construction Company Reducing Intercompany Transactions with Multilateral Netting Organizations can incur intercompany balances and make intercompany payments due to several different activities, including dividends, trade payables, cost shares and intercompany loans. Companies that see a high volume of intercompany payments can experience higher bank fees, FX payment costs and settlement risk. To add, the task of processing intercompany payments is often a manual and time-consuming exercise. Companies with large volumes of intercompany payments can use multilateral netting solutions to reduce the number of physical payments which need to be made. A netting system consolidates intercompany payments, with each participant making or receiving a net payment each month instead of settling each payment individually. This has the result of reducing bank fees, while eliminating manual tasks and settlement risk. It is important to note that companies can realize significant benefits when implementing an in-house bank to facilitate a netting structure. Some key areas that can be improved with an in-house bank include the following: Global cash pooling gives organizations a bird’s-eye view of where their cash is at all times, increasing the visibility to ultimately allow leadership to challenge local entities to get rid of extra cash on hand and be allocated to different resources or investments. Centralized risk management allows each entity the opportunity to reduce or eliminate spot trades and process cross-border wires, which can significantly reduce bank fees. Payments centralization reduces the cost of failure as payments are being paid from a central account with verified, successful payment workflows. The consolidation of payments also increases visibility and improves accuracy to ensure that reporting is more accurate for leadership to make better, more informed decisions. Optimized FX payments can be achieved by way of reducing payment volumes provided through netting results, while the larger payment amounts per transaction delivery provides better pricing for FX spot or forward contracts. Netting systems can provide a standardized workflow process which can be used consistently around the globe. Leveraging technology to clean up the flow of transactions between each entity can empower organizations to increase their visibility and better understand cash flow to ultimately improve financial closes and the stability of an organization’s capital in each entity. Standardization, Centralization and Optimization Across People, Process and Technology The current business climate presents treasurers with considerable challenges, from evolving working environments to ever-changing payment formats and from persistent cyber-crime to supply chain disruptions. These and other challenges will continue to dominate headlines, but treasurers can fortunately leverage the process techniques and operational structures outlined in this ebook to overcome the modern-day obstacles and gain a competitive advantage. The 5 ways to overcome today’s treasury challenges all center around standardization, centralization and optimization. The challenges of today present scenarios that typically fall outside of treasury’s control, so it is imperative that treasurers equip their teams with processes and workflows that combat external factors. For example, cybercriminals are going to continue their fraudulent attempts especially as technology continues to advance. With the appropriate processes and systems in place, treasurers can safeguard all their global teams with standardized workflows to ensure that liquidity is being protected, no matter where the attack is coming from. Implementing a system to optimize and centralize treasury processes will not only defend treasurers from today’s challenges but will also empower treasurers to uplift their teams as strong influencers and partners across the organization. Today’s treasury teams can provide invaluable information for CFOs regarding cash flows, working capital and risk management. Having a centralized view into all liquidity processes is the foundation of an innovative treasury department and will allow leadership to make better, more informed decisions for growth opportunities. Standardizing, centralizing and optimizing treasury operations is essential for treasury teams looking to flourish in today’s rapidly changing environment. Explore how American Honda triumphed over treasury challenges! Join this on-demand webinar and delve into their successful journey in improving liquidity management with Kyriba & ICD.

The real leaders in treasury and finance understand the urgency of digital transformation as a way to centralize and standardize key global processes. This is particularly true in payments, where disparate systems, teams and...

The real leaders in treasury and finance understand the urgency of digital transformation as a way to centralize and standardize key global processes. This is particularly true in payments, where disparate systems, teams and processes are pre-cursors for chaos and inefficiency, as well as elevated levels of fraud and operational risk.” — Bob Stark, Global Head of Market Strategy, Kyriba The Need to Centralize Corporate Payments Has Never Been Stronger Payments are a constant focus for CFOs, CIOs, controllers, purchasing managers and treasurers because inefficient payment processes inhibit supply chains, cash flow and profitability. The need to optimize cash and working capital, combined with the increasing threat of cybercrime and payments fraud, amplifies the need to centralize and standardize corporate payments. This e-book will review the business drivers for centralizing payments through a payments hub, including: Standardizing and strengthening payment workflows and controls Streamlining bank connectivity to optimize payment channel usage Facilitating faster bank implementations and bank format harmonization Complete payments visibility, including timing, amounts and transaction status Provide business intelligence and analytics on all global payments What is a Payments Hub? A payments hub consolidates payment streams from ERPs, finance, treasury, legal, capital markets and decentralized teams, transforming disaggregated processes into a single source of record for all outgoing payments. A payments hub also transforms payment data into bank specific file formats and connects directly with global banks via multiple protocols, including host-to-host, SWIFT and regional networks. Key features of a payments hub include: Payment workflow and controls to ensure that manual payments activities align to the organization’s payment policy and standardized payment controls Real-time payment screening and fraud detection to enable a line of defense against unauthorized payments Integrated global bank connectivity to deliver out-of-the-box, host-to-host and regional network bank interfaces alongside an embedded SWIFT service bureau Pre-built format library to meet the needs of every global bank, which require thousands of format variations Two-way communication to include the receipt of payment acknowledgements, payment tracking, and bank statement reporting for status reporting and payment visibility Complete reporting and dashboards to arm finance and treasury with analytics, data visualization and business intelligence for all global payments Payments Hub It was simply unsustainable to continue logging in to each individual e-banking platform in order to approve payments. Kyriba offers us a single, consolidated point of access across all our bank accounts, [giving us] the ability to set up payments, define different payment types and to receive notification of pending approvals.” — Andrew Nicholson, Graff Diamonds CFO 5 Core Benefits of a Payments Hub Implementing a corporate payments hub delivers a wide range of value for treasury and finance leaders, from enhanced fraud detection to reducing the burden on IT resources so they can focus on other strategic initiatives. Cost Savings — A payments hub reduces the number of systems that must connect to a bank. Each system that connects to a bank incurs additional bank service fees, software costs, and in the case of on-premise solutions, significant IT resources. Some organizations even manage duplicate payment channels, such as multiple SWIFT solutions. Central Responsibility — When multiple systems are used to manage the payment workflow — request, initiation, approval and transmission — the risk of mistakes and unauthorized payments increases. Because a payments hub centralizes payments prior to final transmission to the bank, the CFO can ensure that all payments are the responsibility of a single team — regardless of amount, location or who requested it. Fraud Detection — All outgoing payments should be screened in real-time against external sanctions lists (such as OFAC) and a digitized payment policy should be put in place to ensure that only authorized payments are approved and released to the bank. Any suspicious payments should be embargoed for further review with a full-resolution workflow. Global Visibility — Centralizing all payments via a payments hub allows complete visibility of all outgoing cash flows so that treasury can optimize cash balances and make effective decisions on where to deploy cash and liquidity. The hub allows the organization to run leaner, minimizing excess balances so that cash can be more efficiently deployed where it is needed most. Eliminate Need for IT — Payments hubs are hosted in the cloud and feature bank-format generation and integrated bank connectivity, meaning internal IT resources are no longer needed to build and maintain bank connections. This offers finance teams the freedom to change existing bank relationships, enables scalability to add new banks and gives teams the flexibility to update bank formats, including harmonization to ISO20022. CASE STUDY CHALLENGE: A rapidly expanding part of Crown World Mobility’s service is outsourced expense-payment solutions. However, executing these payments through manual processes based on spreadsheets and web-based banking systems was not scalable and also created operational risks. Crown needed a secure solution that spanned multiple geographies, currencies and payment products. SOLUTION: Crown evaluated multiple vendors for security, scalability and efficiency gains. Kyriba was deemed the only supplier to meet these needs and provide a truly cloud-based solution that could accommodate European data privacy storage compliance requirements. RESULTS: Crown realized $1.7M in cost savings for clients in the first year and increased staff productivity by 20 percent. The company was also able to benefit from integrated payment and cash management processes. Key Stages of Payments Centralization The four key stages of payments centralization lead treasury and finance through payment routing to global bank connectivity. Payment Routing When importing payments into a payments hub, it is important to offer flexibility based on a variety of workflow needs. Some A/P payments may be preapproved, while others require additional levels of approval. A/P payments may also be formatted to the exact specifications of the bank, while others may require alignment to bank-specified format standards based on delivery channel, payment type and location where the payment is being sent to. A good payments hub will fully support blind routing of preapproved, pre-formatted payments directly to the bank, while at the same time offering intelligent routing for payments that require additional levels of approval or format transformation. Additional approvals can be performed at a batch or transactional level and may be supported through the use of digital signatures, such as SWIFT’s 3SKey. Format Transformation Bank formats are one of the most challenging responsibilities for finance teams. There are tens of thousands of variations of socalled global formats (e.g., XML ISO20022), making transformation of payments into the required format for each bank payment scenario critical. For payments not already preformatted by the ERP, the payments hub will reformat payments based on: Bank Channel — SWIFT, API, host-to-host or other connection method. Payment Type — Wire, ACH, SEPA, real-time payments. Receiving Location — Banks require different formats for wires to different countries. For example, wires to Egypt vs. wires to Romania. Format transformation is fully automated so that no additional user intervention is required. Real-time Fraud Detection Payments fraud increases every year, with more creative attempts and successes reported by CFOs. Fraudsters and cybercriminals prey on inconsistent controls — controls that are often a result of manual processes and poorly enforced payment policies. A payments hub can help protect against fraud by offering a realtime screening of all payments against a digitized version of the organization’s payment policy. Examples include sanction lists screening: Ensuring approval controls and limits are enforced Verifying beneficiary banking information, including BIC Analyzing payment patterns (e.g., amount variances or split payments to same recipient) Suspicious behaviors (e.g., first payment to new bank account or payment to a country with no known suppliers) Proper fraud detection will offer an end-to-end workflow, including impounding of payments, detailed dashboards and alerts, as well as separation of duties to clear false positives. Global Bank Connectivity A payments hub should have end-to-end, integrated bank connectivity. There is no need for a separate solution for bank connectivity as payments hubs connect to all global banks with choices for communication protocols, including: Direct Connection — FTP, API or blockchain provider Country Banking Networks — EBICS, BACS, Editran, Zengin and more SWIFT — Alliance Lite2 and service bureau offerings The key to efficient connectivity is choice. The right bank connectivity strategy will vary for different organizations based on their geographies, payment types and volume. A combination of bank connectivity channels optimizes cost and scalability while maintaining automation and security. Payments are easy to process using Kyriba. Templates can be set up for repetitive payments. If the volume of payments dictates, they can be uploaded from an Excel spreadsheet — again simplifying the process. Controls and limits can be established in the system, requiring separation of duties [input, approve, release].” — Bob Hemstreet, Treasury Consultant, Former Assistant Treasurer, Textron The Future of Payments Multi-channel payment hubs are the way of the future, with corporates soon to be presented with greater choice in B2B and B2P payment technologies. APIs Application programming interfaces (APIs) are programs that allows multiple pieces of software to “talk” to each other. Unlike file transfer protocol (FTP), APIs do not require files to be sent or downloaded. Data is exchanged point to point between systems, allowing for instant data transmission and eliminating substantial risk. Successful payment hubs will need to include a library of pre-built API bank connections. But bank connectors are just the tip of the iceberg; APIs open integration to a variety of systems, introducing capabilities and process automation that had not previously been possible. Real-time Payments Instant payment services are now being offered to corporates. While many regions globally have featured real-time payments for personal use, business payments will soon see similar services. Organizations such as The Clearing House in the U.S. and Ripple, a blockchain provider, are using new technologies to instantly deliver payment instructions and remittance information to not only speed up payment settlements, but also improve the payment experience. Cryptocurrency and Blockchain Many people associate cryptocurrencies with Bitcoin. While Bitcoin — in its current form — is unusable for mainstream corporate payment volumes, cryptocurrencies may still offer potential as a source of liquidity to reduce the FX transaction costs associated with cross-border payments. The key is in just how efficient FinTechs targeting cross-border payments with their blockchain solutions can be. Yet, the idea to offer a more direct communication between counterparties is an interesting proposition. As cryptocurrencies emerge, payment hubs will support blockchain channels as an alternative to current methods. Robotic Process Automation Robotic process, fueled by artificial intelligence, will fully automate and digitize payments in the near future. While algorithmic today, AI will take over repetitive tasks and eventually begin analyzing payment services and strategies. This evolution towards AI will evolve, with workflows such as payments digitization and fraud detection likely the first candidates for more intelligent programs. To avoid obsolescence, payment hubs will begin incorporating robotics processes and machine learning so that, within 10 years, the payments hub will be a self-learning robot. Four Things to Consider When Selecting a Payments Hub A payments hub is an integrated component of your financial system’s ecosystem. The decision to select a payments hub must be made not only to meet present-day requirements but also have the scalability to support future needs, as difficult as they may be to anticipate. Best practices when selecting a payments hub include: Rich Functionality — A payments hub should combine bank connectivity, end-toend payment workflows, extensive audit and controls, along with integrated bank reporting and payment acknowledgements — including SWIFT gpi — to deliver complete payments transparency and control at every stage of the payment lifecycle. Look for a Pre-built Formats Library — Dedicated bank payment format development teams support the payments hub application. A critical feature is format transformation for the 30,000+ payment iterations in the market; buyers need a vendor that has the pre-built library to meet your needs. Don’t Skimp on Security — Security should not be sacrificed. This includes payment workflow controls and real-time fraud detection, as well as a vendor that delivers an ISO27001 risk governance program for data security. Get Aligned — Geographic alignment with your payments program is key. If your payment banks exist in North America, Europe, Asia and Latin America, then so too should the implementation and product support of your payments hub vendor. Watch our on-demand webinar to learn more about Beam Suntory’s treasury and payments factory transformation journey .

During the pandemic, most organizations have experienced unexpected fluctuations in their cash and liquidity levels due to the volatile, unsettled global economy. Treasury operating models have a direct correlation to how well cash positioning...

During the pandemic, most organizations have experienced unexpected fluctuations in their cash and liquidity levels due to the volatile, unsettled global economy. Treasury operating models have a direct correlation to how well cash positioning and liquidity forecasting is delivered and executed. Making the change to an International Treasury Center (ITC) can help deliver greater efficiency and visibility into liquidity levels, payments and core functions like netting or intercompany reporting. The type of treasury operating model your organization falls into directly impacts how effective your people, process, and technology can support daily workflows to drive better operational and strategic capabilities. [toc] See the table below for the advantages of an International Treasury Center: Decentralized Centralized International Treasury Center Process Unique scenarios & regional-specific activities can be met with a decentralized model Often involves more manual and repetitive daily processes for core cash and other core treasury functions / operational responsibilities Execution focused, which is sometimes catered to multinational organizations Surplus cash may sit idle vs. other operational models; manual processes to identify cash balances, less efficient Strong central oversight and controls over cash and better direction of surplus cash and other assets Better strategic decision-making support with more information Payments and intercompany loans, risk management is done more centrally and can ensure standard application of policy across all legal entities Organizational structure in which a separate legal entity is established to serve as an internal finance company All treasury-related intercompany transactions run through the designated entity to facilitate and automate netting of intercompany activity Local and regional cash flows are pooled to a global cash pool to aggregate liquidity into one central location Payments-on-behalf-of and collections-on-behalf-of models can be leveraged Operations Local and regional business units can hire and maintain staffing levels to meet local needs Local and regional treasury operations / needs are often not supported by global leadership Corporate objectives and goals may be lost without strong governance and oversight from global leadership Local and regional entities report and are governed by a limited set of controls, policies and procedures set out by the corporate headquarters Local and regional entities maintain decision-making with guidance from global leadership Corporate treasury and local finance teams are often disconnected from financial objectives and processes Local and regional members often have to wear multiple hats to successfully conduct daily operations Local and regional operations are supported on a global level Local business units and time zones are considered when reporting global flows and activities Local and regional challenges / opportunities are reacted to with urgency Technology Systems and toolsets are often “built” to meet local and regional needs for statutory reporting or local market needs Can include scenarios where multiple systems are employed to deal with non-integrated business units, acquisitions or mergers or in-house created tools Typically lack integration and global reporting capabilities Corporate-wide systems are often in use, and create a consistent and consolidated view while providing maximum automation and streamlined processes Can reduce effectiveness in providing a solution for very niche market needs Enterprise resource planning (ERP) and treasury management system (TMS) in place to facilitate the International Treasury Center Systems can be tailored more readily to serve needs of special jurisdictions ITC structures are organizations often interchangeable with, and also known as, an in-house bank. ITCs allow organizations to better centralize risk, aggregate cash, and manage intercompany positions and payments, while promoting consistent organizational workflows, processes, controls, and driving continuous improvement. By acting as an in-house bank, ITCs help organizations achieve better efficiency over their global liquidity and risk management by allowing for greater control of bank balances, subsidiary funding, and pooling funds. Through increased control over liquidity, treasury and finance teams drive realization of significant benefits in the following areas: Global Cash Pooling Intercompany Netting Centralized Risk Management Payments Factory Global cash pooling is foundational in developing and supporting in-house banking and International Treasury Centers. Once banking structures and pooling arrangements are in place, the other components of an ITC can be implemented as needed and in whatever order is most beneficial for business needs. As global cash pooling provides the ability to provide closer to 100% visibility of liquidity, additional benefits like better rates and shared use of surplus liquidity to minimize intercompany loans or internal transfers can be leveraged after the pooling structure is in place. The pooled use of funds by a centralized treasury center becomes the foundation for further expansion of the ITC and empowers organizations to have complete control over their liquidity, intercompany lending arrangements, and ensuring the delivery of funds for new or emerging market subsidiaries. The remainder of this ebook will further discuss how each component of an ITC can positively impact your organization in the context of an overall solution. Global Cash Pooling By pooling global cash balances into a single account or net group position, organizations can realize: Improved visibility, on-demand access, and enhanced control of cash Efficiencies gained as a result of centrally managed liquidity Improved working capital management Timely settlement of transfer pricing transactions Reduced bank fees and an increase in available credit lines By sweeping balances into designated, centralized pools, organizations can have a bird’s-eye view of where their cash is at all times. This increased visibility allows leadership teams to challenge local entities to get rid of extra cash on hand and be allocated to different resources or investments. Ultimately, having clear, reliable data on how much cash is available facilitates better discipline within organizations and eliminates the need to take on extra, unnecessary debt. When looking to build a global cash pooling schematic, global organizations will typically have three different levels to consider: In-country physical pooling Regional multi-currency notional pooling Global multi-currency notional pooling In-country physical pooling: Level 1 includes aggregating funds at a country and local currency level from non-concentration banks that will ultimately be swept up into regional pools. Depending on how many countries an organization is pulling cash from, it is important to note how many different currencies will be involved. Regional multi-currency notional pooling: Level 2 creates a more regional view of an organization’s cash by sweeping cash to/from in-country pools. The number of countries will determine the number of regional pools needed in the cash pooling structure, as this level of pooling looks to centralize matching currencies for a consolidated view. Global multi-currency notional pooling: Level 3 includes sweeps to/from in-country and regional pools to provide a targeted, global view of an organization’s cash. One consideration while creating this top-level pooling structure is whether to pool cash at a single entity or multi entity level. Although most organizations are opting for a single entity level, multi entity level pooling structures are also an option - since banks want to ensure that other entities can cover one another, the concept of a cross guarantee is created to ensure that the bank has the right offset across different currency balances. With this in mind, single entity levels are easier for banks to implement from a regulatory perspective and are still useful for organizations looking to implement an in-house bank. Intercompany Netting As organizations grow and intercompany flows increase, the transactions between legal entities start to look like a spider web — hundreds of payments going back and forth with no centralization creates a web-like-mess that is complex and confusing. The communication between each part of the business becomes more and more complicated as different currencies and languages are added, creating an inefficient process that is essential to daily operations. Organizations that utilize an International Treasury Center and implement an intercompany netting program can help to streamline this process, while also reaping the following benefits: Reduction in banking fees and FX cost as the result of fewer transactions Automated accounting reduces Record to Report (RTR) manual processes Increased efficiency for RTR through automated intercompany processes Increased control of intercompany processes Reduced transaction volumes for Procure-to-Pay (P2P) and reduced journal entries for RTR Features of companies with netting Simplified payment structure Reduced FX exposures Reduced FX transactions Reduced payment volumes—significantly reduced bank fees—avoid using banks to pay ourselves Improved financial close, improved stability of capital in subsidiaries due to timely payments Utilizing technology to clean up the flow of transactions between each entity can allow organizations to make a single settlement, instead of hundreds or thousands, to simplify their payment structure and reduce payment volumes. By doing so, organizations can also increase their visibility and better understand the flow of cash as they no longer have to sort through endless transactions to summarize the amount of cash on hand at each entity. Intercompany netting programs can ultimately improve financial closes and the stability of an organization’s capital in each entity, as payments are more likely to be made on time with the simplified process. Centralized Risk Management International Treasury Centers can help to centralize risk mitigation processes that are associated with cash management, FX execution and hedging, and debt and investments. By aggregating all of the appropriate currencies into one, the number of exposures can be reduced and the conversion process for each entity is simplified. The potential benefits that an organization can derive from centralizing their risk management processes include: Reduced FX execution spreads and settlement volumes Improved efficiency in risk mitigation due to centralization Lower transaction costs due to reduced volume of transactions, better pricing from higher value FX trades Reduced effort and staffing required for FX management and execution Lower costs of compliance Improved management and exposure reporting Improved internal controls Standardized treasury operations Centralizing FX processes allows each entity the opportunity to reduce or eliminate spot trades and process cross-border wires, which can significantly reduce bank fees. Not only does this save money and increase the amount of cash on hand, but it allows organizations to view their liquidity in a centralized location instead of at each entity level. Having an ITC serve as the central location for any and all risk workflows unlocks the possibility of improved cash visibility and liquidity best practices. Payments Factory Organizations can simplify their payment processes and consolidate individual payments made to the same vendor when implementing an International Treasury Center by using a pay-on-behalf-of (POBO) model. Instead of each entity paying through their own separate bank, a Payments Factory allows organizations to centralize their payments through the ITC bank (this can also be referred to as the in-house bank) and streamline the appropriate transactions to each shared vendor. By having a multi-currency, central entity pay on behalf of each subsidiary, organizations can reap the following: Consolidated accounting view for Record to Report (RTR) Consolidated payments to global vendors, enabling lower bank fees and simplified tracking for Procure to Pay (P2P) Less idle cash as only the Payments Factory needs to keep liquidity Creation of cash pools to allow entities to borrow and utilize excess funds Single bank payments file and straight-through processing (STP) from payment to accounting and bank reconciliation Ease of auto reconciliation for RTR using Payments Factory Payment Factories reduce the cost of failure as payments are being paid from a central account with verified, successful payment workflows. By consolidating each separate transaction, visibility is increased and reporting can be more accurate for leadership to make better, more informed decisions. With the improvement of payment processes, other areas of the business, such as cash reporting and forecasting, will also see refinement to allow the organization to grow and improve. Utilizing a TMS to Facilitate an ITC When considering if an organization would benefit from implementing an International Treasury Center structure, it is also important to consider if implementing a Treasury Management System (TMS) to facilitate the ITC would be just as impactful. While ITCs do a great job of streamlining and simplifying processes, the restructuring process of an organization’s workflows can be daunting. Utilizing a TMS to help set up these processes not only makes the restructuring process easier, but also provides some added benefits that don’t come with just an ITC itself. The idea of implementing an ITC program lends itself to automation, as they look to ultimately streamline processes. While an ITC can certainly automate processes, implementing a TMS to facilitate the automation of workflows can alleviate some of the front-end work that IT departments might have to configure when structuring cash pooling. In addition, the connectivity options that a TMS offers is unparalleled. Being able to seamlessly connect with banks, ERPs, and other systems allow organizations to have even more visibility into their data points, which further improves the business case for a cash pooling environment. With all the different transactions, accounting entries, and FX exposures to track, it only makes sense to incorporate a centralized system that frees teams of working in manual, decentralized environments. The main point to recognize is that a TMS can facilitate the implementation of an ITC or in-house bank. With this in mind, it only makes sense for organizations to take the next step and centralize all of their processes, even the ones that may not be seen within the ITC. Centralizing cash pooling, intercompany netting, risk management, and payments is a great start, but having a system that can unlock all of an organization’s liquidity is certainly a case to consider. Want to learn more about inter-company process optimization? The Treasurer from Cooke Aquaculture explained in this webinar how the team reinvented their process with an in-house bank.

While corporates have enjoyed an unprecedented financial boom for years, the recent volatility in the global markets is an indicator of changing times that could bring sharply rising interest rates and the end of...

While corporates have enjoyed an unprecedented financial boom for years, the recent volatility in the global markets is an indicator of changing times that could bring sharply rising interest rates and the end of cheap money. The recent demise of Silicon Valley Bank is a wake-up call to the purpose of capital and liquidity requirements and the importance of strategic treasury management. [toc] In addition to macroeconomic developments, there are other significant changes afoot. Technology is transforming the way we live and work, with ChatGPT passing 100 million users in just two months and becoming a social media phenomenon. To gain maximum agility in this complex environment, CFOs need to transform their finance operations. One of the best places to embark on that transformation is in the area of treasury management, which delivers a low risk, high-yield value proposition for driving automation, improving working capital and mitigating risk. This book takes a closer look at the value strategic treasury management delivers to the CFO by interviewing nine CFOs across the globe. In particular, we want to find answers to the following three questions, and the result of those conversations is a better understanding of the importance of treasury management and liquidity optimization. What is the value of treasury to the organization? How do you measure the success of your treasury operation? As CFO, what do you get out of a treasury management system? Strengthening Treasury’s Role as a Business Enabler DOUGLAS BETTINGER Executive Vice President & Chief Financial Officer Lam Research Corporation Douglas Bettinger is executive VP and CFO of Lam Research, responsible for finance, tax, treasury, IT, and investor relations. Bettinger has been senior VP and CFO of Avago Technologies, VP of finance and corporate controller at Xilinx, and CFO at 24/7 Customer. At Intel, he held several seniorlevel finance positions, including corporate planning and reporting controller and Malaysia site operations controller. He holds an MBA in Finance from the University of Michigan. “At the highest level,” explains Douglas Bettinger, executive vice president and chief financial officer of Lam Research, “treasury’s role is to optimize cash generation in a way that maximizes the value of the company.” In a large enterprise, executive leadership thinks a great deal about the balance sheet, while line-of-business managers focus more on profit and loss (P&L). “I plug my treasury people into areas of the business that need more attention on cash generation.” In this way, treasury can sensibly use the balance sheet in ways that enable new, profitable business activity. There are many ways Bettinger’s treasury team contributes value to the company beyond routine block-and-tackle treasury functions: As a global enterprise, it is important to hedge against currency fluctuations. This not only helps deliver on P&L but also delivers the cash flow that must come from different parts of the business. “We hedge different balance sheet exposures and revenue streams in different currencies,” Bettinger says. “Treasury is in a unique position to manage that.” Key Lessons In a large enterprise, executive leadership thinks a great deal about the balance sheet, while line-of-business managers focus more on P&L. Identify partnership opportunities that involve using the balance sheet to enable business, and then work to accomplish three or four of those tasks per quarter. At the Highest Level, Treasury’s Role Is to Optimize Cash Generation in a Way That Maximizes the Value” Nobody else in the company focuses on the currencymanagement piece.” Bettinger’s company creates hedge ladders, where they look out four, three, two and one quarter, with different exposures hedged in each quarter. Another valuable treasury function involves taking advantage of the balance sheet to enable business that might not otherwise occur. For instance, it may be possible to set up a leasing arrangement for a customer that does not have access to capital it needs to purchase equipment. “We use our balance sheet in a prudent way to protect the asset and at the same time accrue new business,” explains Bettinger. “My treasury people are uniquely positioned to make those risk tradeoffs for the corporation.” Managing the cash conversion cycle is another valuable treasury function that includes managing collections so that money comes in as quickly as possible while stretching out payables. Optimizing cash conversion is a balancing act that ties closely to inventory management, which involves setting targets and objectives for cash consuming inventory and making decisions about where to place that inventory. “How you balance the debt-to-equity ratio and optimize the capital structure of the balance sheet affects your ability to fund different activities in the business,” Bettinger says. How you balance the debt-to-equity ratio and optimize the capital structure of the balance sheet affects your ability to fund different activities in the business.” Treasury is the Value Center of the Enterprise MARINA CHASE CFO (Ag.) Caribbean Airlines Marina Chase has been CFO (Ag.) of Caribbean Airlines since 2016, having been a senior manager in its treasury department from 2007. Previously, she was finance manager at Tobago Express and accountant and financial controller at McCann Erickson Worldgroup. She has a Business Management Diploma from Cipriani College, and is a chartered accountant in the UK and a certified treasury professional in the US. Cash management in an airline business is challenging for many reasons, especially for an international company. Unpredictable weather events, volatile fuel prices and the challenge of operating with many currencies can significantly impact revenue, cash and profitability. Marina Chase, CFO (Ag.) of Caribbean Airlines, says that treasury has experienced big changes in recent years. “It’s still cash management,” she says, “but treasury has moved away from the traditional operational functions. It is no longer back office.” In Chase’s organization, modern treasury-management tools have helped treasury become both a knowledge center and a risk-management center for the business. With treasury serving as a knowledge center, all divisions turn to treasury for real-time information related to operational activities. For example, this can include real-time information that’s needed for payments, and providing information about different laws and restrictions that affect transactions in different countries. Treasury also provides information to support strategic decisions, such as evaluating the cash flow and profitability of current and potential new routes. Key Lessons With treasury serving as a knowledge center, all divisions turn to it for real-time information related to operational activities. The power of the treasury management system comes from its global perspective and predictive capabilities. It’s still cash management, but treasury has moved away from the traditional operational functions. It is no longer back office.” Because there are so many variables that can seriously impact the business, risk management is a critical treasury function. “We are able to manage risks, especially around currency exchange,” explains Chase. “These are not risks limited just to interest rates. We also have to deal with repatriation risk. The efficiency of cash flow and managing cash have a lot to do with getting your money in real time. Because of laws and restrictions in different countries like Venezuela and Cuba, there are different ways that we have to comply with regulations in order to access our working capital.” Treasury has become a value center in the enterprise. “We track working capital, and not just working capital, but also the value of working capital,” says Chase. “An important part of this is predictive analytics, which is more than transformational. It supercharges treasury’s efforts.” Chase sees several key indicators of treasury’s success, including having adequate cash available for all operations, and preserving capital while maximizing the return on the investment portfolio. But there are other measures. “We must track trends and market dynamics that can impact the business, such as anything that might impact fuel prices, which you need to measure daily because this directly impacts cash flow,” she says. As CFO, Chase appreciates the global perspective and predictive capabilities provided by the treasury management system. “Predictive analysis and forecasting allow better scenario planning,” she says. “That’s critical because you can plan your cash-flow scenario based on changes in the price of oil, or on revenue going up or down in a particular region because of holidays, or fluctuations due to political situations that would impact revenues.” Chase sees the possibility of leveraging treasury even further by linking to ERP systems, adding business intelligence tools, and linking the treasury system to the corporate reporting system. We track working capital, and not just working capital, but also the value of working capital. An important part of this is predictive analytics, which is more transformational. It supercharges treasury’s efforts.” Expand Your View of Treasury to Drive Business Value MICHAEL DINKINS President & CEO Dinkins LLC Michael Dinkins is a longtime CFO and the current president and CEO of Dinkins LLC, a financial services firm connecting business owners seeking capital with lenders seeking borrowers. He has spent more than 40 years in finance, including a distinguished 17-year career with General Electric and GE Capital, and CFO roles with five different publicly traded and privately held companies. Dinkins currently serves on the board of directors for Community Health Systems and the National Council on Compensation Insurance. Most CFOs have not worked as corporate treasurers, which can give them a limited view of what treasury can really contribute to an organization. Typically, CFOs consider treasury’s main functions to be collecting as early as possible, paying as late as possible, and hedging, according to Michael Dinkins, president and CEO of Dinkins LLC and a former CFO of five different companies. But thanks to new technology and evolving best practices, strategic treasury management has grown than ever before, encompassing payments, fraud prevention, compliance and working capital optimization. Supply chain finance (SCF) solutions in particular are growing in popularity among CFOs who want to increase free cash flow and better manage working capital, not to mention improve supplier relationships. One option available through an SCF program is payables financing, also known as reverse factoring, which leverages a third-party to fund early payments of approved invoices to suppliers. For the buyer, this creates offers an opportunity to extend DPO (days payable outstanding) and improve working capital, while simultaneously improving the DSO (days sales outstanding) of key suppliers. Key Lessons CFOs should expand their view of how treasury can contribute to their organizations. Today, treasury can enhance the overall value of a business in new ways. To reduce operational costs, get treasury involved in negotiations from the beginning and ask the team to find process efficiencies for both your organization and your customers. The true value in treasury is around what it’s done to execute the business strategy of the company and how it’s leveraging the technology that it has to do that.” When it comes to measuring success, most companies emphasize revenues and margins. Treasury usually has separate metrics that may be overly narrow. As a result, CFOs may want to rethink how those data points can be better aligned. “I’m not saying you should get rid of those metrics, but the true value in treasury is around what it’s done to execute the business strategy of the company and how it’s leveraging the technology that it has to do that,” Dinkins says. CFOs can look at the company’s strategic objectives and assess how treasury leveraged technology to help achieve those goals. Treasury management systems (TMS) are critical to modern finance transformation. The right TMS must meet long-standing requirements related to compliance and security, while also offering capabilities for automation and business process optimization. With that system in place, an organization also needs people who can see the technology’s potential and realize it. “And I think that’s where a CFO can come in, look at what this technology is capable of doing, such as providing early warning about the performance of the business around key transactions or projects, and then bring the business process and treasury people together, potentially along with help from the outside. The CFO can provide the vision and leadership to change the company by saying, ‘I want you to do this.’” I think that’s where a CFO can come in, look at what this (treasury) technology is capable of doing, such as providing early warning about the performance of the business around key transactions or projects, and then bring the business process and treasury people together.” Demands for Strategic Treasury Management Continue to Grow to Ensure Organizational Success ANTHONY KWONG Deputy Chief Financial Officer Gemini Rosemont Commercial Real Estate Starting his career in Hong Kong, Anthony Kwong has spent his early career in financial accounting, reporting and compliance. With global vision being cultivated, he moved to the U.S. and is currently deputy chief financial officer of Gemini Rosemont, a commercial real estate investment firm based in Los Angeles. He is running a local and international finance and treasury management, financial accounting and tax for global investors in this real estate investment platform. It seems that more and more demands are being placed on treasury these days. It’s no longer just about moving operating cash around or ad hoc management and operational questions about where the money is going. Organizations are looking for positive cash management. They want to see how corporate activities are being funded and how debt is being managed at all times. Strategic involvement by treasury is critically important to manage capital more efficiently and in ways that reduce an organization’s risk exposure. Treasury decisions trigger other decisions that have a cumulative effect on how the business moves forward. That forward-thinking perspective, and applying it more strategically in the business overall, enhances the business’ value. Key Lessons An integrated treasury management system can help eliminate some of the problems associated with manual data collection. A single source of truth provides you with everything you need for better liquidity management. An integrated TMS also allows treasury and finance professionals to focus on more strategic initiatives. Being able to see all of your data in a timely manner makes it simpler to leverage that data to make better risk-mitigating decisions or other decisions that affect working capital financing. Organizations are looking for proactive cash management. They want to see how corporate activities are being funded and how debt is being managed at all times.” Any large company engaged in global transactions needs to pay close attention to its FX exposure. That requires systems that can monitor cash and currency data and track hedging instruments. There are many ways to hedge FX. Treasury relies on expertise, software tools, currency reports and real-time cash analysis to manage these elements. Treasury must understand what’s happening in the countries in which the company operates. Otherwise, the loss could be significant. The advantage we gain from our global payments platform is assurance that we’re making legitimate, timely payments. When working with global investors and global vendors, questions about payments always arise usually through email from different time zones. There are always due diligence issues, especially now, in the current unpredictable fraud environment. The treasury team needs to be sensitive about all of these payments and we rely on the system to track our counterparts so that we know if we’re receiving invoice emails from someone outside our vendor list. A single payment platform mitigates some of these issues. Cash is the lifeblood of every organization. For a business to be a successful company, it must proactively manage its working capital sensibly and in a forward-thinking way. We use a treasury management system (TMS) to enhance our cash management process and we are currently designing a modest investment program to support our cash needs. The treasury team must have visibility into everything that affects liquidity and drives the need for working capital. True real-time visibility requires a lot of integration between the corporate and operational side of the business. Treasury needs to understand both perspectives and gather all the data so that it can manage cash in a way that supports and strengthens the business. A treasury platform that integrates with other business systems makes it possible to quickly resolve questions that otherwise can take a long time to answer. This efficiency can be as simple as account discrepancies that take hours to resolve manually, time that is not being spent working on more valuable issues, such as how better to use cash to help the business grow. There is great value in consistent, efficient treasury operations. Cash is the lifeblood of every organization. For a business to be a successful company, it must proactively manage its working capital sensibly and in a forward-thinking way.” Strategic Treasury Management Plans for Future Scenarios NATHAN LORTON SVP & CFO Feld Entertainment Nathan Lorton is the SVP and CFO at Feld Entertainment. Nathan ensures the financial health of the organization by overseeing the company’s financial planning and analysis, corporate accounting, risk management and IT. Nathan joined Feld in 2018 as the VP of Finance and Assistant Treasurer. Since 2018, Nathan has overseen the global Treasury operations of the company before being promoted to SVP and CFO in July of 2021. According to Nathan Lorton, senior vice president and chief financial officer of Feld Entertainment, an organization’s treasury team often focuses on operational treasury, otherwise the nuts and bolts, such as short-term forecasting, daily cash positioning, managing operating cash and more. While operational treasury is important for businesses, focusing on strategic treasury management will help treasurers and their teams align with their CFOs. “Strategic is short term and long term,” explained Lorton. According to Lorton, expanding upon the short-term forecast and planning for the longer term outcome and various scenarios allows the organization and the CFO to prepare for the future. Lorton’s team is committed to being strategic in its approach to treasury. The team has implemented various practices to improve overall treasury operations. Feld Entertainment focused on free cash flow, as well as EBITDA and net income. “Getting to free Feld Entertainment focused on free cash flow, as well as EBITDA and net income. “Getting to free cash flow was key for us,” explained Lorton. “Free cash flow was essentially life or death. From a corporate standpoint, we had to get this right.” Key Lessons Both operational treasury and strategic treasury are critical for organizations. Strategic treasury management, however, allows an organization to look at the big picture, as well as predict and plan for future scenarios. Think outside of cash only. Managing all aspects of liquidity will help an organization to have a better idea of where cash is at all times. CEOs want accuracy in their forecasting of course, but they also want flexibility in planning and ability to do scenario analysis. We can’t predict the future, but we can certainly plan for scenarios.” Lorton and team established a 13-week forecast that extended into long range with various scenarios. “CEOs want accuracy in your forecasting, of course. But they also want flexibility in your planning and your ability to do scenario analysis,” Lorton said. “We can’t predict the future, but we can certainly plan for scenarios.” The 13-week cash forecast was eye-opening for Lorton and team. The team also began comparing the indirect forecast with the direct forecast, which has helped to dramatically improve overall forecast accuracy. Although a fundamental aspect of treasury, the team focused on proactive management of working capital. Lorton stresses the importance of getting outside of the traditional bank account cash structure to better understand liquidity. “Treasury had to move outside of its swim lane to try to manage liquidity,” he explained. This methodology has helped the team to know where their cash is at all times. Another valuable function is the ability to do customized reporting, which Lorton indicated has been instrumental and important for Feld Entertainment’s treasury team. Free cash flow was essentially life or death. From a corporate standpoint, we had to get this right.” Increasing Visibility Can Result In Unexpected Benefits FRÉDÉRIC MARRET Group CFO Webcor Group Frédéric Marret is a senior finance executive with 20+ years of experience at large multinational companies in Dubai, Morocco, France, and the UK. In 2013, he was appointed CFO of Webcor Group, where he has set up and streamlined the finance function, including treasury. Prior to joining Webcor, Marret was CFO at Louis Dreyfus Commodities — where he was commissioned to build the Middle East and Africa headquarters in Dubai. In 2011, he was promoted to CEO for the Middle East and Africa region. As a group CFO in the process of modernizing the treasury operation of Webcor Group, a multinational food distribution business, one key benefit that Frédéric Marret sees in a treasury management system (TMS) is the ability to receive global bank data, allowing for better visibility into group cash. “There is often a misconception that the group team and the local teams are independent. Having the flow of the same information to a centralised system helps bridge the gap,” Marret said. Webcor’s TMS project was initiated by Marret in order to improve the operational treasury tasks, so that group companies had visibility into was happening in Angola, where the company has its largest volume of transactions, as well as other parts of the world. “It’s not just about the visibility, it’s what you do with this data that matters,” he said. Receiving bank statements was not sufficient, so Webcor worked to integrate the statements back to the ERP. This delivered several benefits, including improved data quality, reduction in time spent importing statements, closing the book quicker, etc. “I know the group value at the end of each day,” he said. Key Lessons A TMS can provide visibility into your current and future currency exposure, enabling you to manage your risk forward by managing your spot and forward foreign exchange. A TMS can measurably reduce currency risk, help reduce idle cash and improve many operational efficiencies such as speeding up bank reconciliations. It’s not just about the visibility, it’s what you do with this data that matters.” Compared to his cash visibility before he implemented a TMS, Marret now has the ability to look 12 weeks ahead. “We didn’t stop there, the tool should be more than just data in, data out. We include sales, expected receivables and payments. Now you start to build a forecast—this is where the value comes.” This increased visibility makes it possible for Marret to manage group risk and allow for better strategic input into the business. “Most of our income is generated in Angola, which has its challenges. Having the ability to know my position each day allows me to manage group risk better, including currency risk, over-leveraged bank accounts or bank exposure against inventory. I am now in a better position to challenge operational decisions,” he says. “The fully implemented TMS will continue to add value. The group is on a fast pace of growth and we need to keep control through the journey—this is where an innovative FinTech can help.” Most of our income is generated in Angola, which has its challenges. Having the ability to know my position each day allows me to manage group risk better, including currency risk, overleveraged bank accounts, or bank exposure against inventory. I am now in a better position to challenge operational decisions.” Cash Visualization Enhances Global Governance and Efficiency SACHIO MATSUMOTO Executive Officer and Executive Vice President, Chief Financial Officer LIXIL Group Corporation Sachio Matsumoto has served as executive officer and executive vice president (VP) of LIXIL Group Corporation since April 2015, responsible for accounting. He has been chief financial officer (CFO) since June 2013. Sachio also serves as director, executive VP and CFO of LIXIL Corporation as well as CFO of LIXIL Water Technology. Previously, he was corporate VP and head of Finance and Treasury at Fuji Xerox Co., Ltd. Sachio Matsumoto, executive vice president and chief financial officer of the LIXIL Group Corporation, believes that treasury management systems (TMS) can “enhance global treasury capabilities dramatically.” Matsumoto explains: “Treasury is a critical part of the organization as it directly influences stakeholders’ value and ensures that we have the capital we need to run the business.” There’s more to it, however. Matsumoto points out that a TMS is a multifaceted application that can help organizations do more to track and balance assets. “Treasury is often the first department to identify potential issues in our group of companies because problems tend to appear in cash flows first. Treasury also protects our financial statements by identifying and hedging foreign exchange and other market risks.” Success can be measured in a variety of ways, and each organization has specific metrics that carry more weight than others. For Matsumoto, the success of a TMS is in the numbers. Key Lessons The role of treasury is shifting to become more than just managing cash and other assets. Today, treasury plays a key role in an organization’s decision-making capabilities. Treasury management should not only improve shareholder value but also contribute to day-to-day business processes that have an impact on the bottom line. Treasury is often the first department to identify potential issues in our group of companies because problems tend to appear in cash flows first.” He explains how LIXIL considers it a success when “Treasury operations improve shareholders’ value by strengthening nominal key performance indicators, such as return on invested capital; net debt/earnings before interest, taxes, depreciation and amortization; and financial leverage.” In addition, treasury achieves success—from Matsumoto’s point of view— when its TMS is “mitigating day-to-day governance, compliance and currency risks.” Treasury management might not be the most exciting aspect of Matsumoto’s day, but he explains, “TMS can add significant value, such as added productivity and more accurate cash forecasting and cash visibility for the company to deliver the objectives and value of treasury previously mentioned.” TMS can add significant value, such as added productivity and more accurate cash forecasting and cash visibility for the company.” A Global, Unified View Enables Treasury to Support Corporate Goals MASATOSHI MIYAMOTO Representative Director of the Board, Senior Managing Executive Officer & CFO JVC Kenwood Masatoshi Miyamoto has served as managing executive officer and chief financial officer (CFO) of JVC KENWOOD Corporation since April 2017. He started his career by joining TRIO Corporation (the present JVC KENWOOD) in 1986. After acting as FP&A general manager, subsidiary president in and out of Japan, and general manager of the car electronics unit and the home electronics unit, he was appointed managing executive officer and general manager of the finance and accounting department in July 2015. Electronics maker JVC KENWOOD has 90 subsidiaries spread across 19 countries, nearly 250 accounts with about 100 different banks, and it operates in 12 major currencies. As chief financial officer (CFO), Masatoshi Miyamoto oversees this complex, global network from the company’s headquarters in Japan, where treasury operations are concentrated. The treasury department’s current top priority is reducing operational costs by reducing the company’s interest-bearing debt. The department is also responsible for efficiently raising funds to support strategic projects and for managing foreign-exchange risk. “All of these obligations demand a treasury solution that enables fast, accurate decisions,” Miyamoto says. Historically, though, Miyamoto’s team used manual spreadsheets to manage cash and to capture foreign-exchange risk. This could sometimes result in inefficiency. “Group treasury management across the globe requires a single dashboard and single source of truth so that all may understand the management policy. The treasury management system (TMS) delivers this unified visibility,” he notes. Key Lessons Managing complex global operations with spreadsheets can make it challenging to achieve corporate financial goals. A treasury management system gives a real-time unified view that helps the treasury team support the financial health of the entire organization. Group treasury management across the globe requires a single dashboard and single source of truth so that all may understand the management policy. The TMS tool delivers this unified visibility.” In addition, the spreadsheet data wasn’t real time, making it a challenge to achieve the department’s goals in an optimal way. A holistic TMS, however, gives a real-time view on cash positions at all the accounts at all the banks, as well as real-time foreign-exchange positions for all relevant currencies. That consolidated, updated view allows Miyamoto’s team to more effectively manage cash and hedge foreign-exchange risk. It also makes it easier to invest available cash into growth-spurring activities, such as capital expenditure and mergers and acquisitions. “With the added visibility, we can also pay back interest-bearing debts,” Miyamoto says. “Compared to the manual Excel work, the TMS gives us direct and far-reaching benefits. We are now able to make more elaborate cash forecasts that allow us to reduce our reliance on external financing. That helps us achieve our key performance indicator—reducing our debt ratio.” A TMS helps multinational JVC KENWOOD in other ways, too. It connects to banks wherever the company operates and allows the centralized treasury department to interact easily with subsidiaries and recently acquired companies. It also offers rich reporting functions that automate inefficient spreadsheet-based processes. As a result, Miyamoto and his team can manage complexity and stay focused on maximizing the company’s financial strength. Compared to the manual Excel work, the TMS gives us direct and far-reaching benefits. We are now able to make more elaborate cash forecasts that allow us to reduce our reliance on external financing.”   A TMS Can Contribute to Increased Productivity and Growth ANDREW NICHOLSON CFO Graff Diamonds One of the first decisions Andrew Nicholson made when he joined Graff Diamonds five years ago as group director of finance was to implement Kyriba. Prior to that he had qualified as ACMA with Diageo alcoholic beverages company, which also allowed him to work overseas in Miami and Cape Town before finishing as commercial director for Guinness in Continental Europe. He was also the European CFO for four years at Hudson, a US-quoted staffing business. As Graff Diamonds grew its retail operation to 45 stores in 15 countries around the world, CFO Andrew Nicholson recognized early on the need for a treasury management system (TMS). The challenge of running six regional finance teams that managed banking and payments in 11 currencies across 15 countries was becoming a tremendous burden. “It was simply unsustainable to continue logging onto each individual e-banking platform in order to approve payments,” he says. “We needed a single point of access across all our bank accounts to set up payments, to define different payment types and to receive notification of pending approvals.” Early benefits of the TMS have been primarily operational for treasury, but Nicholson pinpoints additional capabilities that will give treasury a more strategic role in managing cash and risk. “In the upcoming year, we will be rolling out FX exposure management and GL reconciliation functionality,” he says, adding that they are considering a payment fraud detection module for the TMS system, which is important given Graff’s focus on highvalue, luxury-based retail. Key Lessons Although a TMS provides operational benefits for treasury, it also gives treasury a more strategic role in managing cash and risk. A TMS provides the CFO with the greater global cash visibility, which can improve balance and forecast accuracy. It was simply unsustainable to continue logging onto each individual e-banking platform in order to approve payments.” As CFO, Nicholson also appreciates how the TMS provides him with the greater global cash visibility, which has improved balance and forecast accuracy. “The main benefit I personally get is risk mitigation through much greater confidence in my treasury,” he explains. “I receive meaningful data to analyze, automated standardized reports and accurate cash forecasts. I can authorize transactions remotely. We access real-time, centralized bank statements first thing in the morning, and we source and analyze historical data for bank queries.” All of this is great, but is it benefiting the business? Nicholson is confident that it does. “We don’t formally measure the success of our treasury and finance operation in terms of KPIs,” he says. “The owners do recognize improvements in operational efficiency, cost savings and the ability to make more informed and strategic decisions, which in turn is contributing to overall productivity and growth of the company.” The main benefit I personally get is risk mitigation through much greater confidence in my treasury.”

Modern treasury teams have numerous available tools and structures to succeed in today’s global economy. With supply chain disruptions and decreased cash flows prevalent, treasury can leverage an in-house bank (IHB) and Payments Hub...

Modern treasury teams have numerous available tools and structures to succeed in today’s global economy. With supply chain disruptions and decreased cash flows prevalent, treasury can leverage an in-house bank (IHB) and Payments Hub to optimize working capital for an improved liquidity portfolio. This eBook highlights three key areas in which an IHB can improve working capital operations through centralization and standardization: Setting the stage for a working capital program Knowing when to pay suppliers Knowing how much to allocate to working capital operations What is an In-House Bank? Today’s fast-moving global business environment demands leading treasury teams have full visibility into their liquidity. To combat the challenges from growing numbers of entities, banking relationships, internal transactions and intercompany loans, treasurers are utilizing an in-house banking structure to centralize daily operations and organizational cash flow. An in-house bank (IHB) is a dedicated group or legal entity within the organization that provides banking services such as cash management, payments-on-behalf-of (POBO), collections-onbehalf-of (COBO) and working capital to different business units within the company. Put simply, an IHB centralizes flows and balances by executing all transactions through the designated, operating IHB entity. Benefits for Your Organization Implementing an IHB can deliver improvements to most, if not all areas of your business. Through intercompany netting, an IHB can centralize all internal flows through the designated entity to simplify the company’s payment structure and reduce payment volumes. Payments and collections to/from third parties act similarly: POBO: Outgoing transactions are executed by the IHB entity on behalf of operating companies and then debited to the operating companies’ intercompany account. COBO: Receivables are received into the IHB’s bank account on behalf of the operating companies and then credited to the operating companies’ intercompany account. Aside from simplifying internal and external transactions, in-house banking structures provide numerous benefits for large, global organizations: Treasury Process CASH PAYMENTS FX WORKING CAPITAL Benefits Increase cash visibility and control with global cash pooling Mitigate fraud attacks with the centralization of outgoing payments Centralize risk management processes by aggregating the number of exposures Ensures better support for business units and easier selection of the right invoices for inclusion in your supply chain financing program Simplify your banking landscape, the number of banking relationships and the number of physical bank accounts Reduce the number of intercompany loans and solidify your organization’s intercompany loans management process Net your FX payments to reduce the number of transactions and increase per trade volume, receiving better spreads Improve working capital with increased visibility into cash flows Increase returns with less idle cash through sweeps, better repatriation Reduce the number of internal transfers to/from different entities with multilateral netting Reduce cross-border payment fees Gives more opportunities for discounting through better visibility in a POBO or payments hub model Important to note, many treasurers have recently made working capital a key focus moving forward, as the current economy’s supply chain disruptions have continued to persist. The remainder of this ebook will discuss how the centralization of payments through an IHB can improve working capital and ensure that your company is making the most of your liquidity for future growth. Centralizing Outgoing Transactions with a Payments Hub Before discussing how working capital processes and decision-making can improve with an inhouse bank, it is important to understand how a payments hub can be introduced with the help of an in-house bank implementation. Global entities often make payments to the same third-party vendor through their own separate bank, which creates a complex and unnecessary string of transactions. The introduction of an IHB allows organizations to utilize a POBO model to consolidate and streamline payments that are being made to the same vendor. Organizations can reap numerous benefits by centralizing all separate, outgoing transactions, some of which include: Reduced bank fees associated with payments Increased visibility into outgoing payments and liquidity Improved and more accurate forecasting reporting through visibility to payments Reduced cost of failure due to payments being paid from a central account Less idle cash as only the Payments Hub needs to keep liquidity Centralizing all outgoing transactions through an IHB can improve daily processes that are not only related to payments. One area of the business that treasurers are realizing significant value gains in is working capital management. Centralizing payments with an IHB can fully optimize your organization’s working capital through the following three components: A payments hub supports the structure of a working capital program Centralizing payments allows leadership to determine when to pay suppliers An IHB facilitates cash visibility to determine the amount of funds to allocate for your working capital program A Payments Hub Supports the Structure of a Working Capital Program Standardizing and automating payment workflows through a payments hub can help to ease the implementation of a working capital program. The vast amount of payment and treasury management vendors in today’s financial space makes it simple to standardize and automate payment processes. The biggest impact that treasury teams can expect when automating payment workflows is visibility into incoming and outgoing invoices to better understand transaction lifecycles. With real-time data into organizational invoices, treasury teams can work toward shortening invoice lifecycles to be able to leverage early payment discounts with suppliers. A recent AP & Working Capital Report acknowledged that 31% of respondents found that manual routing of invoices for payments and approval stood in the way of an early payment discount. Manual AP processes can also lead to incomplete/ missing information on invoices, lost invoices, invoice exceptions and decentralized receipt of invoices, which can all impact an organization’s working capital performance. Overall, standardizing and automating the procure-to-pay process will result in a clearer picture of your organization’s financials and increase the insight you have into supplier relationships. Some best practices when standardizing payment processes to improve working capital include: Centralize payment processes and reporting to enable global teams to have better visibility into all outgoing transactions. Centralization also facilitates the standardization of processes to ensure that workflows like invoicing consist of accurate and timely procedures. Digitize payment processes to reap significant benefits when setting up a supplier portal. Efficiently communicating with suppliers through an electronic portal allows suppliers to automatically generate invoices for each new order, electronically validate and accept invoices, and electronically track the status of orders and payments received. Develop an effective procurement process to keep track of all received invoices and reconcile each invoice to its associated PO to produce better forecasts for cash flow reporting. An effective procurement process also ensures that your organization is working with pre-approved vendors to stay within the authorized spending limits. Create a strong accounting process to improve visibility into how much and how often companies should pay their suppliers. Optimizing payment terms will empower your organization to make the most of your working capital program and fully optimize liquidity. Centralizing Payments Allows Leadership to Determine When to Pay Suppliers The centralization of your organization’s payments process will empower decision makers to know when the best time is to pay suppliers - and also when not to. The best practice of creating a strong accounting workflow to optimize payment terms can aid in the process of determining when to pay suppliers. In the case that a solid payment structure is present, organizations can leverage centralized payments to have better visibility into outgoing transactions and thus, cash flows. Centralizing payments through a payments hub and IHB facilitates better reporting for treasury teams to forecast with more accuracy and consistency. The ability to sweep local funds into regional cash pools increases the confidence of an organization’s cash on hand, while also enabling teams to transition from point-in-time and end-of-month balances to real-time visibility into liquidity. With reliable forecasts and reporting available, organizational decision makers are empowered to make more informed decisions to improve working capital processes. Clear visibility into cash and outgoing transactions allows treasury teams to know when they might have more cash on hand to allocate towards working capital operations. Having a clear, transparent view into the organization’s cash flow patterns can enable teams to negotiate payment terms with suppliers, while also having the confidence that the suggested payment terms are in alignment with company balances. Optimizing payment terms can result in a number of benefits for buyers depending on the type of program(s) implemented, some of which include: Increased cash flow Reduced supply chain risk Reduction in cost of goods sold (COGS) and improved margins Strengthened supplier relationships Enhanced corporate social responsibility (CSR) credentials Working capital programs that optimize payment terms for buyers also provide significant benefits for suppliers: Reduction in days sales outstanding (DSO) Greater certainty predictability over cash flows Reduced corporate credit risk Access to cheaper liquidity than can typically be obtained, as the cost is calculated based on the risk of the buyer and not the supplier An IHB Facilitates Cash Visibility to Determine the Amount of Funds to Allocate for Your Working Capital Program Centralizing payments through an in-house bank increases the confidence in cash reporting and forecasting to determine how much liquidity should be allotted for working capital operations. Reporting across disparate systems, multiple banks and various entities is a challenge for most organizations so without an automated payment structure in place, cash and forecasting processes can often involve manual efforts that are prone to errors and inconsistencies. If liquidity information is not updated in realtime, leadership is most likely making decisions based on outdated information, which can lead to the inappropriate allocation of funds. Reliable and clear access to reporting ensures that treasury teams are strategically allotting the correct amount of organizational funds to their working capital operations, depending on the outlined metrics that they desire to achieve. Having trustworthy data empowers teams to be certain that their budgets are legitimate and that their plans for business growth are on track. Accurate and timely payments reporting is critical for the success of a working capital program and by marrying the visibility of cash and payment processes through centralization, real-time decisions can be made on the fly. Another consideration to take into account when evaluating the benefits of an IHB includes the idea that an organization can consolidate the number of global bank accounts with the assistance of an IHB and payments centralization. The cash pooling function of an IHB can improve visibility and controls, allowing enterprise companies to reduce the number of accounts needed to operate efficiently. A high number of bank accounts can oftentimes lead to an inefficient working capital program, as the amount of work to consolidate daily cash positions for forecast reporting increases with the number of accounts. Decreasing the number of global bank accounts creates concentrated cash pools that leadership can pull reports from to determine the correct allocation of funds for a working capital program. The concentration of cash through physical and notional pooling allows organizations to have a bird’s eye view of how much cash is on hand, at all times. The structuring of concentrated cash pools also enables leadership to fully leverage the maximum amount of cash for working capital, as the increased visibility encourages local teams to get rid of all extra cash on hand. Lastly, cash pooling helps to facilitate offshore treasury centers, which helps to improve the flow of capital through these offerings: Favorable tax laws Reduced risk and greater growth potential Cost savings for the business Protection of assets during times of instability Leveraging Technology to Enable a Successful IHB and Working Capital Program The implementation of a treasury management system (TMS) can simplify the implementation of an in-house bank and create a working capital program that fully optimizes cash for significant gains. A sustainable IHB and payments hub features automation that is typically facilitated by a TMS. Most companies use a TMS to manage the internal, complicated processes of receiving external bank statements, converting those statements into internal versions and creating all the needed postings. Potential netting processes and the management of the pay-on and collect-on behalf of models also leverages TMS features that banks or internally-developed systems cannot handle. While organizations can create a manual or internal IHB, a TMS reduces the time it takes to start a program and simplifies the effort of an implementation and ongoing maintenance. All of the listed capabilities on the previous page work to create standardized and optimized operations for a streamlined business. Leveraging technology to create a successful IHB structure will lend itself to a profitable working capital program that can also be improved with the use of a third-party system. A TMS can help to create standardized workflows, facilitate connections to third-party funding and build a successful supplier portal for your organization’s working capital solution. Without technology in place, the process of constructing a working capital program can be unnecessarily difficult and time consuming. Leveraging a system to simplify leadership’s effort in creating a program will be appreciated in the long run and ensure that a successful foundation is in place. Leveraging a TMS to facilitate processes such as working capital and payments will provide significant benefits for treasury teams looking to free up cash flow and reduce supply chain risk. The implementation of a TMS will also prove to automate other areas of treasury operations so that employees and leadership can focus on strategic, business growth initiatives. Utilizing technology for your company’s daily processes will ensure that future success is supported by a reliable structure that promotes innovation and optimization. Aside from automation, a TMS can help to provide the following: Robust multi-bank connectivity Secure controls and standardized, pre-built processes Streamlined global payments Cash flow forecasting templates and workflows Electronic bank account management Advanced intercompany loan and multilateral netting features Deliver the extensive company and cross-company GL postings created by an IHB

In this e-book, you will gain an understanding of how supply chain finance (SCF), dynamic discounting and receivables finance can create a win-win solution for both buyers and suppliers while enabling treasury and procurement...

In this e-book, you will gain an understanding of how supply chain finance (SCF), dynamic discounting and receivables finance can create a win-win solution for both buyers and suppliers while enabling treasury and procurement to work hand-in-hand to deliver working capital improvements. Driving Growth and Profitability Through Working Capital Solutions Companies around the globe generally deal in two opposing cash positions – a cash deficit or a cash surplus. In today’s hyper-competitive and ever-advancing world, companies need capital to grow, address existing debt, or distribute more shareholder value through dividends or share buy-backs. One way to generate this capital is to optimize working capital - the less capital that is tied up in the working capital cycle, the more there is available to drive growth and create shareholder value. Companies with a surplus of cash often find themselves bound to low-return, risk-free investments such as money market funds with traditional financial instruments. Driving the profitability or addressing the cost of goods sold (COGS), which is one of the major contributing factors to profitability, is also an area of focus. For many companies, using the cash surplus of the working capital equation to enhance profitability is proving to be a game changer. Supply Chain Finance Extend DPO to Generate Free Cash Flow with Support of SCF Companies often have a large amount of capital tied up in working capital, which doesn’t generate any return and is unavailable for growth investments. A simple solution to reduce this working capital is to increase payment terms with suppliers and hold on to cash longer. However, this can have an adverse effect on suppliers as it could increase their working capital needs. Supply chain finance, also known as reverse factoring. is a financial instrument that offers early payment programs to suppliers and a win-win for both buyers and suppliers. Providing supply chain finance as an alternative means of financing in buyer-led programs helps buyers negotiate longer payment terms, which is the actual objective. Dynamic Discounting

Making Real-Time Payments a Reality for Finance and Treasury Real-time payments initiatives are proliferating all over the globe and while many countries have jumped on the bandwagon with various real-time payments use cases, corporate...

Making Real-Time Payments a Reality for Finance and Treasury Real-time payments initiatives are proliferating all over the globe and while many countries have jumped on the bandwagon with various real-time payments use cases, corporate adoption has lagged. But to build the business case for implementing real- time, treasury and finance departments need to identify more business relevant use cases. How Do Real-Time Payments Work? Real-time payments can be transferred using the domestic or regional real-time payment network. For example, use an application programming interface (API) for unitary payments like one-time supplier payments, or use file transfer protocol (FTP) for bulk payments like payroll. While legacy file transfer protocols do not offer the same level of immediacy as APIs, corporates can still benefit from using real-time payment rails in some scenarios. Moreover, because APIs enable broader system-to- system interactions to be real-time, clients can use them for activities beyond real-time payments, such as connecting to ERPs, automating workflows, and facilitating data exchange in real-time. Real-Time Systems on the Rise Real-time or instant payments are not new. Many major economies have either launched real-time initiatives already or are in the process of doing so. For instance, Japan launched the Zengin real-time gross settlement system in 1973, which eventually became a real-time payments network. The Unified Payment Interface (UPI) in India, launched in 2016, is among the largest and fastest growing real-time payment system globally. As of 2021, real-time payments represent a 31% share by transaction volume and an 8% share by value. Zelle, a real-time payments network owned by seven of the largest banks in the United States, was initially launched in 2017 for peer-to-peer (P2P) payments to compete with payment apps, such as Venmo. Since its launch, this multi-rail network has expanded into business payments and is increasingly preferred by industry use cases, such as real-time disbursements to their customers. In 2021, Zelle added TCH’s RTP® network to its existing list of payment networks, i.e., ACH, Visa Direct, and Mastercard MoneySend. SEPA Instant Credit Transfer (SCT Inst), a pan-European payment solution launched in 2017, is used by consumers and businesses for euro-dominated instant domestic and cross-border payments. As of 2022, the payment scheme is supported by 61% of European PSPs and available in 29 countries. The adoption of this payment scheme has stagnated, accounting for just over 1 in 10 credit transfers in the region. A draft EU law is expected to address issues with ubiquity and fees to drive adoption. The New Payments Platform There have been ongoing efforts to expand the reach of real-time payments from domestic to cross- border payments. Asia has been leading the way, with India and Singapore linking their real-time payment systems (i.e., UPI and PayNow). Other developed countries are following their lead, with TCH, EBA Clearing, and SWIFT planning to commercialize their successful cross-border pilot connecting TCH’s RTP network with EBA Clearing’s RT1 network. U.S. Faster Payments Initiative Unlike many other economies whose central banks have issued mandates for real-time systems, the U.S. Federal Reserve instead opted to let the private sector take the reins while acting in an advisory capacity. Thus, in 2015, the Fed formed a task force of market participants, from banks to corporates to fintechs, with the goal of steering the nation’s payments system toward allowing payments to clear and settle faster. The task force’s work produced a two-part final report that determined ubiquitous receipt to be the key to making any real-time system truly successful. The task force recognized several key challenges to achieving ubiquity, including: Federal Reserve enablement of a 24/7/365 settlement Technical and business process issues Disparate rules and functionality for competing services Security Real-Time Payments Network (RTP®) In 2017, The Clearing House (TCH) launched the Real-Time Payments (RTP®) network. Running on a new payments rail, Real-Time Payments transactions clear and settle in seconds, and immediate confirmation notices are sent to payers. In March 2021, TCH announced that real-time payments had reached a milestone by connecting its 100th bank. As of November 2022, there are 280+ participants, plus the key technology providers. However, real-time payments still reach only 65 percent of demand deposit accounts (DDAs). MAKING HISTORY The Real-Time Payments (RTP®) network is the first new payment rail in the United States since the ACH. FedNow The FedNow Service is a real-time payments platform developed by the Federal Reserve as a public sector alternative to The Clearing House’s (TCH) RTP®. The service is a 24/7/365 instant payments network expected to launch in mid-2023. FedNow will use ISO 20022 messaging standards to enable instant account-to-account payments and be accessible through the upgraded FedLine network, which will enable sending and receiving messages for customer transfers, liquidity management transfers, transaction-level reporting and fraud mitigation tools. The standard is highly appealing to corporate treasury and finance, because messages carry substantial information and are based on a common data dictionary that supports payment message flows. INFORMATION > SPEED? The most appealing feature of both Real-Time Payments and FedNow for treasury and finance might not be speed, but information capabilities. Not only can payers send extended remittance information with payments, but these systems also feature Request for Pay (RFP) services that allow payees to send specific transaction details prior to payments. Corporate Pain Points and Building Real-time Payments Use Cases For mass corporate adoption to occur, real-time payment systems will need to address certain pain points that treasury and finance departments are looking to eliminate. PAIN POINT HOW REAL-TIME HELPS Emergency/Last-Minute Payments Particularly in times of crisis like the COVID-19 pandemic, companies may need to make emergency payouts for payroll and other demands. Last-minute bill payments may also be needed. Lack of Cash Visibility Clearing payments in real-time reduces settlement risk and provides a clear liquidity picture. Need for Cash Conversion Incoming payments can be immediately turned into accessible cash. Paper Check Usage Checks continue to be the payment method most susceptible to fraud. Businesses can eliminate this slow and risky method with real-time. Batch Payments Real-time can “un-batch” payments for corporates. Rather than relying on batch payments that are locked in at key times each day, real-time payments can be sent at any time. Missing Out on Early Payment Discounts Real-time can ensure that businesses can obtain early payment discounts on the last day of discount availability. Lack of Extended Remittance Information Modern real-time systems contain extended remittance information that travels with the payment. Looking to the future, the U.S. Faster Payments Council identified some real-time payments use cases that could soon make such payments even more appealing: Intercompany payments are low risk and a common use case. Many companies have enabled efficient deployment of working capital across their subsidiaries using the domestic/ regional instant payment option. Just-in-time invoice payments benefit both the business payer and the business recipient. Since this type of payment gives the payer additional time to pay a bill, it lets the payer hold their funds longer to avoid paying a bill late due to current timing of business day clearing. The business recipient also benefits by ensuring funds are collected within their timeframe, and they receive immediate credit for funds when being paid. Payments to suppliers can occur immediately and facilitate faster release and shipment of supplies from suppliers that require payment beforehand. Faster payments involve many moving parts related to treasury functions, remittances, corporate banking, and/or company-to-company payments. All of these real-time payments use cases involve the movement of large amounts of funds and any reduction in latency will lead to more efficient capital management and reduction of risk. These use cases need standardization and interoperability, such as the efforts of the Business Payments Coalition standardized semantic data model which is being designed to enable comprehensive use case integration in corporate ERP systems. At ION, there were times when we needed a payment to come in and it was 4:31 and the Fedwire closed at 4:30. We would have to wait until the next day and it would really impact payroll and liquidity. So, the opportunity to have that cash in the bank, and then being able to make your payroll or anything that’s urgent, is where the benefits come in.” — Lee-Ann Perkins, CTP, Assistant Treasurer, Specialized Bicycle Components and former VP and Treasurer for Ion Geophysical Key Considerations for Starting your Real-Time Payments Journey While instant payments have been available for corporates for several years now, uptake has been slow. One reason for that is real-time payments co-exist with wires and ACH. There is still a place for wires, which will continue to be used for larger value payments. As well, the benefits of real- time payments may not justify the cost of shifting to new payment rails. Key reasons for the slow adoption of real-time payments are further discussed below. Having a small delay when making B2B payments is not necessarily bad. “There are advantages to it, in trying to plan my cash,” said Jeff Johnson, CTP, chief financial officer of commercial kitchen repair service Smart Care Equipment Solutions. “There are advantages to it if people make mistakes. And there are advantages to not having things rushed.” Real-time can be costly. While Real-Time Payments can be relatively costly compared to ACH, they are still cheaper than wires for qualifying volumes. Still, CFOs and treasurers may focus on the premiums banks charge for Real- Time Payments and not see the value in spending extra cash to ensure a payment arrives faster than a normal ACH, noted Jim Gilligan, former assistant treasurer for Kansas City, and currently senior vice president of MFR Securities. Real-time may not be exactly real-time on the receiving side. If the process leading up to the payment execution is slow and manual, then real- time payments won’t have much impact. “Many companies still use batch systems to process receivables, so payments are not captured real-time,” said Gilligan. “It’s still going to take them the same amount of time to process the payment. Customers will likely be unsatisfied when they realize payments sent in real-time aren’t processed in real-time.” Fintech payment platforms can help bridge the gap by digitizing and automating payment workflows. Faster payments can mean faster fraud. Despite awareness of modern fraud activity, treasury and AP departments still fall prey to payments fraud scams even when they have adequate time to claw back a payment. Removing that aspect means that once a payment is out the door, it is gone for good. Bank account verification is key to preventing fraud, and confirmation of the payee is becoming the norm in the context of real-time payments, e.g, in the U.K., 90% of faster payments are subject to confirmation of payee (CoP) checks. It’s clear businesses need to be more thorough in vetting payments before they are executed. While it’s unrealistic for an organization that remits hundreds of payments in a single payment run to manually check every single one, technology can help to eliminate the threat. Payment policies can be digitized, ensuring that rules and limits are automatically applied during the payment journey. Artificial intelligence (AI) and machine learning (ML) algorithms can compare outgoing payment requests to historical payment patterns, identifying and isolating any anomalies. APIs built into your payments platform allow real-time connection to apps that can match payments against third-party data. This data allows you to verify ownership of the account you’re paying and that you’re not paying an entity on the Office of Foreign Assets Control (OFAC) sanctions list. Data visualization can identify and manage exceptions so that payments can easily be reviewed and cleared to minimize delays. Technology has really come a long way. Number one, there’s a lot more data to pull from that makes the software that much smarter. Number two, there’s a lot more threat intelligence available, and an increasing element of collaboration and sharing that threat intelligence. Today, you can run a transaction through an enormous number of tests in less than the time it takes to blink an eye. It adds a real element of credibility to a transaction.” — Brad Deflin, Founder and President of Total Digital Security How to Start Building Your Real-Time Payments Use Cases For U.S. corporate treasury departments that are interested in real-time payments, they will first need to develop their own adoption strategy: Determine some key uses cases for your business. Your bank and/or provider can offer live examples to help you narrow down use cases, understand the benefits, and calculate the business case. Assess the risks that using a new, real-time payments rail could pose, such as the need to update payment governance procedures to prevent fraud. Engage banks and vendors to ensure that they have invested in the appropriate infrastructure to facilitate real-time payments. Real Opportunity Real-time payments present an opportunity for corporate treasury and finance departments. Corporates that manage their own bank connectivity may need more work to identify use cases and build a business case for investment. For corporates that rely on third-party providers to aggregate connectivity, common real-time payments use cases such as sending intercompany transfers or replacing wires at or under the current transaction limit can drive tangible value while the corporates explore broader use cases. Watch this on-demand webinar to learn more about how you can build compelling real-time payments use cases in 2023 to benefit from this payment type.

Companies that can identify and use cash with confidence can now leverage liquidity as an asset for strategic value creation. It’s a competitive advantage that has often been overlooked, or not available, but which...

Companies that can identify and use cash with confidence can now leverage liquidity as an asset for strategic value creation. It’s a competitive advantage that has often been overlooked, or not available, but which due to advances in digitized bank connectivity is now becoming a reality. How an organization moves, manages, stores and protects cash has costs, benefits and risks, as with any other asset. As Ruth Porat, CFO of Alphabet, has said, “There’s no question that liquidity is sacrosanct.” Today, many leading firms realize they can now treat liquidity as an asset and use it as a market weapon. Corporate liquidity management practices are today faced with many “new normals”, shaped by increasingly frequent liquidity disruptions, given recent financial, geopolitical, trade and public health crises. These factors are compounded by demands for access to new financial and payment channels; more sophisticated fraud tactics and demands from business to scale to new regions and currencies better, faster and cheaper. Not being able to actively manage liquidity is to lose sight of a key asset: cash on hand, as PwC estimates that 25% of cash held by companies is not visible to finance. Compelling Solutions The legacy approach of creating unique and individual links between an enterprise’s internal ERP systems, trading platforms and banks made it impossible to generate the holistic view required to support the optimization of cash. This disconnected approach resulted in isolated liquidity pools and limited business success. Worse, the creation of unique deployments for every bank or payment system was costly and time consuming. But innovative and compelling liquidity management solutions now address those challenges and meet changing business needs. It is therefore now time to reimagine the bank connectivity approach as one that can simplify daily operations and enable next-generation enterprise liquidity management. The solution now exists that integrates all aspects of the process using consistent interfaces and APIs, and delivers not only new thinking, but a new approach to technology services to support it. The Next Generation for Optimizing Liquidity: Bank Connectivity as a Service The limitations of legacy approaches are so severe that a new digital service for delivering enterprise liquidity management must be a high-priority project. Organizations that stick to the old ways will be compromised. For example, the ability to stop fraud and implement payment control would be greatly curtailed, given that a recent survey by the Association for Financial Professionals found that 81% of organizations had been targets of payment fraud. Furthermore, business agility is impossible when it takes three to nine months to connect the organization to a bank. The most promising way forward is to enable a connectivity-as-a-service approach for all aspects of providing consistent, holistic, documented and secure liquidity management. This allows the enterprise to connect all its liquidity partners quickly and robustly and more easily adapt liquidity providers as needs change. Cloud Resilience & API’s To optimize liquidity, organizations need to deploy a service that has been designed with a modern technology foundation. The use of cloud platforms for this as-a-service model is at the heart of the approach, because it allows the enterprise to match usage and spending. In addition, many IT infrastructure tasks, such as resiliency, backup, security and system management, are done by the service provider. This allows the internal IT team to focus on delivering the highest possible value. Next-generation solutions also use APIs and prebuilt integrations to greatly simplify linking different aspects of the overall system. In this case, it could mean linking enterprise resource planning (ERP) systems and trading platforms much more quickly and accurately. The use of consistent and documented APIs and integrations not only saves a great deal of setup time, but also makes future changes simple to implement and eliminate manual errors. Connectivity as a service is enabled by simplified integration and interactions. Figure 1. Progression of Hyberautomation Initiatives Unified Data Another key feature of modern as-a-service solutions is that data is unified and stored in one place, making it possible to derive much more useful intelligence from it using analytic tools such as artificial intelligence. As banking platforms change and banks roll out new requirements for how they will receive formatted files, a central depository of up-to-date bank specs relieves corporate IT from needing to follow, build and test these ever-changing bank formats. Finally, a modern platform includes all necessary applications or solutions in one platform. For liquidity optimization, this includes treasury, risk, payments and working capital management. The benefits of using a best-in-class offering that delivers liquidity connectivity as a service are compelling. For one, there are significant shortterm cost savings, starting with a reduction in the cost of onboarding a bank. Based on its experience working with customers and partners, Kyriba has found that the cost typically ranges from $50,000 to $150,000. But this can be reduced by well over 50% using Kyriba’s established and proven banks links and its modern as-a-service solution. Speed and the attendant agility to modify or create net new integrations also improve. With this type of platform, enterprises’ time to production is also two to three times faster. Figure 2. Payment volumes increasing with increased digitization of transactions Fraud Controls A significant reduction in fraud and misdirected payments is now possible, since a cohesive view and comprehensive reporting make it much easier to identify potential problems and remediate them. Further, with a documented set of integrations and stronger process, the chance for mistakes that lead to fraud is nearly eliminated. With a comprehensive data set, enterprises can easily analyze liquidity flows to optimize them. Gone are the days of manually integrating disparate spreadsheets. Such information will also deliver the insights organizations need to make changes that improve liquidity and allow them to use it more effectively. The value of a single source of truth about liquidity provided by this type of service is impossible to ignore. From a business operations perspective, having connectivity as a service as the digital foundation enables enterprises to: Make strategic plans for the use of cash enterprise-wide Provide businesses with an agile banking platform to efficiently add and remove new banking partners, while minimizing the burden on IT resources Optimize the cost of bank fees Determine the best payment channels to use, based on specific scenarios Centralize fraud management Provide a foundation for meeting regulatory and compliance issues However, without a comprehensive solution that tracks all liquidity, benefits are much more limited. Resultant blind spots don’t just impact the liquidity not tracked by the system; they impact all liquidity as well. With only a partial implementation, treasurers are still flying blind. Enterprise Liquidity Management As successful, modern enterprises implement new services and technologies to optimize every element of their business, attention is now increasingly focused on liquidity management. Legacy processes for doing this worked well in the last millennium, but every organization looking for an edge is now taking the next steps to achieve enterprise liquidity management. New services, such as Kyriba’s Active Liquidity Network, provide those capabilities and insights that were not possible using legacy practices. With an underlying service that brings a consistent and holistic view to all aspects of liquidity, organizations are empowered to optimize it as never before. This comprehensive perspective allows them to maximize liquidity across all banks, payment processors and the treasury. And using this data, organizations can make better long-term decisions, positioning themselves for the future. What’s more, these new capabilities reduce the time needed to add new banks or processors and dramatically reduce the costs of doing so. IT teams can now be much more responsive and better able to help the CFO have confidence in getting things done. Check out this webinar to learn how Treasury and IT worked together at Hilton Grand Vacations with Kyriba to speed up connecting more than 10 banks and 300 bank accounts to improve cash and liquidity management.

While treasury departments are typically aware of the advantages that a treasury management system (TMS) provides for cash and liquidity management, they are often less clear on what is required to achieve the full...

While treasury departments are typically aware of the advantages that a treasury management system (TMS) provides for cash and liquidity management, they are often less clear on what is required to achieve the full benefits. In this ebook, you will learn the steps needed to design and plan for a TMS, including best practices for how to: Define future state processes Build a prioritized roadmap Design a system. Download this ebook to learn how you can prepare your team for a successful implementation and achieve the most value from your TMS. Holistic System Design Methodology While treasury departments are typically aware of the advantages of using a treasury management system (TMS), they are often less clear on the steps required to achieve the full benefits. It is difficult to get where you’re going if you do not have detailed directions on how to get there, so planning well in advance and establishing measurable objectives better positions organizations to reap rewards when implementing or enhancing a TMS. Not only will clients minimize additional costs and project delays but most importantly, they will also achieve the full set of benefits sought from a TMS in the first place. The first step in positioning a TMS project for success is to follow what is referred to as a holistic system design methodology: confirming the scope and objectives of the project, defining the future state processes of your TMS, creating a roadmap and planning the system design. Confirm the Scope and Objectives of the Project When defining the scope and objectives of a TMS project, treasury professionals should focus on four specific areas: Out of Box API Integration Faster time-to-market No upfront costs to enable real-time payments Improved certainty in cash flows Obtain Clarity on Current State It is difficult to clearly define your scope if you do not have a solid understanding of your point of departure. Depending on whether the treasury function is more centralized, decentralized or if certain functions have been outsourced, you may have a better grasp on how all the daily processes function and who is responsible for which activities. Having a strong foundational knowledge and understanding of the current processes is critical when designing any new solution. To help lay this groundwork, detailed process flow diagrams should be created that include all areas being considered for TMS implementation. The focus should be on: How data flows between people and systems Roles and responsibilities of various constituent groups throughout the process Hand-offs between groups Defining whether the process is systematic or manual Systems and reports beings utilized Key controls needed In gathering all the elements noted above, you will not only help establish a clear point of departure for the implementation, but will also capture a number of data points that are critical for future steps of the implementation. Define Scope and Priorities In order to determine an accurate budget, resource needs and a timeline of a clear scope are required. This includes analyzing all requirements, including those in scope, out of scope or deferred to a future phase of the project. Additionally, throughout implementation, decisions will need to be made regarding where to focus resources and how to sequence tasks. As such, it is extremely beneficial to have clearly defined and prioritized requirements and project scope that have been agreed upon by all constituents. This will assist in providing direction to the project team and help ward off any deviation from the key priorities. The requirements must be at a fairly granular level of detail in order to facilitate these decisions. For example, it is best practice to list out all the reports and determine which functions are a “must have” and what is simply “nice to have” to ensure resources are spent wisely. Set Measurable Objectives The best way to determine the project’s success is by measuring it against a set of predefined objectives. These can be categorized by type including improved financial performance, risk mitigation or enhanced operational efficiencies. Some examples for each category include: Improved financial performance – Reduce bank fees by 20 percent through validating fees charged and renegotiating agreements based on cross bank fee analyses Risk mitigation – Centralize 95 percent of payment approval workflow, release and confirmations Enhanced operational efficiencies – Reduce time required to compile daily liquidity across all accounts by one hour per day The objectives should be incorporated into the project status reporting to ensure the team does not lose sight of them and to ensure that they are achieved as part of the implementation. Ensure Leadership Support and Alignment In a project as significant as a TMS implementation, it is critical to obtain leadership support and ensure alignment and commitment from all key stakeholders. Reach out not only to internal stakeholders but also to external ones including vendors and implementation partners. The project will impact and require involvement across multiple departments, including accounting, accounts payable, FP&A, tax, information technology and treasury. However, prior to engaging these teams you must be prepared to clearly communicate the following: Project vision and importance to the company Specific benefits achievable by each function Anticipated level of effort and resources required Timeline and roll-out strategy Impact to existing processes and potential changes in roles and responsibilities There will be a number of project dependencies on these groups, so ensuring they are committed and have allocated sufficient resources to meet the project timelines is vital to its success. Aligning the project team’s incentive compensation structure with achieving the defined objectives is another effective method to ensure commitment across all levels. Define Future State Processes As part of a TMS implementation, existing processes, roles and responsibilities should be analyzed with a goal to optimize, as well as take advantage of best practices delivered with the system. It is worth noting that taking existing processes and lifting and shifting them to a new TMS is often not the best approach. Legacy processes and roles transform over time. As organizations evolve and grow, the circumstances change, but usually the processes do not. The future state should be designed to improve processes to make the organization more efficient, productive and strategic. Therefore, it’s critical to define what that future state will look like. In order to achieve the ideal future state, a defined set of steps should be followed to optimize the design of the system, realize new efficiencies and to fully benefit from the TMS’ capabilities. Once the scope of the project is defined, the next order of business is to identify the future state processes: Document functional and technical requirements to drive implementation decisions. Draft process flow diagrams of the future state that reflect ownership and hand-offs, and define ideal processes and data workflows. Create a system architecture diagram and identify opportunities to redesign and streamline processes. The architecture might include multiple versions to coincide with roadmap phases. Refine roles and responsibilities to take advantage of treasury’s ideal future state, including defining staffing skill requirements and determining which processes and resources need to be realigned. Analyze the impact of change management on the organization and assess the organization’s ability to absorb this level of change. Developing a Process Flow Diagram Creating a future state process flow diagram lets organizations identify opportunities to redesign and streamline processes and determine how functions will be performed in the TMS. This diagram will help treasury define: Processes or data flows that are manual versus those that facilitate straight-through processing Systems utilized and how data flows between them as well as manual movements Interdependencies between groups, data flow and processes Cross-functional responsibilities and flow of data between internal and external groups Key controls (both systematic and manual) to ensure they are being maintained, if not strengthened Below is an example of a payment process flow diagram showing task cross-departmental ownership: Creating a System Architecture Design In addition to defining the functional process flows, a system architecture diagram should also be created. It will serve as a high-level view of all the integration points coming into and out of the TMS, detail the TMS functionality in scope and identify any third-party dependencies. If the plan is to deploy the functionality in phases, the items can be color-coded to identify which items will be implemented in each phase. When discussing the project with management, key stakeholders or third-party vendors, this illustration is very helpful to convey the desired end state. The Importance of Documenting Change Management As part of the future state definition, it is important to identify changes in processes and how they impact individuals’ daily functions, as well as any potential changes in ownership. The proposed changes must be well documented, and include the rational and perceived benefits, and it must be approved by the heads of each department. If at any point the groups cannot reach a consensus, any open items should be escalated to the steering committee or additional members of senior management if applicable. It is important to confirm and communicate the changes to everyone as early as possible to avoid confusion and disruption when the change is enacted. Build a Prioritized Roadmap The implementation or enhancement process will likely go through many phases before reaching completion. Therefore, it is critical to create a well-defined roadmap that includes a realistic project plan, outlines budgetary and personnel needs, and measures progress. To develop the roadmap, treasury will want to: Clearly outline objectives and designate tasks and priorities for action in the short-, medium- and long-term. Create an impact assessment to weigh the benefits against the cost and time required to achieve the desired outcome. Indicate the timeline, resources and budget required to achieve the stated objectives and prepare a business case. Define metrics and milestones to allow regular tracking of progress. Developing a Process Flow Diagram The project roadmap should be driven by a combination of factors including: Level of effort to accomplish Prioritization of requirement Impact to the organization Key dependencies Centrally managed functions versus decentralized functions Global nature of the business and level of involvement and impact to each region Ability to address significant control deficiencies or risks Expiration of software licenses or sunsetting of existing products Budgetary or resource constraints Treasury will also need to weigh the impact of the roadmap on the organization. Typical approaches to phase the implementation involve either deploying the system by grouping modules, such as cash management and forecasting, bank account management, payments, etc., or deploying by region. For more global organizations, the deployment may be phased by both a set of modules and by region. The roadmap and resource requirements of other groups must be discussed and their feedback incorporated into the plan. The plan should be realistic and, ideally, also build in some opportunities for early wins to gain momentum and confidence in the project. Identifying these opportunities for early wins will avoid having a project that fails to live up to the state objectives or exceeds the budget. Why You Should Assess Project Impact To create a realistic timeline, treasury will want to weigh the benefits of the project against the cost and time required to achieve the desired outcome. The best way to do that is to rate each impact as low, medium or high. Then, plot the impacts on the y-axis of a graph and the time and resource commitment (or level of effort) on the x-axis. This practice can help identify low impact, low effort commitments that are good to start with as a first step to achieve a quick win. Defining Metrics and Milestones Defining metrics and key milestones allows treasury to monitor progress and keep everyone on track. Each time the organization achieves a milestone, share the news and related metrics at stakeholder meetings and in key management conversations. Always communicate positive wins. This will help build confidence in the TMS initiative and demonstrate immediate value to the organization. Designing a System Once there is a solid foundation and clear plan, it’s time to design the system. The focus should be on determining how to best configure the TMS to meet the defined requirements and processes while taking into account industry best practices. The most successful system design projects occur when there is a holistic understanding of both the business requirements and TMS capabilities by all participants in the project, including business and technology stakeholders, as well as third-party vendors involved in the implementation. When designing the system, be sure to: Conduct knowledge transfer sessions with third-party vendors to ensure they fully comprehend the business requirements and objectives. Conduct TMS training sessions to educate stakeholders on the TMS functionality. Confirm with all stakeholders impacted by the implementation that they understand and agree with how the system will accommodate their requirements. Define how the TMS will integrate with other systems, including: • Connection method • Frequency of data transmission • Volume of data being transmitted • Whether data transformation is required • If it is an automated or manual integration • The project phase and priority for each systems integration Incorporate industry best practices into the overall design. Conduct proof of concept scenarios where the implementation team models client-specific examples in the system and provides output for review and validation. Structure a plan to validate output early on to help identify potential system limitations at the outset. Garnering Different Perspectives It is important to understand the perspective, areas of expertise and objectives of all internal and external stakeholders. Most businesses are intimately familiar with their current way of conducting business and the desired future state; however, they typically have limited experience with system implementations or knowing how treasury management systems function. While the vendors are experts on the capabilities of the TMS, they do not have the intimate knowledge of a business’ specific operational treasury activities. In order to increase the knowledge of both parties, time must be allocated at the outset of the project to conduct knowledge sharing sessions. Too often, teams dive directly into the implementation activity without ensuring proper alignment and understanding. The most common cause is due to a failure of both parties to fully appreciate the others’ needs and capabilities before proceeding with the system configuration. In order to help avoid this disconnect, utilize the checklist below and confirm each is adequately addressed prior to the system configuration. Design Requirements (Client) Have I documented my requirements at a level of detail that is granular enough? Have I provided tangible examples of offline processes and reports? How malleable is my future state vision? How well does the system accommodate our vision? What are the limitations that will require workarounds or development? Does the vendor truly grasp my business and desired end state? Has the vendor formulated and clearly communicated the system design to me? System Capabilities (Vendor) How well does the system accommodate the client’s future state vision? • Is it meeting all the high-priority items? • Are stated objectives going to be met? Have I provided tangible examples of offline processes and reports? • Is the workaround acceptable or is system development required to address the gap? Do I fully understand the client’s requirements and have I performed a proof of concept to validate my understanding? Has the vendor formulated and clearly communicated the system design to me? Capturing Data Elements An important aspect of every TMS implementation is determining what data elements must be captured in the system to best achieve the desired output. This can be challenging as you are typically compiling this information at the inception of the project, prior to having a true appreciation for how the data will be used and displayed throughout the system. It is important to ask sufficient questions to understand the downstream implications of how static data, reference data and user-defined fields will be utilized in the user interface and reports. One way to achieve this is through a proof of concept. Treasury should keep these high-level best practices in mind with regard to data elements: Key elements: Ensure crucial data elements are included and captured in the appropriate location to facilitate the required system displays or output. Integration: Consider how data elements will interact and integrate with upstream and downstream systems. Be sure to address requirements for ERP(s), market data, trading portals, etc. Terminology: Determine a standardized, global naming convention that’s consistent, recognizable and understood across the organization. Treasury may want to consider terminology that users are familiar with, such as leveraging the same naming conventions as their ERP system. ERP structure: Look at the ERP structure by region or business unit. Each one provides data elements that treasury can capture at the entity level and facilitate utilization, grouping and reporting of the data downstream. Determining Essential Reports Treasury must confirm which reports and specific data elements are required, which ones are still in use and what their limitations are in order to produce the reporting output. It’s also important to understand the system’s out-of-the-box reporting views and capabilities. It is recommended to perform a reporting rationalization to validate and consolidate the reporting requirements and determine a list of must-have reports. To ensure they have access to the reports they need from the new system while reducing the effort to develop these reports, treasury will need to: Identify opportunities to consolidate like reports with numerous overlapping data elements. Often, report requests are added over time without evaluating already available alternatives. Compare the consolidated set of reports needed with vendor capabilities. Utilizing existing, out-of-the-box reporting from the system generally minimizes costs and project risk. There will likely be some level of custom report development, but fight the urge to try to replicate the existing report package and instead only customize views where they are absolutely necessary. The data element design may need to be supplemented to address areas where limitations are identified. Sometimes there are free form or user-defined fields available that can be utilized to meet unique requirements not addressed by out of the box functionality, so these should be considered when limitations are discovered. Communicating Unique Requirements Some requirements don’t fit neatly into a box or align with the typical system utilization but still need to be included. To decide whether to add them to the list of requirements, treasury should fully examine their merits, communicate clearly so that everyone understands why they are necessary and provide tangible examples. The treasury team and the vendor should work together to identify solutions that can leverage existing capabilities and be open to alternatives that may not exactly mirror the current process. You want to avoid falling into the trap of spending excessive time on an isolated area to the detriment of the overall project timeline or budget. Setting Up System Controls Another key element in the design is analyzing how the system manages controls, assigns user permissions and administers these controls on a go-forward basis. A good starting point is pulling the existing SOX controls in place for each department involved in the project and highlighting which of them are applicable to the TMS. While this will provide a starting point to the level of system access granularity in the TMS, applying these controls can be daunting. Obtaining assistance from both internal resources and the vendor is advisable. To identify key control considerations and figure out how those are addressed in the system, be sure to consider the following: System security: Understand how to manage user access and regional access rights, and dual-review controls in the system. Sometimes the set-up exists in multiple locations, so be sure to obtain a holistic understanding of where security is managed in the application. Existing controls and SOX key controls: Identify how existing controls can be strengthened and how they will change as the process migrates to the TMS. Systematic-based controls: Find opportunities to switch to more automated and systematic controls. For clients migrating from offline processes, hard copies are often utilized as evidence that the control step was taken. However, as you migrate to a TMS, evidence of the control step can often be captured systematically via report or system audit log. Seek to design the system to take advantage of these controls and audit evidence. Additionally, ensure it is clear where to access the audit logs and that they are deemed sufficient by your internal audit group. One example of this is transitioning from paper copy sign-off on payments based on defined dollar limits to a system audit log for which user-approved payments and security rights limit access to individuals based on dollar thresholds. User groups: Determine how to build user groups to achieve control objectives. For example, payment approvers that have the same approval rights can be grouped together. Grouping users will minimize future system administration. Leveraging Proofs of Concept Leveraging proof of concept (PoC) scenarios to validate the system design early in the implementation process is an effective method to minimize project risks and ensure alignment between all stakeholders. A proof of concept also helps identify system limitations at the onset of the project and enables treasury and the vendor to factor them into the overall project plan from the very beginning. A PoC utilizes a specific set of data from a defined period, attempts to flow it through the end-to-end system design and produces an output demonstrating the operational steps, specific calculations and reporting views. It provides the users an opportunity to visualize the system processes and validate the output while there is still time to modify it with minimal rework or impact to the project. The following steps should be taken to create a robust set of PoC scenarios: Key stakeholders should identify proof of concept scenarios (client responsible) Develop input data required to produce scenarios (client responsible) Model scenarios in the system and provide results including screen shots, calculations and reporting views (vendor responsible) Review and provide feedback on output provided by the vendor (client responsible) Identify design changes or potential system limitations (vendor responsible) Validate task priorities, workaround options and development needs (both parties responsible)? The Recipe for a Successful TMS Implementation Depending on the scope and stakeholder groups involved, TMS implementations can be complex projects with multiple moving parts. The organizations that have the most successful implementations and achieve the most value tend to: Perform proper planning and alignment from the onset Spend sufficient time ensuring all stakeholders have a deep understanding of both the business needs and TMS capabilities prior to diving into the implementation Validate the system design leveraging proof of concept scenarios before building out the system holistically Proactively track and measure project objectives against accomplishments and ensure clear communication is provided across all stakeholder groups These items focus on two key points—active engagement with all parties and regular communication. Additionally, planning and system design validation play an important role in every successful TMS implementation. By keeping this recipe in mind throughout the implementation process, treasury is well positioned to deliver on its objectives and ensure the company it supports is better positioned to realize its goals.   Want to learn more about how to prepare for remote treasury management system implementations and avoid project risk? Check out this webinar.

In this ebook, we reveal the most common types of accounting errors, breakdowns in accounting controls, system configuration issues, and process deficiencies leading to unnecessary FX risks. Hidden Accounting Impacts We hear time and...

In this ebook, we reveal the most common types of accounting errors, breakdowns in accounting controls, system configuration issues, and process deficiencies leading to unnecessary FX risks. Hidden Accounting Impacts We hear time and time again that CFOs and Treasurers alike “don’t know what they don’t know” about their foreign currency exposure data. All too often, the first symptom of a problem shows up as a material misstatement of FX gain/loss. Usually, this is a result of what Kyriba has coined as “accounting volatility.” We use this term to describe the phenomenon of systematic, recurring inaccuracies that exist in most multicurrency ERP systems, that obscure the true magnitude of a company’s foreign currency exposure in ways that make the problem difficult to detect. In many cases, accounting volatility is reflected in the delta between hedging actions and actual FX gain/loss resulting from the underlying exposure. Background and Purpose In this ebook, Kyriba will hightlight critical issues facing treasury and accounting teams and cover shortcomings in the way companies today account for multi-currency transactions and manage the resulting foreign currency exposures. Time and again, our analysis of foreign currency exposure management processes within organizations uncovers a ticking time bomb that could (and eventually does) have material impact on a company’s financial performance and its ability to accurately reflect FX gain/loss within financial statements. Frequently, this time bomb is an undetected exposure hidden within the ERP that is masked by a variety of data integrity issues. Without adequate visibility into the source data, Treasury can only cope with/or try to manage around the problem. As a result, their decisions (even when based on sound strategies) are ineffective and even potentially counterproductive. All too often, this time bomb is detected once it’s too late. The problem ultimately surfaces in the FX gain/loss line of the income statement and the CFO is faced with foreign currency exposures that have serious economic and compliance consequences. In every case we have witnessed, the question isn’t if companies are misstating FX gains/losses, but whether how large the material impact is. Getting to the heart of the matter and preventing a disaster begins with a close examination of the ERP system(s), controls and related processes that undermine the accuracy and completeness of foreign currency exposure data. The first section of this ebook will deal specifically with the issue of accounting volatility -- a result of pervasive, self-reinforcing inaccuracies that exist in most ERP systems with regards to foreign currency -- that obscures the true magnitude of a company’s exposure in ways that make the problem difficult to detect. An examination of the processes that contribute to foreign currency exposure identification often reveals uncoordinated activities and the lack of a true process owner who has the oversight to adequately manage and drive actions throughout the entire process. In the second part of this ebook, we’ll discuss why foreign currency exposure management goes beyond Treasury and is ultimately an enterprise-wide issue. Companies that approach foreign currency exposure management from an enterprise perspective (assigning the proper ownership, authority and resources to the process) can focus their attention and energies on strategic, value-based decision making that will protect and strengthen the value of the organization. The third part of this ebook will discuss how companies can begin to transform their foreign currency management practices into enterprise-level, standard processes. The FX Exposure Management Process Owner: Starting Where the Buck Stops In almost every conversation we conduct with CFOs, Treasurers, and Accounting, a common theme emerges: an overall lack of crossfunctional coordination and collaboration within organizations with regard to activities that impact FX exposure quantification and measurement. While Treasury may be regarded as the process owner, in reality they maintain control of, and have authority over, only one piece of the puzzle. Different functional groups within an organization contribute to foreign currency exposures and their management process. The FX gain/loss line on the corporate income statement is the ultimate product for these efforts. Responsibility and accountability for that number resides with the CFO. As such, it is the CFO who assumes responsibility and accountability for the process and must ensure coordination among the contributing functional groups to ensure that this result is both accurate and acceptable within company policies. The only way to ensure the kind of cross-functional coordination required to properly manage the foreign currency exposure management process is to elevate awareness and priority of the issues throughout the enterprise. Acknowledging foreign currency exposure as an enterprise risk means assigning the proper level of oversight, accountability, and resources to the entire management process. At a strategic level, the FX business process owner must have the strategic responsibility for addressing and maintaining currency risk management decisions, processes, and policies. The FX business process owner must be able to coordinate tactical activities across multiple disciplines, and communicate effectively with Finance, Accounting, Tax, and Operations representatives from around the globe. Ultimately, they’re the stakeholder with visibility into the foreign currency exposures and management process, from data to exposure, across the enterprise. The Data Dilemma: Getting to the Source of FX Related Accounting Volatility The Challenge of Defining Exposures In most organizations, the Treasury department is accountable for managing foreign currency exposure and the related FX gain/loss. While Treasury often maintains control over the process to select hedging instruments and dictate internal risk management tactics, their ability to mitigate the effects of FX volatility depends on accurate and complete exposure data. If the data is inaccurate or incomplete, companies may execute risk mitigating actions within policy but still sustain significant FX gain/loss volatility. The real problem with foreign currency exposure data integrity issues is that they are extremely difficult to detect until a major problem has surfaced. In our experience, we frequently find off-setting errors and omissions that distort foreign currency data, falsely masking the true exposure in ways that make it difficult to isolate an anomaly and determine the source of an error. We’ve come to refer to this phenomenon as accounting volatility - a pervasive, self-reinforcing sequence of data integrity issues that become increasingly complex and intractable over time. Treasury is a customer of the accounting organization when it comes to foreign currency exposure data. Assuming that a multi-currency accounting system is in place for the enterprise, valid foreign currency exposure data is dependent upon two key premises: Multi-currency transactions have been properly recorded in the transaction currency. Accounts that are required to be revalued in accordance with ASC 830 / IAS 21 are being revalued on a periodic basis. Accounting volatility can result if multi-currency accounting entries have not been recorded appropriately, or if the revaluation process is not properly identifying accounts that should be revalued. The result in either case is a misstatement of the foreign currency gain/loss in the income statement for the organization. Either foreign currency gain/loss remains embedded within the monetary asset and liability accounts in the balance sheet, or it has been improperly recognized prematurely in the income statement. In the following section of this ebook, we will discuss these issues and provide questions that CFOs and Treasurers can ask to determine the future likelihood, and historical magnitude, of accounting volatility within their organization. Recording the Transaction One difficult-to-detect issue that has serious impact on foreign currency exposure management is the entry of the foreign currency transaction in the functional currency instead of the transaction currency. As a result, the exposure is not detectable and cannot be managed by Treasury. In addition, the foreign currency gain/loss associated with this transaction exposure is not realized incrementally with the process of account revaluation. Rather, it is realized all at once, when the transaction is cleared or settled. Another prevalent issue is the clearing and reconciliation of multi-currency account balances in functional currency instead of transaction currency. This results in invalid transaction currency balances and mismatched relationships between the transaction currency and functional currency within the ERP system. Because revaluation processes are based upon transaction currency balances, invalid balances can lead to unrealized FX gain/loss calculations and inaccurate, posted results during period-end processing. These accounting issues are evidence of a process breakdown usually attributed to employee training in the area of transaction entry. Detecting these issues requires a disciplined analytic review of the monthly foreign currency FX gain/loss for entities within the enterprise, given the foreign currency exposure relationships within each entity and changes in foreign currency rates. Intercompany Mismatches Intercompany mismatches have a significant impact on the nature, level, and complexity of a company’s foreign currency exposure. Generally, intercompany transactions are recorded in one of the functional currencies of the entities that comprise the intercompany relationship. As a rule, the intercompany account balances recorded within two entities of an intercompany relationship should net to zero on a currency-bycurrency basis. Despite this, one common source of accounting volatility is mismatched intercompany balances in which one entity has recorded an intercompany payable or receivable, while the other has either neglected to record the corresponding transaction or has recorded it inaccurately. This too is a symptom of a multi-faceted process breakdown - one in the recording of the transaction and another associated with the reconciliation process. Intercompany transactions that take place in a currency other than the functional currency of either entity creates additional exposure for the enterprise and further complicates the FX exposure management process. As described in the table at the bottom, when a third currency enters this relationship, each entity has an exposure to the transaction. There are two ways to resolve this issue and eliminate the exposure. One way is to execute two currency conversions: one entity purchases the currency, and the other entity sells the currency. Alternatively, a process must be developed to convert the third currency balance into one of the entity’s functional currencies based upon a pre-determined rate convention, followed by a single currency conversion to settle the balance. In many cases, creating an intercompany transaction in a third currency is not an acceptable business practice. Unfortunately, due to the complexity around intercompany balances, lack of visibility in transaction currency across multiple systems, multi-department responsibilities, and inadequate reporting infrastructure, it’s often unknown that this is an unacceptable business practice. ERP and Systems Configuration ERP Configuration of FX Postings Specific FX-related configuration, administration and maintenance issues in most major ERP systems add to the complexity and potential for problems with multi-currency accounting. Oracle Oracle does not define a functional currency at the company level. It is defined for a set of books. The ability to support multiple functional currencies for a company is often overlooked or misconfigured. Revaluation rules apply only in the context of a company in a set of books. If a company transacts in multiple sets of books, multiple rules may be required for the same accounts and/or currencies -- this is often overlooked or misunderstood. Revaluation processing looks at functional currency of the set of books, not the company. A non-functional transaction in a set of books with the same currency will be ignored for revaluation. SAP SAP does not define a functional currency but rather a local currency. Often times, the revaluation processes is run multiple times whenever the functional currency is different from the local currency, effectively reapplying FX adjustments. Revaluation criteria are usually managed through the use of variants (i.e. predefined parameter definitions) that are static, requiring constant manual updates to reflect current accounts and entity relationships; these updates are often overlooked. Institutions where the Controller organization is decentralized, account setup and changes in entity relationships contribute to uncoordinated revaluation criteria and the potential to either:a. Revalue some accounts b. Revalue accounts multiple times c. Revalue accounts that should not be revalued System Configuration & Maintenance Issues: Revaluation Under ASC 830 / IAS 21 Framwork As detailed previously, accounting and process issues related to transaction data quality may not be the only source of accounting volatility. In many cases, problems related to monetary asset and liability account revaluation in accordance with ASC 830 / IAS 21 guidelines contribute to unreliable FX gain/loss statements. In working with clients to set up end-to-end processes for identifying foreign currency exposure, we routinely uncover and help to resolve issues related to revaluation validity that hamper customers’ ability to properly reflect the impact of currency revaluation on their financial statements. We commonly encounter inaccurate results from improper revaluation of accounts across the enterprise, typically finding a combination of accounts that are being revalued properly, as well as accounts that are being revalued, but shouldn’t be. In most cases, companies are unaware of the problem. In either scenario, the underlying root causes of these inconsistencies can be grounded in the following factors: 1. Maintenance of the systems and processes comprising revaluation processes become inaccurate over time. SCENARIO #1 An account that should be revalued is not being revalued 1. Treasury has no visibility into this account for their exposure management process Thus, they cannot mitigate risk with regards to the underlying currency exposure 2. There is no unrealized FX gain/loss being recorded on a monthly basis The total FX gain/loss that exists within the account is sitting in the balance sheet, waiting to be realized all at once when transaction(s) making up the account balances are cleared and/or adjusted **You may encounter compliance issues as a result of this scenario 2. Initial setup of the revaluation environment within a multi-national company is complicated. SCENARIO #2 Accounts that should not be remeasured are identified for remeasurement 1. Treasury takes risks mitigating actions for these inaccurate balances (in the accounts) as part of the exposure management process An associated FX gain/loss in addition to currency conversions, hedge valuations/settlements, and the inherent cost (bank fees, forward points, and/or option premiums) associated with currency hedge transactions are recorded for the account 2. The effects of the risk mitigating currency actions have been realized with no off-setting amount that would have resulted from an underlying exposure The company will eventually discover that the account should not have been revalued and records the adjustment to reverse the recorded unrealized FX gain/loss Initial Revaluation and Process Design Setup of the revaluation environment within a multi-national organization is complicated. Initial setup requires: An understanding of the requirement to revalue monetary asset and liability accounts as prescribed by ASC 830 / IAS 21. Configuring a combination of systematic and manual processes across the accounting enterprise to accomplish the requirement. The initial configuration can be very complex, as is evident in the many different variables which must be assessed when configuration is done: Multi-system accounting environment Revaluation processes provided within each of the accounting systems that comprise the enterprise accounting framework. Each system can approach revaluation differently Revaluation dependencies on specific account setup parameters Manual processes to address accounting system deficiencies or desired business practices Centralized vs. de-centralized processes Period-end close processes Our analysis and work with companies has shown that finding the one person in the organization that understands every revaluation parameter, setting, and process is nearly impossible. The fragmentation of responsibility around this area will continue to complicate the overall revaluation framework, leading to a consistent misstatement of the FX gain/loss and an inherent ability of Treasury to successfully manage the foreign currency exposure. Maintenance of Revaluation Process Maintenance of the systems and processes comprising revaluation can often become inaccurate. Does your process include any of the following common reasons? Rapid merger and acquisition activity with lagging system integration Growth in the chart of accounts with no process for determining if accounts should be added to the revaluation list Complicated revaluation rule maintenance environment within accounting systems No common oversight, responsibility or ownership of the process – fragmentation of responsibility No periodic account review process to test effectiveness of systematic and manual revaluation processes Consistent turnover within the accounting staff, who has revaluation responsibility as part of the close process Lack of ongoing education and training Lack of consistent visibility to revaluation results and context to interpret the results Inconsistent review of FX gain/loss and not establishing a process for resolution of results outside of tolerance The Assessment of FX Risks Diagnosing Accounting Volatility: Symptoms, Questions and the Self-Assessment So far, we have discussed common foreign currency exposure data integrity issues, the role of the ERP and accounting systems administered by IT and/or Accounting, and accounting and organizational issues that contribute to the problem of accounting volatility. Next, we’ll consider the symptoms of these problems in the form of key questions that CFOs or Treasurers can pose to indicate the degree of accounting volatility within their organization. How confident is Accounting that multi-currency transactions are being recorded properly, including initial entry and clearing of the transactions? If multi-currency transactions are not being recorded or cleared properly, they can create unexpected FX gain/loss volatility. As discussed previously, if a Regional Accounting Manager records a multi-currency invoice in the local currency of the entity instead of the transaction currency, the Treasurer will have no visibility to the exposure. When the payment is cleared, the gain/loss on the transaction will unexpectedly impact the income statement. When was the last time Accounting reviewed enterprise-wide revaluation to determine if the system(s) configuration and related processes produced a result that compiled with ASC 830 / IAS 21? In the vast majority of companies that we have worked with, we have uncovered multiple ERP/accounting system setup/configuration problems and process issues which not only raise compliance concerns, but also create embedded FX gain/loss volatility that is very difficult to detect and manage. How confident is Accounting that intercompany transactions are being reconciled on a timely basis and are in balance? We commonly witness intercompany transactions that demonstrate the significant balance discrepancies discussed previously. Intercompany issues we often encounter that can cloud foreign currency exposures include: Intercompany transactions where only one side of the transaction is recorded in the GL Intercompany transactions that do not have matching balances Intercompany transactions that are not posted in the same transaction currency Intercompany transactions that are recorded in a third currency (functional currency of entity) Does Accounting perform foreign currency gain/loss analysis on a regular, monthly basis and maintain a proactive process for the resolution of exceptions? If yes, how often do they encounter unexpected results, and what is the process for investigation and resolution? If not, do they verify that the gain/loss on currency exposures is as expected and within corporate tolerance? Assessing Your Organization’s Foreign Currency Exposure Management Situation Upon addressing these key questions, you should be able to assess your company’s ability to quantify and manage foreign currency exposures. The FX Exposure Management Capability Model represented by the excerpt below, can help you determine your company’s current capabilities and define concrete goals to improve your ability to quantify and manage foreign currency exposure. We’ve developed this assessment with selections to help you identify the most applicable attributes of your FX Exposure identification and management. Once you take the assessment, the category with the most items checked will be an indicator of your company’s ability to manage foreign currency exposure. Representative extract from the Kyriba FX Exposure Assessment Foreign Currency Exposure Management: An Enterprise Issue Additional Resources Savvy corporates are adopting a roundtable approach to currency risk management. Currency has become an issue outside the halls of treasury. Modern currency aware organizations understand that currency impacts many areas of the business and that all of those areas are represented at the company’s currency roundtable. Everyone at the currency roundtable has access to accurate, complete, and timely exposure data, as well as the analytics to understand how those exposures impact their functional area -- and conversely, how decisions they make affect foreign currency exposures and the company’s overall financial performance. Currency surprises impact in obvious (and not-so-obvious ways). When a company’s revenue is regularly eroded by currency surprises it has less cash available for productive activity. That loss has ripple effects, including credit rating downgrades that raise the firm’s cost of capital and debt covenant breaches that limit its access to liquidity. Both reduce available cash and limit the organization’s ability to deliver maximum profit to shareholders. For more detail on the deeper impacts of currency surprises, check out the latest Currency Impact Report from Kyriba: Kyriba Currency Report Recommended Next Steps CFOs, Treasurers, and Accounting can turn to Kyriba FX to provide an unparalleled ability to access accurate and complete exposure data, on demand. Our platform is backed by a team of experts who continually support the currency risk management process at some of the largest organizations in the world. Put simply, teams that have identified FX related accounting to exposure management issues can rely on Kyriba to provide a solution to remediate any sources of accounting volatility and inaccuracy. In many cases, organizations choose to leverage Kyriba’s industry leading software platform to measure, monitor, and manage their currency risk management programs on an ongoing basis. About Kyriba FX Risk Management Kyriba FX Advisory Services helps treasury and finance professionals understand and manage currency impact to financial results. Organizations ranging from Amazon to Google use Kyriba FX analytics to monitor and manage the impact of currency on their business. Kyriba FX was developed as the first solution to automate foreign exchange exposure management for multinational companies, delivering unparalleled expertise and driving measurable results. To this day, Kyriba FX is focused on helping organizations quantify their foreign exchange exposure and cost-effectively insulate their company from the uncertainty of currency volatility. Whether we’re working with a Fortune 50 organization or a growing U.S. company poised to go global, we take the same approach to understanding our customer’s foreign exchange policies, processes, and objectives. Kyriba FX is a cloud based software suite that customers can deploy to cost-effectively manage their own foreign exchange exposure management process.   Want to learn more about how to automate seamlessly across your FX management process? Check out Kyriba's latest demo session and see how Kyriba helps its clients mitigate the effects of currency volatility and reduce hedging costs.

This eBook explores the use cases for AI in treasury management and corporate finance, as well as the barriers preventing mass adoption of the technology. These technologies are applicable in cash and liquidity management,...

This eBook explores the use cases for AI in treasury management and corporate finance, as well as the barriers preventing mass adoption of the technology. These technologies are applicable in cash and liquidity management, payments fraud detection, documentation of treasury processes, and more. AI/ML Today While artificial intelligence (AI) and machine learning (ML) have gradually worked their way into everyday life in treasury and finance, but we’ve only scratched the surface of their potential. It’s important to understand that AI and ML are not technically the same thing. While the terms are often used interchangeably, they are two distinct technologies. AI is a broader term denoting intelligent machines that can simulate human thinking capability and behavior. ML, in contrast, is an application or subset of AI that enables machines to learn from data without additional programming.1 What makes AI so powerful now, as opposed to just a few years ago? The simple answer is data. We have so much more now than ever before. Both companies and consumers are using a host of applications that generate mass amounts of data, and with the right systems in place, that data can be transformed for better decision-making. Data scientists train AI models on historical data. Next, they run new data through the trained AI model to make much more informed predictions. Such models are incredibly useful for treasury and finance, which have had to make rapid adjustments in recent years to keep organizations running. Applying AI in Treasury Management and Finance With applications proliferating across so many areas, as well as the connectivity that banks and technology providers are building through APIs, treasury and finance departments have more data at their fingertips than ever before. But processing all of that data manually is nearly impossible. That’s where AI comes in. Technology providers train AI models on data that is extracted from operational applications and placed in a central repository. These can vary and have different advantages. Data warehouses store data in hierarchal dimensions and tables. Data lakes, in contrast, store massive amounts of raw data, storing it in flat architectures to allow users more freedom for data management.2 Unlike robotic process automation, which can only replicate processes, AI models can analyze data and identify trends and patterns in a fraction of the time that humans can.3 This allows for much faster and complete conversion of raw data into meaningful information that treasury and finance departments can use. AI models can be used for various treasury functions such as cash forecasting, payments fraud detection, and working capital optimization. For example, AI can drastically improve receivables management. As noted in a recent AFP Treasury in Practice Guide, a technology company’s accounts receivable (AR) team was struggling to manually process over 2,500 monthly checks, leading to major delays. Realizing that it needed to make a change, the AR team worked with its banking partners to implement an machine learning-enabled receivables solution. The solution automated the manual gathering, consolidation and formatting process that the AR team had been doing every morning, allowing most payments to process within two days. Furthermore, over time, the machine continues to learn from exceptions, improving accuracy. It has also provided the AR team with more opportunities to increase electronic payments adoption. How Machine Learning Works for Treasury Payments Fraud Detection Modern payments fraud detection software uses AI to screen payments against historical payment data pulled from a data source. All the characteristics of payments—the payment amounts, payment types, the number of payments, where they’re going, etc.—reside within that data source. A machine then analyzes that data, which enables it to identify anomalies in future activity. A number of different models can be used to pinpoint those anomalies. One of the most effective is an isolation forest methodology. This model compares all the different variables in the data source against new payments to determine the normality of those payments. Any payment that has an unusually high abnormality rank is flagged and set aside for further review. Machine learning solutions can even show users that variable comparison, providing them with insights into how that normality/abnormality rank is calculated. Users can even set their own levels for abnormality tolerance. Companies that work in industries that are high targets for fraudulent activity might want a very low abnormality tolerance, whereas organizations that are less at risk might want to set it much higher so that minor anomalies won’t disrupt payment activity. Additionally, workflows can be embedded to swiftly resolve anomalies. Real-Time Screening, Alerts and Notifications The rise of same-day and real-time payment systems has increased the need for real-time responses to fraud attempts. Modern fraud detection software uses AI/ML to screen payments against historical payment data, pinpointing any anomalies. By providing more complete data, these solutions enable data-driven decision-making. Solutions can flag any abnormal payments, providing insights into the variables that determine payment normality. Generative Adversarial Networks The lack of data around fraud can be a problem for AI models. Training AI models can thus be challenging because the algorithms often can only learn from good payments and, at best, a handful of bad ones. Generative adversarial networks (GANs) can solve this problem. GANs are deep learning models that pit two separate neural networks against each other. One network mixes real data and synthetic data together and attempts to outwit the opposing network. By training fraud detection models on these competing networks, fraudulent transactions can be more easily identified in real data. Cash Forecasting Manual processes persist in treasury, even with the advent and evolution of technologies like AI. Many treasury departments continue to rely on Excel, even though it can produce highly inaccurate cash flow forecasts that can negatively impact the business. Organizations can increase the accuracy of their short-term cash forecasting with AI-based tools that learn from the history of cash flows and continuously improve inflow projections over time. With deeper analysis of this data, organizations can better predict cash flows by season or region, which in turn reduces efforts for key functions like accounts payable by, anticipating free cash flow closing, and adjusting the payment campaign budget. AI/ML users also can select what companies, currencies and cash flow types to include, as well as adjust the forecasting period to align on short-term payment/funding/investment decisions. With interest rates increasing, treasury teams can optimize liquidity by reducing their maximum idle cash while also minimizing the risk and cost of overdraft. Treasury will be able to determine how much of its budget it can allocate towards certain expenditures over a period of time, or whether it will need to borrow funds to make certain payments. AI tools can factor in multiple variables and errors found in historical data to better estimate cash inflows and outflows over the next seven days. This allows treasury to determine how much of its budget it can allocate towards certain expenditures over that time period, or whether it will need to borrow funds to make certain payments. Soon, as these tools accumulate more data, they will be able to make predictions on mid- and long-term horizons. Check out Kyriba's latest AI-powered cash forecasting module: Cash Management AI to see how AI in treasury management can already be used fluently for short-term cash forecasting. ChatGPT and Generative AI in Treasury Management ChatGPT has become a popular generative AI app, in part because of a $10 billion partnership with Microsoft. ChatGPT is well known for its natural language processing chatbot abilities that answer any question. Yet the real opportunity for ChatGPT and generative AI is to change the way we interact with online software applications, including online search and business applications like ERP and treasury management systems (TMS). ChatGPT can also be used within a TMS where the user gives instructions to the system using keywords or questions. With a user experience (UX) that has been optimized for natural language processing, the TMS can respond to basic queries such as “What is my exposure to the Yen?” or more complex requests, including “What caused the variance in my forecast last week?”. Treasury may also find this technology to be useful in documenting treasury processes and procedures. Documentation and how-to manuals take time and effort to compile. Fortunately, ChatGPT and similar generative AI models can do all the writing for you after being fed a minimum amount of information. Take Action The demands of today, and tomorrow, dictate that CFOs and treasurers must act. While pervasive economic hardships and rising global inflation may make it difficult for companies to justify spending on new technology, they are facing massive challenges if they don’t adjust to the pace of the modern business world. Rest assured; if your peers aren’t investing in this technology yet, they will be soon. Many companies have also stockpiled their cash reserves throughout the pandemic — now is the time to begin spending some of that cash on tech enablers, one good area to look into being AI in treasury management. Treasury teams would be wise to look for a trusted partner as they explore possible use cases of AI in treasury management. There are technology providers with teams of data experts and portfolios of treasury apps available. Many tools are already in production and require minimal effort on the part of the company. As we emerge from the pandemic—a time when companies were focused primarily on survival—the focus now needs to be on growth. As more data becomes available, growth will come from those organizations that are able to harness that data and turn it into useful applications. Others will drown in it and fall behind. With AI in treasury management to assist the human, treasury teams can ensure that they are positioning their organizations for success. Related Resources Javapoint: Difference Between Artificial Intelligence and Machine Learning TechTarget: Data Lake AFP: Identifying Value for Treasury: Automation, Machine Learning & Artificial Intelligence PYMNTS Intelligence: How Payments Automation and Digitization Can Reduce Errors and Streamline Transactions Gartner: Success With AP Invoice Automation Requires More Than Paper to Digital ERP News: Automation for Business Intelligence Kyriba: 15-Minute Guide to Payment Hubs Want to see how AI in treasury management improves cash forecasting? Join Kyriba's upcoming monthly live demo sessions. An on-demand demo session is available here.

Nearly every company doing business beyond its own borders faces the challenge of developing cost-effective FX risk management programs, and each year corporations incur billions of dollars in currency related losses due to global...

Nearly every company doing business beyond its own borders faces the challenge of developing cost-effective FX risk management programs, and each year corporations incur billions of dollars in currency related losses due to global currency volatility. Even small organizations with modest international operations can be impacted by currency exposures if treasury fails to effectively manage foreign exchange (FX). In this eBook you will be introduced to three common manual foreign exchange profiles and examine anonymous case studies of how a company from each profile type was able to gain greater insight into currency data and exposure, improve workflows, increase overall efficiencies and withstand currency headwinds — all by modernizing and automating their FX processes. In many cases, these losses are attributable to manual, spreadsheet-based currency risk management programs and processes, which are vulnerable to human error and faulty hedging strategies — strategies that hinge on inadequate or incomplete data. Ongoing FX volatility, lack of access to accurate and timely data, and real time responsiveness to exposure and market risk changes put demands on organizations to embrace fully-automated FX risk management programs. Regardless of the sophistication or complexity of an organization, every corporation can benefit from automated FX risk management. This is true even for larger or more sophisticated companies already utilizing general treasury software or trading platforms. In fact, automated FX risk management programs can enhance the value of a trading platform, ERP(s) and other technologies. What Does Automating FX Mean? Automation involves modernizing procedures by systematizing each step of a process, eliminating the need for manual intervention along the way. Within the FX risk management programs, this may include automating processes for the data collection exposure consolidation, calculation and analysis, as well as hedge recommendation. Automation also involves seamlessly integrating multiple systems, including ERPs, trading platforms and market data providers to ensure exposures are aggregated easily and automatically with the latest technology, like APIs. At Kyrbia, we advise corporations to consider three types of FX automation when looking to enhance their FX risk management programs Data Transfer Automation to optimize the data gathering portion of FX risk management, which ensures human “touch-points” are minimized and the potential for error is reduced. Workflow Automation to identify and establish exposure benchmarks across the enterprise, ensuring consistency and eliminating currency surprises. Process Automation to introduce complete, end-to-end modernization to ensure errors are mitigated, efficiencies are maximized and risk is eliminated. The Benefits of Automated FX Risk Management Programs Although automating FX may sound intimidating, by working with the right technology and fintech provider, it can often be completed easily and quickly with quick-strike benefits. Automation eliminates the need for manual intervention, reducing the potential for costly human errors. Diminishing the need for manual involvement frees treasury professionals from having to gather data from multiple sources, giving them more time to analyze information, track exposure trends and proactively seek out other opportunities to eliminate risk. Automation transforms how treasury professionals are perceived within an organization, allowing them to be seen as resources in strategic planning. By using automated FX risk management programs, organizations also gain: Improved efficiency Significant time savings Increased FX controls Greater insights into FX exposures Reduced currency impacts to earnings Optimized FX risk management costs Managed impacts from FX risk Leveraging technology allows organizations to perform risk analytics on command, becoming less dependent on financial institutions or outsourced service providers. This provides the most flexibility, visibility, and control over an FX program while not losing time on external dependencies. By dividing the automation of foreign exchange management into three distinct profiles, we can better examine where companies stand with their current FX programs and determine what steps they need to take to achieve full automation. These three profiles are broken out by companies looking to expedite processes, create flexible & adaptable workflows, and enrich data intelligence to optimize FX risk management programs. Expedite: The “expedite” category describes corporations that are interested in incrementally improving their existing FX management programs through efficient data processing. Generally, companies that fit this profile type rely on manual processes that are vulnerable to errors. The CFO may be interested in transitioning away from a spreadsheet-reliant program and looking to automate data aggregation and facilitate in-depth exposure analyses. Adapt: Global organizations have dynamically changing exposure & risk profiles within a continuously changing foreign currency market. Organic growth, acquisitions, and restructurings can leave hedge programs frequently chasing down issues if the FX risk management program is not designed to quickly “adapt” to evolving conditions. When it comes to FX, chasing down issues ultimately puts the organization at higher risk of ineffective risk mitigation decision and negative P&L impacts. Enrich: The “enrich” category describes highly-complex organizations seeking to take advantage of efficient processes by shifting efforts to more strategic analysis. Companies in this category have optimized the blocking and tackling of operating an FX risk management program, and are now ready to leverage automation to improve data inputs and risk forecast assumptions. Hedge programs will maximize effectiveness the more hedge decisions accurately align with actual business activity. Editor’s Note Companies in each one of these profile types have distinctly different challenges and operate at varying levels of sophistication, but they all share a common trait: the need to automate their FX programs. Three Corporate Profiles, Three Automation Success Stories Every corporate environment offers unique challenges, and the following anonymous case studies illustrate how automated workflows can enhance a company’s FX risk management programs — regardless of the inherent complexities. The specifics for each company in this eBook vary— some used FX trading platforms or had previously established in-house banks. Regardless of the specifics, after modernizing their programs, each organization saw near immediate quantifiable results, including improved operational efficiencies, time savings, reduced expenses and reductions in currency-related risks. 1. Expedite: A $6 Billion Global Electronics Manufacturer Why They Automated The company relied on a manual, forecast-based, legacy balance sheet FX program requiring treasury specialists to gather spreadsheets every month from 30 entities around the globe. They consolidated the forecasts, uploading and executing the appropriate trades manually. This process took four days in total (two days for data consolidation; two for currency hedging), requiring additional steps, touch-points and manual calculations along the way – all of which amplified the potential for human error. Solution The company looked for a solution to help them design an automated program. Kyriba’s Balance Sheet FX solution offered the cutting-edge SaaS technology and back-end support needed to complement their existing forecasting processes. With Kyriba, their new FX solution enabled a streamlined data aggregation process and initial exposure analysis. This, in turn, supported the development of an end-to-end, automated workflow, which helped the FX team improve their analysis and adjustment process. The team aggregated data for all entities at a corporate level and then executed trades and hedge accounting with a seamless integrated trade execution portal. By using Kyriba's FX risk management solution, treasury could select what to trade and the trades would immediately be processed. This eliminated unnecessary steps while adding more rigid controls, reducing the likelihood of human error causing something to go wrong during the trade process. The time savings and assurances that processing errors are reduced allow the company to spend more energy on strategic analysis. Outcome Kyriba significantly improved the data aggregation and exposure calculation processes, but seeing the trend analytics and having the ability to compare datasets in the system were also vital. With their new FX risk management solution, treasurers could quickly break down exposures – by entity –and identify what drove the changes while drilling into specific accounts. This was a monumental change compared to their manual processes which did not allow for this advanced degree of reporting; nor did it offer the granular details they needed. Automation saved time and reduced the potential for error. With the click of a button, trades were moved from one system to the next. Treasury no longer needed to open different files, copy, paste and upload separately. This saved significant transaction time, which amounted to many hours saved each month due to the frequency of trades. Additional Benefits The modernized process gave the FX team more time to analyze data and identify trends. Better still, the entire process could be completed in less than a day compared to the manual process, which took about four days to complete. FX professionals could make daily adjustments in exposures, enabling them to immediately identify if – and where – the forecast was off and how to best align currency hedges. The treasury team could also lower the exposure hedge threshold while expanding the number of currency pairs tracked and traded. This helped improve the data collection to hedge execution process by 60 percent. The treasury team lowered corporate hedge thresholds to less than $200,000. 2. Adapt: A $15 Billion Consumer Goods Company Why They Automated With most of the treasury department’s efforts spent manually collecting error-prone data, company decision-makers realized they needed to upgrade their treasury infrastructure. Gathering balance sheet data alone required tapping into 38 different systems in a legacy ERP environment. This antiquated process limited opportunities for the team to focus on data analysis and risk mitigation. These issues were compounded because the company was acquiring another, smaller company at the same time. Executives tasked the FX team from the smaller company – which was already resource-challenged – with managing the post acquisition currency program. The post-acquisition balance sheet program was only hedging one-off inter-company loans and FX trades were executed over the phone. Rolling and settling hedges required constant manual intervention. Additionally, FX hedges in spreadsheets (managed by multiple employees) were an ongoing headache because the cost of wrong-way trades or over/under hedging was high. Cohesive, end-to-end automation was needed to improve efficiencies. Solution Executives recognized the need for an automated program, eliminating the risk of manual errors. The company introduced a customized backbone treasury infrastructure that drew on best practices and offered various treasury technology solutions, including a currency analytics solution, a TMS and a trading platform. For its balance sheet program, the entire hedging process was automated – including weekly collections of exposure data from local business units, ERP systems, spreadsheet uploads and user inputs. Once balances were collected, the team analyzed exposures to determine the external hedging needs. These were executed using an automated trading platform and housed in the new treasury workstation. Kyriba was chosen not only as their TMS, but the company chose its Balance Sheet FX solution to be used as a centralized FX risk center, facilitating automated data collection, exposure calculations and hedge recommendations through technology-enabled automation with the ERP systems, Kyriba TMS and trade executive portal. Within Balance Sheet FX, the team had visibility into individual entities and profit center details. Data was sourced from 38 legacy ERP systems via a weekly template (from 25 local business units) and SAP automatically pushed the data to Kyriba. Outstanding hedges were automatically transferred and uploaded to display net exposure. Kyriba then created recommended hedge actions based on the corporate policy and generated trades netted at the corporate level for all exposure balances. Trades were sent (via direct automation) for execution. Confirms were sent back to Kyriba for automated entity-hedge allocation and reconciliation.When the companies acquisition closed, Kyriba provided a strong FX risk management solution framework that made it easy to integrate the new entities. Rather than taking months to work with new entities to gather exposure data and educate new employees, the company could quickly guide entities in how to adopt FX processes and follow policies. Outcome By automating, the company revented its treasury infrastructure from the ground up. The transformation took place at the same time the small treasury team managed its day-to-day responsibilities – while the company executed six acquisitions and four divestitures. Additional Benefits The new workflow significantly reduced cumulative FX transaction net losses from$88 million to less than $2 million. The notional size of the balance sheet hedging program increased from $800 million to $2 billion. Hedge accounting documentation now saves the company $120,000 per year thanks to consolidating technology platforms. Trading fees have been reduced by more than $1.3 million in 12 months. 3. Enrich: An $8 Billion Specialty Food Company Why They Automated The company originally relied on a non-formalized, manual cash flow exposure forecasting process – one that was completed ad hoc, using numerous spreadsheets and a variety of touch-points. Data collection was inconsistent, calculations were completed manually and the potential for error was high. Across the business and reporting structures, many currency pairings were complex and represented significant risk. Reviewing spreadsheets and formulas for each forecast period was resource-intensive, requiring the treasury team to manually review each submission. Additionally, comprehensive management reporting was limited, despite the amount of time devoted to the task. Solution Prior to evaluating FX technology to address their needs, the company conducted an inventory of necessary data required to support a more formalized process and quarterly hedging cycle. The goal was to ensure – when an opportunity to hedge was identified, or the business required a hedge – the team had all the necessary data to act quickly. Once the inventory was finalized, they sought out technology that would further enhance their workflow. The company’s cash flow forecasts were integrated with Kyriba’s Balance Sheet FX reporting reflecting existing hedges, creating an initial view of net exposure by entity. After reviewing the exposure and making desired adjustments and edits, the team executed a decision process in Kyriba to recommend hedges at an entity level (applying the company’s policy-defined threshold, target ratios and level of materiality, creating a report that allocates decisions by entity, currency pair and account group). Kyriba then created trade recommendations for the company’s in-house bank, including internal and external trades, displayed within the application for review. Once recommended trades were approved, the system generated a report of external trades which are sent automatically to an integrated trade execution portal. Kyriba then received the trade confirms, allocating them back to individual entities. Outcome The new workflow empowered the company to standardize a process with currency pairs, exposure types, geographical details and entity information. With corporate-mandated standardization in place, the implementation facilitated improved reporting with complete flexibility supporting individual user-defined views. This proved to be a significant time-saver, enabling the treasury team to focus on analyzing the accuracy of the forecasts, which helped eliminate nearly all calculation errors. Additional Benefits The ability to segregate and analyze specific data sets significantly reduces the time spent on reporting. Previously, it took at least three days (per quarter) to complete; now the process takes less than six hours (including collecting and uploading data and completing board presentations). The company has seen a 50 percent increase in participation in the forecasting process. Realized increased flexibility in the reporting. The company’s new workflow offers more details on all proposed actions. The increased collaboration and visibility allowed the team to add four new entity currency pair combinations to its existing hedge program. There has also been a 50 percent improvement in corporate target hedge ratios. Conclusion Before automating, each company profiled had the potential to endure significant losses (due to human error and faulty, incomplete data). After automating, each organization – regardless of its size and complexity – saw near-immediate benefits. Most importantly, each experienced a reduction in FX-related losses, managed impact from volatility and a substantial decrease in unmanaged FX currency risk. Kyriba is committed to helping organizations improve the impact currency exposure has on corporate financial results by offering best-in-class technology and services. With Kyriba, organizations can reduce risk, reduce costs and streamline processes. Kyriba facilitates end-to-end automation, which includes direct ERP data extraction and aggregation, forecast consolidation, exposure and risk analysis generation and automated risk transfer and trade execution connectivity to banking portals and trading platforms using state-of-the-art, highly-secure SaaS solutions. If your organization is dependent on a sluggish, error-prone manual FX program, you should know adopting an end-to-end, fully-automated currency risk management program can help you achieve the kind of benefits detailed in this eBook. Kyriba has helped leading multinationals and small and mid-size companies with FX exposure, to successfully transition from manual FX programs to modernized, cost-effective programs. Want to learn more about how to automate seamlessly across your FX risk management programs? Check out Kyriba's latest demo session and see how Kyriba helps its clients mitigate the effects of currency volatility and reduce hedging costs.

Is Your Business Ready for ISO 20022 Payments Migration? The lack of payment messaging standards around the globe has been a major issue for payment factory or payment hub modernization. The absence of standards...

Is Your Business Ready for ISO 20022 Payments Migration? The lack of payment messaging standards around the globe has been a major issue for payment factory or payment hub modernization. The absence of standards has resulted in expensive cross-border payments, insufficient transparency, increased fraud, and heightened security risks. Many companies have allocated extensive resources to develop local formats, yet still face a complexity that prevents them from harmonizing end-to-end processes, including payments validation and data reconciliation, for domestic and international transfers. Over the years, the adoption of the 2009 version of the ISO 20022 XML messaging standard has represented great progress. It is considered a mature format that is important for corporate payments globally. Nevertheless, companies and banks are still spending a lot of time and money supporting and maintaining local legacy formats–or even worse, proprietary formats–that pose maintenance challenges on a daily basis. Fortunately, under the joint effort of SWIFT, the European Policy Center (EPC), as well as many banks and corporations, the 2019 version of the ISO 20022 XML messaging standard could be the light at the end of the tunnel. What’s New in the Latest Version of the ISO 20022 XML? ISO 20022, first introduced in 2004, is a messaging standard that establishes a common digital language for financial data worldwide. While SWIFT has started the migration towards ISO 20022 XML messages, the standard is widely used beyond SWIFT services. Currently, most real-time payments systems are using ISO 20022, and the standard has been used for more than 10 years for SEPA Credit Transfer and Direct Debit. Additionally, ISO 20022 is used for invoicing, investment fund orders, and foreign exchange activities. ISO 20022 contains many messages and it also has yearly releases. For instance, ISO 20022 release 2009 contains the pain.001.001.03 message, the most commonly used messaging format for payment initiation. In ISO 20022 release 2019, which is the latest version, the same message has been upgraded to version 09, pain.001.001.09. When it gets adopted by a majority of organizations, the 2019 version of the ISO 20022 XML messaging standard will allow for speedy payment transactions, in part because it would eliminate complex layers of legacy payment codes. The new version provides more detailed, higher quality data, enabling better reporting, enhancing security procedures, and driving innovation by allowing financial institutions to analyze customer behaviors and design products that better fit their needs. By November 2025, SWIFT messages will be fully transitioned to ISO 20022 XML for interbank settlements. For this migration, most banks will change their infrastructure and therefore will push their corporate clients to adopt the 2019 version of the ISO 20022 XML over other local standards for payments, such as DTAZV in Germany and AFB320 in France. The process has already started in Switzerland, where SIX is promoting this format as the new Swiss standard and Credit Suisse and the Swiss National Bank are already making it available to their customers. In Europe, the EPC has announced that the new version will become the SEPA Credit Transfer format as soon as November 2023. Common Global Implementation (CGI), an initiative to simplify various payment related corporate-to-bank implementations by promoting the wider acceptance of ISO 20022 XML, has already released its specifications. Globally, this new standard will allow the transmission of rich data in a more structured manner. It will enable end-to-end tracking and reconciliation of payments, which has always been an issue with cross-border payments. Currently, over 70 countries are already in the process of adopting ISO 20022, including China, India, and Japan. Why is ISO 20022 Important to ERP-to-Bank Connectivity & Payments? With the imminent global adoption of the 2019 version of the ISO 20022 XML, organizations need to be aware of its benefits as well as its limitations, as they prepare to add it to their payment mix. For finance and IT leaders, the new standard offers a myriad of benefits in comparison to its predecessors. Adopting ISO 20022 standards helps to prevent fraud, avoid system failures, and expedite payment transactions, large and small. Use case highlights: Instant Payments: The standard enables frictionless, real-time payments by creating a global, open standard that anyone can implement on any network. Rich Data: The rich, consistent, well-structured data enabled by the new standard delivers faster transactions and helps drive innovation by allowing organizations to develop products based on customer needs. Improved Regulatory Reporting: Because the new standard requires identical formats and a higher level of detail, it creates more secure payment information that lends itself to better, faster regulatory reporting. Fraud Prevention: A standard payment format helps organizations identify fraud, including money laundering. The fact that the new format requires structured and complete addresses limits the fraud risks too. Compliance (Security Enhanced): The consistent payment format facilitates compliance with government regulatory requirements. Interoperability: The standard helps to promote interoperability for cross-border payments, improving the ability to easily exchange and make use of information. Payments Hub Upgrade: It meets the need for payment system renewal programs, ensuring alignment with global industry standardization such as SWIFT’s cross-border payments messaging migration where the MT messages will gradually be replaced by XML. Faster Reconciliation: It supports Unique End-to-end Transaction Reference (UETR) with a standardized tag, allowing the transmission of this unique id from any ERP system in a payment file to the bank and back in payment acknowledgement and bank statements. Tracking and Beneficiary Advice: The new standard improves the transmission of information through end-to-end tracking and the payment advice to the final recipients. On the flip side, while the new standard promises improved messaging interoperability between systems for the greatest number of participants, the actual experience is dependent on how individual banks set up the messaging standard internally. In other words, banks will deploy the new messaging standard differently and some workarounds will likely be necessary for seamless payment transactions. What Does it Mean for Your Organization? With so many tangible benefits the new standard can bring to the corporate payments, organizations should adopt it as soon as their banking partners offer it. However, according to a recent Celent survey, not all banks are equally prepared for ISO 20022 migration. As a result, Celent also found that many corporate clients have not been sufficiently informed by their banking partners on the forthcoming ISO 20022 changes and more importantly, what actions companies would need to take to plan for the changes. Banks* indicate time, resource, and technology constraints as major hurdles to their ISO 20022 migration. 73 percent of banks agree that technology constraints within the bank limit their ability to do more with their migration to ISO 20022.   63 percent of banks agree that budget or resource constraints limit their ability to do more with their ISO 20022 migration. Celent anticipates that the majority of banks will do just enough and be largely on time for the deadline. * Data from 51 banks surveyed across Europe Source: CELENT (2022). Survey & report: The race to ISO 20022. This lack of communication is unfortunate as corporations must also prepare their systems to send and receive the new payment format. If not, the opportunity to benefit from the richer data is lost because the extensive data in payment messages could be truncated by the end recipient due to system unreadiness and messaging incompatibility. Based on Kyriba’s experience, we foresee that it will require some effort for enterprises to get their internal systems ready for the new message format. A quick checklist includes: Cleaning up the ERP Database with More Structured Third-Party Information. As more and more countries will only allow structured addresses in cross border transfers, complete information for the beneficiaries (full names, complete addresses and even identification numbers) will become a must. SWIFT initiative, known as CBPR+ (Cross Border Payment and Reporting +), aims to provide structured addresses already in MT messages. Kyriba advised its clients to start completing the structured addresses, at least for city, zip code, and country (and for some countries, also state/province). Harmonizing the Payments Validation Workflow. As part of the workflow design, Kyriba’s recommendation to our clients is to consider implementing a fraud detection system. The rule-based and AI-powered fraud and compliance detection mechanism will remove a lot of time-consuming and error-prone manual steps to validate payments and let all stakeholders get better control over the payments processed. Creating Processes for ERP and TMS Integration and Automating End-to-end Reconciliation. By using a unique import interface, generating unique ids for each imported file, and initiating payments in formats containing these unique ids, the reconciliation process will be transformed. Acknowledgments will be integrated with a specific format (XML Pain.002.001.10) that will allow cash managers to be alerted almost immediately when a payment is rejected. With end-to-end integration, the information can be fed in real time back to ERP for quick action. How Can a Technology Partner Help? After years of working with dedication to create a vast library of proprietary formats, the Kyriba payments team sees the coming changes as a chance to get closer to global standardization. However, as a mission-critical process, any disturbance in payment processes could cause business disruption, supplier dissatisfaction, and late material deliveries. Understandably any major format change or update makes payments and IT teams apprehensive. Therefore, it pays off to understand the subject matter in advance, plan a progressive roadmap to adopt the new standard, and if needed, work with a specialist vendor to manage the whole transformation. Kyriba is always at the forefront of formats and payments innovation, with proven ability to quickly support the latest formats required by the market. Kyriba clients can already seamlessly exchange payment transaction data with Credit Suisse using the new standard. Kyriba also supports SEPA CT XML ISO 20022 version 2019, has developed the CGI standard version XML ISO 20022 version 2019 format, and is ready to support the SWIFT migration from MT to MX messages via SWIFT Interact. To illustrate the efforts it usually takes to develop payment templates, let’s deep dive into the process: All payment templates must be individually developed and tested with each bank Developers must coordinate all testing with each bank’s technical team Format typically fails first test, multiple rounds of testing are required with each format Companies must work on each bank’s timeline and time zone Average timeline from development to production is 3-6 months for a single payment format Kyriba offers its clients a pre-built and pre-tested payment format library with over 50,000 payment scenarios ready for use, covering all major banks across the globe. Based on Kyriba’s Value Engineering Projects with our clients, Kyriba clients are looking at an average saving of $100,000 from this time-consuming and labor-intensive process. If you are in the middle of the ISO 20022 XML migration or about to start the project, contact one of our payment experts today and we look forward to supporting you in your future payment journey. References Common Global Implementation (CGI) Initiative European Payments Council (2022): Guidance on the Migration to the 2019 Version of the ISO 20022-based XML Messaging Standard ISO (2020) Introduction to ISO 20022: Universal Financial Industry Message Scheme SWIFT (2022) UETR SWIFT (2022) What is ISO 20022? Sources CELENT (2022) Survey & Report: The Race to ISO 20022 The SWIFT Standards Team (2020): ISO 20022 for Dummies (5th) John Wiley & Sons, Ltd. Watch our on-demand webinar to learn more about Beam Suntory's treasury and payments transformation journey, including using the Kyriba Payment Hub for auto converting ISO 20022 XML format.

Cash is still king — but the value of cash and forecasted liquidity held or planned by the company can only be realized via cash visibility, when the treasurer knows what cash is available,...

Cash is still king — but the value of cash and forecasted liquidity held or planned by the company can only be realized via cash visibility, when the treasurer knows what cash is available, where it is held and what flows are expected in the future. However, all too often, treasurers do not have access to their organization’s full cash picture. There are many good reasons for working with multiple banks across different markets, but complex banking structures and sprawling geographical footprints can make it difficult to achieve complete cash visibility into current balances, never mind impacting the accuracy of cash and liquidity forecasting. Luckily, achieving full cash visibility over cash is not an insurmountable goal. This eBook outlines the action plan treasurers can take to gain full visibility over their cash, from gaining a clear view of current bank accounts to increasing the accuracy of the cash forecast. "More than a quarter of global cash is not visible to corporate treasury on a daily basis.” Source: PWC’s Global Treasury Benchmarking Survey   What is Cash Visibility? Cash visibility is critical to making effective decisions. Armed with clear visibility over the company’s current cash position and future liquidity flows, treasurers can: Invest cash strategically Support the CEO, CFO in strategic initiatives with the right levels of cash and liquidity Use cash management structures effectively Minimize debt and interest expense Make better informed hedging decisions Reduce bank fees Bolster treasury’s reputation within the organization Key Vocabulary Cash Visibility means knowing what cash the company currently has and where it is held. It also means being able to predict what cash the company will have in the future. Cash Budgeting generally performed by FP&A, is more focused beyond one year and has an increased emphasis on free, cash-flow guidance. The reconciliation of indirect budget-based forecasts with direct cash flow forecasts are increasingly managed quarterly. Cash Positioning is concerned with today and often the next five business days. The purpose is to manage daily liquidity to ensure shortfalls are covered and surpluses are concentrated to earn some yield on excess cash. Cash and Liquidity Forecasting typically extends cash positioning with horizons anywhere from one week to one year. Forecasting leverages multiple data sources to increase confidence in the projected liquidity balances so that better cash decisions can be made. Why is Cash Visibility Important? Cash visibility is the lifeblood of any organization. A company that has clear visibility can invest or deploy cash strategically while minimizing debt and interest expenses. Accurate visibility also increases the effectiveness of hedging decisions and enables the treasurer to mitigate their organization’s risk to exposures while supplying the CFO with funding in support of strategic initiatives. Conversely, a lack of clear visibility can result in numerous issues, including: Insufficient buffer of surplus cash to absorb unforeseen expenses Idle cash, lower returns on investments Insufficient return on cash Higher than necessary borrowing costs Unnecessary bank fees and costs Inadequate support for CFO strategic decision-making Less competitive results and less effective treasury organization as a partner for finance Related Resource Unreliable cash visibility and forecasting is the treasury issue that causes CFOs the most concern. "The top benefits of using Kyriba are the visibility that it provides, the timeliness with which it provides that visibility, and the ease of use, in that it provides it all in one simple one-stop shop.” TRISH FISHER Director, Treasury Operations, WeWork The Path to Cash Visibility Whether the treasurer is seeking to pay down external borrowing or maximize return on investments, the first step is to know what cash is currently available. But that’s not all, treasurers also need to be able to predict future liquidity flows and keep the right people informed. Achieving cash visibility is possible by using 5 definitive steps to move towards greater cash visibility and flexibility: Identify and Record Without an inventory of your banks and accounts, a complete cash visibility picture is unattainable. Prioritize and Rationalize Identify where to begin, difficult regions or banks, and determine accounts for closure. Automate Bank Connectivity and Reporting Harness the most costeffective and leading connectivity methods to access data from banks in an automated way. Generate and Streamline Cash Positioning with Liquidity Forecasting Accurately predict cash flows over the coming hours and days, and match actuals to forecasts to speed up daily reconciliation and cash application. Enhance and Optimize Future Cash Flow with Liquidity Planning The ability to see a holistic, aggregated view of cash and liquidity sources creates more accurate views and predictable free cash flow. Knowing your predictable liquidity creates a better understanding of any future liquidity shortfalls. Step One: Identify and Record Regardless of the scale and breadth of your organization’s banking and accounts structure, it is important to understand the banking landscape of all business units and subsidiaries. Whether operating in a domestic or international capacity, banking relationships. the accounts, the purpose of those accounts, and the core attributes of the bank, the accounts and their purpose all are necessary to begin a cash visibility project. This has many implications for the success of global cash visibility projects, such as: Establishing a full inventory of managed accounts, ensuring all balances are identified Ensuring the proper scope and prioritization of your project Optimization and rationalization across banks and accounts Effective comparisons and evaluations across banks for technical capabilities for connectivity, tech, regional coverage and other important services An effective bank relationship and bank account management database is the starting point for successful projects, but particularly when it comes to cash reporting. Where cash is rolling up in concentration or pooling structures, how funds are being transferred, purpose of the accounts, and even regulatory limitations all have a say in how you engage with your banking partners and the extent of cash flexibility. Step Two: Prioritize and Rationalize Bank reporting rationalization ensures accounts are identified and open for the right reasons. Often, particularly in international or more complex organizations, accounts are opened in haste to support business development and decisions. This is often necessary for statutory purposes, or to deal with an unforeseen acquisition or reorganization. However, if this situation exists, it’s possible cash and liquidity is not well defined or identified, as well. Organizations must understand and rationalize accounts, prior to moving into the next ‘step’, but this can continue throughout the project in parallel, too. The focus here is on creating a streamlined, but effective banking and account structure that fulfills treasury’s mission of safeguarding and optimizing cash, while still meeting specific business unit or subsidiary’s requirements. Bank improvements in reporting quality as well as the leading application of configuration within leading treasury management systems, creates the scenarios where previously opened, special-purpose accounts are no longer required to serve special purposes such as revenue, collections, treasury, or payables accounts. With banks being able to provide significantly improved quality of liquidity information within bank statements and other special purpose reports, and the speed of that data increasing through APIs, some companies can conduct business with one or two bank accounts per legal entity, business unit or country office. The focus here is on creating a streamlined, but effective banking and account structure that fulfills treasury’s mission of safeguarding and optimizing cash, while still meeting specific business unit or subsidiary’s requirements. Step Three: Automate Bank Connectivity and Reporting Visibility over multiple accounts requires automated bank connectivity. Companies of all sizes are often challenged in finding and implementing the right bank connectivity solution and is a critical driver of lack of visibility into cash. On the surface, bank connectivity is easy, so long as treasury teams prioritize the following: Security Automation Speed and Cost There are a variety of connectivity options to deliver security, automation and cost objectives. Yet, not all connectivity options are alike. Bank connectivity comes in a number of different forms, including: Host-to-host solutions, such as FTP, or leading practice connections using application programming interfaces (APIs) Country or region-specific protocols such as EBICS, Editran, Zengin Global cooperatives like SWIFT , which offer flexibility to manage your own connectivity or use a service provider and fully managed service bureaus The ideal connectivity solution for an organization will actually depend on factors such as bank and payment transaction volumes, bank account structures, and the location of company banks. These characteristics — in combination with what technologies the banks can (and prefer) to support — will drive the ideal connectivity choices. In practice, a combination of connectivity methods is likely the best solution to optimize costs while maintaining automation and security. Without utilizing varying connectivity methods, the company may spend more than necessary and potentially sacrifice information transparency. While managing multiple connectivity methods on your own may seem complex, connectivity-as-aservice models gives organizations faster global access to banks with pre-configured and existing connections. This coverage of the connective landscape for banks saves effort and time spelling big cost savings for the project phase as well as ongoing productive operations. When you select the right vendor to simplify bank connectivity by taking care of everything — from building connections, monitoring availability, and delivering automation all while providing new technology like APIs, organizations win and save money. Step Four: Generate and Streamline Cash Positions and Liquidity Forecasts The goal of cash positioning is to establish a realtime view of cash at any point in time and to be able to reconcile prior-day forecasts to enable the deployment of cash throughout the organization more quickly and accurately. Effective cash positioning reduces idle cash, creating opportunities to earn immediate yield while providing certainty over risk exposures that cash is exposed to. As a process, cash positioning involves gaining a real-time view of the company’s cash position at any moment in the current day(s) by consolidating a number of different sources and replacing old data with more up-to-date information. With today’s APIs gaining the real-time, near-instantaneous view of cash and liquidity is easier than ever. Within treasury technology, building the cash position typically involves combining a number of data sources: Prior-day balance — automatically downloaded from banks at the start of the day Current-day bank reporting — automatically downloaded from banks throughout the day, either at specific times (e.g., 1st or 2nd presentment) or as a constant stream of data via an API Expected payables and receivables — from the organization’s ERP and reported/cleared from bank statement details Treasury financial transactions and settlements — which are integrated within the treasury system Building a cash position is just the start. After building a cash position, it is then necessary to maintain and reconcile it. Maintaining the cash position involves updating and replacing cash flow data with more accurate information via intra-day updates from internal systems and banks. Reconciliation of the cash position is the matching of actuals to forecast flows, which is often done first thing in the morning as a part of typical treasury processes. The goal is to identify and understand surprises — for example, if a transaction did not happen yesterday then it may happen today, meaning the unreconciled variance needs to be rolled into today’s position. For many organizations, this process can be time consuming, so rules-based automation or artificial intelligence can be introduced to simplify the process. Key requirements for cash positioning include interactive dashboards and clear communication within — and outside of the treasury organizations: Interactive dashboards enable cash managers to drill down through multiple levels into any component of the cash position. Positions should be viewable by multiple dimensions in real-time by line item, bank, entity, currency, etc. Communication within and outside of treasury is critical. The treasurer, CFO and finance personnel managing subsidiaries all require cash visibility, so delivering visual and detailed reconciled cash positions is a critical outcome of daily cash positioning. Effective cash positioning and liquidity planning leads to numerous benefits for the finance organization: Keeping the CFO and the Board up to date with reliable and accurate cash position information Mobilizing cash across the organization for funding and investment purposes Enabling cash management processes such as pooling, sweeping and intercompany borrowing Optimizing interest income and expense via better informed borrowing and lending operations Reducing external borrowing by using internal cash resources effectively Step Five: Enhance, Optimize and Predict Cash and Liquidity While cash positioning can be used to predict cash flows in the coming hours and days, cash forecasting with liquidity planning information creates more accurate, longer horizons beyond weeks, extending into months, years. Cash forecasting must not only be accurate, but predictive using more historical and current data to be truly effective. Without complete confidence in projected forecasts, the cash forecast cannot support treasury in improving cash utilization. Cash forecasting is needed to help treasury invest cash over longer maturities, secure borrowing to fund operations and make more effective hedging decisions. And confidence in the cash forecast is the difference between achieving these outcomes and hoping to do so. So why do so many companies struggle to achieve an accurate forecast? Common challenges include a lack of accurate data sources, lost results from past forecasts, ineffective methodologies and a lack of alignment with performance metrics. If a forecast isn’t reliable, treasury is unable to trust it and therefore cannot use the cash forecast to make critical decisions. It is crucial to incorporate data sources from treasury, like financial transactions along with all the normal P2P and O2C cycle flows from the ERP Cash forecasting and Liquidity Planning creates future views of anticipated free cash flow and helps all of finance from FP&A to the CFO better strategic accuracy in decision-making. Identify, Find the Data Consolidate the Information Measuring Forecast Accuracy Predictive Analytics: Optimize Your Forecast Find the Data: Collaborating with Other Teams Forecasting incorporates key data points from elsewhere in the business so that effective collaboration can be administered between AP, FP&A, IT and regional controllers who own valuable forecasts data and/or administer systems to enhance forecast visibility. This collaboration is essential in making sure everyone involved knows what they are expected to provide with executive oversight to ensure that collaboration is prioritized. Consolidating Forecast Data Automating the integration of forecast data into a single system of record is the next critical factor in achieving effective forecasting. In many cases, source data may come from various ERP modules or in some cases other special purpose systems like procurement or revenue recognition/accounts receivable. In the past and in some situations, spreadsheet data to augment or provide coverage for areas or business units without systems could be a source, too. While consolidating data into a single system could be an IT-intensive exercise, best practice is to eliminate the need for internal IT resources, reducing the cost and time required to integrate systems. This can be done by having pre-built connectivity and integration through APIs provided by your treasury system. Measuring Forecast Accuracy The final piece of cash forecasting is to measure the accuracy of the cash forecast at a detailed level. Measuring forecast performance is critical to understanding how effective each line item and source of information was, offering valuable insight into where the forecast can be improved. This analysis must be done at a detailed level. For example, measuring accuracy before and after a 90-day/13- week period can hide many anomalies and offers no meaningful conclusions. Many organizations will measure week over week, while some will drill down at a daily level. Once accuracy is measured, the treasury team must implement a feedback loop to effect meaningful change. Regional controllers, for example, can only improve if presented with detailed facts. Further, standardized KPIs — that ideally would form a component of performance reviews and compensation calculations — go a long way in reinforcing desired forecast behavior. This is where commitment from the CFO will drive effective forecast performance. Optimize: Predictions for your Cash and Liquidity Once the foundation is established for forecasting your liquidity with the prior steps, the next level naturally leads to identifying the technology solution that will offer your organization and team the support and improvements for your liquidity forecasting. Technology can do more to provide value through expanding the horizon of your forecast, depth of insight, accuracy, and enhanced user experience with information already within your organization’s grasp. Through tools that leverage artificial intelligence companies today should be more advanced and be capable of: Create predictive dashboards and enhanced reporting Cash forecasts with risk models built-in Identify optimum cash cushion, draw-down levels, and investment levels Characteristics to look for when evolving and upleveling your forecasting efforts should include looking to solutions using AI-based predictive analytics for forecasting including calculations based on risk models that give treasury and FP&A teams the optimal cash cushion. Additionally, look for solutions giving you: Cash flow by level of confidence Recommendations for optimal investment strategy Predict liquidity requirements To successfully deploy an AI-driven predictive forecasting model, organizations must prepare structured and normalized historical data. Machine learning algorithms will identify patterns within the data to make predictions about when, for example, customers will actually remit payment. This AI-predicted data stream will align with other forecast data sources to deliver a more intelligent cash forecast to predict future liquidity needs. Human interaction remains important to ensure liquidity forecasting and planning aligns with internal risk policies of the team and organization. AI is a tool to complement, rather than replace, treasury teams as they execute more complex tasks and processes. In this role, AI is a critical piece in the drive to towards real-time treasury decision making and the progressions towards 24/7 liquidity management. Optimizing Cash Visibility Benefits Achieving full cash visibility takes time and effort, but the rewards are significant. Armed with a complete, accurate and up-to-date picture of the current cash position and liquidity planning flows, treasurers can: Make timely and confident decisions about activities, including investments, borrowing, cash concentration and hedging Pay down external borrowing with a clearer view of the cash available Invest strategically with a clear picture of current and future flows Reduce bank fees by closing or combining redundant bank accounts or negotiating with banks from a position of knowledge Minimize debt and interest expense by making the best use of internal cash and reducing external borrowing Gain a clearer picture of risk exposures and manage those risks more effectively Optimize planning of borrowing and lending operations Increase effectiveness of hedging by ensuring decisions are based on complete pictures of current balances and planned future transactions Cash Visibility – Final Thoughts The future of treasury technology is here and advancing rapidly; some banks have deployed their own APIs to integrate with their customers’ systems. New platforms are opening new products and services for corporate customers. One of these innovations is the movement towards real-time bank reporting. In many parts of the world, intra-day reporting happens less than twice per day, and in some cases not at all, meaning that daily cash positioning is largely driven by prior-day reporting and expectations of clearings throughout the day. Real-time bank reporting, delivered only by APIs, is the future and will be a game-changer for cash managers looking to achieve instant cash visibility into accounts. Additionally, Liquidity Planning extends the value of real-time treasury with the inclusion of cash, treasury instruments, planning information and liability information to deliver longer range strategic decisions by the CFO. Combined with real-time payments, treasury teams will be in an enviable position of not only having real-time views into bank accounts but also being able to mobilize cash domestically — and eventually cross border — within seconds. The transformation to real-time reporting will further pressure treasury teams to employ the right processes and analysis to effectively manage cash information in real time. It will be a change for those organizations that lack modern treasury technology, but an opportunity for enabled organizations to earn a competitive advantage in the utilization and deployment of cash. How Kyriba Can Help Kyriba can support you in achieving full visibility over cash. Kyriba helps organizations reduce the cost and complexity of bank connectivity — whether a company is connecting via SWIFT, using APIs, leveraging country protocol or using a combination of channels prioritizing security, automation and cost minimization. Organizations can easily keep track of signatories, manage workflows and store documents thanks to the control over all global bank accounts given by Kyriba’s bank relationship management solution. Additionally, companies can maximize the accuracy of their cash and liquidity reporting with Kyriba’s detailed and flexible variance analysis and feedback loop to forecast sources. With a full picture of current balances and future flows, you’ll be better positioned to make confident decisions about cash.   Want to learn more about how to achieve cash visibility for better cash forecasting? Check out this webinar to hear Kelkoo Group, a leading e-commerce company, shares their best practices and the payoffs of superior cash forecasting.

APIs offer a lifeline for CFOs and treasurers who are looking for both innovation and cost improvements. Although many CFOs think of APIs for finance as an expedited pathway for bank connectivity, bank connections...

APIs offer a lifeline for CFOs and treasurers who are looking for both innovation and cost improvements. Although many CFOs think of APIs for finance as an expedited pathway for bank connectivity, bank connections are just the tip of the iceberg. APIs open integration to a variety of systems, including capabilities that vastly improve cash forecasting, liquidity management and payments. APIs offer an information and processing gateway to realizing digital transformation. Unlike FTP, APIs do not require files to be sent or downloaded. Data is exchanged point to point between systems immediately, allowing for instant data transmission and eliminating substantial risk. They enable the development and use of faster, pre-built connectors to reduce implementation times and facilitate real-time payments and security. In this whitepaper, we'll explore: What APIs are and how they work for finance The different types of APIs that are available How APIs can revolutionize ERP connectivity, cash management, liquidity management, payments and more. CFOs Are Investing Billions CFOs are investing more than ever on enterprise platforms, with organizations spending an estimated $675 billion in 2022, according to Statista. Much of this investment is for organizations to move their enterprise resource planning (ERP) systems to cloud platforms, such as SAP S/4 Hana Oracle Cloud, and Microsoft Dynamics 365 leading the large corporate market. For CIOs looking to effectively support their CFO business partners, connectivity from ERP to internal and external systems and data sets remains a costly challenge, often delaying go-live dates and driving significant cost overruns. APIs open integration to a variety of systems, introducing capabilities and process automation that had not previously been possible. APIs offer an information and processing gateway to realizing digital transformation. What Is an API? An API is a program that allows mulitple pieces of software to “talk” to each other. Applications on your phone and embedded widgets on a website all use APIs to request or deliver information. Why APIs for Finance Matter Gartner research revealed that nearly 50 percent of financial leaders will incorporate a “composable financial management system” by 2024 “to deliver capabilities and outcomes that keep up with the rapid pace of business change.” APIs are enabling that change. They are transforming the way finance leaders consume data and are allowing a coupling of multiple applications that was previously impractical to support, creating a gateway to real-time business intelligence and digital solutions. Unlike file transfer protocol (FTP), APIs do not require files to be sent or downloaded. Data is exchanged point to point between the systems immediately, allowing for instant data transmission and eliminating substantial risk. They enable the development and use of faster, pre-built connectors to reduce implementation times and facilitate real-time payments and security. "With APIs for finance, your platforms evolve from being systems of record to systems of engagement,” said Bob Stark, Global Head of Market Strategy at Kyriba. “Your platform is connected with any number of internal and external systems to be continuously up to date.” Open API Platforms APIs facilitate open networks. Using developer portals, technology providers can build applications on top of the API provider’s platform. Open banking is a perfect example. The Revised Payments Services Directive (PSD2) in 2018 helped to make APIs even more relevant for corporate treasury and finance. The EU Directive requires banks to open their platforms to payment technology providers – with APIs being a leading solution to manage this compliance. Although PSD2 only applies to the European Union, similar initiatives in other regions also quickly emerged as banks in the United States and throughout APAC have recognized the opportunity to offer real-time, data-driven services to corporate clients. "The PSD2 movement has really encouraged banks to start to open APIs for corporates.” —Felix Grevy, VP of Product, Open API and Connectivity for Kyriba A common frustration among treasury and finance leaders is a lack of centralized visibility across multiple departments, liquidity and payments. Open API platforms act as a conduit between disparate teams and systems, allowing for real-time connections to apps, data, and new products and services. Open API platforms reduce manual processes, and deliver composable technology solutions, enabling corporate and bank users to inject data-driven decision-making into every financial operation. APIs for Bank Connectivity It’s important to note that banks and technology solutions providers that are managing open platforms are not replacing legacy formats like FTP and SWIFT with APIs. Instead, they are offering APIs as a complement to these formats. Following the advent of PSD2, European banks have begun using “premium” APIs, which are APIs with greater functionality. "The difference between the PSD2 APIs and premium APIs is that premium APIs are more powerful,” Grevy said. “You can retrieve balances and do instant payments. And they are much more secure, and much more appropriate for integration with an ERP or treasury management system (TMS).” Banking services optimized via API vary, some examples include: Bank Groups Branch Reporting Bank Account Groups Cash and Cash Flow Reporting However, the rollout has been slow. Most banks are not using APIs in live production yet, and many of the ones that do use APIs only offer them for certain real-time services—meaning that multiple connectivity options are needed to fully support a treasury and finance team. Furthermore, most technology vendors only offer no functionality beyond bank connectivity and can only connect one ERP to a bank. Nevertheless, API connectivity brings key advantages over a file-based approach, such as immediate response from banks, and the ability to receive new data and notifications in real-time. So while adoption may be slow and gradual, the advantages to the end user are clear. ERP Connectors ERP platforms like SAP, Oracle and MS Dynamics have major efforts to develop and embed APIs into a wide array of functions and workflows. Luckily, for IT and Finance functions arent’ required to do the heavy lift; these APIs are plug-and-play and enabling more and more core integrations and reporting capabilities. Cash Management APIs offer organizations the ability to manage cash continuously and in real-time. Rather than relying on batch reporting that is constrained to pre-determined times throughout the day, treasury teams can now access reports as needed. Receiving un-batched, real-time liquidity information greatly improves cash reconciliations, cash application, and accuracy of liquidity overall. This will, in turn, change the mechanics for best-practice cash forecasting and lead to the production of intraday liquidity products, such as hourly investing. Allowing treasury professionals to access their cash outside of previously “normal” hours not only expands the scope in which organizations can leverage their liquidity, but also allows treasury to make greater strategic contributions. APIs also allow treasury and finance to track sufficient movements in and out of the accounts throughout the day. That visibility can help organizations to make significant intraday decisions instead of end of day or overnight. Payments APIs for finance can also streamline the entire payment journey. Instead of relying on batch processes that transmit at several pre-determined times each day, APIs allow payments to be initiated from treasury management systems and ERP systems as needed—even in real time. In fact, real-time payments sometimes require APIs. Simply put, if you want payments to settle instantly, file transfers may not be the best connectivity option to choose. Using File Transfer, bank files are extracted, reformatted, encrypted, and downloaded by the treasury platform—a process that takes five to ten minutes at least. Once balances are known, the process to send and confirm a payment is another five to ten minutes at minimum. APIs, in contrast, can query a bank balance and then send a real-time payment instantly without the transfer of any files. With the rapid increase of both domestic real-time payment systems (The Clearing House’s RTP and FedNow in the U.S.) and cross-border platforms (SEPA Instant, SWIFT Go, and Nexus) APIs are a necessity for businesses who want to deliver instant payments. Leveraging APIs to utilize real-time payments not only revolutionizes the initiation and acknowledgement process, but also the ability to mitigate fraud. While the 2022 AFP Payments Fraud & Control Survey found that business email compromise scams have decreased recently, they are nevertheless still a persistent threat. Since real-time payments don’t afford users the opportunity to identify fraudulent transactions after transmission, fraud mitigation strategies must now be included in the approval process. Building APIs into the payment platform allows users to fully automate bank account validation and payment policy screening, identifying exceptions. Outliers can be flagged and set aside for review, while all other payments travel seamlessly as intended. Creating Flexible Reporting and Information Systems APIs are far more than just connectors to banks and ERPs. APIs can revolutionize the ways in which treasury and finance operate both internally and holistically. APIs offer the ability to create a flexible, custom, data warehouse that could exist within your TMS, as some treasury systems can act as a single source of record. When other systems have limited functionality, your data warehouse can fill the gaps through provision of market data, financial transaction specifics such as portfolio, project or risk-related information to deliver a quick, flexible source of weekly treasury reporting. Regardless of where your data is stored, APIs establish the means to integrate various data sources within a single repository or warehouse. Second, APIs allow treasury and finance to automate beyond task automation, which streamlines the organization’s own capabilities. APIs enable process automation, which simplifies and entire workflow like the entire payment journey. Entire systems and processes can be brought together more easily via APIs. Both automation and the extent of the functional coverage facilitate composable financial management systems. When networks of personalized systems, reports, dashboards, and efficient workstreams are enabled and integrated by APIs, treasury and finance teams can then focus on accelerating innovation and cost-reduction projects. ERPs, while critical, are not the only system requiring strong integration and the exchange of information for stronger decision-making. APIs are the glue that holds all of these components together and APIs change the efficiency and real-time capabilities for treasury and finance leaders. "CFOs and CIOs, hand in hand, are recognizing that we need APIs to bring everything together to accelerate the innovation,” Stark said. “Before APIs, the way that you’re making a composable financial system is by using custom interfaces, manual clicking and logging into systems and, if you’re lucky, a little bit of RPA. APIs are perfectly suited to improve process automation, linking multiple systems and workflows together, because they allow finance teams to build a system of multiple components.” Figure 1. Progression of Hyberautomation Initiatives Source: Gartner 2021 References Information technology (IT) spending on enterprise software worldwide, from 2009 to 2023 2022 AFP Payments Fraud and Control Survey Gartner Identifies the Top Technology Trends That CFOs Should Address Today   Interested to learn more about how APIs for finance will change the way leaders consume and act on information? Check out this webinar where Alex Yang from Bank of America, David Miller from Hunt Companies and Bob Stark from Kyriba demystify APIs' value for payments, intra-day liquidity, ERP integration, fraud detection, cryptocurrencies and more.

Kyriba is proud to be a continued supporter of AFP’s Treasury in Practice series, including this most recent publication, What’s Next? A Practical Guide to Prepare for Change in 2023. 2022 can be best...

Kyriba is proud to be a continued supporter of AFP’s Treasury in Practice series, including this most recent publication, What’s Next? A Practical Guide to Prepare for Change in 2023. 2022 can be best described as volatile and while 2023 offers no immediate relief, there are new practices and strategies that treasury can harness to drive financial resilience. Cash Forecasting – while the practice is not new, forecasting has evolved. Forecasting requires more data to manage multiple risk scenarios that deliver insights in real-time. Fortunately, technology has evolved – well beyond spreadsheets and treasury workstations – to simplify the modeling, presentation, and analytics of cash forecasting. Liquidity Planning – an emerging practice, liquidity planning is about surrounding your cash forecast with internal and external data to optimize investment, borrowing and working capital decisions. As organizations are increasingly being valued on EBITDA resilience, treasury can show its value by perfecting liquidity planning. Risk Management – Organizations who can protect their balance sheets, income statements and cash flow are increasingly rewarded by investors. Treasurers with the right processes and technology can quantify the impacts of risk on cash and financial statements and through data analytics can more efficiently reduce risk. Real-Time Treasury – APIs are a game changing technology for treasury, as they offer the ability to connect systems, unify data and integrate new apps in real-time. As more tech platforms embrace APIs, treasury can ready itself by modernizing processes to make quicker decisions. Soon there will be intra-day investment opportunities, more widespread use cases for instant payments, and the need for quicker decisions to be made that treasury will want to be ready for. Kyriba is a proud sponsor of the AFP Treasury in Practice series. We embrace our role in helping treasury and finance teams across the world become better informed and prepared for “next”. We hope this guide helps your team increase the resilience of your treasury and finance processes. Introduction The future is far from rosy right now. Interest rates are rising, the foreign exchange market is volatile, the war in Ukraine is ongoing, supply chains are still strained post-coronavirus pandemic, and there is a growing expectation of a coming recession. If these problems weren’t enough, other changes are imminent in 2023 — the launch of FedNow, the Fed’s real-time payment service; the new payment standard, ISO 20022, will become operational for cross-border payments; the SEC is planning more money market reform; and Libor will cease to exist at the end of June. To ready for all this uncertainty, treasurers will be actively preparing to ensure their departments remain as efficient as possible. By automating where possible, treasurers will free up time that can be spent managing the changing risks in uncertain times and helping their wider organizations adapt to the new environment. This guide highlights the main issues that will affect treasury in 2023, and identifies the key questions to ask as treasurers seek to build resilience into their organizations in the face of uncertain times. Preparing for the Future Treasury practitioners are generally not in the business of predicting the future. Rather, their role is to anticipate future scenarios, identify potential exposures, and then protect their organization’s assets by managing those exposures. To illustrate the point, there is a broad consensus that the Fed will continue to raise core interest rates throughout 2023. Treasury’s role is to understand the implications for their organizations if that happens, but also to protect their positions if the Fed defies expectations. In other words, while interest rates are likely to continue to increase, an unforeseen series of events could result in a reversal, and treasurers have to protect their organizations against all eventualities, not just the most likely. Even so, there are some events that will continue to influence the business environment in 2023 and that treasurers — and their FP&A colleagues — should build into their scenario analyses as they seek to manage risk. The Global Economy in 2023 The business environment is framed by the state of the wider economy. The decisions by central banks globally to tighten monetary policy are likely to have some significant consequences for businesses. There is already disruption in the money markets as interest rates rise around the world, and investors hold on to cash for fear of missing out on future higher returns. This might turn into a longer recession if central banks, including the Fed, overtighten monetary policy by raising interest rates too high as they seek to keep a cap on the various inflationary pressures. Market volatility and uncertainty mean that financial risks are evolving. First, company strategists are alert to a potential recession and are trying to find ways to build resilience into their planning. For many companies, this process starts with the balance sheet, whether by drawing down additional cash to act as a buffer and then identifying how best to manage that cash in a safe and liquid manner, or by paying down debt where possible to reduce interest expense. Second, we are all getting used to operating in a changed interest rate environment. As interest rates rise, risk is priced differently and some companies (and financial institutions) that have operated successfully on low interest rates may begin to struggle as the environment gets tougher, borrowing costs increase and cash flows become more difficult to manage. Third, there has been disruption in the foreign exchange market too. The macro story is one of appreciation of the U.S. dollar in 2022, overlaying a period of more general volatility as the market responds to different triggers. Fourth, there are many geopolitical factors in play. These range from the ongoing war in Ukraine, to heightened tensions in the South China Sea, to the residual impact of the pandemic. Specific Challenges for Treasury Each of these factors facing the global economy will have company-specific implications for every treasury practitioner. Every company operates within its own set of circumstances, and some will be more recession-proof than others. Companies operating internationally will face different challenges in each of the territories where they have a presence. Generally, as they plan for 2023, treasury practitioners will be focused on a series of challenges including: Boosting resilience. It will be treasurers, working with the wider finance teams, who will have to manage the company balance sheet. The aim will be to ensure the company has access to sufficient cash at all times, irrespective of the state of the economy. There may be fundraising implications, as well as the responsibility to manage the investment of cash. Managing counterparty risk. Customers and suppliers will all react to changing interest and foreign exchange rates in different ways. Most will be able to achieve a degree of resilience; some will not and consequently will have difficulties. Treasurers will use the skills and understanding of their businesses honed during the height of the pandemic to focus on managing cash flow and trying to strengthen the wider supply chain. Protecting the budget. Volatile prices, from inflation and changing exchange rates, can wreak havoc on a company’s budget. One of treasury’s core tasks is to manage any financial risks to protect the budget, particularly with respect to cash flow. Expecting the unexpected. The hardest part of treasury’s role is to prepare for unforeseeable events, whether that is a sudden reversal in interest rate movements, the impact of supply chain problems or another black swan event. Key Treasury Themes for 2023 While the headlines focus on the issues causing uncertainty in 2023, treasurers can target three objectives to maintain resilience in these uncertain times. Achieving Efficiency Improving efficiency is a constant focus, as treasurers continue to be asked to “do more with less.” During times of uncertainty the rewards from an efficiency improvement are elevated as more time becomes available to devote to recognizing, understanding and managing risk. Achieving efficiency is generally an incremental process, in which departments become more efficient over time by automating where possible and adopting new workflows to overcome particular pain points and reduce operational costs. In addition, a large treasury transformation project, such as the implementation of a new treasury management system (TMS), offers the opportunity to make significant efficiency gains all at once. There are always new opportunities to become more efficient. The task for treasurers is to identify the best way to implement them so that future opportunities can be more easily realized. Following are some opportunities you can execute now. Is the department getting the best value from its banks/vendors? It is good practice to review bank fees on a regular basis. It helps to make sure banks are not overcharging, but also can identify tasks (e.g., payment processing) that can be managed more efficiently. Other costs can be reviewed too; for example, it can be possible to negotiate lower card acquisition costs. What additional tasks can be automated? It is similarly good practice to regularly review all existing treasury processes to identify bottlenecks and unnecessary manual intervention. Automation helps to manage operational risk, by reducing the incidence of error and fraud. Automating processes will release departmental time that can be devoted to more strategic activities and allow decisions to be made based on more accurate and timely information. Can treasury improve its use of technology? One way to automate more activities is to broaden the use of existing solutions, such as the TMS, by implementing unused features. As an example, a company may use its TMS to manage its bank account activity, but still run its cash forecast on a spreadsheet. While there may be an additional cost to utilizing additional elements of a TMS, this may be outweighed by the improved efficiency and accuracy of the automated forecast, especially if the improved forecast can be used to manage liquidity more efficiently. How does treasury technology link with internal and external partners? Managing connectivity can be both time-consuming and costly, depending on the structure of departmental technology. Implementing APIs can be more efficient by simplifying connections between different systems. For companies with a small number of key customer accounts, monitoring individual DSO levels will also highlight potential problems with key customers and allow early intervention to take place. Maintaining Liquidity As part of the challenge to build resilience, treasurers will be identifying ways to maintain and improve their organization’s access to liquidity. There are three broad areas where improvements can be made, which the following questions will help you explore. Can treasury manage internal liquidity more effectively? Improving visibility of cash and enhancing the quality of cash forecasts allow treasurers to make more informed decisions on the levels of cash to hold; streamlining the use of cash, such as through automated sweeps to cash pools, ensures any cash is used to its maximum efficiency. Implementing an in-house bank structure can help to achieve both these goals. How will treasury maintain liquidity as interest rates rise? Some companies will look to pay down debt to reduce interest expenses. Others will draw down more cash to ensure liquidity should the market tighten, but will then need to manage that additional cash, perhaps by investing out along the curve once rates start to stabilize, again to potentially increase the yield on short-term cash. What opportunities are there to manage working capital more efficiently? With the threat of recession, companies have to be mindful of potential impacts along their supply chains. Monitoring general DSO levels will give warning on potential deterioration in incoming cash flow, allowing treasury to manage any associated liquidity risks. For companies with a small number of key customer accounts, monitoring individual DSO levels will also highlight potential problems with key customers and allow early intervention to take place. There may be opportunities to manage the cash conversion cycle more effectively, e.g., by paying suppliers later and accelerating cash collections. Keep in mind though that while accelerating the receipt of cash may be beneficial to one particular company, it may have adverse consequences for the supply chain as a whole. Managing Vulnerabilities Taking action to improve efficiency and maintain liquidity will make the company more resilient in the face of unforeseen events. Treasury should also work on identifying potential vulnerabilities by answering three core questions: How exposed is the business to changing market conditions? Much of the focus has been on rising interest rates; however, the foreign exchange and international commodity (notably oil and gas) markets are also volatile. One way to assess vulnerabilities is to run a series of scenario analyses, modeling outcomes in different combinations of market conditions. This process will help treasurers understand how exposed their organizations are to, for example, further increases in interest rates. With this information, treasurers can plan how best to protect against each particular risk, both in the short term and further into the future. Having an effective financial risk management policy covering all financial risks, together with management support to act when appropriate, reflects a prudent best practice. Failure to make adequate preparations may result in higher costs of doing business, ultimately reducing both revenues and profits. How can treasury become a more effective partner to the rest of the business to help identify and reduce vulnerabilities within the organization? With a deep understanding of both cash flows and risk, treasury has a good knowledge of how the wider business operates and how sensitive each part of the business is to changing market situations. By freeing up time through automation, treasury can support different business units to understand how market conditions, such as rising interest rates or changing exchange rates, can affect their operations. For example, when working with procurement, treasury can show how the supply chain can become more vulnerable as energy prices rise. Stronger companies may be in a position to support their suppliers via the implementation of a supply chain finance solution. On the sales side, treasury can help accounts receivable understand any threat to cash receipts and, for international sales, provide advice on the use of letters of credit. By engaging with the business as decisions are being made, treasury can help the company adopt solutions that will improve the management of working capital and liquidity, and identify and manage risk more effectively, collectively reducing exposure to external market volatility. Is the business prepared for planned market changes in 2023? There are some important changes that will feed through to corporate treasurers at various points during 2023. The Fed’s real-time payment system, FedNow, will launch and the process of transitioning away from Libor will be completed at the end of June. The SEC is also expected to introduce some reforms to 2a-7 money market funds, although the details have not yet been finalized. The implications of these changes are discussed in the next section. Issues to Manage in 2023 This section explores four key developments that will impact treasury management in 2023 and outlines how treasurers can take full advantage of the opportunities they provide. Real-time Payments in the U.S. The Fed’s real-time payment system, FedNow, is due to come online in 2023. It is not the first real-time payment system in the U.S., as The Clearing House’s RTP® network came online in 2017, and internationally, the ability to make real-time payments has been around for a number of years. However, it is likely that the introduction of FedNow will increase the uptake of real-time payments in the U.S., not least because it will extend the availability of real-time payment functionality to more banks. From a treasurer’s perspective, the key is to determine whether greater availability of real-time payments represents an opportunity to improve efficiency or an added vulnerability to be managed. The answer, at least initially, will vary between companies and will depend on whether they have a business case to extend their use of real-time payments. Broadly, there are some very specific use cases that encourage the use of real-time payments. For example, it may be necessary to make emergency payments to suppliers or customers when an initial ACH payment fails, and a real-time payment will be much more cost-effective than a more traditional wire. Real-time payments will also be an efficient way of making payments to casual labor outside of traditional banking hours. On the collections side, any payment linked to an instantly available good or service, such as a pay-per-view sporting event, will be irrevocable if collected by real-time payment instead of credit card. Over time, increasing numbers of companies will add real-time payments alongside more traditional payment types. As well as being continuously available, real-time payments have two key features — irrevocability and instant processing — that will alter the risk profile of payments management within the treasury department. It is therefore important that treasurers understand the implications of real-time payments, especially for liquidity and operational risk management, by asking a series of questions, including: Will banks be able to provide real-time information to feed into internal systems? Again, to obtain full benefit of real-time payments, such as to manage liquidity on an intraday basis, banks need to be able to provide data to their clients in real time. If real-time data feeds are available, how can the company access them? Most banks offer APIs to manage the flow of data with their clients; however, for companies with multiple banks, managing multiple API connections can be timeconsuming, adding cost to any project. Will internal systems and processes need to be adapted to manage real-time payments? To provide maximum benefit, systems will need to capture and process data in real time. In addition, any use of real-time payments for disbursements will need to have operational controls embedded as, once initiated, real-time payments cannot be recalled. If real-time payments are linked to another business process (e.g., the release of a shipment on receipt of payment), how will the linked business operation access the real-time data relating to the payment (e.g., how will logistics know when payment is received so a shipment can be released) or respond to a request for payment received outside regular business hours? Companies may be able to create a competitive advantage if they can react faster than their competitors to the receipt of a real-time payment. How will banks apply cut-off times for balance purposes? Their approach will affect how the timing of received and outgoing payments impacts earnings credit, for example. Companies may be able to create a competitive advantage if they can react faster than their competitors to the receipt of real-time payments. ISO 20022 - Improvements to Cross-border Payments In March 2023 (delayed from the planned November 2022 launch), ISO 20022, the new payment messaging standard goes live for cross-border payments. Over the three years following the launch, most central banks around the world expect to transition their real-time gross settlement (RTGS) systems (such as Fedwire) away from existing payment messaging standards and over to new ISO 20022 xml-based messages, which are, for payments, pain and camt message types. For all users, the potential benefits derive from the ability of new message types to carry more data along with payment or account information. Once fully operational, treasurers should be able to identify significant benefits of the transition. Cross-border payments should be more transparent because of interoperable standards offering more structured data. The same data will ease the automation of more of the disbursement and collection processes including reconciliation. In turn, these improvements to payment processing will lead to a more efficient use of liquidity. While the timing of the transition will vary by country, by acting now, treasurers can ensure their ability to take advantage of the new format as soon as possible. Here is what treasurers will want to review: How will treasury send data to their banks? With the changeover in message standards, some file formats will not be supported in the future. It is important to discuss transition plans with banks and other payment service providers. For the time being, TMS and ERP providers will still be able to process hybrid formats (e.g., BAI, XML, and JSON, which is used by many APIs) as they are used to manipulate multiple file formats. How will treasury hold data and access data held by other internal departments? Treasurers will want to work with their TMS and ERP providers to ensure any static data (e.g., data held on suppliers) is updated to be compatible with any new requirements. Failure to do so may not prevent payments from being processed, at least initially; however, it is likely to mean payment processing is less efficient than it could be as all the remittance information may not be available. How will treasury capture bank data? The new formats will hold much more data alongside standard payment information. Being able to capture that in the TMS and/or ERP will provide much wider benefits than improvements to transaction reconciliation. For example, the enriched data could be used by an AI-based cash forecast to develop more accurate forecasts, allowing treasury to streamline the use of liquidity. Money Fund Reform Following significant redemptions from prime money funds in spring 2020, the SEC has proposed a series of reforms aimed at improving the resilience of the sector. Although the proposed reforms had not been finalized at the time of writing (November 2022), the proposed introduction of swing pricing for institutional prime and tax-exempt funds would encourage a further switch from prime to government and treasury funds. As proposed, a fund that has net redemptions over a specific time period will be required to amend its net asset value for that period. Assuming the SEC adopts swing pricing in its final proposals, treasurers will need to review their use of money funds, as there will be an increased risk of a loss of principal when investing in affected funds. Most treasurers review their investment policies at least annually and evaluating the impact of money market reform will only be one part of that. More generally, treasurers will address the following questions when reviewing their investment policies (or setting one up, if their company does not already have one in place): How does the policy currently bucket cash (e.g., between operational/working capital cash, and other buckets)? Do these buckets need to be adjusted (e.g., a larger proportion of cash could be bucketed, and therefore invested, as operational cash), given the threat of recession and the rising interest rate environment? If the SEC introduces further money fund reform, how will the reforms affect the risk profile of the funds in which the company is invested? Notably, how do the reforms affect the safety and liquidity of any cash invested in affected funds? Should the company consider other investment strategies or investments, especially if it chooses to hold more cash on the balance sheet to protect against the threat of recession? For example, for non-operational cash, treasurers will look at strategies to generate an enhanced yield (reflecting the opportunity cost of holding additional cash). These may include shortening portfolio duration while interest rates are still rising and/or considering investing in non-investment grade instruments. How does volatility in the foreign exchange and commodity markets influence the short-term investment policy? The End of LIBOR Although most Libor settings ceased publication at the end of 2021, five USD Libor settings (and six synthetic settings in GBP and JPY) will continue to be published until the end of June 2023. Little new Libor business should have been written since the 2021 cut-off date, but there will still be some legacy USD Libor business to be managed, including remaining syndicated loans, term loans and intercompany loans. The amount of USD Libor outstanding by June 2023 has been estimated at $74 trillion. Most companies have started to transition away from Libor, not least by agreeing to use a new rate, such as SOFR, for any new business. While some contracts will mature before the end of June 2023, many organizations will still have outstanding legacy agreements to transition. For those who have yet to start transitioning, it is time to prepare, as external support may not be available closer to the deadline. Outstanding business can be divided into two parts: contracts agreed with partners, typically banks, and arrangements organized internally, typically intercompany loans. Both require an understanding of current exposures including all contracts that will be live after the end of June 2023. For external business, there are some key questions to ask of banks and other relevant partners: For each contract, which reference rate will apply, how will interest be calculated, and when will interest be payable? Is fallback language in place where necessary, e.g., for syndicated loans? The ARRC has published a series of best practices (https://www.newyorkfed. org/arrc/index.html). In addition, companies will have to amend any internal operations including: Does the company’s TMS provide the ability to calculate interest and value instruments using the new rate(s), whether via the upgrade of an existing solution or the adoption of a new one? How and when will any intercompany loans be transitioned to a new reference rate? Do the company’s interest rate risk management policy and procedures need to be updated? Conclusion Any changing environment offers both opportunities and threats to all organizations. The combination of volatile market environments and the impact of some significant market changes means 2023 will be interesting for corporate treasurers. Changes in the payments space, via more real-time payments and the adoption of ISO 20022, mean there are major opportunities for treasurers to press forward with automation, based on access to more data in real time. Automation should lead to decisions based on more timely and reliable information, allowing treasurers to use liquidity more efficiently. Innovations that improve operational efficiency and the use of liquidity will also make organizations stronger and better able to withstand the threats of recession and supply chain problems.

Cash forecasting is an art that is difficult to perfect. Every organization talks about forecasting more effectively, but few allocate sufficient people, time, and technology to build an effective program. Understanding the importance of...

Cash forecasting is an art that is difficult to perfect. Every organization talks about forecasting more effectively, but few allocate sufficient people, time, and technology to build an effective program. Understanding the importance of an accurate cash forecast that can be relied upon for key financial decisions is critical to making the right investments in forecasting. [toc] While there are many reasons to forecast, such as protecting against currency volatility and the need to mobilize cash globally, there are a few key areas that should be addressed to help CFOs and treasurers further make the connection between accurate cash forecasting and bottom-line financial performance. In this new reference guide, we will outline why organizations should forecast, and discuss best practice methods for perfecting the cash forecast. Key Stat CFOs and boards are prioritizing better forecasting. Fully 84% of respondents to the Strategic Treasurer 2021 Technology Survey indicated that forecasting is very important for treasury. What is Cash Forecasting? Cash forecasting is a key component of corporate cash management. When performed accurately, forecasting enables: Greater certainty of projected cash balances Longer term investing Reduced borrowing costs More effective hedging programs Better mobility of global cash Key Vocabulary Cash positioning is concerned with today and often the next five business days. The purpose is to manage daily liquidity to ensure shortfalls are covered and surpluses are concentrated to earn some yield on excess cash. Cash budgeting is performed by finance teams such as FP&A and is more focused beyond one year – although with increased emphasis on free cash flow guidance, the reconciliation of indirect budget-based forecasts with direct cash flow forecasts is increasingly managed quarterly. Cash forecasting typically extends cash positioning with horizons anywhere from one week to one year. Forecasting leverages multiple data sources to increase confidence in the projected cash balances so that better cash decisions can be made. The value of forecasting is based upon the value of those better decisions. Why Forecast? Cash forecasting drives financial performance. It is critical for CFOs and treasurers to understand the link between effective cash forecasting and bottom line financial performance. Excuses such as “we’re cash rich” or “interest rates are too low” no longer satisfy hungry investors who demand that cash be deployed or returned to them. Without adequate visibility of forecast cash and where cash needs to be deployed to meet growth targets, CEOs and CFOs risk looking foolish in front of shareholders and analysts. Fixing Cash Balance Issues Post Basel III, banks must hold collateral to offset the potential runoff of a corporate’s deposits, meaning that it now costs them more to hold corporate cash. The higher the possibility of withdrawal, the more collateral banks must maintain. Effective cash forecasting allows companies to segregate operational and non-operational cash into time buckets, as well as deliver the needed accuracy to allocate cash to longer duration investment strategies. This will help preserve previously realized investment returns or help to find an alternative for cash balances that are no longer wanted by your bank. Ineffective Cash Forecasting Costs the Company Money and Impacts Shareholder Value A poorly executed cash forecasting program drives a number of negative consequences, including: Earnings per share losses from unexpected and unhedged currency impacts Difficulty in maintaining (let alone increasing) return on cash in a post-Basel III environment Challenges in securing adequate and / or cost-effective borrowing to fund operations – increasing operating costs The frequent need for expensive emergency borrowing (e.g. via bank overdraft) to cover an unexpected cash shortfall – also increasing operating costs Inability to efficiently fund strategic projects and programs Difficulty in providing accurate earnings and free cash flow guidance, affecting credibility with the investment community Forecasting FX to Avoid Unnecessary Losses The volatility in global currencies shows no signs of abating, meaning that the pressure on CFOs to maintain the value of foreign cash inflows and outflows persists. USD-based Companies The relative strength of the USD vs. all other foreign currencies challenges CFOs because a strong USD means that foreign revenues will be lower, and unless foreign markets are cash flow negative, earnings will suffer. If projected cash inflows can be accurately predicted, treasury teams can hedge, protecting the value of incoming cash flows. UK-based Companies British enterprises have faced significant currency volatility arising from Brexit and other macroeconomic conditions. While currency rates are not easy to predict, CFOs simplify their job and minimize exposure if their teams can more accurately project foreign cash flows. This allows treasurers to hedge exposures and maintain value of incoming and outgoing cash. EMEA and Markets with Depreciating Currencies For those CFOs that count USD, GBP or other appreciating currencies as foreign cash flows, then they will have seen a roller coaster of exchange rates, making the task of forecasting certainty near impossible. Stakeholders demand earnings predictability, which can only be achieved by first perfecting the forecast and then hedging the foreign components. Forecasting is the Key Cash forecasting is required in order to make effective hedging decisions to protect the value of projected foreign cash balances. Understanding the gross inflows and outflows will help determine net cash flows by currency. To be effective, it is critical to know the amount and timing of cash flows so that treasury teams can maximize protection of net cash flows. Health Care Service Corporation (HCSC) improved its forecasting capabilities and was able to reduce working capital holdings by nearly $4 billion. The health insurance company was then able to make more strategic investment decisions earlier in the day, resulting in a 5% increase in investment returns. Short-term returns grew by $40 million, while long-term returns have seen an increase of $140 million. Effective Liquidity Forecasting for Strategic Enablement Certainty in projected cash balances drives the CFO’s ability to anticipate and prepare for corporate actions and strategic investments. Without Confidence in Cash Forecasts, One of Two Things Happen: CFO and treasurer are not relied upon to contribute to key organizational decisions The CFO ends up being volunteered for commitments that treasury has to react to – often times inefficiently and without maximizing business value With an effective forecasting program, the CFO, supported by the treasurer, can be an effective strategic partner. Future Acquisitions If the board is considering mergers and acquisitions, the CFO is asked to provide guidance on the components of cash/debt/equity to calculate a total acquisition cost. With an effective cash forecast, CFOs can be confident in delivering this insight – and perhaps do so proactively. Share Repurchases or Dividend Increases When cash is held globally, share buybacks or dividend hikes are a challenge. Often CFOs find it cheaper to borrow cash domestically than repatriate funds – yet this analysis requires certainty into projected cash balances. Confidence in the cash forecast is critical to optimize business value. Reinvestment of Cash into the Business CFOs need an effective cash forecast in order to make commitments on how to reinvest cash to meet organic growth targets. Lack of confidence will lead to unnecessary borrowing or equity financing. Treasury Opportunities in Strategic Cash Forecasting CFOs are placing a higher priority on strategic cash forecasting in recent years. But they’ve mostly been relying on FP&A departments for this task, while treasury is typically left to handle short-term cash forecasts. However, there are some key ways that treasury can get involved and ensure that it is a significant contributor to company strategy. Working with FP&A CFOs turned to FP&A largely due to the upheaval at many organizations in the early days of the COVID-19 pandemic. CFOs generally needed more forecasts, scenario planning and stress-testing information and relied broadly on FP&A because investors and shareholders were demanding answers. To become involved in the strategic forecasting process, treasury departments need to be proactive. They should reach out to the CFO and to FP&A to see how they can help, and they should feel emboldened by the fact that they have been consistently reliable. Treasury has an overall proven track record of creating accurate forecasts—sometimes more so than FP&A in many respects. FP&A typically makes longer-term projections that hinge on different data sources, such as assumption-based, top-down projections. Treasury should pursue opportunities to work cross-functionally with FP&A and contribute to these 12-18-month forecasts, thereby cementing the department’s status as a strategic contributor. Treasury is well-suited for strategic cash forecasting because the function understands overall financing plans and the associated costs. FP&A, in contrast, needs to get that info from treasury to model it. In terms of setting up new subsidiaries in different countries, we head the cash needs and requirements. FP&A typically looks at historical scenarios to predict future needs and treasury typically forecasts the needs for future state.” — Lee-Ann Perkins, CTP, FCT, Assistant Treasurer for Specialized Bicycle Components Perfecting the Cash Forecasting Consolidation Consolidating data is about finding the right information and determining the most efficient (i.e. automated) way to integrate it into a consolidated forecast system. While automation is important, data quality is also paramount to success. When building the forecast, each line item may be sourced in different ways. The source of the information will determine the best way to build the forecast for each line item. For example, many treasury teams prefer to import accounts payable data directly from the ERP while for receivables information they may wish to extrapolate historical data and model using a linear regression. For treasury teams to be effective, it is important that all methods be fully automated and secure so that initial setup, maintenance, and daily execution to build the forecast are easy and can be maintained by the user (and not require reprogramming). Collaboration Making decisions on the best data to build the forecast also requires determining who to collaborate with to smoothly access that key information. In many cases, treasury does not have direct authority over the people that own systems and/or business responsibilities that offer that data. Yet, treasury relies upon this outside information to build a comprehensive forecast – so good internal communication skills are often critical to receiving quality information in a timely way. Examples of teams to collaborate with include: Accounts Payable – for payables trends or supply chain finance updates FP&A – for budget and free cash flow projections IT – automated imports from the ERP Regional Controllers – forecast projections for decentralized organizations Many treasury teams plan, with their CFOs, a top-down collaboration model that builds effective cash forecasting into the team’s objectives and compensation. This draws attention to the forecasting objectives and motivates each team to fulfill their roles. Measurement The most important – and often overlooked – step is the measurement of forecast accuracy. Implementing a process to measure forecast accuracy at a detailed level to identify the source of variances is critical to improving quality and ultimately reducing forecast variances. Equally important is implementing a feedback loop – to systems and to people – that ensure that forecast data is improved based on variances that were identified. And people need to be held accountable; the entire organization needs to be committed to accuracy. A high variance should perhaps be reflected in the bonus payout for the employee that is responsible. The feedback loop is especially important when non-treasury resources are contributing to the forecast to ensure that the right behaviors and cash forecast numbers are positively reinforced while opportunities for improvement are well communicated. This is especially effective when feedback is aligned to KPIs and quarterly objectives of those outside of the treasury team. A forecast variance analysis should be detailed with multiple ‘snapshots’ taken. If only a summary picture is reviewed (e.g. how effective was forecasting over a three-month period) then a lot of the variability is hidden within that timeframe. Measuring daily, weekly, or bi-weekly will help uncover the ups and downs between forecast and actuals that might otherwise go unnoticed. Fortunately, the business intelligence features of a TMS offer the data visualization and analytics required to provide this level of detail. The key to forecasting is flexibility so that you have many options to model the different streams of forecast data. The accuracy of your data will determine if importing, regressing, extrapolating, or other methods of calculations are needed to build your forecast effectively. Without measuring forecast accuracy, it is impossible to know how well you are forecasting. Data visualization helps focus on important variances – whether by category, time bucket, or geography – and isolate what data needs to be improved for future forecasting. ROI of cash forecasting is very high. Key to Success A forecast variance analysis should be detailed with multiple ‘snapshots’ taken. If only a summary picture is reviewed (e.g. how effective was forecasting over a 3-month period) then a lot of the variability is hidden within that timeframe. Measuring daily, weekly, or biweekly will help uncover the ups and downs between forecast and actuals that might otherwise go unnoticed. Fortunately the business intelligence features of a TMS offer the data visualization and analytics required to offer this level of detail. The Role of Technology Taking on strategic cash forecasting may require treasury to adopt new tools, including APIs and artificial intelligence. These tools can rapidly gather copious amounts of data, enabling treasury teams to quickly build global cash forecasts and extend the accuracy and horizon of those forecasts. APIs While many organizations view APIs as connectors that allow companies to access their banks and real-time payments, they have much greater potential. They can unify data, bringing information together into one, composable system. They can take a company’s system of record (the ERP), merge it with a treasury management system, and also bring in data sets from other internal and external sources, such as purchase requisitions, purchase orders, invoices, sales forecasts, etc. With such expansive capabilities, it’s easy to see why APIs are the perfect tools for cash forecasting. A survey of over 800 finance executives by IDC and commissioned by Kyriba revealed that 88% of them are prioritizing APIs this year. That’s because CFOs understand that APIs can unify forecast data across their organizations so that they can make better decisions. They are demanding more precise cash forecasting and liquidity planning. And they are right to demand it, because at the moment, they don’t have the insights they need. The IDC survey also revealed that currently only 15% of finance leaders leverage real-time data to drive insights, and only 25% of finance teams reliably forecast cash and liquidity beyond one month. AI Artificial intelligence and machine learning (AI/ML) can greatly enhance cash forecasting. AI-based tools can evaluate variables and errors found in historical data, allowing them to better estimate cash inflows and outflows in the near future. In the near future, as these tools accumulate more data, they will be able to make predictions on mid- and long-term horizons. Of course, with predictions, there’s always a question of accuracy. Fortunately, some tools allow users to track the accuracy of their projections by comparing estimations with historical actuals. If you don’t have access to that real-time data, then you’re not utilizing the most up-to-date information. Then how could you be as accurate as you could be going out further than four weeks?” — Lisa Husken, Value Engineer, Kyriba Advance Your Cash Forecasting Many Reasons to Forecast Cash forecasting is important whether your company is cash rich or debt-laden. If you have a high percentage of non-operational cash deposits, you need to know whether you can eventually release some of those holdings. Conversely, organizations with large amounts of debt need to know when they can afford to make payments. And multinationals with significant foreign revenues must forecast better, so they can hedge effectively and deliver cash predictability to their stakeholders. Creating the Cash Forecast The key to forecasting is flexibility so that you have many options to model the different streams of forecast data. The accuracy of your data will determine if importing, regressing, extrapolating, or other methods of calculations are needed to build your forecast effectively. Measuring the Forecast Measurement is the most important part of forecasting. Without measuring forecast accuracy, it is impossible to know if you are good at forecasting. Data visualization helps zero in on important variances - whether by category, time bucket, or geography - and isolate what data needs to be improved for future forecasting. ROI of Cash Forecasting is Very High The value of forecasting is driven by what your organization can do with additional cash. The value of cash can be measured by investing longer with higher returns on cash, repaying debt, earning yield from early supplier payments, or investing in new organizational projects. Perfecting the cash forecast means freeing up cash from working capital and directing towards these higher value uses. Collaboration is Key Treasury and FP&A should be working closely together on strategic cash forecasting. Rather than one department taking it on in its entirety, both functions should take on aspects that play to their strengths. Technology Makes the Difference Organizations have more data than ever before, and they need realtime access to it to make strategic decisions. And the only way to facilitate that is through technology like APIs. Learn how to management complex cash forecasting with precision from this on-demand webinar hosted by Kyriba treasury experts.

Modern fraud threats are innovative and constantly evolving. To confront these threats, organizations that want to survive need to deploy the most up‑to-date detection and prevention solutions.

Modern fraud threats are innovative and constantly evolving. To confront these threats, organizations that want to survive need to deploy the most up-to-date payments fraud detection and prevention solutions. In this eBook, we will explore the most common fraud threats to businesses today and detail the leading, AI-based tools that CFOs and CIOs can use to stop attacks before they happen. We’ll explore the ways that Kyriba solutions protect our customers, and impart that knowledge to you. We'll also look into tools like artificial intelligence and machine learning (AI/ML) and application programming interfaces (APIs) are game changers in the fight against fraud. We understand and use these technologies, and it’s time that you did as well. The Changing Face of Fraud Fraud threats have grown exponentially throughout the COVID-19 pandemic as the remote working environment has left companies struggling to ensure that employees are following strict security protocols. According to a 2022 KPMG survey of over 600 executives, the shift to remote work has increased the risk of fraud, and most companies experienced fraud incidents last year. FRAUD OUTLOOK Source: 2022 KPMG Fraud Outlook The losses that stem from fraud are significant. Respondents reported an average profit loss of 1% from fraud and compliance violations in 2021. And the larger the company, the more criminals will target it. A Need for Corporate Investment and Attention With the pandemic continuing for the foreseeable future and challenging organizations’ ability to operate and staff effectively to counter the ever-increasing fraud threat, it is surprising that over half of the companies surveyed say there will be no changes in their budgets to invest in anti-fraud measures. With less than half of organizations today having a program in place to prevent, detect and respond to fraud, it is evident more focus on greater investments in their protections is called for. CFOs, treasurers and CIOs clearly require a more complete set of defenses in the form of new, leading, automated AI-based fraud detection. Pervasive and Emerging Fraud Threats Business email compromise (BEC) scams continue to plague treasury and finance departments. BEC scams typically begin with an urgent email sent to an employee that appears to come from a senior level official, requesting a money transfer. In actuality, a fraudster has copied a legitimate email address, usually after infiltrating a company’s email system via phishing. A variation of this scam consists of emailed invoices that appear to come from a routine supplier that have new instructions on where to send payment. According to the FBI’s Cyber Division, there was a 5% increase in BEC adjusted losses from 2019 to 2020, with over $1.7 billion losses reported in 2019 and over $1.8 billion losses reported in 2020. Check and wire fraud remains a significant problem for treasury and finance departments, as these are the payment methods most susceptible to fraud. AFP research found that 66% and 39% of financial professionals reported fraud activity via these two payment types in 2020. However, check fraud has been in decline in recent years as fewer organizations are using checks for B2B payments. Deepfake voice fraud is a relatively new method of attack but one that has proven highly effective. This brand of fraud consists of criminals making calls using deepfake voice technology, software that can successfully copy a person’s voice via a small audio sample. COMMON VULNERABILITIES FOR ORGANIZATIONS Deepfake voice fraud caught international attention last year when it was revealed that fraudsters used it to complete a $35 million bank heist. Ransomware attacks, though not technically fraud, are nevertheless prominent threats to companies’ systems and bank accounts and have surged in recent years. In a ransomware attack, a company’s internal system is compromised (usually through phishing) and taken over. Users are instructed to either pay a ransom or permanently lose access to their systems. Ransomware as a service (RaaS) is the latest innovation of this threat; it consists of developers selling or leasing ransomware exploits to customers who then unleash them upon unfortunate victims. Tools to Protect Against Fraud To combat the threats of today, your payments fraud prevention and detection solutions should include these capabilities: Automated payment processes to standardize controls Real-time screening of all payments data to identify suspicious transactions User-defined payments screening rules Resolution workflow to investigate suspicious payments An option to avoid alerting payments users who violated a payments rule Monitoring of the status and priority of alerts in a KPI dashboard Modern payments fraud detection software like Kyriba’s Payments Fraud Detection module offer these solutions and more. Real-Time Screening, Alerts and Notifications The rise of same-day and real-time payment systems has increased the need for real-time responses to fraud attempts. Modern fraud detection software uses artificial intelligence (AI) and machine learning to screen payments against historical payment data, pinpointing any anomalies. By providing more complete data, these solutions enable data-driven decision-making. For example, Kyriba’s Payment Fraud Detection solution determines the normality of each payment—whether automated or manual—flagging any with a low normality rank. The solution provides insights into the variables that determine payment normality, allowing users to see why one or more was deemed anomalous. And perhaps most advantageous for the user is that processes aren’t slowed down in any way, even with greater visibility into payment data. Payments could be flagged as anomalous for a variety of reasons, including: A high number of payments for the same third party Payments with unusually high amounts Payments to blacklisted countries according to company policy Suspicious changes to payments imported from an ERP Payments to a bank account used by several third parties Duplicate payments After testing multiple machine learning models, Kyriba’s data scientists selected two solutions to identify irregularities in payments. Isolation Forest An isolation forest model is an unsupervised algorithm that works on the principle of isolation anomalies; anomalous instances in a dataset tend to be easier to separate from the rest of the sample. In the following example, we can see that anomalies require fewer random partitions to be isolated, compared to normal points: Generative Adversarial Network One problem many machine learning models run into when trying to identify fraud is the lack of data around fraud. Most organizations haven’t experienced significant payments fraud and thus lack the depth of examples to share. Others who may have been the victims of fraud may be reluctant or unable to share the specifics. So, training AI models can be challenging because the algorithms can only learn from good payments and, at best, a handful of bad ones. Generative adversarial networks (GANs) can solve this problem. A GAN is a deep learning model that pits two separate neural networks against each other. One network (the generator) mixes real data and synthetic data together and attempts to outwit the opposing network (the discriminator). Kyriba creates a “fraudster” network (the generator), hiding synthetic fraudulent among legitimate transactions based on a client’s payment history. Then, a “police” network (the discriminator) sifts through the data, separating the illicit transactions from the good ones. By training the fraud detection model on these competing networks, Kyriba can better identify fraudulent transactions when viewing real data. Generative Adversarial Network (GAN) Model Dashboards Dashboards can be set up to display all suspicious payments and prioritize their resolution, based on factors such as detection rules, risk exposure, incident counts and a fraud detection scorecard. Dashboards provide authorized users with complete transparency into all payment screening and can resolve outstanding actions efficiently. Payments Fraud Prevention Workflows Modern payments fraud detection modules also support fully automated, end-to-end workflows for the resolution of outstanding suspicious payments. Users can also determine how each detected payment should be managed, enforcing the separation of duties between the initiator, approver and reviewer of a detected payment. Reviewers can also be determined by payment rule and specific scenario (e.g., the treasury manager reviews payments less than $1 million, while payments over $1 million go to the treasurer), and non-treasury personnel can be assigned to review certain detected payments. Reporting and Audit Trails Leading technology solutions can ensure that detected suspicious payments are permanently tracked in the system for daily, monthly or annual reporting. History is maintained indefinitely and all details of the suspicious transaction—including the audit trail of detected and resolved actions—are retained for internal and external audit reporting. Payment Hubs With a payment hub, organizations have all their fraud protection capabilities in one place. Payment hubs consolidate payment streams from ERPs, finance, treasury, legal, capital markets and decentralized teams, transforming disaggregated processes into a single source of record for all outgoing payments. A payment hub also transforms payment data into bank-specific file formats and connects directly with global banks via multiple protocols, including host-to-host, SWIFT and regional networks. Payments from ERPs or other systems can bring an entire enterprise-wide payments landscape under the consistent and risk-focused payments fraud detection framework. With API-driven connections and integration tied into an approval and payment fraud detection and prevention workflow, controls and fraud are enhanced and easily governed. Payment Hub for Payments Fraud Detection Fraud Mitigation Matrix Treasury and finance professionals have many payment fraud detection tools at their disposal. The following list of solutions provides an overview of some the capabilities that today’s tools deliver for mitigating fraud risk. Fraud Mitigation Matrix Solution Key Protections Capabilities Payment Fraud Detection Scenarios Pre-Defined Detection Rules Flags unorthodox payments for further review Easy to customize and come up with your own rules Real-Time Screening AI/Machine Learning Dashboard Screens payments against historical payment data Displays all suspicious payments and prioritizes their resolution Payments Fraud Prevention Workflow Fully Automated Workflow Enables users to resolve outstanding suspicious payments Allows users to determine how detected payments should be managed Enforces separation of duties around a detected payment Designates reviewer(s) by payment rule and specific scenario Provides the ability to assign non-treasury personnel to review payments Features an option to hide alerts from initiators/approvers of a payment Allows scenario-based stopping of payments until resolved Enable to bypass for low-value payments Sets up tiered approvals Reporting & Audit Trails Complete KPI reporting Detected payments are permanently tracked in the system History is maintained indefinitely APIs: The Future of Payments Fraud Detection Real-time payments, which are gradually becoming more prevalent, bring unprecedented visibility and transparency to both the payer and the payee. However, there is also no stopping the transfer of funds once a real-time transaction is executed. Therefore, fraud needs to be prevented in the approval process before a payment request reaches the bank. Building APIs into the payment platform allows users to fully automate bank account validation and payment policy screening, identifying exceptions in real-time. APIs can instantly match payments against third-party data; for example, they can be used for sanctions list screening or verifying the ownership of the bank account to whom your company is paying. By using APIs for third-party system integration with your payment platform, your organization can ensure real-time access to any needed database for account or compliance validation. Exceptional payments can be immediately quarantined for further review, while unexceptional payments process normally. Learnings and Takeaways CFOs and treasurers require a more complete set of payments controls to mitigate modern fraud threats, including artificial intelligence/machine learning and APIs. Organizations have three common areas that make them vulnerable to fraud: technical systems, processes and human error. Modern threats include business email compromise scams, check fraud, wire fraud, deepfake voice fraud, and ransomware. Technologies that can be used to combat fraud include pre-defined fraud detection rules; real-time screening, alerts and notifications; payments fraud prevention workflows; reporting and audit trails; and payment hubs. As the threats continue to evolve, treasury and finance teams need to heighten their awareness. Interested in learning how to build out payments fraud detection and incident response programs to maximize protection end-to-end? Check out this on-demand webinar. Cybersecurity and fraud experts from Corelight and Kyriba outline fraud defense strategies.

Remote Treasury Management System implementations are possible with proper planning, organization, and understanding. Depending on the scope and stakeholder groups involved, they can also be complex with multiple moving parts. The organizations that have the...

Remote Treasury Management System implementations are possible with proper planning, organization, and understanding. Depending on the scope and stakeholder groups involved, they can also be complex with multiple moving parts. The organizations that have the most success with remote implementations tend to: Understand the general challenges of a remote workforce, what works, and what does not Utilize a standard implementation methodology to streamline the process Recognize and appreciate the benefits of conducting the implementation remotely As you can see, both effective and efficient communication and a systematic way of conducting the implementation play an important role in every successful remote TMS implementation. By keeping these key points in mind during the implementation process, treasury is well positioned to deliver on its objectives and ensure the company is better positioned to realize its goals. The General Challenges of a Remote Workforce (What Works and What Does Not) Understanding common challenges to a remote implementation helps the project team stay well positioned and on schedule. What follows are a few frequent concerns for remote teams and solutions for how to best tackle them. Communication Styles One of the most vital aspects of success in our relationships, both personally and professionally, is communication. With a dispersed project team and multiple organizations and people involved, how effectively the project team communicates can make or break a remote TMS implementation. Otherwise, ideas don’t get shared or transferred and collaborations suffer. The earlier you establish a communication style, the better. BEST PRACTICES: Acknowledge Differing Communication Styles: Not everyone likes to communicate the same way – while you may prefer to receive an email for certain items, others like to talk through each task. Familiarizing yourself with everyone’s habits and preferences from the onset can ensure the project runs smoothly while warding off potential conflict. While you may be able to figure this out through trial and error, you can save time by asking about communication preferences. That way, going forward, you know whether to utilize instant message, email, or pick up the phone to get the quickest response. Beware of Digital Communication Limitations: When you are not working face-to-face, body language is missing from your interactions. Strive to over-communicate, being conscious of how your intended message might be received. Lack of Visibility Naturally, as you are not working in an in-person environment, it can be difficult to accurately assess what your project team is doing at all hours of the day. Everyone has day-to-day responsibilities in addition to project work, and are likely balancing multiple implementations at once. With so many competing priorities, it can be difficult to reach your team and easy to make assumptions about misunderstandings. BEST PRACTICES: Commit to a Calibrated Schedule: Have team members denote if and when they are out of the office during the day so everyone is aware of availability. To effectively combat lack of visibility, it is important to return to the basic purpose of communication - making sure everyone is in the loop. Limit the number of emails back and forth and try to consolidate daily questions into one email. For example, start an email at the beginning of the day and add to the email as you have questions before finally sending at the end of the day. This helps everyone keep their focus instead of fighting off multiple emails throughout the workday. Set communication protocols upfront. For instance, if an item needs immediate assistance, put “High Priority” in the subject line. For other lower priority inquiries, set a response time that works for the team. Utilize standardized reporting. Project milestones will be determined in the project planning phase based on the rollout strategy. The project manager will produce the following project management deliverables:– Detailed Implementation Project Plan – Periodic Project Status Report – Periodic Project Status Meeting – Open Issues Log – Risk Management Log – Meeting Agendas and Meeting Minutes Project Management In the office, you can easily collaborate in conference rooms and by making rounds in the building. In a virtual setting, you are only as collaborative as the tools you have will allow. BEST PRACTICES: Explore Different Tools: In the existing technology landscape, we are lucky to have a variety of tools available at our fingertips. For example, video software like Google Meet and Zoom helps with collaboration, ProjectPlace helps define and oversee tasks being completed, and Dropbox enables a way to collaborate on files and store them in a place everyone can access. Google Hangouts, Slack, and Microsoft Teams are additional options to help your virtual office mimic in-person communication and availability. No matter what you are using, determine your toolkit at the start of the project and ensure everyone knows how to use each platform. Define Roles and Responsibilities: Having clearly defined roles and responsibilities facilitates clear communication and ensures everyone understands their role on the project. During the course of the implementation, the Customer will need to dedicate certain resources in order to help ensure the success of this project. The following table outlines sample project team members required. TMS Project Team Role Responsibilities Project Manager Primary point of contact during the entire remote TMS implementation. Ensures project is on track; monitors tasks and Customer deliverables. Schedules all TMS project resources and manages the performance of those resources. Manages the project budget and the change management process. Works with Customer project manager to schedule and facilitate project meetings. Identifies project risks and manages risk mitigation activities. Manages issues logs and tracks resolutions. Leads project status meetings and prepares regular updates to the status document and action items log. Functional Consultant(s) Subject matter expert during the remote TMS implementation. Leads solution configuration design, blueprint sessions, system configuration, standard report configuration and execution of project plan. Delivers training session and provides knowledge transfer to the Customer. Primary support for user acceptance testing and go‑live preparation. Technical/Connectivity Consultant Develops integration to facilitate connections with banks, external and internal systems as necessary within the scope. Supports initial testing and trains Customer staff for on-going operations. Below is a sample Customer team. The actual number of contacts and additional roles, if any, should be discussed at the onset of the project, ideally during the kick-off call. The Customer will be responsible for making sure the appropriate resources are available for the implementation. Customer Project Team Role Responsibilities Project Sponsor Executive Stakeholder, accountable for overall project success. Project Manager / Project Lead Ensures project is on track; monitors tasks and Customer deliverables. Schedules all Customer resources and manages the performance of those resources. Works with project manager to manage scope and the change management process and schedule and facilitate project meetings. Identifies project risks and manages risk mitigation activities. Contributes to action items logs and tracks resolutions. Provides regular updates and status on action items to the implementation manager. Subject Matter Experts (i.e. Cash Manager, Funding and Investment Manager, Accounting) Provides knowledge transfer on current process and future state to the implementation team. Assists in configuration and validation of the modules in scope and report development. Develops testing scenarios for user acceptance testing. Trains other staff members on team as required. Administrator Responsible for understanding the entire workflow of the system and assisting with training additional staff post-implementation. Responsible for system and user security permissions. Maintains functional knowledge of the entire application. Capable of providing ‘help desk’ type support to user community. Maintains workflow processes and updates assignments as required internally. Acts as point of contact for all system related issues requiring internal support. IT Team Works with team to set up integration of import and export files. Project Complexity Because remote project teams often sacrifice the convenience of having the team in one place, keeping the project as simple as possible is an additional way to minimize conflict, challenges, and roadblocks. A standardized methodology will help ensure the project is on the right track. BEST PRACTICES: Create a Road Map: Determine how to best configure the TMS to meet the defined requirements and processes while taking into account industry best practices. The most successful system design projects occur when there is a holistic understanding of both the business requirements and the TMS capabilities by all participants in the project, including business and technology stakeholders, as well as third-party vendors involved in the implementation. A sample step-by-step guide is below, broken up into achievable parts. Phases of a Successful Project While every project team’s roadmap may be different based on experience and complexity, all successful projects will have the following phases. Prior to the pandemic, it was customary to conduct the remote TMS implementations in a hybrid format, where most of the implementation was conducted remotely with key components in-person. If possible, it is recommended to have those interactions in-person, especially for the blueprint session to learn the cadence of the team. Having strong communication practices with a solid methodology is key to your project’s success. 1. Project Kick-Off The purpose of the kick-off is to formally introduce the TMS and Customer implementation teams and review the project approach to the project scope on a formal call. For remote teams, this step is critical to the project’s success as it sets expectations and is the first chance for clients to familiarize themselves with the project team. A successful kick-off call will discuss the following topics: Roles and responsibilities for the remote TMS implementation and customer project teams Confirmation of project scope Purpose, format, and schedule It is best to provide a clear “blueprint” questionnaire that asks general questions to help analyze existing processes. Provided by the implementation team, this helps understand current state to better match the project to the future state vision. Referential workbook Schedule an additional meeting to review expectations in detail. The referential workbook is the basis of the Kyriba system and contains the core referential data, such as account numbers, users, and bank locations essential to the completion of the project. Bank connectivity and technical analysis preparation Discuss bank communication, Customer protocols, and technical architecture. This includes the Customer contacting its banks for implementation and connectivity purposes. Determining the database name and initiating procurement of Kyriba environments will help the project run smoothly. 2. Blueprint Creating a project outline based on the blueprint questionnaire answers will help create a more detailed understanding of the required tasks in comparison to the project scope. The objectives of this phase are: To document and understand the functional and technical requirements of the implementation based on Customer’s treasury process To understand future state process and make key design decisions based on best practice recommendations by the implementation team To conduct a fit/gap analysis To build out project plan with implementation roll-out strategy and go-live milestones 3. Configuration The purpose of a successful configuration is to build and validate the functional requirements document in line with the Kyriba system. The connectivity consultant works on establishing the bank connections for bank statements and payments along with any interfaces. As the system is being configured, create various checkpoints with the Customer to ensure the configuration is in line with their requirements. As a best practice, the Customer should be involved in the validation process and provide any feedback for changes before user acceptance testing can begin. 4. Training The training stage provides key user training to the Customer to empower them to conduct user acceptance testing and prepare for go-live. The Customer should designate core users who will attend the training sessions and fully participate in the training exercises. The implementation team must provide a detailed agenda prior to the training session and the Customer will be responsible for ensuring appropriate users who will carry out the functions in the system and attend the sessions. 5. User Acceptance Testing (UAT) and Parallel Testing The UAT stage allows Customer users to test production of the fully configured Kyriba system to ensure all requirements have been met. The Customer will examine each module in scope, as well as the full process flow during UAT. The Customer is responsible for building the UAT test cases and will lead the testing of all test cases with assistance from the implementation team. Key tasks to perform here are the log of open items, assessment of impact to go-live, and agreement on resolution. 6. Preparation and Go-Live The final stage is preparing the Customer to move to Kyriba as the system of record and operate in a go-live state. Any final system configurations will be validated and users will operate Kyriba as their day-to-day system. As a best practice, a formal sign-off of golive is asked from Customer’s project team. While not a part of every project, oftentimes new information may surface that necessitates a change in requirements. These changes may impact project scope, estimated level of effort, project timeline or product features. Should you need to reexamine project scope, a Change Order may result in adjustments to the project schedule and/or budget. Benefits of Remote TMS Implementations By implementing the best practices outlined above, your project will run smoothly. Below are a few of the many benefits you can actualize in remote implementation. 1. Improved Work/Life Balance It is rare that consultants work on just one project. More than likely, they are juggling multiple clients, modules, and implementations at once. By reducing the commute time to a traditional office, consultants have more capacity to answer queries, greater availability for configuration, and increased flexibility to live their lives – a win-win for both the Customer and implementation team. 2. Faster Response Times Mobile teams typically have greater access to project technology and are not restricted to accessibility from the office. With phone apps and 24/7 connectivity, Customers and teams likely won’t have to wait long to get a response to their query. Oftentimes, this moves the project along quickly as you minimize the amount of time it takes to progress to the next step, especially if there is a lingering question that needs to be answered before additional progress can be achieved. 3. Higher Productivity and Motivation With many companies shifting to virtual workplaces, we are also seeing a reevaluation of workday tasks to mitigate distractions. Collaboration is essential, yet not all collaboration is necessary. With competing priorities, many leaders are recognizing that granting teams the freedom to self-organize is actually increasing productivity and boosting morale. 4. Reduced Cost Committing to remote work often means a reduction in cost; removing the need for office space allows for significant savings, especially as budgeting no longer needs to account for travel. For the customer, this means they can achieve more for less money – whether they’d like to implement more modules, or instead just conserve funds for additional process improvements. As with any project, proper planning is key. As you prepare for your remote implementation, keep this information in mind to ensure a smooth remote TMS implementation. Want to learn more about how to prepare for remote treasury management system implementations and avoid project risk? Check out this webinar.

Recent data has shown that payment fraud incidents are not slated to decrease anytime soon, so now is the time to future-proof your organization’s processes by building effective fraud prevention controls into your workflows....

Recent data has shown that payment fraud incidents are not slated to decrease anytime soon, so now is the time to future-proof your organization’s processes by building effective fraud prevention controls into your workflows. The drastic 667% increase of payment fraud attempts during the pandemic has compelled many corporates to implement process-oriented health checks to effectively protect against fraud. This eBook highlights the following areas in which your business can do the same: Internal policies Standardization Centralizing visibility Daily reconciliation workflows Aligning cross-departmentally Payment Health Checks to Protect Against Fraud Coming out of the pandemic, the need to mitigate payment fraud is top of mind for opinion leaders within the treasury space. Organizations that had processes in place before or during the pandemic experienced less actual loss, compared to those who failed to recognize the immediate risk. The AFP Payments Fraud and Control Survey reported that 90% of organizations experienced an increase or no change in the incidence of payments fraud when compared to the prior year. As has been made clear by COVID-19, payment fraud is a larger threat than many enterprise organizations anticipated. With a drastic increase in payment fraud attempts (at 667%) during the pandemic, fraudsters are utilizing new phishing schemes to expose those at risk. Kyriba client and manufacturing company, Şişecam, implemented a fraud detection tool to benefit from alerts related to: Suspicious payments First payments to new suppliers Duplicate payments Non-purchase order or unsupported, ad hoc payments Larger than usual payments Sanction list screened countries These alerts ultimately empowered Şişecam to proactively prevent fraud, rather than reacting to fraudulent activities as they take place. With 1 in 12 companies making or receiving payments to sanctioned parties, fraudsters are scaling their attempts with the help of readily available automation and an increase in human elements. In addition to implementing payment fraud detection alerts, organizations can leverage the methods discussed in the remainder of this ebook to ensure payment fraud controls and compliance are in place. 62% of attempted and/or actual payments fraud Business Email Compromise 52% of attempted and/or actual payments fraud External Individuals 9% of attempted and/or actual payments fraud Vendors, Professional Services Provider, or Business Partners 12% of attempted and/or actual payments fraud Spyware or Malware from Social Networking Sites Enforcing Internal Treasury Policies Treasury and finance policies are the starting point for governing the procedures and embedded controls that mitigate risks from errors and fraud. As part of your checks and balances and to maintain a healthy controls framework, it is important to ensure alignment across all business units and finance functions. In many cases, these units or functions operate autonomously due to business circumstances (i.e. M&A), statutory requirements, regional needs, the fact that systems lack technical integration, or operating models that are not centralized. The nature of autonomous business areas or functions must be well understood and part of the review and governance overseen by the Controller and Finance leadership. Below are some starting guidelines to incorporate into your internal controls: Policies are reviewed by functional areas across finance Review policies for potential conflicts with existing models Create a policy impact check with business units to identify any potential risks to policy compliance Ensure buy-in and approval includes internal audit and/or a compliance group; treasury and finance should be aligned first Exceptions and regional teams/subsidiaries operating autonomously are held accountable for reviewing and being compliant with corporate policy Policies are reviewed and approved by the board; the CFO is ultimately responsible for ensuring compliance Procedural manuals are written in accordance with, and to ensure consistent support of policy If evaluating third-party systems to automate procedural guidelines, it is important to consider the following functionality: Three-way match is conducted across PO, invoice and goods/service receipt Embedded fraud controls is part of the payments network or hub Acknowledgements and notifications are real-time Clear, tiered structures are in place for approvals and approval limits are part of the procedures or system-provided controls Smart routing for singular or dual/triple approvals are embedded into the process Standardizing Payment Approval Processes and Payment Acknowledgments Requests for the transfer of funds from seemingly harmless or “trusted” sources within the organization can unfortunately lead to successful payment fraud attempts that cost companies valuable time and resources. While special request, urgent, ad hoc, and non-purchase order types of payment requests typically garner the attention they deserve, it is important to be wary of breaches in protocol that involve the normal course of accounts payable or treasury transfers and settlements. Having standardized payment approval processes across all payment-dealing departments is essential for organizations that hope to mitigate payment fraud attempts. In the case that a special, one-off request is made, companies with approval processes in place will be able to successfully stop the suspicious payment given the existing controls and protocols. Adding another layer of control will not only provide peace of mind for CFOs, but also ensure that all outgoing payments are valid, no matter the initiation of the request. Along with standardized payment approval processes, one should expect that a trusted solution can be relied upon to catch cases that appear to be payments generated from normal business processes but have actually been manipulated and are subject to fraud or email compromise. A reliable solution should offer the following capabilities: Digitized payments policy Real-time screening of all payments data User-defined payments screening rules Resolution workflow to investigate suspicious payments Option to avoid alerting payments users who violated a payments rule Monitoring the status and priority of alerts in KPI dashboards Real-time AP payments audit Machine learning (ML) and artificial intelligence (AI) to identify payment anomalies Open API platform to integrate new fraud services Centralizing Visibility into Banking Activities and Signatories Modern organizations have budgets, receivables, and payables throughout global and regional entities - some of which are using disparate systems and banking partners. With many companies operating out of numerous, decentralized bank accounts, it is critically important to gain visibility into the traditional banking activities going on for any special or outlier organizations. When teams automate and centralize their bank relationship management, organizations can gain control over the ability to open and modify bank accounts, manage signatories, and ensure compliance. Not only does this practice help to prevent fraud via invalid signatories or non-compliant banking activities, but it also ensures that leadership has full control over banking operations and policies. Important to note, the implementation of a treasury management system (TMS) can increase the centralized visibility of the organization’s banking landscape and further improve the health and risk associated with your banking partners. Supporting Daily and Intra-Day Reconciliations of Cash Activity Bank accounts and balances should be reconciled daily to ensure correct bank balances are being recorded. The leading practice for corporate and governmental agencies is to automate the daily reporting of bank statements for consolidated bank accounts into the system of record daily or on a real-time basis. Organizations can implement daily reconciliations by utilizing a dedicated, leading system that can handle real-time, intra-day and/ or prior day reporting for liquidity while integrating into the general ledger or financial reporting system of record. This practice can allow CFOs and treasurers the peace of mind that cash balances are proper and accurately recorded when concerns or questions come up. In addition, if in the case a fraudulent transaction has been made, the appropriate team will be able to catch the discrepancy on demand without having to react to the issue later in the month. Driving Alignment Across Treasury, Accounts Payable and IT with a Payments Solution While payment fraud can affect all departments of an organization, 74% of companies indicated that treasury and accounts payable are the most vulnerable business units targeted. Though this seems like common sense, the significant increase in risk makes it clear that treasury and payment teams should be auditing payment processes to achieve standardization and centralization – which can be achieved through technology such as a treasury management system (TMS). To ensure that treasury and AP individuals are strategically mitigating payment fraud, organizations’ IT departments play a crucial role in evaluating and assessing potential payments solutions. With the number of vendors in the space today, this can often be an overwhelming project. It is critical that IT takes into consideration the ability for potential partners to perform these five main functions: Workflow: the payments solution provides a workflow for payments initiated from different sources within the organization Security: the payments solution layers on workflows that support payment controls, such as real-time fraud detection and error detection Connectivity: the payments solution enables flexible payments through both pre-delivered, pre-tested bank connections and other non-bank channels (i.e., agency or other departmental spending) Format Transformation: a leading payments solution should align with the primary treasury system to generate the payment file or payment instructions with an ERP or other system, so that payments are automatically translated into the format required by individual partner/service banks Integration: it is critical that the selected solution can fully integrate with existing ERP platforms, banking partners, and trading platforms to ensure that the payments workflow will optimize and streamline daily financial processes Leveraging Technology to Prevent Payment Fraud While payment fraud has certainly increased with the recent advancements in technology and the COVID-19 pandemic, organizations can implement simple, standard practices to ensure their business is safeguarded from fraudsters. Standardized policies and procedures can prove to mitigate the risk of payment fraud, while also serving to centralize business operations that may have been decentralized before. To further protect bank balances and outgoing transactions, organizations can implement solutions to automate specific payment controls and processes. However, in the process of evaluating solutions and reducing the risk of fraud, organizational alignment is essential – payment fraud is not only a concern for treasury and finance teams, but a concern for companies as a whole. Is your payment process at risk of fraud? Take the three minute risk assessment survey and see your score immediately.

Applying Principles of Quality and Efficiency from the Manufacturing World to Treasury and Finance to Achieve More Efficient FX Risk Management. One of the principal tenets of Lean is a focus on customer value. Activities that do not have a direct bearing on the value of the product or end result are targeted for elimination. Our customers, using our platform and Lean principles work to transition their foreign currency related systems and processes to create greater automation and efficiency.

The quantified negative currency impact for North American and European companies has continued to impact MNCs negatively to the tune of $27.87 billion for Q3, 2021 and is increasing adversely when comparing the quarterly results of the past few years. The need for a process that mitigates foreign exchange risk becomes even more apparent when organizations experience impact spikes from volatility due to the global COVID-19 pandemic. Manufacturers first adopted Lean principles and processes where they needed them most: on the manufacturing floor. Revisiting Henry Ford’s flow production assembly line model, Kiichiro Toyota created the Toyota Production System (TPS) model, which propelled Toyota and the Japanese industry into a new age of productivity and global competitiveness. Toyota’s ideas have since been widely embraced and translated into concepts like Lean production and Six Sigma, who are common in global manufacturing. Companies and consultants who have demonstrated success using these approaches to eliminate wasteful processes and improve quality have extended them to other industries and other disciplines. While Six Sigma is a very scientific rigor around quality control, Lean looks to produce more with fewer resources and to help processes flow more smoothly. Lean, which tends to be less dogmatic than Six Sigma, describes a process for improvement and a set of workplace best practices. The management techniques include taking a long-term view of the business, as well as active mentorship of staff at all levels. There is great potential for companies who apply Lean and TPS principles to improving financial processes, as the guiding principle of Lean directly applies to the challenges faced by organizations trying to manage their FX risk. With little standardization and tedious, manual processes, there is a great opportunity for companies to focus more on value and eliminating waste. However, Lean is more about fixing a specific process. Lean practitioners outside Japan tend to focus heavily on specific analysis tools and omit critical elements of the best practices and management techniques. For Lean implementations to be successful, companies need to go beyond a specific project approach and integrate Lean as a guiding principle so that it can lead to continuous improvement. Applying Lean to Foreign Exchange Risk A growing number of companies in the U.S. are beginning to take a closer look at the principles of Lean and how they can help improve the costly, inefficient and often ineffective FX exposure management processes typical of most organizations today. By taking a methodical and disciplined approach, they are able to significantly reduce the time and effort spent aggregating, validating, and analyzing foreign currency data to make better risk mitigation decisions. Equally important, they create visibility to the entire process and support an environment that makes continuous improvement possible. Companies of all sizes with FX exposures can benefit from extracting and compiling their exposures from various systems whether they be ERPs, procurement or billing systems and applying Lean methodologies and processes to ensure hedging activities and other related processes like trading, confirmations, and settlements are all done as efficiently and effectively as possible with appropriate policies and procedures applied. Focus on Value and Eliminate Waste One of the principal tenets of Lean is a focus on customer value. Activities that do not have a direct bearing on the value of the product or end result are targeted for elimination. Our customers, using our platform and Lean principles work to transition their foreign currency related systems and processes to create greater automation and efficiency. Finance and IT must be partnered and work to assemble project teams with representatives from finance, treasury, and IT along with strong project sponsors to set sights on creating greater value and eliminating waste across the overall foreign exchange exposure management process. Finance and treasury, supported by IT, must methodically go through and aggregate transaction data from their ERP or other related systems to identify exposures and, in turn, deliver the capacity to make appropriate hedging decisions to mitigate risk. Pulling together regional experts and business unit representatives or various department leaders is a significant investment of resources, but it gives companies undergoing the exercise of streamlining FX and other processes exactly what was needed to gain visibility of the entire process, end to end. These cross-functional reviews often result in identifying manual processes required to pull together the data and validate results through the use of spreadsheets to calculate exposures. Once identified wasteful, manual processes are mapped out, it’s important to take the appropriate steps and have commitment from your executive leadership team and stakeholders to make the changes. For instance, the use of automation can cut the number of steps required to go from data aggregation to risk mitigation decision in half, while delivering greater transparency to the process as a whole. Assessing the Whole Value Stream Another tenet of Lean involves taking a holistic view of any process, considering the impacts and dependencies of other processes, both up and downstream. Manufacturing plants designed along Lean/TPS principles allow leadership to witness the entire process, end-to-end, from any place on the factory floor. To be effective, that same sense of transparency can be applied to the foreign exchange exposure management process. For many companies, finance is responsible for aggregating foreign currency transaction data from their ERP systems, which is then typically passed to treasury for appropriate risk management; whether it’s simply allowing the risk to reside on the balance sheet, as part of a natural hedge, actively managing the risk through a derivative and identifying how the impact to the income statement should be accounted for. Automation creates the bridge between data aggregation, validation, and analysis, so that both finance and treasury have visibility to detail and summarize views of the company’s currency exposures. As a result, discrepancies and potential errors become easier to spot, with instant visibility by every stakeholder in the process. That visibility extended beyond Treasury, Finance, and IT to executive management, who could gain a better understanding about how business practices impacted the company’s exposure to foreign currency risk. Automating FX processes illuminates underlying business practices driving overall financial practices and put a new lens by looking at the big picture. Strive for Continuous Improvement: Momentum Building The concept of continuous improvement is a key component of Lean; one that prods companies to go from one-time process improvement initiatives to making customer value and waste elimination a way of doing business. Companies benefit most from implementing software tools to support their new process workflow and provide greater transparency, achieving ongoing improvements requires continuous communication, teamwork, and leadership. As part of the analysis of waste elimination from FX exposure management processes, it is important to quantify the time saved on non-value-added activities and defined how that time/effort would be reapplied to creating additional value. In this way, Lean practices have the potential to build and “snowball” from one process to the next, where the more time saved and value added, the greater the opportunity to save more time and create even more value.   Want to learn more about how to improve your foreign exchange risk management process? Check out Kyriba's latest demo session and see how Kyriba helps its clients mitigate the effects of currency volatility and reduce hedging costs.

Digital treasury tools, such as robotic process automation (RPA), machine learning and artificial intelligence (AI) are already being used to facilitate treasury automation. The use of treasury technology leads to better decision-making and also...

Digital treasury tools, such as robotic process automation (RPA), machine learning and artificial intelligence (AI) are already being used to facilitate treasury automation. The use of treasury technology leads to better decision-making and also frees time for skilled treasury practitioners to focus on strategic development. This guide outlines how RPA, ML and AI can–and are–being used to improve treasury management processes for receivables finance, payments, fraud detection and more. The guide also explores how to build a business case for a new automation project. The Need for Technology to Maintain Effective Operations Corporate treasury departments rely on technology to maintain effective operations. The technology varies and is constantly improving, offering ever more sophisticated solutions and functionality. Treasury uses a wide range of different technologies, from spreadsheets developed in-house to manage a specific process to highly sophisticated treasury management systems. Technology is also an enabler as treasury evolves from an operational department to a strategic partner to the whole of the business, with automation playing an increasingly important role. While technology is critical to improving operational efficiency, that efficiency is only achievable if the technology is deployed to perform suitable tasks, which requires accurate expectations of what each type of technology can and, just as importantly, cannot deliver. Treasurers must be able to do two things: Identify key inefficiencies, or “pain” points, within their operations. Match each activity to an appropriate technology with the potential to solve them. Pain points manifest themselves in different ways, whether as errors, such as missed investment opportunities or unhedged exposures, or as timeconsuming manual processes, such as the preparation of the cash position. While the root causes and associated operational weakness are relatively simple to identify, the challenge lies in selecting appropriate solutions to solve those problems. All companies have these pain points and, if left unchecked, they are only going to get worse. With the increased use of real-time payments, we are moving ever nearer to a world of real-time finance, an environment of constantly changing data. Without more automation, treasury practitioners simply will not be able to make decisions quickly enough. On a positive note, digital treasury tools, notably Robotic Process Automation (RPA) and machine learning, are already being used to facilitate treasury automation. The use of these tools can be shown to lead to better decision-making; it also frees time for skilled treasury practitioners to focus on strategic development. This guide outlines how RPA and machine learning can, and is, being used, and shows how to build a business case for a new automation project. Robotic Process Automation, Machine Learning and Artificial Intelligence In this section, RPA and machine learning/artificial intelligence (AI) are defined and explained along with the potential benefits of their use. The next section includes three use cases to highlight how different companies have already deployed digital technologies to streamline operations. Robotic Process Automation Robotic Process Automation is a rules-based technology enabling users to automate repetitive tasks. It effectively uses a software “bot” to replicate a series of manual processes performed by a person. Unlike a standard workflow process that operates within a single system, an RPA bot can be set up to capture data from multiple systems, as it mirrors a human treasury team member by sitting above existing systems. Because of this, RPA processes can often be implemented quickly and without major disruption to existing operations. RPA is typically used to replicate a manual, repetitive task, or series of tasks, that can be tightly defined. Machine Learning and Artificial Intelligence Artificial intelligence (AI) is the use of a computer or machine to mimic certain elements of human intelligence. Machine learning (ML) is a branch of AI, in which a machine learns how to identify patterns in data. Unlike RPA, which simply replicates a series of repetitive processes, machine learning can be used to analyze data to identify trends or patterns, via the use of algorithms. This goes to the heart of many companies’ problems with data analysis: companies generally hold, or amass vast stores of data, but they do not convert it into meaningful information. As with RPA, data analysis via machine learning is faster than human computation; once set up, machine learning can operate any time (constantly, overnight or according to a customized schedule), enabling decisions to be made with the optimal, latest available data. However, implementation is more complex than typical RPA scenarios. Machines can learn, or be taught via amendments to the underlying algorithms, patterns over time, but they are reliant on access to multiple data to perform meaningful calculations. Companies need to be prepared to make the investment in technology and data cleansing or preparation before any machine learning would be effective, both from a results and a cost perspective. The Potential Benefits of RPA and Machine Learning Although the use cases vary, the use of RPA and machine learning offer similar potential advantages, including: Improved accuracy. With RPA, as long as the process is set up correctly, the bot will perform the same tasks in the same way every time. The risk of human processing errors is eliminated and, if any variance between RPA outcome and actual outcome is identified, the RPA process can be adjusted. In the case of machine learning, accuracy will improve over time, as the machine learns and the algorithms are adjusted. Significantly reduced processing time. Bots and machines can perform typical tasks in a fraction of the time it takes a person to complete. This means that activities can be performed faster, so decisions can be made on the most recent available data. Results available, globally, when needed. Machine learning and RPA technology can operate at any time, so calculations can be performed overnight or on desired schedules to meet operational requirements. So, for example, in the case of cash positioning in a multinational organization, results can be available when teams in each location start their respective days, rather than two or more hours into them. Time management. Eliminating mundane processing from a treasury professional’s day frees that time to devote to more value-added activities, whether that is engaging with additional timesaving activities, supporting the wider business or focusing on strategic decisions. Improved morale. Although some treasury staff will be concerned about the impact of RPA and machine learning on their own jobs, for most organizations the technology will be an additional process that will improve team members’ experiences by eliminating the stress of calculating positions under time pressure or reducing the risk of error. Team members will also have time to spend on more interesting and personally rewarding activities. How Emerging Technologies Are Being Used This section outlines three ways RPA and machine learning are being used to solve particular problems faced by individual treasury departments. Case Study: Automating Time-Consuming Tasks via RPA One insurance company’s treasury department used to spend hundreds of hours a year processing internal customer requests for check images. While critical for the business as a whole, these requests were timeconsuming to complete and added no value within finance. The treasury team developed an internal RPA process via bot to automate the process. While the team had to spend some time training their internal customers on the new process so that requests were made in a standardized format to enable bot processing, the system is now operational and running three times a day. Using the bot has improved the response time for treasury’s internal customers, while releasing time back to treasury to devote to more value-added activities. It is now a task that treasury no longer has to perform. In addition, the customer experience and SLA have improved, as treasury can now typically respond to a customer’s request in a matter of hours, rather than weeks. Case Study: Improving Cash Flow Forecasts One of the key benefits of RPA is that it can be used to process data from a number of different company systems. This makes RPA a useful tool to improve cash flow forecasts, as they are built on data sourced from banks, treasury management and ERP systems and from other company departments, including payment teams. Séverine Le Blevennec, senior director of EMEA Treasury at Honeywell has led the development of an RPA process to improve the accuracy and timeliness of the in-house bank’s cash flow forecasts. She identified RPA as a technology that might have the capability to enhance the existing forecast, and then took time to fully understand whether RPA could work by examining the technology in some detail. Convinced that RPA was the potential solution, Le Blevennec then engaged with internal and external stakeholders to communicate her vision. She worked with Honeywell’s technology providers and banking partners to see whether data could be supplied in a more accessible way, wanting her colleagues to view the bot as a useful colleague, not as a threat to their jobs. Critically, Le Blevennec knew the bot needed to have a significant positive impact from the start, as she wanted the project to energize her colleagues toward future digitization projects. In other words, the new process had to deliver the expected returns. Ensuring this required a review of the current process and a strict testing program. Le Blevennec learned that “rule-based programming [like RPA] requires detailed documentation.” She revisited all existing processes and created seven workflows for seven different activities, from maturing time deposits to intraday payments and collections. She emphasized the importance of testing. Tests were performed in a mindset in which it was expected that “things could go wrong.” Then, before going live, the team used the new spreadsheet alongside the old process to make sure everything worked as expected. Since going live, Honeywell has seen some significant benefits. The new system is more efficient: Two hours a day have been saved. It is more accurate: The old manual system could only include data from about 40 Honeywell bank accounts. Today, data from over 160 accounts are included in the forecast, and any new accounts can be included easily. Enhanced visibility has resulted in improved counterparty risk management, reduced levels of un-invested cash and, as a result, increased investment returns. Most importantly, Honeywell’s treasury team has seen the benefits. They are less stressed, and more engaged for the next stage in Honeywell’s digitization journey. Case Study: Receivables Management A steady growth in sales, resulting in increased receivables, is usually good news. But it might not be for an AR team, over-reliant on expensive lockbox processing. With over 2,500 monthly checks all needing some form of human intervention coupled with increased sales, a technology company’s AR team suffered from low morale, leading to delays in receivables processing and reduced confidence in the accuracy of AR data in the ERP. As a result, the treasury team was so busy processing payments, they didn’t have time to convince customers to transition to more efficient, less costly electronic payment formats. The team recognized they needed a solution that could be scaled and that would allow them to react in the ever-changing B2B payment environment. It is one thing to recognize the need for change; it is another to understand how to bring it about. The team did their research and spoke to their banking partners. One discussion started with an enquiry on how to implement a more modern lockbox, utilizing the OCR codes; it ended with the team realizing that machine learning could be used to automate some of the processes. They were able to design a solution that would get machines to do much of the previously manual work. However, there were hurdles to overcome. For example, in one division, clients tended to pay by claim, rather than by invoice, and the ERP system didn’t hold the claim line item information. The team realized bridging the gap between the system holding the claim information and the ERP was well-suited to machine learning. Once the solution was operational, it freed time for the team to manage exceptions and also to improve the quality of the data on which the AI system relied. The time savings enabled the team to work with customers to send and enhance information coming into the system, so the machine learning tool could better consolidate and match the data, and constantly learn to improve. The result was dramatic. By replacing the manual gathering, consolidation and formatting that was required every morning, the AI-enabled receivables solution allows the company to quickly improve the time taken to process a payment. Most payments are processed within two days. This was achieved because of the consolidation of information. The payments are now standardized. Reconciliation is simpler, with the team confident all the information is there. Three months later, with even more time available as the machine continues to learn from manual exception management actions, the team can spend more time with collections and customers to help them provide better remittance information, further improving matching. The team can now build electronic adoption, with the AI bringing together remittance and payment automatically. Now, every time a match is confirmed, the system can see it and learn from it. The team can respond quickly to queries. Information is tracked immediately, so there is no need for time-consuming searches for data. The team has confidence in the data, and morale is high as they can focus on more value-added activities. Making the Business Case to Implement As with any technology project, it is critical to build a strong business case when seeking to adopt RPA or machine learning. This means getting buy-in from a project sponsor, and approval from all required stakeholders. Setting and achieving key success metrics will give credibility to the project, which in turn will help treasury practitioners introduce more digital finance initiatives. To help make a compelling business case and ensure the objectives are well defined, there are a number of key considerations. Understand the technology to maximize the potential benefits. As outlined above, different technologies are better suited to solving particular problems. The project owner needs to understand the nature of the problem and how the proposed technology will solve it. Some proposals may appear to be a standalone solution to a particular problem with limited impact across the wider business, yet when examined further, are either extendible into other functions and/or require change to operations within those functions. Optimize processes before automating. If there is an existing process, map it and review whether it can be made more efficient. Many manual processes incorporate separate checks and approvals to protect against error and fraud. While some may need to be migrated into an automated process, for example if a transaction exceeds a certain pre-set limit, it may not be necessary to migrate all of them, as long as the rules are tightly written. A machine learning project may require improvements to data management to enable automated data analysis. Communicate and educate stakeholders on the proposed solution. Communication is central to the success of any project. Senior management will have to approve the project. If IT input is required, they will need to be engaged early in the planning process to secure resources. Banks, technology providers and other data suppliers should also be approached early to plan how they can support the project. Treasury team members will want to understand the implications for them. Identify potential returns. One of the key benefits of automating a process, whether by RPA or ML, is to remove layers of human involvement in either mundane, standardized processing or time-consuming data collation and analysis. So, although there will be some clearly measurable costs and benefits, many will be “softer” benefits in the form of released time and reduced risk of error and fraud. Establish and monitor success metrics. It can be helpful to identify some clear targets to serve as measurements of the success of the project, such as how much time an RPA project has saved. It may be possible to illustrate consequential benefits too, such as improved investment returns due to more accurate cash forecasts. If possible, use these measurements to refine the bot or machine to achieve further efficiencies. Scale the solution; look for the next step. Measuring the outcome of one project will help build support and momentum for others. As technology develops, there will always be further ways it can be adopted to improve treasury operations. Greater Automation Is the Future As this guide has indicated, technology is enabling corporate treasury departments to operate more efficiently by automating processes and taking advantage of more advanced data analytics. In turn, these changes further enable transformation and evolution of treasury departments from laborintensive operational, tactical departments into strategic partners to the wider business. The adoption of new treasury technologies continues to accelerate, driven by multiple factors. Two stand out: the evolution of the “internet of things,” and the move toward “real-time” finance. While the catalysts for the development of these two trends is different, the implications for treasury and finance are closely linked. The Internet of Things The value of the internet of things comes from the way data can be shared between billions of different devices being connected via the internet. It allows individuals to control their personal environment (e.g., smart lighting and heating) and companies to manage a whole range of processes from stock ordering to logistics management. For treasury and finance, the value will come from being able to link the physical and financial supply chains and gain better insight into cash. To do so effectively, data sent out by these connected devices needs to be analyzed by artificial intelligence; the devices simply produce too much data to be analyzed in any other way. The Implications of Real-Time Finance There is a clear trend toward more real-time activity in treasury and finance, with real-time payments being just one, albeit significant, step. Notably, the move toward real-time processing is also a shift to 24/7/365, always on operations. Treasury will need to consider how to manage this change and, particularly, how to manage risks that will emerge overnight, including between the Friday close and the Monday restart. The growth of e-commerce has already provided a sense of changes to come. Consumers who pay online expect to see their order status updated in real time and, in some sectors, the service or product available in real time too. With the adoption of real-time payments, actions not limited to fraud prevention have to take place in real time as part of the payment initiation process, as real-time payments are generally irrevocable, with no opportunity to stop or amend payments. But managing payment processes is just one part of a much wider change that the adoption of realtime payments will bring to finance and treasury. If payments are being made in real time, treasury departments will need to manage their liquidity in real time too and they will rely on a level of automation and artificial intelligence to do so. And before long, the foreign exchange and money markets will move toward real time, profoundly affecting the treasury departmental day, which is currently structured by cut-off times. For these reasons, it seems inevitable that both RPA and artificial intelligence, including machine learning, will play a more prominent role in the management of corporate treasury departments in the coming years. Conclusion Although RPA and AI are seen as cutting edge, in reality many companies are benefiting from these technologies through solutions provided by their banks and technology partners. For organizations yet to implement the technology, doing so successfully requires three key steps: Identify a pain point to be solved. RPA and AI/machine learning both work best when implemented to solve particular problems. Don’t start using RPA; start using RPA to automate a process. Match the technology to the task. Different types of technology solve different problems. If you want to automate a process, RPA is likely to be the more suitable solution. If you want to analyze data, investigate AI, including machine learning. Build a business case. RPA and AI/ ML are likely to become even more important in the future, so a successful first project is important. Make sure your chosen technology can do what you want it to do, then build support for your solution among stakeholders including, critically, the treasury team. You can then use your successful first project as the springboard for future development.

With many treasury teams engaging in remote work, remote implementation of critical projects has become part of the new normal. For treasury teams, the best practices around remote implementation have come into sharp relief...

With many treasury teams engaging in remote work, remote implementation of critical projects has become part of the new normal. For treasury teams, the best practices around remote implementation have come into sharp relief very quickly. Following this new playbook enables treasury teams to work from anywhere, while offering best-in-class levels of efficiency and automation. Yes, remote implementations of treasury systems aren’t new, but concerns and reservations have amplified since the pandemic, and leaders and delivery teams need to know how to address any issues in the process. In this easy-to-read playbook, co-produced with Clearsulting, the finance transformation consulting firm, treasury team members will overcome reservations about remote work with a surefire plan, featuring: Implementation best practices Taking advantage of technology Essential ingredients and stages of implementation Optimizing the benefits of remote implementations In this eBook You will learn about the common concerns leaders may have about remote implementations, and how these can be overcome by following best practices. You will also learn about the role technology can play in keeping remote delivery teams productive and engaged – and how to optimize the benefits of a remote implementation. Despite the disruption brought on by the COVID-19 pandemic, companies have not been deterred from implementing new treasury systems. In fact, the rise of working from home has underscored the importance of solutions that enable treasury teams to work remotely, while offering the greatest possible levels of efficiency and automation. In particular, an over 667 percent rise in fraud (according to Barracuda Networks) and the growing need for visibility into liquidity have prompted some treasurers to accelerate their implementation time lines. But what about the implementation process itself? Traditionally, new solutions have often been adopted via an on-site implementation process, complete with face-to-face training – all of which may currently be unfeasible because of lockdown conditions and social distancing requirements. The answer is a well-structured remote implementation process. Remote implementation is not a new phenomenon: even before the COVID-19 crisis, some vendors already provided the option of managing implementations remotely when needed. Nevertheless, leaders who do not have experience of remote implementations may have reservations about the lack of face-to-face contact and may question whether critical deadlines can be met. For delivery teams – which typically include the vendor, internal team members, and any external consultants used – there is plenty that can be done to ensure time lines are fulfilled. In addition, harnessing best practices and available tools, including regular collaboration, secure file-sharing and videoconferencing solutions, can facilitate regular, productive communication, while also keeping the team productive and engaged. In fact, a remote implementation can deliver certain benefits above and beyond an on-site implementation, including cost savings and productivity gains. Remote Implementation: Common Concerns For some leaders, the prospect of implementing a system remotely brings several concerns about the possible pitfalls, from the lack of face-to-face contact to delays to the project time line. Here are some of the concerns most commonly expressed by leaders: Lack of face-to-face collaboration. Leaders are often concerned that their delivery teams will work less efficiently without face-to-face communication. At the same time, delivery teams may feel that leaders lack an understanding of how effectively they are working. Limited access to information. When carrying out an on-site implementation, it is usually easy to access physical documentation or speak to someone in the next office about a query. In a remote working environment, this is more difficult – so leaders may be concerned about the added time and effort needed to locate information from team members. Miscommunication. When working with global teams, time zone differences, cultural differences and language differences can sometimes result in miscommunication, particularly when emails and instant messages are taken out of context. Interpersonal challenges. On a similar note, it can be harder to interpret other team members’ tone and body language when working remotely. Meeting deadlines. Some managers may have reservations about the timings of a remote implementation, suspecting that working remotely will delay the project time line and make it harder to meet critical milestones. These are valid concerns. A poll during a recent webinar by Kyriba and Clearsulting found that 42 percent of participants had been affected by a lack of personal interaction impacting their work or projects during the past six months, while 18 percent cited interpersonal challenges. However, with the right approach, these pitfalls can be avoided, and a successful remote implementation achieved. Implementing Best Practices While remote implementations are not without their challenges, these can be addressed by adopting best practices. Companies should consider the importance of: Establishing the rules of engagement at the outset Communicating extensively Scheduling regular huddles Developing and sticking to a project plan Encouraging and supporting the team Rules of Engagement It is important to establish expectations for communication and collaboration from the outset. This should include spelling out how often people are expected to communicate, and which channels should be used for different types of contact. For example, videoconferencing could be used for daily checkins, while instant messaging services could be used for urgent queries or general conversation. Also important is establishing any best practices for the chosen communication channels. For example, when using videoconferencing it is good practice to advise people to stay on mute when they are not talking and to make sure everyone on the video call gets the opportunity to have their voice heard. Communicating Extensively Effective communication is more important than ever in a remote environment. This includes making sure that everyone involved is aware of the current state of play, as well as updating the project plan with the current completion status. It is also worth noting that good communication sometimes means seeking more detail from other people. If the answer to a question is a straightforward ‘yes’ or ‘no’, it can be helpful to seek elaboration in case any nuance is missing. Schedule Regular Huddles Another element of effective communication is to schedule regular huddles to address any knowledge gaps and make sure everyone knows what they need to accomplish and when. Sometimes this will mean arranging meetings for the whole group – but sometimes it will mean one-to-one meetings with individual team members. Huddles may also include informal conversations, which can help to build team camaraderie. As well as keeping focused on project time lines, it is also important to remember that team members are individuals who may have other obligations while working from home, such as child care. As a result, some people may need more flexibility over the hours they work during the day – and any individual requirements should be communicated to the team. Developing the Project Plan Developing – and sticking to – a project plan, and tracking progress on key milestones, is essential to the success of any project. To achieve this, companies should make sure that everyone knows which assignments they have, when they are due, and what information they will need to complete their tasks. A small group should also have ownership of the project plan, rather than having too many cooks in the kitchen. Encourage and Support the Team Finally, working remotely can be an isolating experience – which makes it important to check in regularly with other team members to make sure everyone is engaged. Actions such as promoting positivity, and measuring performance rather than perceived presence behind the computer screen, can also help to build a culture of trust and empower the team. Further, during remote work, teams are encouraged to take mini breaks, take a walk, take time to disconnect from technology, or socialize with family or neighbors. Taking Advantage of Technology There is no question that technology plays a critical role in keeping delivery teams engaged during a remote implementation. The use of these technologies has quickly ramped up in recent months. In a poll taken during the webinar, 98 percent of participants reported an increase in their use of technologies such as project management tools, collaboration tools and video chat. Technology can help in four key areas: Organization. Tools like Smartsheet and Microsoft Project can help the team track and celebrate milestones, as well as monitor any outstanding issues, so people are better-informed during status calls. Collaboration. Simple communication tools such as Skype, Teams and Slack can be used to chat, keep notes and deal with any ad hoc requests, thereby reducing the need for meetings. Face-to-face interaction. Research has shown that 80 percent of communication is nonverbal, and while meeting in person may not be possible during a remote implementation, face-toface interaction using videoconferencing technology like Zoom, Teams and Skype is the next best thing. Equally, though, it is important to make sure meetings are not too long, as people can lose focus. Secure file-sharing. During an on-site implementation, it may be straightforward to access the local network. But in a remote implementation, different methods are required to share files. When approved by IT, the use of cloud-based secure filesharing can save time, avoid duplication and support real-time collaboration. Essential Ingredients of a Remote Implementation As with an on-premises implementation, it is important to consider whether the following critical items are in place before embarking on a remote implementation: Project Management Executive sponsorship Has this been secured? Project management How much is needed to keep the project on track? Sufficient budget Is enough budget in place? Realistic time lines Can the team realistically meet the agreed time lines? Resources Internal resources Do they have the required bandwidth for the project? Key stakeholders When do they need to be brought into the project? Design and Build Design planning Which interfaces will be needed with existing technology? Reviewing inefficient processes Can inefficient processes be improved rather than replaced? Sufficient testing How much testing is needed to iron out any issues and which teams? Documentation What documentation will be needed to communicate information about file formats and configuration to other users? Stages of Implementation The implementation process includes the following stages, each of which will need to be tailored for a remote implementation model: Discovery. Using videoconferences to define what the project is intended to solve, as well as identifying any quantitative data that will be needed to configure the system. Developing a road map. Prioritizing modules that will be included in the implementation strategy and creating an implementation road map. Design and configuration. Gathering static data and creating a document that outlines how the solution will be implemented; defining bank connectivity and workflow configuration; gaining approval for design decisions. Build. Configuring each module based on the company’s business requirements; carrying out core user training via video; performing a quality-assurance review. Testing and validation. Testing integration points and interfaces; performing and documenting system integration testing (SIT) and user acceptance testing (UAT). Preparing for go-live. Building a communication plan and preparing any necessary documents. Go-live. Executing go-live plans; ensuring documentation matches everything needed to sustain the benefits of the new system. Operation. Performing a project postmortem and documenting the lessons learned; identifying opportunities for continuous improvement. Optimizing the Benefits Following any implementation, it is important to understand the improvements that have been achieved. This should include taking a pre-implementation snapshot of the company’s liquidity and risk processes, and measuring these again after the implementation to demonstrate all the qualitative and quantitative improvements that resulted, such as interest expense savings, bank cost savings and productivity gains. Benefits of Remote Implementation Alongside the benefits to be achieved by adopting a new system, it is also important to note that a remote implementation is not simply a series of challenges to overcome: This approach can also bring a number of benefits in its own right. For one thing, travel expenses account for a significant portion of the total cost of an on-site implementation – but these costs are saved during a remote implementation. And with many surveys finding that employees are more productive when working from home, a remote implementation can harness those productivity gains. In addition, when used effectively, the use of technology such as videoconferencing can also help employees feel more included, valued and celebrated. Reaping the Rewards While the COVID-19 pandemic has brought tremendous challenges for economies, businesses and individuals, one silver lining is that companies are now seeing the benefits of remote working. In fact, many have said that they wish they had invested sooner in digital technology and cloud systems. There is also a greater focus on achieving more automation in processes, with companies now looking at how they can create the capability to achieve transformation and automation across their businesses. Conclusion The prospect of a remote implementation might seem daunting for companies that have previously opted for on-site implementations. But with the right approach and tools in place, delivery teams can keep on track with key milestones and remain motivated and engaged – particularly when working with vendors that already have extensive experience with remote implementations. The resulting implementation process may be faster and cheaper than the equivalent on-site implementation. To ensure a smooth implementation process, delivery teams should aim to take advantage of best practices, from establishing the rules of engagement at the outset to tracking the project’s progress as closely as possible. Key to this is the use of collaborative tools, videoconferencing services and file-sharing solutions to facilitate close communication and overcome the obstacles that a remote approach can present. By adjusting each stage of the implementation process to the remote working environment, companies can gain the full benefits of their new system – and may even find they are better positioned to embrace new ways of working elsewhere in the business. Want to learn more about how to prepare for remote treasury management system implementations and avoid project risk? Check out this webinar.

Libor has been used by corporate treasury departments for 30 years, amassing trillions of exposures within the financial system. The Libor transition to Risk Free Rates is a global event with an unequivocal 2021...

Libor has been used by corporate treasury departments for 30 years, amassing trillions of exposures within the financial system. The Libor transition to Risk Free Rates is a global event with an unequivocal 2021 end date that is drawing ever closer. While business and the wider market have been provided with new overnight rates, they have not been told how to implement them, migrate to them or deal with the consequences of using the new rate mechanisms. Much has been left open to choice or for a wider market consensus to arise, which has generated uncertainty and resulted in market participants looking to others to make decisions. Without clear guidance, corporate treasury departments have been left to work out a path for themselves. Waiting for greater clarity has been an attractive option, but with market-wide resourcing expected to be stretched thin in 2021, risks also arise from being at the end of the queue. The increasing numbers now pro-actively looking to put plans in place are having to make judgement calls and foresee issues on complex financial topics, the consequences of which will become clearer over time. This Treasury in Practice guide intends to support those choices, providing the latest information on the expected changes in the market that will be crucial in helping corporate treasury departments gain knowledge and prepare for the transition from Libor while protecting their businesses and ensuring positive outcomes for their treasury portfolios. Topics include: Understanding why Libor is being replaced Suggesting where to look for Libor exposure within your organization Providing guidance on SOFR and Ameribor Libor replacements Discussing the latest thinking in regards to migration, fallbacks and spread adjustments Introduction In 2017, the UK Financial Conduct Authority (FCA) announced that it no longer plans to compel banks to submit London Interbank Offered Rate (Libor) quotes past 2021. Once that happens, Libor will lose its status as the global interest rate benchmark and that title will likely be taken over by an Alternative Reference Rate (ARR). Needless to say, this shift has major implications for treasury departments, come 2022. In this Treasury in Practice Guide, underwritten by Kyriba, we will provide a detailed look at why this once trusted benchmark rate got to this point, which rates will be taking its place in 2002, what actions regulators have taken to being the transition, and how treasury departments should prepare. Libor will soon be a thing of the past. This is your opportunity to plan for a world without it. “Central banks set up working groups like the ARRC to come up with determinations and answer two questions. One, could they find a replacement that did not employ expert judgment, but that was entirely reliant on transactions? Two, how would we get from Libor to that alternative reference rate?” Why Libor is Ending Regulators began pushing for a transition away from Libor following the 2012 revelation that multiple financial institutions had manipulated the rate in order to improve their positions among other banks and clients. But while one could argue that the scandal was an outlier that is not truly representative of Libor’s potential, in actuality, it revealed key flaws inherent in the rate itself. Following the scandal, the International Organization of Securities Commissions (IOSCO) established a set of principles for determining a good benchmark rate, and Libor doesn’t fit that criteria. For example, a key principle is for benchmark rates that they be “anchored by observable transactions,” rather than based on so-called “expert judgment” by the banks. “In most instances, Libor is based on expert judgment. On average, less than 30 percent of submissions are based on actual transactions,” said Ming Min Lee, partner with Oliver Wyman. Furthermore, the transactions underlying Libor submissions—unsecured wholesale term lending to banks—are no longer active following the financial crisis. “Banks have largely moved away from interbank lending to something that is more stable,” Lee said. “So that’s a big change and we don’t expect the transactions that used to underpin Libor to come back.” In remarks made during the Bank Policy Institute’s Credit-Sensitive Benchmark Symposium in September 2020, Nathaniel Wuerffel, Senior Vice President of the Federal Reserve Bank of New York, explained that that a “robust” benchmark rate would be “based on a market that is deep and broad enough that it does not dry up in times of stress, is resilient even as markets evolve over time, and cannot easily be manipulated. By ‘deep and broad,’ I mean that the market has enough volume and diversity of transactions to serve as the bedrock for the trillions of dollars of financial contracts that will reference it.” When assessed against that piece of criteria, it becomes clear why Libor is inadequate, Wuerffel explained. “Over the four decades since LIBOR was formally developed, the wholesale funding market that it seeks to measure has withered,” he said. “The Global Financial Crisis accelerated the decline of Libor’s underlying market, as banks found more stable ways to fund themselves. With so much economic value riding on a thin market, the incentive to manipulate Libor increased and—as we all are painfully aware—such exploitation ultimately became a reality.” Impact on Treasury There is more than $200 trillion in outstanding USD Libor-based contracts. The majority of existing exposures to Libor are slated to mature before 2022, but not all. According to the New York Fed, in the U.S., approximately $36 trillion in notional outstanding will not mature before Libor is set to end, assuming there are no new Libor-based issuances. While most of that exposure is in interest rate derivatives, longer-dated positions in other asset classes are sizeable, such as an estimated $4.7 trillion in consumer and business loans. Most corporate treasury departments have begun to consider their options, but those that haven’t yet are quickly running out of time. Finding an alternative rate is critical because it will affect funding costs. And since the fallback rate would be higher than Libor, treasury departments will want to look for a comparable or cheaper rate. Lee pointed out some ways that treasurers could be impacted by the shift, the most obvious being floatingrate debt instruments, and committed lines with banks. But there are other areas that practitioners might not be thinking about, such as intercompany funding agreements and late payment penalties that could be Libor-based. Libor could also be used in a corporate’s systems and processes. “Libor has been around for 30 years,” Lee said. “If you have a billing or contract management system for your supply chain management activities that has an implicit interest rate built into it, it wouldn’t surprise me if Libor is the reference rate.” Treasurers also need to consider that Libor is currently managed by one administrator across five currencies and a range of tenors. “Multinational corporations will need to care about the evolution of the alternatives for all five currencies, each on its own timeline,” Lee said. “In all likelihood, we will have a multitude of conversion approaches; not just one.” Preparation Tip Understand where Libor exists within your organization. Take note of all your borrowing and funding commitments that are dependent upon Libor. Consider payroll loans, supply chain financing, factoring, asset-based lending, in-house banking, etc. Figure out what your spreads and maturities are, what you’re going to need to refinance your contracts, and what the results of triggering existing fallback language will be. “Not only will you have to manage the adjustments that the banks notify you of on a daily basis, but you’ll have to keep track of it yourself because you’ll need to be much more careful about how rates are changing and what the volatility is in rates so you can continually adjust your funding mix. How is the daily adjustment to SOFR relative to the weekly or monthly adjustment to Libor?” SOFR: Libor's Anointed Successor Over the past several years, markets have begun to craft alternative rates that would effectively replace Interbank Offered Rates (IBORs). In the United States, the Fed formed the Alternative Reference Rates Committee (ARRC), a special group of private market participants, to choose a new benchmark rate. “Central banks set up working groups like the ARRC to come up with determinations and answer two questions,” said Tom Wipf, vice chairman, institutional securities for Morgan Stanley and chair of the ARRC, in a session at AFP 2020. “One, could they find a replacement that did not employ expert judgment, but that was entirely reliant on transactions? Two, how would we get from Libor to that alternative reference rate?” The ARRC has evolved considerably over its existence, assembling corporates, regional banks, and trade groups, and puts them in the room with all the major U.S. regulators. “So it’s a very large and diverse group that in fact banks now sit in the minority when we look across the entire spectrum of the ARRC,” Wipf said. “And we have a set of specific working groups who address particular parts of this market.” The ARRC ultimately selected the Secured Overnight Financing Rate (SOFR) for U.S. dollar derivatives and other financial contracts, and it is the heir apparent for loans. The ARRC has introduced a Paced Transition Plan with steps and timelines designed to encourage the adoption of SOFR. SOFR differs greatly from Libor, and that has major implications for corporate treasury. The ARRC noted that the rate has certain characteristics that could make it a vast improvement: SOFR is produced by the New York Fed “for the public good.” The rate is derived from an active and welldefined market, which makes it difficult to manipulate or influence. It is based on observable transactions, rather than dependent on estimates. SOFR is derived from a market that weathered the global financial crisis, and the ARRC believes that signifies that the rate can reliably be produced in a wide range of market conditions. Fed Chair Jerome Powell and Christopher Giancarlo, former chairman of the U.S. Commodity Futures Trading Commission, said in 2018 that the choice of SOFR “resolves the central problem with Libor, because it will be based on actual market transactions currently reflecting roughly $800 billion in daily activity. That will make it far more robust than Libor.” But there are some other key differences between the two that are immediately apparent to a corporate treasurer. First, Libor is an unsecured rate at which banks purportedly borrow from one another—it includes a bank credit risk premia. SOFR, in contrast, is a nearly risk-free rate based on repo financing of U.S. Treasury securities; it’s not a purported rate like Libor. Second, SOFR is also currently an overnight rate only; it’s not a rate of multiple maturities. That could eventually change; the ARRC’s Paced Transition Plan includes the development of a term reference rate based on SOFR derivatives. But right now, they don’t exist. That could mean big operational changes for treasurers, who currently borrow at one month, three months, etc. For that period, Libor is fixed for them. With Libor, there was some amount of predictability, noted Joseph Buonanno, partner with Hunton Andrews Kurth LLP. “But now, they’ll have a SOFR rate that can change on a daily basis,” he said. “So not only will you have to manage the adjustments that the banks notify you of on a daily basis, but you’ll have to keep track of it yourself because you’ll need to be much more careful about how rates are changing and what the volatility is in rates so you can continually adjust your funding mix. How is the daily adjustment to SOFR relative to the weekly or monthly adjustment to Libor?” Buonanno believes that corporates will begin to hedge interest rate risk more frequently in the near future than they’ve traditionally done using International Swaps and Derivatives Association (ISDA) derivatives. “A lot of corporates already do that to comply with all the Dodd-Frank Act rules to continue to trade derivatives on an OTC basis,” Buonanno said. “But I think you’ll see greater use of derivatives in the future.” Treasury's Role Experts generally agreed that SOFR is the only viable alternative to Libor. “The $200 trillion-plus on Libor will move somewhere,” said Tom Wipf of Morgan Stanley and the ARRC, at the 2019 U.S. Chamber event. “So we have to think about where the safest place it is for it to land. [The ARRC thinks] the safest is overnight SOFR.” Unfortunately, the market as a whole is still apprehensive about SOFR. Ann Battle, head of benchmark reform for ISDA, has called on market participants to educate themselves on the rate, as there’s really only so much trade associations and regulators can do. “We’ve given the market the tools they need, now the market needs to learn how to use SOFR,” she said. The goal of SOFR is to be a durable, IOSCO compliant rate, Wipf said. The ARRC sees SOFR is the key pillar that could support the vast majority of current market activity. “We don’t want to do this again,” he said. “We want to do it once and do it right.” However, the ARRC isn’t going to be the one to move U.S. companies onto the new rate. David Bowman, special adviser of the Board of Governors of the Federal Reserve, stressed that the transition from Libor to SOFR needs to be decided by businesses. “Ultimately, we can’t dictate what prices you pay for your contracts or what rates you use in your contracts,” he said. “So this transition ultimately has to be up to the private sector. So we’re giving you one path that you can choose to go down if you’re going to transition.” Tess Virmani, associate general counsel and executive vice president of public policy for the Loan Syndications and Trading Association (LSTA), noted that what many stakeholders desire is a forwardlooking term rate. However, that may not actually be attainable without first moving to a rate like SOFR. “It’s starting to dawn on people that if everyone in the cash markets waits on a forward-looking term rate, we have a problem there,” she said. “If we wait, we may not get that rate.” Battle agreed. “The reality is, you don’t get a forward-looking rate based on SOFR until you have a robust market based on SOFR,” she said. “The derivatives market has to be based on SOFR for there to be a forward-looking term rate.” Preparation Tip Do your homework on SOFR. Learn as much as you can about this new rate and how it is performing relative to Libor. Figure out what that means for your own credit spreads, because credit spreads are based on risk, and each corporate is its own individual risk. Corporates need to compare themselves not only to businesses in the same industry, but also comparable benchmarks and credit spreads that they have historically tracked. Also consider how transitioning to it will affect you, focusing on the procedures that will have to be put in place to track SOFR on a daily basis. Contemplate whether or not you need to do a periodic analysis more often to optimize your capital structure. “In my opinion, we’ll see consumer lending shift first on adjustable rate mortgages. Before that can happen, I believe that GSEs need to provide guidance to lenders by including a new rate amongst the eligible rates for qualifying mortgages. To ensure the new ARM product is able to be financed without paying a high premium, it is an easy assumption that discussions are taking place.” Libor Fallback Language In the spring of 2019, the ARRC released its recommended fallback language for Libor. This language indicates the rate that corporates would fall back on, should Libor become unusable after 2021. The LSTA has issued a guidance on the Libor fallback language for syndicated loans. As the LSTA notes, many loans will be outstanding when Libor ceases, and thus it is “critical” to develop fallback language in any new loans and collateralized loan obligations (CLOs). In the United States, SOFR is poised to replace derivatives, and may also take over for loans, CLOs and floating rate notes. Since SOFR is secured and is expected to be lower than Libor, loans that fall back to it will require a spread adjustment to make the rate more comparable to the current benchmark, the LSTA explained. Fallback language is contingent on a “trigger”, i.e., an event that initiates the switch from Libor to a new rate (e.g., the benchmark administrator or the administrator’s regulator announcing that the benchmark will cease, or a public statement from the regulator that the benchmark is no longer representative). Fallback language also requires a replacement rate to take over for the current benchmark. TWO TYPES OF FALLBACK LANGUAGE The ARRC has developed two versions of fallback language for syndicated loans: The amendment approach: Following a trigger event, the bank group enables a streamlined amendment to replace Libor. The hardwired approach: Fallback language is built into the original credit agreement so that the loan can automatically convert to a new rate in the event that a trigger occurs. The LSTA noted that both versions have their pros and cons. The amendment approach takes advantages of loans’ flexibility and doesn’t lock market participants into a rate that doesn’t actually exist yet. But it also is subject to potential manipulation depending on the economic landscape at the time of the transition. Additionally, if thousands of loans need to be transitioned at the same time, this approach might not actually be plausible. Meanwhile, the hardwired approach would not be subject to manipulation and would likely be more workable en masse when Libor ceases to exist. But it requires participants to agree to a rate that does not yet exist. Thus the LSTA surmises that the market may choose the amendment approach until there is greater clarity on Term SOFR. Switching Ahead of Schedule The LSTA noted that corporates can switch loans to SOFR before the Libor cessation. For the hardwired approach, once it has been identified that a certain number of loans have used Term SOFR plus a spread adjustment, then the agent, required lenders and the borrower can switch to Term SOFR by affirmative vote. For the amendment approach, it can be determined that loans are being executed or amended to incorporate or adopt a successor rate and can elect to switch to that rate. The ARRC is encouraging market participants to switch to SOFR for cash products ahead of Libor cessation, and has even released a whitepaper to help them do that. That makes sense; again, SOFR is the ARRC’s preferred alternative to USD Libor. A treasury professional who wished to remain anonymous told AFP that the atmosphere lately has been leaning towards shifting financing away from Libor quickly—from syndicated business loans to consumer lending. “In my opinion, we’ll see consumer lending shift first on adjustable rate mortgages,” she said. “Before that can happen, I believe that GSEs need to provide guidance to lenders by including a new rate amongst the eligible rates for qualifying mortgages. To ensure the new ARM product is able to be financed without paying a high premium, it is an easy assumption that discussions are taking place.” “The implementation of fallbacks for derivatives will go a long way to mitigating the systemic risk that could occur following the disappearance of Libor or another key IBOR. With the fallbacks in place, derivatives market participants will be able get on with transitioning their IBOR exposures with confidence that there is a robust back-up in case of need.” ISDA Fallbacks Supplement and Protocol In October 2020, ISDA launched its IBOR Fallbacks Supplement and Protocol, in an effort to reduce the systemic impact of the cessation of Libor and other key IBORs while market participants still have exposure to those rates. The ARRC recommends adopting the protocol. The supplement amends ISDA’s standard definitions for interest rate derivatives, incorporating robust fallbacks for derivatives linked to certain IBORS. Changes go into effect on January 25, 2021. After that date, all derivatives that reference the definitions will include the fallbacks. The protocol allows market participants to incorporate the revisions into their legacy, noncleared derivatives trades with counterparties that adhere to the protocol. At launch, 257 derivatives market participants had adhered to the protocol during a two-week, pre-launch “escrow” period. Fallbacks will kick in for a particular currency after there is a permanent cessation of the IBOR in that currency. ISDA noted that for Libor derivatives specifically, the fallbacks in the relevant currency would also apply after a determination by the FCA that Libor is no longer representative of its underlying market. In each case, the fallbacks will be adjusted versions of the risk-free rates identified in each currency. “The implementation of fallbacks for derivatives will go a long way to mitigating the systemic risk that could occur following the disappearance of LIBOR or another key IBOR,” said Scott O’Malia, ISDA’s CEO. “With the fallbacks in place, derivatives market participants will be able get on with transitioning their IBOR exposures with confidence that there is a robust back-up in case of need.” Preparation Tip Get your bankers to include fallback language in your agreements. If you’re doing a refinancing or are entering into an amendment for an existing credit facility, discuss SOFR with your bank partners and see if you can get fallback language implemented into the agreement if your loans extend beyond 2021. Banks may be willing to address the issue and include language that states if Libor goes away, the borrower and the administrative agent will agree on a replacement index. If you have the prime/alternative base rate as a fallback rate, you should probably look to renegotiate to a different reference rate or at a minimum have a clause on how a reference rate would be determined. SOFR Credit Supplement Throughout summer 2020, the New York Fed held workshops to build a shared understanding of the challenges that lie ahead for banks and their borrowers as they attempt to transition away from the London Interbank Offered Rate (Libor) before 2022. These sessions are also exploring methodologies to develop a robust lending framework that considers a credit sensitive spread that could be added to the Secured Overnight Financing Rate (SOFR) for revolving lines of credit, commercial and industrial loans, and commercial real estate loans. Ahead of a meeting that attempted to gauge corporate borrowers’ concerns about the transition, the Fed scheduled a call with AFP and a group of treasury professionals to gain their perspective on the potential credit supplement to SOFR. It quickly became apparent that corporate treasury and finance professionals are apprehensive about the supplement. Practitioners appeared particularly concerned that it could be applied across further SOFR categories. In a follow-up call with AFP members, Meredith Coffey, executive vice president of research and public policy for LSTA, addressed treasurers’ concerns. She doesn’t expect the credit supplement to emerge in Libor fallback language. She began by noting that the ARRC currently recommends using hardwired fallback language for any new agreements beginning after September 30, 2020. The hardwired approach basically says that when Libor ceases or is declared unrepresentative, the market participant falls back to SOFR, plus a spread adjustment. “The spread adjustment that the ARRC is going to recommend in a hardwired approach is the ISDA spread adjustment. Everything is perfectly aligned there—you’ve got SOFR, and you’ve got the spread adjustment as recommended by the ARRC, which will be the ISDA spread adjustment,” she said. “There is little likelihood of going through a risk-sensitive spread adjustment in the hardwired approach.” But what about the ARRC’s amendment approach for fallback language? In this situation, Coffey still believes that the ARRC/ISDA spread adjustment would become the market standard. But it does allow for the possibility that a risk-sensitive spread adjustment could become the norm instead. “So, with a hardwired approach, there’s no chance of getting a risk-sensitive spread adjustment,” she said. “With the amendment approach, I think the risk is low but there is some potential if a risk-sensitive spread adjustment was developed and then became the market standard.” Treasurers that have existing loan agreements that haven’t been amended or renewed recently and mature past 2021 should work with their administrative agent if Libor hasn’t been addressed or if they plan to use the amendment approach, advised Tom Hunt, CTP, AFP’s director of treasury services. In reality, the real deadline is June 1, 2021 for all new loan syndications to be using SOFR as a fallback as recommended by the ARRC. Even more importantly, treasurers should check whether their bank groups subscribe to the ARRC’s recommendations. The smaller the bank, the more likely the amendment approach would be acceptable, and that could include the credit sensitivity component—thereby treating SOFR differently across SOFR exposures in derivatives, loans, asset-based lending, etc. “It’s best to work with your general counsel, understand your position and work with your bank group and administrative agent to address this before the clock runs out, as banks have far more exposures than corporates do,” Hunt said. Renegotiating Revolvers Coffey noted that banks are dealing with “hundreds of thousands” of credit facility amendments under the amendment fallback approach, and not all of them are going to be resolved immediately after Libor ends. For those that don’t, they could end up with a prime-based rate, which she views as the worst-case scenario. “Our concern from the lender perspective is market disruption. From the borrower perspective, I would be concerned that I’m in the group of people that do not get their amendments through, and end up in prime-based rate for a period of time,” she said. Amid this turbulent environment, many banks are being more demanding when clients attempt to amend their revolvers. A treasurer for a major utility explained that his bank advised him that upfront fees and renewal fees would be much higher this year if the company elected to make an amendment on its revolver. “We have a five-year and we’re into our third year. So in normal circumstances, we would renew that this early because we have an automatic renewal clause and we pay upfront. But banks are advising to just wait to see if things cool down,” he said. Most of the input during the call came from noninvestment grade issuers. One treasurer for a major retailer raised questions about “anti-cash drawdown language” in loan documents, in addition to Libor floors. He explained that his company drew down under its revolving credit and parked the money in cash, just to ensure that it had access to capital in case there was a repeat of what happened in 2008-2009. So, he had about $265 million in the bank by June. The treasurer’s company then signed an amendment to its credit facility to expand availability in early June. Two of the biggest changes in that amended facility were the introduction of a Libor floor, and provisions designed to stop cash drawdowns. “So for example, I cannot borrow further on our credit agreement unless I can represent, at the time of the borrowing, that the amount of cash I have in the U.S.—including the amount I’m going to borrow—is going to be less than or equal to $50 million,” he said. So the company would have to spend more than $215 million before it could borrow more. “I think the banks responded by making it crystal clear that you might have done in it in the past, but you’re not going to do it in the future,” he added. Two other treasurers on the call fared better with their banks. They also signed amendments around the same time, but after fighting “tooth and nail,” they managed to avoid both Libor floors and anti-cash concentration language. Banks appear to be testing the waters with these provisions right now, seeing whether corporates will agree to them. A fourth treasurer for a major auto manufacturer said that his company also recently renewed its facility. He said that while he doesn’t believe there is a big push for anti-cash drawdown provisions, his bank did bring them up in the negotiation. “But we were able to successfully renew without that,” he said. “We decided to be everything Libor was not. Libor was international, we wanted a domestic index. Libor was opaque, and we wanted it transparent. Libor depended on opinion, we wanted ours transaction-based. Libor was the wild west and totally unregulated, and we wanted a rules-based, regulated exchange. And most importantly, we wanted to develop something that was unassailable and would represent America.” Ameribor While SOFR is the chosen successor to Libor in the United States, other rates have emerged as potential alternatives. Perhaps the most prominent one is Ameribor, which is the brainchild of businessman, inventor and entrepreneur Richard L. Sandor, chairman and CEO of the American Financial Exchange (AFX). Ameribor isn’t aiming to be a competitor to SOFR per se; rather it seeks to serve the needs of small, medium and regional banks across the U.S. that do not borrow at either Libor or SOFR to fund their balance sheets. According to AFX, these banks “need a separate and distinct benchmark that reflects their actual borrowing costs.” “We decided to be everything Libor was not,” Sandor explained, during a recent call with AFP. “Libor was international, we wanted a domestic index. Libor was opaque, and we wanted it transparent. Libor depended on opinion, we wanted ours transaction-based. Libor was the wild west and totally unregulated, and we wanted a rules-based, regulated exchange. And most importantly, we wanted to develop something that was unassailable and would represent America.” To accomplish that goal, AFX looked at all of the disparate interest rates around the country. Sandor found it highly illogical that rates differed so greatly from state to state, and came up with the idea of creating a national rate by engaging banks in every state in the U.S. Though banks initially rejected the idea, they began to warm up to it once it became apparent that Libor was, in all likelihood, coming to an end. “People started saying, maybe you have an idea. Maybe Libor will go away,” Sandor said. AFX teamed up with Cboe Global Markets, and then approached regulators, agreeing to provide yearly updates on their progress. “We visited the Fed, the OCC, the FDIC, the SEC and the CFTC. The idea was to have an overnight, unsecured market. We opened in December 2015 and we were doing $9 million a day,” Sandor said. “We’re now up to $2 billion a day. We have 204 members, 160 banks and 1,000 downstream correspondents. Our banks have $3 trillion in assets, so we’re 22% of U.S. banks by numbers and 15% by assets.” Sandor says that AFX had a steady, gradual growth model in mind for Ameribor, starting in small towns, but ultimately adding insurance companies, brokerdealers and corporates. In a written statement last summer, Fed Chairman Jerome Powell commented on the suitability of Ameribor as a replacement to Libor. Asked by the U.S. Senate Committee on Banking, Housing and Urban Affairs whether he supports alternative benchmark rates other than SOFR, he replied that the Fed supports the work of the ARRC and views SOFR as a robust alternative that will help many market participants make the switch from Libor. However, he reiterated that moving to SOFR is voluntary and market participants should transition in the manner that is most appropriate for them, given their own circumstances. On that note, he continued that Ameribor is “based on a cohesive and well-defined market that meets the International Organization of Securities Commission’s (IOSCO) principles for financial benchmarks.” Nevertheless, while he believes the rate is fully appropriate for banks when it reflects their cost of funding, he added that the rate is “may not be a fit for all market participants.” Sandor responded that Powell’s comments “reinforce the importance of choice” when it comes to the transition away from Libor. He added that Both SOFR and Ameribor “are complementary to each other” and offer robust alternatives as the market moves away from Libor. These comments reflect those of Robert Owens, director of fixed income strategy for Farmer Mac, who commented on the AFP Conversations podcast that Ameribor is less of a competitor to SOFR and more of an alternative. “Obviously SOFR is the dominant alternative, but I think Ameribor has a nice place, especially in rural America,” he said. Amol Dhargalkar, managing partner and member of Chatham Financial’s board of directors and senior leadership team, noted that while it is difficult to say whether Ameribor will take off or not just yet—particularly for medium-sized and larger corporates— the comments by Chairman Powell could help in that regard. Moreover, some market participants may favor Ameribor over SOFR due to some key similarities to Libor. “Most corporates feel as though they will take the lead of their banks on the appropriate index,” he said. “One of the benefits of Ameribor is that it represents unsecured borrowings between financial institutions—typically smaller ones, relative to the large investment banks that provide services to large multinationals. This more closely mimics the concept behind Libor itself, so banks may find it particularly valuable and interesting as a SOFR alternative. This is particularly true for smaller banks whose funding costs may not be best approximated by SOFR.” The Road to 2021 The Federal Reserve Board, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) issued a joint statement on November 30, 2020, urging banks to cease entering into new contracts that use USD Libor as a reference rate. The move immediately followed an announcement by the ICE Benchmark Administration (IBA), Libor’s administrator, that it would be consulting in early December on its intention to cease the publication of one-week and two-month USD Libor settings by the end of 2021, with the remaining Libor settings ending on June 30, 2023. IBA also recently announced consultations for its cessation plans for euro, sterling, Swiss franc and yen-based Libor. Meanwhile, the FCA announced its plans for 2021, which includes potentially using proposed new powers under the UK Financial Services Bill “to ensure an orderly winddown for Libor.” The ARRC noted that these actions by the IBA and FCA reaffirm its expectations that Libor will end by December 31, 2021. While New Year’s Eve 2021 might still be more than a year away, the wait to start your post-Libor plans is over. Study up on SOFR and explore other rates like Ameribor if you think they apply to your organization. If you have outstanding contracts that reference Libor that go beyond 2021, make sure you have fallback language in place. Get feedback from your fellow AFP members and your bankers, and perhaps even reach out to the ARRC directly to help you anticipate upcoming challenges. There may even be opportunities to work with them and help make this a more seamless transition. The clock is ticking. For all the latest insights on the Libor transition, visit AFP’s Libor Transition Guide.   Check out this webinar to learn how to plan post-Libor readiness with experts from AFP, Deloitte and Kyriba. 

A major shift is underway in the world of enterprise resource planning (ERP) software. With both customers and ERP software vendors driving a mass migration to the cloud, many companies have already completed their...

A major shift is underway in the world of enterprise resource planning (ERP) software. With both customers and ERP software vendors driving a mass migration to the cloud, many companies have already completed their ERP cloud migration projects—and thousands more are set to follow suit by the end of this decade. But ERP cloud migration is a costly and time-consuming undertaking, particularly where IT is concerned. For companies seeking to digitize their enterprise applications, it’s clear that corporate IT will be heavily taxed for the foreseeable future. Meanwhile, cloud ERP software vendors and system integrators are poised to reap the benefits of years of migration project work. The Challenges of Bank Integration For corporations,  ERP cloud migration projects are often global in nature — and many will need to tackle the complexity of a global banking integration project. This element of ERP migration is particularly challenging, significant coordination is needed with the company’s banks, and there is a considerable disparity between the payment formats required by different geographic regions and clearing systems. Indeed, bank integration is often cited as one of the riskiest and most challenging elements of ERP cloud migration. Simplify and Accelerate The good news is that companies can considerably simplify and accelerate a major component of cloud ERP migrations: bank integration for reporting and payments. Connectivity-as-a-service (CaaS) providers deliver pre-delivered, pre-tested capabilities for bank reporting and payments formats that shave months off the migration project, and reduce connectivity and format costs by up to 80 percent. In this Ebook You will learn about the key areas to look at during an ERP cloud migration payments project, including: Following banks’ schedules Navigating variations due to geography, banks, statutory reasons Connectivity with your specific cloud ERP software (SAP, Oracle, Microsoft Dynamics, etc.) Resourcing challenges You’ll also find out how you can significantly reduce the cost and time required to complete your ERP cloud migration project. Bank and ERP Cloud Integration: What’s Involved? Bank integration is unlike any other system integration. Today’s corporate IT teams are experienced in building interfaces between different back-office systems—but these are typically stagnated interfaces that do not require additional resources. In contrast, when working on a bank interface, the IT team will typically need many different resources to coordinate with each other, including IT, treasury, accounts payable (AP), the connectivity team, the bank’s tech team, and others. What’s more, the project timeline is usually at the mercy of the bank’s schedule. Bank ERP integration can similarly be time-consuming. IT first has to determine if the cloud solution is compatible with their ERP. Then, the data needs to be extracted out of the ERP and re-formated. IT departments are often stymied and reliant upon outside consultants to deliver integrations or core capabilities within the ERP. Furthermore, once the initial specifications for these connections are determined, they need to be tested - and they rarely pass on the first try. As a result, the development team will need to rebuild, re-test and work through the coordination effort all over again. In some cases, two to five rounds of testing may be needed. What are the Challenges in ERP Cloud Migration? For IT, the bank integration component of an ERP cloud migration brings a number of additional challenges. Working on the Banks’ Timelines Delays in the ERP migration project often arise due to delays by the company’s banks. If the company has a robust relationship with a core banking partner, it may be able to move up the project queue for that particular bank. But with many corporations needing to manage dozens of banks globally, the IT team will be forced to follow those banks’ schedules—which means working across different time zones and navigating banking holidays and seasonal moratoriums on testing. Navigating Geographical Variations No two banks are the same, and it’s a common misconception that SWIFT is a standard message type across banks. While SWIFT is moving from MT to XML, each bank will still have its own unique requirement in terms of how it will accept incoming files. For any payment type, companies will need to ensure that payments are formatted correctly for a specific bank’s requirements and that they contain the information the bank needs to complete the payment. Most corporations will need multiple formats per bank, which might include different formats for low value, high value and FX transactions. Given the complexities, it’s no surprise that IT firms routinely take two years or more to work through all these bank connections and payment format testing. Payments Integration and Fraud Prevention Payments integration is a challenge, given the ever-increasing threat of fraud. Even with effective tools like artificial intelligence (AI) and machine learning, the threat level is the highest it's been yet, according to Strategic Treasurer's 2021 Treasury Fraud & Controls Survey. In addition to financial loss, fraud events damage a company’s reputation and lead to the loss of essential data or assets. It is therefore essential to use ERP integration as a way to put technology in place to protect your organization. This should include digitizing payment workflows, standardizing controls and screening payments as part of an integrated payments hub. Complexities for IT Adding to these challenges, bank integration brings a number of complexities where IT is concerned. Limited IT bandwidth Corporate IT teams are already thinly spread across numerous projects and support requirements. As such, the time involved in undertaking a bank integration project can be particularly onerous. No Reusable Data When IT teams work on an ERP implementation, they have to develop their banking interfaces as a one-off exercise. While ERPs may be moving to the cloud, ERP solutions are still typically private cloud providers—and no ERP in the market has readily available, reusable banking formats that can be shared among users. Multiple Stagings Bank and payment format development is no different than for any other interface or application, as IT has to work through the same rigorous processes. If the business users need a new payment format, such as a new ACH for an existing bank, they will still need to go through the process of testing, QA, nonproduction and production. This process can take months, meaning there will be a considerable delay before the end user has access to the payment format. Resource Requirements Once formats are in production, the IT infrastructure team will need to manage those formats going forward. This involves activities such as troubleshooting bank issues, editing formats as required by the bank and working with the business to add new banks when the need arises. Depending on the company’s banking footprint, two to five people will likely need to be tasked with managing these connections on an ongoing basis. Integration Made Easy Standard ERP integration is a lengthy process that is incredibly taxing on IT. But there is an easier way. Leading technology providers should offer a pre-built, pre-tested connectivity solution that takes minimal time to get up and running and provides access to even greater functionality immediately. Leading ERP and Bank Connectivity Technology Considerations ERP integration brings many challenges to IT - but these can be overcome by adopting a technology solution that simplifies both bank and ERP connectivity. With 20 years experience in connectivity, Kyriba can integrate bank reporting and payments, while mitigating risk--all in record time thanks to our use of application programming interfaces (APIs). Accelerate your ERP Migration Project and Reduce Costs Our out-of-the-box, bolt-on bank connectivity can help you achieve exceptional time and cost savings on bank integration. While standard integrations might required months of testing, our connections are pre-tested and ready to go. Access a Payment Format Library As a multi-tenant application, Kyriba is unique in the marketplace as our entire 2,500-strong customer base uses the same predeveloped and tested payment formats. What’s more, we have full-time staff whose sole responsibility is to build and test payment formats. As a result of 20 years of development, we offer more than 45,000 pre-developed and bank-tested unique payment scenarios. Simplify Interfaces Minimal IT resources are needed when it comes to interfacing between the ERP software and Kyriba. Using both SFTP and API, we take all payment files into our prebuilt interfaces with no code specs needed from IT. Focus on the Wider Project Kyriba’s connectivity platform frees IT up from the daunting task of bank integration—so you can focus on keeping the ERP project on schedule and on budget. Avoid the Need for Swift Connectivity and Certifications When you use Kyriba for connectivity, IT won’t need to manage the Alliance Lite2 SWIFT connection— and there will be no need for annual testing and certifications. Manage Ongoing Maintenance and Support When the project is over, Kyriba will handle all ongoing maintenance and will act as the banking IT support arm for business users, meaning you won’t need dedicated IT resources to troubleshoot bank issues. Connectivity as a Service By offering Connectivity as a Service (CaaS), Kyriba can actively manage bank connections on your behalf. As a result, no IT support will be needed to manage your company’s bank connections or undertake file testing with banks—and with Kyriba's API capabilities, companies can also add new banks in a fraction of the time that would be needed for custom development within the ERP. Market-Leading Payment Fraud Protection With IT increasingly tasked with risk mitigation, Kyriba’s market-leading payment fraud solution adds considerable value. The solution uses machine learning to detect any anomalies or suspicious activity, and provides alerts to stop payments for investigation before they are sent to the bank. Payment Tracking Kyriba offers real-time payment tracking with four levels of acknowledgement. By harnessing SWIFT gpi, Kyriba is able to track the entire lifecycle of the transaction. Innovation and Agility Hub Payment technology is evolving rapidly. Kyriba’s innovation and agility hub can deliver Real Time Payments (RTP) and can connect with other clearing systems and payment solutions. Smart Assignment Kyriba’s machine learning will have visibility to your banking partners and costs associated with each payment. Smart assignment can intelligently route your payments through the lowest cost provider. Bank Monitoring Kyriba offers global bank monitoring of all incoming and outgoing files. Kyriba clients can rest assured that they have fully outsourced banking support. Established Partnerships As an Oracle GOLD partner, Kyriba's Payments Network supports over 1,000 Oracle customers. Our payments solutions have also achieved SAP-certified integration with the SAP NetWeaver® technology platform and SAP S/4HANA. APIs and Connectivity The future of connectivity lies in Application Programming Interface (API) technology. This is where Kyriba has a key advantage. As the leader in connectivity in treasury and finance, Kyriba understands how to maximize the power of APIs to help finance leaders drive digital transformation and more informed decision-making. Bank APIs APIs offer an expedited pathway for bank connectivity, as well as a gateway to real-time business intelligence and digital solutions. Unlike file transfer protocol (FTP), APIs do not require files to be sent or downloaded. Data is exchanged point to point between the systems immediately, allowing for instant data transmission and eliminating substantial risk. Kyriba connects with over 600 global banks every day on behalf of our 2,500 clients using a variety of connection protocols, including APIs. Banking services available via API vary by bank, but can include real-time payments, domestic payments, cross-border payments, bank balance and transaction reporting, and SWIFT gpi payment tracking. Users receive immediate responses from banks, and the ability to access new data and notifications in real-time. ERP APIs Kyriba also works with ERP system providers to embed other systems via API integration into their workflows so that the user doesn’t need to take any action outside their ERP. These add-ons perform the initial formatting so that files can be exported from the ERP, translated to the API provider’s format and pushed out to the connectors. Corporate end-users can also integrate APIs into their ERPs on their own. These plug-and-play solutions are facilitated through our Open API platform, which provides users with common ERP integrations that connect to their own applications. Kyriba users can browse our online catalog, which lists all our available APIs and their prospective use cases. Here are a few examples: Bank Account Groups: This API allows for the creation of new account groups to filter and/or group accounts in processing and reporting. Users can modify the set of accounts that belongs to a specific group, and retrieve or update the pooling account of the group. Companies: This API allows for the setup of companies. Users can get a list of the companies located in a country, receive a list of companies whose name contains specific characters, and obtain all the setup fields of a specific company. Third Parties: With this API, users can manage and set up third parties who represent the companies they manage. Users can retrieve and update third-party details, and create or delete third parties via API. Optimized Bank Connectivity Conclusion There are many challenges for IT when deploying an ERP project, from working around banks’ schedules and specifications, to navigating the complexities of geographical variations - all while juggling an already heavy workload. Fortunately, Kyriba’s in-house developed, complete CaaS solution encompasses all ERP software vendors, internal financial systems, third party providers, and over 600+ pre-configured, pre-tested connections with banks across the globe - allowing for fast and simplified ERP migration. Payment and connectivity costs can be reduced dramatically, while the time spent on bank integration can be streamlined by as much as 80%. What’s more, freeing up the IT team from having to work within the constraints of the banks will help you keep the wider ERP project on time and on budget. Check out this webinar to learn how Treasury and IT worked together at Hilton Grand Vacations with Kyriba to speed up connecting more than 10 banks and 300 bank accounts as part of their Oracle ERP cloud migration project. 

Kyriba is proud to be a continued supporter of AFP’s Treasury in Practice series, including the most recent publication, A Guide to Agile Business Continuity. Business continuity planning (BCP) is one of the most...

Kyriba is proud to be a continued supporter of AFP’s Treasury in Practice series, including the most recent publication, A Guide to Agile Business Continuity. Business continuity planning (BCP) is one of the most important functions an organization can fulfill. This was true before the global COVID-19 pandemic and is now, more than ever, critical to ensuring an organization’s survival in times of crisis. We have seen a paradigm shift in the way business continuity planning is thought about and executed. In normal times, BCP is thought about as a short-term set of institutionalized procedures and technology components designed to fill gaps when minor disruptions occur. However, during extreme crises, the magnitude, pervasiveness, duration, uncertainty and scale of the disruption may require a fundamental change in the way business continuity planning is approached, especially when it comes to treasury. This Treasury in Practice guide offers excellent tips on creating a stronger business continuity plan to help companies adapt to the current state of the world and be prepared for any future organizational disruptions, addressing topics such as: Adapting to changes in work processes Updating and testing technology Securing liquidity Testing security How to best plan for returning to the office Kyriba is a proud sponsor of the AFP Treasury in Practice series. We embrace our role in helping treasury teams understand best practices for business continuity planning, including maintaining business operations, upholding a consistent level of security and protection from fraud and cybercrime, better managing organizational liquidity, and utilizing technology to make treasury, and the organization as a whole, safer. Please enjoy this guide. Introduction In times of crisis, companies turn to their business continuity plans to keep operations running. However, as treasury departments have found out during the ongoing coronavirus crisis, many plans didn’t account for a pandemic that required organizations’ employees to maintain safe distances from each other or work entirely from home. In this Treasury in Practice Guide, underwritten by Kyriba, we’ll look at how even the strongest business continuity plans often need to be adjusted once a crisis hits. By adapting your plan accordingly, you too can remain operable—in the current crisis, and the next one. I don’t believe that any business continuity plan had plans for something like this. “I think the expectation was that you would always have the ability to relocate to maybe to another facility on a temporary basis. But to have a situation where people can’t be around other people—I don’t know if that was ever anticipated.” Revisiting Your Plan Many business continuity plans that companies had in place at the start of this crisis prepared them for incidents like power outages and natural disasters. But a global pandemic—the likes of which haven’t been seen since the Spanish Flu in 1918—required many treasury departments to revisit their plans. According to Bruno Fernandes, deputy CFO and treasurer for the Government of Washington, D.C., most business continuity plans anticipate organizations not having access to facilities or systems. “But I sit on a lot of roundtables on both the corporate side and the government side, and I don’t believe that any business continuity plan had plans for something like this,” he said. “I think the expectation was that you would always have the ability to relocate to maybe to another facility on a temporary basis. But to have a situation where people can’t be around other people—I don’t know if that was ever anticipated.” We see this as a test of our continuity plans, but it does have us considering aspects we had not before.” Changes to Work Processes Since the start of the crisis, AFP has reached out to our members to see how they are addressing it. Industries that are deemed “essential” may still have many employees working in their facilities. On the whole, companies generally have as many employees working from home as they can. Retail has been one industry that has been impacted heavily. A treasurer for a big box retailer who wished to remain anonymous said that the coronavirus pandemic has his company reevaluating its business continuity plan and exploring ways to stay profitable at a time when many stores have been forced to temporarily close. “We see this as a test of our continuity plans, but it does have us considering aspects we had not before,” he said. Another industry that has been hit especially hard has been the hospitality sector. Some had a head start on preparing; Fred Schacknies, CTP, senior vice president and treasurer for Hilton, explained in a recent webinar that his company has a large presence in China. Therefore, it has had a response team in place for months, monitoring the virus and the response by governments around the world. That team has been directing how the company reacts in both its hotels and its corporate locations. “On that front, obviously, all of us on the corporate side around the world have been working remotely,” Schacknies said. I think there’s a lot of nervousness out in the marketplace on how companies are weathering this and how this is going to ultimately impact employees. So lots of communication is always important to keep folks focused on doing the job and to take out some of the nervousness.” Anthony Scaglione, CTP, executive vice president and CFO of ABM Industries and former chairman of AFP, noted that his company is a facilities solutions provider that services end markets in aviation, education, large commercial real estate, manufacturing and corporate campuses. Because ABM works to clean and maintain facilities and equipment, it has been deemed an essential worker from the guidelines issued by federal and state mandates. ABM is headquartered in New York, and even before the state issued its stay-at-home order, the company had already enacted a work-from-home policy for support functions. “At first, it was to test it out, but now that test is six-plus weeks in,” Scaglione said. To guarantee the safety of its employees, ABM made sure anyone working in third-party facilities was properly equipped with appropriate masks, gloves and other personal protective equipment (PPE). Additionally, the head office ensured that it had clear communication and contact with management at the regional and local levels. The finance department also had to keep abreast of rapid changes in demand; some facilities might be continuing operations, whereas others shut down entirely. “So as sites either go dark or begin to scale down, we have to make sure we’re modulating our staffing levels appropriately,” he said. AFP Chairman Bob Whitaker, CTP, is senior vice president of corporate finance for DHL, another essential service provider. Logistics companies are also designated as essential because they’re a key cog in the supply chain; they make sure the products arrive on time in stores. “So from an operational perspective, we’re trying to keep it as much business as normal,” he explained in a recent video interview with AFP. That said, treasury and other functions in the back office who are not directly part of the operations have been working from home. Whitaker’s team is based in Florida, so they tend to be a little bit ahead of the BCP curve because they need to annually prepare for hurricanes. They were already set up with laptops and phones so that they can remain in contact with one another. However, when a function such as treasury has to work from home for an extended period of time, Whitaker has some recommendations. First, treasury should create a phone tree. “Make sure that there’s an accurate, upto-date list of everybody’s phone numbers, and build a tree of who should call the next down on the line, etc., just to check in from time to time make sure everybody’s okay,” Whitaker said. “That’s less necessary when you’re not facing power outages and whatnot because you can check in online.” Additionally, he recommends that leaders provide their teams with regular updates about what’s going on with the department and the company. “I think there’s a lot of nervousness out in the marketplace on how companies are weathering this and how this is going to ultimately impact employees,” Whitaker said. “So lots of communication is always important to keep folks focused on doing the job and to take out some of the nervousness.” Updating and Testing Technology Working from home also can put a strain on technology and systems, and companies need to plan accordingly. DHL, like many companies, uses a virtual private network (VPN). But with so many employees logging into it at once, DHL quickly realized that its capacity is severely limited. It never envisioned this many employees at the same time trying to dial in from home. “So we’ve had to take measures in the company to instruct people how to limit their usage and log off when they’re not needing it,” Whitaker said. Additionally, because work is all done on company computers, access to the internet is running through the VPN. Therefore, DHL began blocking websites to prevent people from using the VPN and work computers to surf the web, catch up on the news, etc. “They should be using their home computer through their home internet service for that,” Whitaker said. Finally, because DHL is a global company, it has been shifting capacity where it is needed. “So when the Europeans are working, we can shift over and use some of our U.S. technology when the Americans haven’t started the workday yet,” he said. When they knew that they had access to the data and they can run the scenarios, then they started looking at, ‘How does this affect us from a payables and receivables perspective, and then long-term, from a monetary assets and liabilities perspective? Can we actually access that data and be comfortable with it?’” Systems also need to be providing accurate, timely data in the race to keep operations going. Wolfgang Koester, chief evangelist and global head of financial institutions for Kyriba, explained that his treasury clients have had myriad requests from CEOs and boards on quick access to data. Most importantly, senior leadership needs to be confident in that data so that they can run scenarios around cashflow and liquidity. “Those were kind of the basics,” he said. “When they knew that they had access to the data and they can run the scenarios, then they started looking at, ‘How does this affect us from a payables and receivables perspective, and then long-term, from a monetary assets and liabilities perspective? Can we actually access that data and be comfortable with it?’” Testing Your Plan Testing out your plan is obviously important, especially in terms of making sure your technology can withstand a crisis event. David Deranek, CTP, director of enterprise treasury operations for Health Care Service Corporation (HCSC), the fifth largest health insurer in the United States, explained his team does unannounced business continuity planning every month to ensure readiness and accountability. “I recall the first time we did a BCP readiness test,” Deranek said. “We coordinated our team and all of our technologies and communications. We ensured all of our staff’s laptops were connected via VPN in order to assure connection to the company systems and nothing was left to risk that we could not perform our jobs. We did that very successfully, and we all patted ourselves on the back. Upon debrief, we realized we planned for this rehearsed crisis. And actual BCP events by definition are not planned interruptions to our regular daily routines. This did not assist us to prepare for a real BCP event at all. There has to be a certain element of surprise to ensure everyday readiness and accountability.’” At that point, treasury made a change to its BCP readiness protocol. Deranek’s team decided that it would practice BCP every month, sometimes twice a month, and it would be unannounced. “I would coordinate with leadership to make an announcement for example on a Sunday night,” he said. “Sometimes it would be announced early on a Monday morning before people would leave for work, just so that we had that element of surprise. It helped to ensure that people were keeping their access credentials up-todate so they could always log into the TMS, banking and finance portals.” One thing that has really helped HCSC over the years with its BCP is having a treasury management system (TMS). “The TMS leverages and simplifies the process from the standpoint of having that ability to work anywhere, with cloud technology and that interconnectivity to all of our banks and our ERP system,” Deranek said. “We also created a distributed platform to make sure that we could send out wire and ACH payments regardless of where we were working.” HCSC even runs a scenario around the event of the TMS becoming unavailable. In reality, its system rarely if ever has gone down, and if so, for less than half an hour. But treasury attempts to test all of these variables. “We actually have a BCP exercise where we practice, ‘If those first line systems are down, then what do we do next?’ It would take longer to perform our tasks. But we could actually put together a cash position and do everything that we would normally do with the TMS, only now we would connect through the many bank portals,” Deranek said. Upon debrief, we realized we planned for this rehearsed crisis. And actual BCP events by definition are not planned interruptions to our regular daily routines. This did not assist us to prepare for a real BCP event at all. There has to be a certain element of surprise to ensure everyday readiness and accountability.’” While treasury technology has generally moved to the cloud, some organizations still use installed systems. Given that crises can happen at any time, Deranek advises treasury departments to move to a cloudbased system so that they have that remote support whenever they need it and don’t have to rely on other internal resources for additional support in a crisis. Of course, the only way you’ll be 100% sure that your business continuity plan works is when it’s actually put it into action. Although sporadic testing can reveal holes that you need to patch, you can’t anticipate every scenario and there will undoubtedly be new issues that arise when you are facing a real crisis. Although the treasury department of the D.C. Government had a very detailed plan written out, there were some surprises when it came to actually executing them, noted Fernandes. Sometimes what looks good on paper doesn’t work as well in the real world, especially when you have a quickly evolving pandemic. “What we’ve discovered over the last few weeks is there were some things that were written out pretty well and had been tested, but we didn’t know how they were going to work until we actually did them,” he said. “That’s the process we’re going through right now— figuring out what makes sense. We’re unfortunately working on the fly in some areas, because things are moving so quickly. I would say we had a pretty good starting point, though not perfect.” For example, the payments process requires multiple approvals in several different systems. Some of these systems can only be accessed through a VPN, and there were some concerns that the VPN could only handle so many users at a time. This slows down the process and can cause payment delays. That’s a problem for any company—but it’s major issue when you’re a government trying to get PPE to hospitals and other critical services. “A lot of this has got to happen very quickly,” Fernandes said. “Unfortunately, because of the fact that we didn’t fully plan for everybody being out at the same time with very limited or no access to our facilities, that’s been creating a little bit of an issue. We’ve been revamping that as we go along, especially stuff that is urgent. The good news is that our department has adapted extremely well to this new environment.” Securing Liquidity Once treasury establishes plans around employee safety and continuing operations, treasury’s next priority should be ensuring the liquidity and the cash position of the company. Liquidity is essential for a company to continue its operations, therefore, treasury should have some sources it can tap into in the event that it needs to. At DHL, liquidity planning is a bit complicated. On the U.S. side, most of the account structures are automated, allowing for cash to flow steadily. However, there is a concern over lockboxes; treasury needs to ensure that its bank is still processing checks. If a bank’s lockboxes can’t stay open due to the crisis, then checks can’t be processed and liquidity can take a hit. Fortunately, this hasn’t happened yet, but to avoid this scenario, Whitaker recommends talking to customers to see if they might start paying electronically. “We’re starting to see a slowdown in anything that requires manual intervention and manual key,” Whitaker said. “Ultimately, when we come out of this, everybody needs to make an effort to push to electronic payments so that we can get rid of these checks.” Understanding that credit markets in these environments become dynamic, we wanted to be prudent. From a liquidity standpoint, we feel like we have ample liquidity to manage through the process. Given our position in the marketplace in terms of the services we provide, we have not yet been impacted in the same degree that many other organizations have, but we were able to draw down the facility and ensure liquidity on the balance sheet.” Regarding other countries, DHL is watching liquidity on a weekly basis. “We want to be prepared if we see liquidity dropping in a country and get ready to move funds into that country so that they can remain operating,” Whitaker said. “At the same time, we’re also trying to keep an eye on these countries where the local folks would have a tendency to hoard cash because they’re afraid of running out. And if the balances get too high, we keep pushing them to move it to a central place.” DHL centralizes all of its cash in Europe, where the company is headquartered. From there it is moved around the world, wherever there is need. “So we’re keeping an eye on the countries who are nervous so that they’re not maintaining too much cash and we’re continuing to push it to the center,” Whitaker explained. “But at the same time, we’re keeping an eye on countries where collections have slowed down and preparing to move liquidity into those countries.” A recent whitepaper from The Hackett Group recommended that companies tap into excess cash within current working capital management practices to support the supply chain. U.S. companies had $1.3 trillion tied up in excess working capital last year, so treasury teams may find that this is an area to explore. Among Hackett’s recommendations are tightening up accounts receivable processes by strengthening collections; introducing liquidity mechanisms, such as payment terms and financing solutions for smaller customers and suppliers; and monitoring daily demand fluctuations and supply limitations closely to make sure cash isn’t invested in the wrong inventory. Many companies are also drawing down their credit facilities to strengthen their cash positions. General Motors said at the end of March that it would draw down $16 billion from its revolving facilities as a “protective measure.” ABM’s finance department enacted a liquidity plan that was tied to its 13-week cashflow and its business drivers. One of the first steps in the plan was drawing down its credit facility. “That was a preemptive measure. Understanding that credit markets in these environments become dynamic, we wanted to be prudent,” Scaglione said. “From a liquidity standpoint, we feel like we have ample liquidity to manage through the process. Given our position in the marketplace in terms of the services we provide, we have not yet been impacted in the same degree that many other organizations have, but we were able to draw down the facility and ensure liquidity on the balance sheet.” Again, a lot of the impact on ABM is around the specific industries that it serves. Scaglione noted that ABM’s FP&A team has been crucial in helping the entire company understand exactly how those demand shifts are occurring. “It ensures that we have the ability to be fluid in terms of how we manage those shifts from an operational standpoint,” he said. “Then we can look at all discretionary spend levers to keep the costs down and keep the preservation of that capital in the next couple of months. It’s been a very collaborative approach between FP&A, the operators and other parts of the business.” Similarly, Hilton has also drawn on its revolver and is taking other steps to secure access to liquidity. Schacknies explained that nearly all of his company’s revenue comes from collection of management and franchise fees from hotels. So when people aren’t staying in those hotels, that’s a huge hit to the Hilton’s bottom line. As such, Hilton has announced significant furloughing to contain costs. “Our treasury team, for example, is 50% furloughed, which is pretty comparable with the rest of the finance organization,” Schacknies said. “Organizationally, across the enterprise, we’re furloughed even deeper. And at the hotels, obviously, it’s even deeper than that.” In addition to furloughing, Hilton has begun a swift and aggressive cost containment exercise across all of its overhead. Schacknies noted that treasury has been focused on “optimizing the machine,” scrutinizing costs that might have flown under the radar before. “There’s been a pretty concerted effort to look through the different payment channels and different operating mechanisms, and to understand what impact each of those have on working capital,” he said. Expanding Credit Access Since the start of the pandemic, the Federal Reserve has made substantial efforts to support the economy, unveiling multiple facilities that will give corporates greater access to much needed credit. Monitoring potential actions by the Fed and Congress should be a key part of any business continuity plan. Additionally, organizations that have operations in other countries should also monitor actions by their governments and central banks. The Fed’s coronavirus actions include: The Money Market Mutual Fund Liquidity Facility (MMLF) makes loans available to eligible financial institutions secured by high-quality assets that the banks purchase from money funds. Eligible assets include secured and unsecured commercial paper, agency securities, and Treasury securities. The Fed ran a similar program during the financial crisis—the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF)—but this new plan applies to a broader range of assets. The Primary Market Corporate Credit Facility (PMCCF) provides companies with access to credit to help them keep business operations running during the pandemic. Open to investment grade companies only, this facility allows borrowers to defer payments for the first six months so that they have more cash to pay employees and suppliers. The Secondary Market Corporate Credit Facility (SMCCF) is a special purpose vehicle (SPV) that supports the corporate bond market through the purchase of investment grade corporate bonds and eligible corporate bond portfolios in the secondary market. The Term Asset-Backed Securities Loan Facility (TALF), a rebooted version of the 2008 program of the same name, is intended to support the flow of credit to consumers and businesses by enabling the issuance of asset-backed securities (ABS). The 2008 TALF was highly successful, jumpstarting lending at a time when it had grinded to a halt. Travel Policies Travel is essential for many companies, but when a crisis hits, it can complicate things very quickly. This is especially problematic if the crisis is a deadly virus and you have employees who have traveled to a hot zone and are unable to return to the office. For these situations, it is essential to have a BCP policy of monitoring any areas where your employees might visit and restricting access accordingly. If the virus spreads and becomes a global pandemic, your plan should probably restrict all travel. But for non-governmental organizations (NGOs) like ChildFund International, whose job is to provide relief efforts, it’s not that simple. ChildFund has experience in this area; the Ebola outbreak that lasted from 2013 to 2016 hit three affected nations where ChildFund has operations—Sierra Leone, Guinea and Liberia. As such, the NGO’s employees were traveling back and forth between those areas and its U.S. headquarters. That led to a series of conversations within the finance department about how they should handle pandemics and whether they needed to create specific policies around them. It’s a fine line to walk for an NGO, because on one hand, they have a mission to provide aid to certain areas in times of need. On the other hand, there’s the cost that the organization takes on if employees get infected, both in terms of medical insurance and making up for time when anyone is out of the office. ChildFund has a corporate security department that sends updates throughout the organization about areas that are affected by infectious diseases and advises any employees that may need to travel to those regions. “They let us know the status of travel for different places, and keep people posted on what to do, or not to do,” said Sassan Parandeh, CTP, treasurer. “Like, if you go over there and you’ve been exposed to someone, do X, Y or Z. Also, they talk to the country offices, to protect their staff while the pandemic is going on.” However, the Coronavirus outbreak is uncharted territory. When it appeared that the virus was contained mostly in China, where ChildFund doesn’t have operations, restrictions weren’t necessary. But once it spread across Asia, Europe and ultimately the United States, then the NGO took the extraordinary step of banning all travel. “We instructed all of our staff that were on business travel from any of our offices to return home ASAP to their country of domicile,” Parandeh said. “At this time everyone is home—wherever home may be.” Testing Security Treasury professionals need to be aware of the fact that fraudsters never let a crisis go to waste, and many have been exploiting the panic surrounding the coronavirus pandemic. One type of fraud that has seen significant activity is the business email compromise (BEC) scam, noted PYMNTS. According to the 2020 AFP Payments Fraud and Control Survey, 61% of treasury and finance professionals who experienced attempted or actual payments fraud in 2019 reported BEC as the source. That’s likely to continue in 2020, as many businesses are stretched thin with essential employees working from home and others furloughed or laid off. “In crisis situations, companies’ operations experience disruptions and fraudsters will take advantage if they can,” said Tom Hunt, AFP’s director of treasury services. “Even if your organization isn’t operating at full capacity, treasury and finance departments still need to be vigilant right now, because a mistake could be incredibly costly.” Brad Deflin, CEO and founder of Total Digital Security and a frequent speaker at AFP events, said that companies should expect to see a surge in BEC fraud, as “attack conditions are optimal” for cybercriminals: Employees are working in unmanaged environments, rather than IT managed offices. Many employees are using unprotected and vulnerable devices and networks (personal technology on home internet networks). People generally are stressed, distracted and largely unaware of the risks and sophistication in BEC scams today. Greg Litster, president and CEO of SAFEChecks and also a frequent AFP conference speaker, added that, with the current shelter-in-place recommendations being followed nearly nationwide, fraudsters have a huge opportunity, as it is more difficult to make face-to-face confirmations for payments. However, a workaround for this issue is to confirm payments with fellow employees over Zoom, Skype or Microsoft Teams. Deflin provided some additional tips for companies on securing their employees’ new working environments: Protect the devices used for business, even if it is an employee-owned device, with monitored and managed end-point security. Secure the local (home, home-office) network including a VPN for outbound communications. Train the employees in anti-phishing and BEC fraud for great awareness and resiliency. “The challenge is to accomplish this for decentralized working environments with holistic, integrated systems that are seamless for the worker and simple to administrate for the company,” Deflin added. Returning to the Office Perhaps the greatest unknown in this environment is what to do once city and state governments decide it’s safe to begin opening back up. Returning to work will likely look different from company to company and from industry to industry. Many companies will likely take a phased approach, moving employees back gradually. “There are so many variables that you need to consider,” HCSC’s Deranek noted. “Will someone be taking our temperature when we walk into the office? And what does one do about the things we all take for granted like riding an elevator if you’re in a building with 5,000 other people? How will distancing be handled in the cubicle environment where people are sitting very close to one another? That all needs to be defined.” Treasury will work with its senior leadership and begin to formulate a detailed plan for reopening once it appears to be safe. But organizations should not feel pressured to bring employees back to the office right away, even after governments lift stay-athome orders. Given the nature of pandemics and the threat of a resurgence, it may benefit an organization to consider a phased approach to continue working remotely, or rotationally, for some time even as the curves begin to flatten. If any organization has a blanket policy of reopening your offices once state and/or local governments do the same, it may benefit you to reconsider it and ensure you are protecting your employees. Key Takeaways The following takeaways will help you in crafting an agile business continuity plan that can be adjusted, depending on the situation. Pandemic-Specific Best Practices: Make sure employees who have to interact with people are equipped and trained. In a pandemic, essential service providers have employees working out in the field. It is critical to make sure that those employees are supplied with appropriate PPEs and are trained on social distancing practices. Employees working from home need to be adequately set up to do so. Employees who will be working from home in a crisis need to be able to access certain systems to do their jobs, which typically means connecting to a VPN. Make sure that your VPN is up-to-date and depending on its capacity, you may need to limit access to it. Establishing a practice of constantly updating team members. A pandemic crisis can impact multiple areas of the business. As we’ve already seen, companies have been forced to furlough or lay off employees. You owe it to your staff to be honest with them and keep them informed of any changes that could be coming. Create a list of potential sources you can rely on to strengthen liquidity. In a crisis like the current pandemic, companies may need to tap into excess cash just to survive. Working capital management practices, revolving credit facilities and derivatives can all be sources of cash in uncertain times. Monitor government actions. The Federal Reserve, the Department of the Treasury and Congress have all taken action to support businesses during the pandemic. Additionally, governments and central banks in other countries have also taken action. Someone in the treasury department should be charged with monitoring and assessing any relief efforts by any countries that the company operates in. Adjust your travel policy. During previous disease outbreaks, travel policies often needed to be restricted so that employees weren’t traveling to particular hot zones. But given how widespread the coronavirus has become, most organizations have had to ban all travel for the foreseeable future. As such, companies may want to be more specific about travel restrictions in their business continuity plans. Establish a plan for returning to the office. For a pandemic in particular, certain measures will need to be taken once operations can begin in the office again. Employees may need to wear PPE or distance each other accordingly. Now is a good time to begin figuring out what that environment might look like. Host unannounced BCP events. No one knows when a crisis will hit. So the more comfortable you are thinking on the fly, the better you’ll be when a real event arises. When testing your staff, don’t let them know in advance. And test frequently. Test all of the variables. The Federal Reserve, the Department of the Treasury and Congress have all taken action to support businesses during the pandemic. Additionally, governments and central banks in other countries have also taken action. Someone in the treasury department should be charged with monitoring and assessing any relief efforts by any countries that the company operates in. Move customers to electronic payments whenever possible. If a bank’s lockboxes can’t stay open during a crisis, then checks can’t be processed and liquidity can take a hit. Therefore, it’s time to begin a major push to move customers off of paper. Secure all devices and channels before employees begin working from home. Fraudsters are quick to adapt common fraud schemes in an effort to capitalize on panic that crises can cause. Ensuring proper protections and training employees on how to spot suspicious activity can save your company thousands and even millions of dollars.

Introduction Many companies will embark on an ERP cloud migration project in the coming years, with 70 percent of SAP and Oracle customers due to migrate in the next three years. Where payments are...

Introduction Many companies will embark on an ERP cloud migration project in the coming years, with 70 percent of SAP and Oracle customers due to migrate in the next three years. Where payments are concerned, this can be a major undertaking. Companies that put their current payment processes in place some years ago will find that the payments landscape has evolved considerably since then. A few years ago, fraud prevention was not as pressing an issue as it is today, bank connectivity was more straightforward and there were far fewer payment formats to consider. Moving on Up When companies embark on their ERP payments project, they will need to consider what has changed and how they can use the project as a catalyst for approaching payments more strategically. In practice, that means looking at areas like fraud detection, bank connectivity and payment formats. Companies should also consider how achieving agility and scalability with their payments can boost their negotiating power with banks and how global visibility can open up opportunities to optimize cash balances and consolidate bank accounts. Accelerate the Project In practice, the payments component of an ERP cloud migration can be costly and time-consuming. But this doesn’t have to be the case. By utilizing a SaaS-based, multi-tenant solution to access pre-built connectivity and bank format transformation capabilities, companies can considerably simplify and accelerate the project – while also taking the opportunity to harness innovation and increase the overall maturity of their payments processes. In This eBook You will learn about the key areas to look at during an ERP cloud migration payments project, including: Fraud detection Bank connectivity Payment formats Agility, scalability and visibility You’ll also find out how you can significantly reduce the cost and time required to complete your payments project. Moving Payments Forward Rather than seeking to maintain the status quo, many companies are taking advantage of an ERP cloud migration to streamline and consolidate different systems and ERP instances. Likewise, where payments are concerned, they are looking at opportunities for transformation that might otherwise be more difficult to achieve. But transforming existing processes can come at a considerable cost. For companies that embark on a custom project to build and maintain bank connectivity using internal IT resources or external consultants, additional costs can range from $200,000 to $1.5 million. And the time investment can be equally significant – such projects are likely to take more than 12 months to complete. The challenge, then, is to update payment processes and achieve a higher level of maturity in payments while avoiding delays and hefty costs. For CIOs and CFOs, the goals of a payments project may include: Fraud prevention Detecting fraud, adopting robust controls, achieving real-time visibility Project acceleration Reducing the cost and implementation time of the project Agility and scalability Achieving bank independence Global visibility Optimizing liquidity and reducing fees Payments Maturity Process Different companies have achieved different levels of maturity within their payments. Typically, there are four stages within the payments maturity process: Defending Against Payment Fraud It’s no secret that fraud is a more pressing concern than ever before. The 2019 AFP Cyber Risk Survey found that 88 percent of organizations have experienced an actual or attempted cyberattack in the past 18 months. But despite the gravity of the threat, many organizations have yet to implement effective safeguards in order to identify and defend against payment fraud. According to research by Strategic Treasurer in 2019, only nine percent of organizations have implemented payments monitoring/screening, while only three percent are taking advantage of AI/Machine Learning. As well as financial loss, payment fraud can also damage a company’s reputation and lead to the loss of essential data. It’s therefore essential to put measures in place to protect the organization from these risks. This should include digitizing payment workflows, standardizing controls and screening payments. Digitizing Payment Workflows Having digital payment workflows in place is key to reducing the risk of fraud. Workflow controls should be used to standardize how transactions are initiated, approved and transmitted to the bank or banks. This means setting up mechanisms such as: Automated confirmations A single source of record One set of approvals Consistent security protocols Real-time visibility Standardizing Controls The value of an ERP can be greatly enhanced by standardizing controls across all payments and geographies. Some companies lack a consistent approach to this, with different levels of approval applied in different markets. Such inconsistencies can leave companies vulnerable to payment fraud, so it’s important to adopt a standardized approach across all people, geographies and payment systems. For example, controls applied to ERP payments should also be applied to manual payments initiated outside the ERP. Screening Payments The key to fraud detection is the ability to screen payments against external sanctions lists and for instances of internal fraud. While a treasury team handling 10 payments a day may well spot any suspicious activity, it’s impossible for individuals to screen high volumes of payments manually on a real-time basis. Machine learning and automation can play an important part in overcoming these limitations. Rules-based automation can be used to identify anomalies in payment behavior, such as a change in a supplier’s payment instructions or an unusually high-value payment to a particular supplier. Just as important as screening is the ability to review any suspicious payments before they are settled. The screening process therefore needs to have a quarantine component, so that any payments flagged can be halted while investigations take place. Beyond Fraud As well as mitigating the risk of fraud, taking a more critical look at payments can give companies the opportunity to review the types of payments being used for different situations. For example, a company that has been sending expensive cross-border wire payments to France may find there are opportunities to take advantage of the local cash pool and send local SEPA payments instead. Connectivity Bank connectivity has evolved considerably in recent years. There are now many different ways to connect to banks, both directly and indirectly: Direct Connection – Direct connectivity methods include the use of APIs or secure FTP to connect to the bank via the ERP system or a payments hub. Indirect Connection – Companies can also connect via an intermediary – for example, via SWIFT solutions such as Alliance Lite2, a SWIFT Service Bureau or Alliance Access/ Gateway. They can also connect using a regional network such as EBICS, but there are complexities to navigate, not least because France, Germany and Switzerland each have their own EBICS network. Which Connection? With so many options available, companies need to decide the right way of connecting to their banks in each country – and what’s right for one company may not be right for another. Key factors will include the types and volume of payments used by a particular company, as well as its geographical footprint and future goals. Equally, an organization’s chosen connectivity routes need to be standardized across the organization, which requires collaboration between the CIO and CFO. Connectivity as a Service For companies looking to connect to multiple banks, Connectivity as a Service (CaaS) can help streamline the process. Companies should look for technology providers that offer a CaaS service whereby it actively manages bank connections on behalf of clients. As a result, companies do not need to secure internal IT support for their bank connections or undertake file testing with their banks, and the technology solution then becomes the company’s IT banking resource. Payment Acknowledgments Companies also need to consider how they will connect to banks to receive acknowledgments (ACKs). Payment acknowledgments confirm that a payment has been sent and received. But different payment protocols will have their own ACKs. There may be opportunities to use ACKs more effectively, both as part of the intra-day review of which payments have been sent and for reconciliation purposes. Payments Formats An essential part of a payments project is making sure the company is able to send payments to banks in the right format. But this is more complex than it sounds – particularly if the company embarks on a custom project to build new bank format scenarios. Ten years ago, companies only needed to know about a handful of commonly used payment formats. But today, there are hundreds of different formats in play, each of which encompasses many different variations. In practice, companies need to be able to handle as many as: 250 unique formats – including XML, SEPA, EDI 1,400 variations – each bank has its own version of these formats 45,000 bank payment scenarios – different pieces of information are required for different types of payments Developing Payment Formats For any particular payment type, companies will need to ensure that payments are formatted correctly for a specific bank’s requirements and that they contain the information the bank needs to complete the payment. This will involve looking closely at the types of payments the company is sending and considering how those payments should be handled. Key factors include the banks a company uses for payments and the countries in which payments are being made. Developing and testing payment formats to ensure payments can be sent in the correct format for every scenario is a major undertaking. This process typically takes three to six months and can take 12 months or longer when dealing with complicated formats. Traditional ERP Payment Development Fortunately, there are opportunities to simplify and accelerate this part of the project considerably. There are technology vendors that maintain a large, pre-built and pre-tested inventory of formats and scenarios, enabling companies to streamline format transformation and reduce the project timeline to as little as two to three weeks. Kyriba Payment Format Library 45,000+ off the shelf formats Single payment file from ERP, Kyriba interprets and transforms all payments to approved format per bank Payment formats are shared across multitenant architecture Ongoing maintenance of all formats Formats are productized under SLA No client IT resources required Governed under SOC 1 and SOC 2 Agility, Scalability, Visibility In order to advance along the payment maturity scale, companies should be able to navigate the complexity of today’s connectivity options and payment formats. They should also position themselves to take advantage of new opportunities for innovation. Goals to consider include: Agility and Scalability Achieving bank independence can make it easier for companies to change, add, expand or remove bank relationships. Bank independence also gives companies the ability to add new services such as SWIFT gpi, real-time payments or SEPA instant payments. As such, companies that achieve agility and scalability within their payments will be better placed to: Enter new markets quickly and efficiently Quickly push outgoing payments to different banks and formats for low-cost routing Migrate to new formats and technologies Increase their negotiating power with banks Global Visibility By centralizing all payments into a single system, companies can achieve complete visibility over their outgoing cash. As a result, they’ll be able to: Identify the most efficient payment scenarios Optimize cash balances and make effective decisions about where to deploy cash and liquidity Unlock working capital with dynamic discounting or supply chain finance Find opportunities to consolidate accounts and save costs Receive instant acknowledgment of transmitted payments Ingredients of a Successful Payments Project When companies embark on a payments project, there are a number of steps to consider. These should include the following: Identify the project scope: Which banks, countries and payment types will be included? Will the project include supplier payments only or will it also include treasury and manual payments? Are there any payments that are not currently centralized but will need to be centralized? Are there any new payment banks that will need to be connected (for example, payments that are currently handled manually)? Confirm whether existing payment requirements still apply Consider whether new connectivity methods, formats or payment services should be included – such as APIs, XML ISO 20022 harmonization, real-time payments, SWIFTgpi tracking and cross-border payments services Confirm both existing and new payment scenarios – all format testing scenarios will need to be identified, as bank format requirements can differ Decide whether all banks will be implemented at the same time or whether a smaller group will be implemented in the first instance Implementation Steps Prioritize banking partners Align with internal IT for the overall system architecture and workflow design Define payments scope – scenarios, types, regions Identify payment controls and approval hierarchies Determine additional screening (e.g., OFAC, fraud detection) Test and go live Accelerating Your ERP Cloud Migration Project The good news is that your payments project doesn’t need to be a huge investment of time and money. It is possible to accelerate your ERP cloud migration project while enhancing the value of your ERP investment. Managing Connections and Formats Kyriba runs the world’s largest bank connectivity service. That means Kyriba can manage all your connections and formats, enabling you to benefit from new payment innovations such as real-time payments, SWIFT gpi and fraud detection. Kyriba’s pre-built format library supports 45,000+ payment scenarios for 1,000 banks around the world – meaning there’s no need for you to carry out custom format development. With integrated global bank connectivity, Kyriba supports connectivity options such as SWIFT Alliance Lite2 and SWIFT Service Bureau, as well as APIs, direct bank connections and regional protocols such as EBICS, BACS and EDITRAN. Kyriba is also compliant with SWIFT gpi. Detecting Fraud Real-time fraud detection, fully integrated sanctions list screening and payment controls ensure all payments activity complies with your payments policy. Digitizing Payment Workflows Kyriba enables you to put workflows in place to standardize how payments are initiated, approved and transmitted to the bank. Supporting Bank Independence Easily scale banks to achieve bank independence and benefit from innovation. Supplying Innovation and Intelligence Kyriba enables you to benefit from new payment services, formats and standards without the need for internal IT support. What’s more, you can optimize your payment decisions by taking advantage of real-time data visualization and payment analytics. Kyriba may be able to accelerate your ERP cloud migration project by up to four months and reduce costs by $200,000 - $1.5 million. Conclusion Many companies will be embarking on ERP cloud migration projects in the next few years – and where payments are concerned, this brings a significant opportunity. The payments landscape has moved on considerably since most companies first implemented their current ERP payment processes. By taking a fresh look at their requirements, companies can make sure they have the fraud detection capabilities needed to counter the threats they face today. They can also position themselves to take advantage of opportunities for innovation. That means putting in place the best fraud detection capabilities to protect the business. It also means positioning the organization to make better use of the wide range of bank connectivity options available today, while ensuring payments can be sent to banks in the right format and with the right information attached. The time and cost considerations of an ERP migration payments project can be significant. But by working with a specialized technology provider, companies can accelerate the project from more than 12 months to a few weeks while reducing payment connectivity and format costs by up to 80 percent. Check out this webinar to learn how Treasury and IT worked together at Hilton Grand Vacations with Kyriba to speed up connecting more than 10 banks and 300 bank accounts as part of their Oracle ERP cloud migration project. 

The treasury department serves a prominent role, well aligned with overall company strategy. In times of stress and uncertainty, like the Financial Crisis of 2008 and the ongoing coronavirus outbreak, companies typically look to...

The treasury department serves a prominent role, well aligned with overall company strategy. In times of stress and uncertainty, like the Financial Crisis of 2008 and the ongoing coronavirus outbreak, companies typically look to treasury to support all areas of the business, by forging a path forward. In this Treasury in Practice Guide, we’ll be looking at the ways in which treasury is a strategic ally to the CFO, the entire C-suite, and the business as a whole. Establishing trust, investing in technology and defining accurate measurements of success help treasury in its role as a vital partner across the organization. You want to have that seat at the table when those strategic decisions are being made, and if you don’t have that trust, you most likely won’t be invited to the table to make those decisions.” Building Trust During the Financial Crisis, treasury departments emerged as beacons to guide their organizations through a volatile and uncertain time. Since then, many treasury functions have earned that coveted “seat at the table” with senior leadership, contributing to company strategy. Treasury is well-suited for this role because it touches all areas of the company, and because it is—or should be—seen as a trusted partner. “You want to have that seat at the table when those strategic decisions are being made, and if you don’t have that trust, you most likely won’t be invited to the table to make those decisions,” said Bruno Fernandes, deputy CFO and treasurer for the Government of Washington, D.C. You need to understand what’s going on in the business so that you can bring that back, and bake it into your forecast and your process. There’s a trust that has to come on both sides. Not every business case is crystal clear; a lot of judgment has to go into decisionmaking, so trust is the foundation to get things agreed upon.” Good communication is often the key to that trust. The more that treasury and the finance chief are on the same page, the better that relationship will be. “You have to make sure that you have alignment between treasury and the CFO,” said Bob Stark, vice president of strategy for Kyriba. “They need to know what to expect from you and you obviously know what to expect from them.” A good leader in treasury also needs the trust of his or her team. Niklas Bergentoft, treasury leader for Deloitte, stressed that having a good team around you in treasury can often be the key to success. He advises treasurers and treasury managers to find their ‘‘wing woman” or “wing man” on the team that can help them get the things done that they need to get done. And it’s important to cultivate that relationship to make sure you have that support, just like the relationship and support of executive stakeholders are critical to mission success. Dana Laidhold, treasurer for Peloton, added that trust and transparency are essential for treasury to contribute strategically across the organization. “You need to understand what’s going on in the business so that you can bring that back, and bake it into your forecast and your process,” she said. “There’s a trust that has to come on both sides. Not every business case is crystal clear; a lot of judgment has to go into decision-making, so trust is the foundation to get things agreed upon.” Establishing Yourself An essential way to obtain trust from the CFO and across the organization is simply to doing your job well. In treasury, that’s often a bit more complicated than in sounds because treasury departments tend to be small and cross-functional. But amid that often-chaotic environment, treasury also needs to be consistent with its core deliverables. You can’t just bring somebody in and expect them to know everything in a relatively short period of time. This is a complicated world that we live in, and understanding treasury’s role is overwhelming for a lot of people, especially if they get turned over in a position quickly.” For enterprise software company Infor, the key driver is managing cash and liquidity, explained Susan Lee, vice president of treasury. “Our cash is seasonal. Every fiscal year, we go through a short period where liquidity is thin. It is critical for treasury to understand working capital by entity and repatriate funds efficiently,” she said. “The CFO relies on treasury to get through that seasonality without having to borrow from the revolver.” Deloitte’s Bergentoft has observed treasury functions branching out more and focusing on business growth, looking at transactions from the due diligence stage through post-transaction synergy realization. He noted that many treasury departments are partnering with finance on working capital improvements and reduced cost of finance infrastructure through advising the organization on opportunities like payment hubs and payment modernization. “If you are able to free up hundreds of millions of dollars, that has a lot of value for your organization,” he said. When Fernandes first moved from the private sector to the public sector, he focused heavily on working capital, as there was a common goal of streamlining the organization. “We spent a lot of time focusing on liquidity and working capital so that we could be nimble with our investments, as well as our debt issuances,” he said. “That actually saved us millions of dollars in debt service. So the fact that we focused on some of these areas, helped us gain that trust of the CFO.” Finding Opportunities Often when a company is in transition, treasury has an opportunity to distinguish itself and be seen as a relevant group that brings new insights to the table. About a decade ago, Infor transitioned from offering traditional, on-premise software to its customers to delivering a cloud-based subscription model. At the time, treasury knew the shift would have a material impact on its cash trends. “Being able to capture that impact, understand it, tweak and redesign our forecasting models, has enabled us to highlight the new, emerging trends,” Lee said. When Laidhold joined Peloton about a year and a half ago, the company was in the midst of its transformation from a small fitness technology company to a global phenomenon. Prior to her hire, there wasn’t a treasury department and she applied what she calls a “treasury in a box” approach to every area of the organization. “We had just launched in our first non-U.S. markets, so we had to build and develop FX policies,” she said. “We had to think about how we wanted to approach hedging. Additionally, we had just completed a capital raise and we’re planning to head into an IPO, so cash investing was, for the first time, very relevant and important.” Laidhold added that, the CFO was relying on her to provide expertise on how to craft treasury policies and procedures. Laidhold was able to articulate, from her years of experience, what the company needed. A cornerstone to success was working with a CFO, who was willing to give her enough autonomy to take some risks and try new things in order to build out a modern, robust treasury function. Stark noted that having that leeway can go a long way towards helping treasury become involved in strategy. “You have to do the job extremely well, but if you have a little bit more latitude, you can further prove how strategic treasury can be,” he said. Leveraging Technology Though the advantages to adopting new technology may be obvious to treasury, it’s not uncommon to receive pushback from senior leadership. Convincing the CFO to approve an investment in essential treasury technology—even something as commonplace as a treasury management system (TMS)—can often be a tall order. Therefore, the onus is on treasury to sell the CFO on why a technology upgrade is necessary. Organizations may see an increase in fraudulent attempts around processdriven areas. Treasury typically has the relationships with the banks and the TMS vendors that have the latest fraud prevention tools, so it is important for us to bring that to the organization and be part of that conversation.” Building the Business Case When it comes to selling the CFO on adopting a TMS, the time component is perhaps the easiest case to make. A treasury system is an incredible tool to free up time for treasury departments as a whole, allowing staff members to spend more time catalyzing change or developing strategy for the organization, Bergentoft noted. In the current environment, navigating the COVID-19 pandemic, time is especially critical for treasury. Having the time to answer questions around cash and liquidity; model cash forecasts for various dynamic scenarios; and understand the levers the organization has around financing and risk management can make a huge difference. But perhaps more important are the capabilities that a TMS provides, particularly when it comes to safeguarding financial assets. When treasury departments rely too much on manual processes, they leave themselves open to fraud. And that’s something any good CFO wants to avoid. “One thing that my CFO and I talk about on a regular basis, is payments fraud,” Fernandes said. “And one of the things that we looked at when we were in the process of implementing the TMS was how it can help us with those issues that we’re experiencing. Because the last thing I want and the last thing our CFO wants is to be in the Washington Post. So being the District government, that’s something that we’re very cognizant of. And we have had fraud incidents, but one of the things that we focus on is how we can avoid them. And a lot of it is transitioning those manual processes or spreadsheets into more of a streamlined process.” Lee agreed, noting that treasury is essentially the custodian of the company’s bank account, with a directive to safeguard cash. Therefore, as fraud attempts continue to become more and more sophisticated, it’s critical to leverage new technology and tools that are available to improve your treasury controls. She recommends not only looking within your own treasury processes, but also at other departments that touch cash, such as AP, billing and payroll. “Organizations may see an increase in fraudulent attempts around process-driven areas,” she said. “Treasury typically has the relationships with the banks and the TMS vendors that have the latest fraud prevention tools, so it is important for us to bring that to the organization and be part of that conversation.” We make sure that we impress upon our colleagues that you just can’t take wire instructions over the phone.” Adopting New Technologies Earning trust with the C-suite and across the organization often requires treasury to come up with a formal, detailed plan. Fortunately, there are new tools available that can help treasury in its efforts. After Fernandes took over the treasury team in the D.C. government, he began an overhaul that would move the department from a transactional function to more of a strategic one. This required revisiting treasury’s technology, implementing best-in-class systems and processes. Throughout this process, the treasury team revisited its strategy to see if it aligned with the goals of the CFO and the business overall. They ultimately adopted a business strategy tool by ESM Software to build their roadmap. “It helps you create a balanced scorecard by looking at your strategy and aligning it with employee performance,” Fernandes said. “By formalizing that process, what we found is that we are in a better position to be able to support the CFO from a strategic perspective, as well as the rest of the organization.” Fernandes noted that, in many city governments, the software systems are antiquated and no longer supported. That creates a lot of issues because when the people who supported those systems leave, the organization is left with platforms that don’t work. “So we are making sure that we take all of the software systems right out of the box,” he said. “That means an extensive amount of work done with process reengineering, policies and procedures. A lot of people are going to be doing different jobs in the future. But we are already starting to see the transition occur.” Many treasury systems now have automation capabilities that can also help free up treasury to focus on strategy. Going back to the time component, Bergentoft noted that one of the biggest challenge for many treasurers is simply finding the time to participate in strategy. “On the timing side, a big enabler there is obviously the technology,” he said. “So how do you free up the time not just for yourself, but also for the people around you?” He added that the typical treasury department spends about 50% of its time performing manual, operational activity. “So if you’re able to reduce that, you can shift more of the time spent to strategic activities; it becomes a greater part of the day,” he said. As demand has grown across finance for automation, data transparency and advanced analytics, a modern TMS can provide the tools for treasury to be successful in those areas. Following a series of acquisitions, Infor’s treasury department was committed to install a TMS. “At one point, we had close to 700 bank accounts across 45 different countries, so the TMS allowed us to automate that daily reporting and essentially made it real time,” Lee said. Treasury also implemented a control process to organize the data. As bank files came in every morning, the department reviewed each debit and credit and then categorized them into a detailed budget codes. “Several years later, we now have a single database of really good historical cashflow trends,” Lee said. “And with that information, we have been able to highlight working capital across each entity, understand cash seasonality, and measure currency exposures. The data from the TMS is the foundation for all our heavy analytics.” Laidhold believes that the more automation comes into play, the more essential application programming interfaces (APIs) will become for treasury. Systems’ ability to talk to each other and to outside parties will only grow in importance the more connectivity increases. “You can either go deep with a ‘one size fits all’ solution, or you can pool a ‘best of breed’ product that does very specific functions wonderfully,” she said. “And I think APIs are really what’s going to enable the next generation of all financial technologies to be able to take shape.” I have tripled the size of our treasury operations team even after putting automation in. And everybody is working on things that are completely value added to the company’s bottom line. And I just think that’s beautiful.” Impact on Treasury Staff While an organization’s greatest resource should always be its employees, they need to be utilized in the right way if treasury wants to be effective. A good TMS can help with that; you can have a team of highly-skilled treasury professionals at your disposal, but if they’re just manually keying in data day-in and day-out, then you’re clearly not taking advantage of their abilities. Laidhold explained that over the past year, Peloton’s treasury team has fully automated its payment process. “We can take things now end-to-end without anybody on the team touching them,” she said. “So being able to pull all of that key entry out has the team working on really exciting projects to maximize our working capital.” She added that not only are these projects value added, but they’re also actually fun for the team. It’s a win-win all around, because Peloton is getting the most out of its employees and the team is enjoying the work that it’s doing. Fernandes agreed, adding that making the transition from a transactional treasury team to a more strategic group does a lot to boost employee morale. The changes to processes and procedures can be immense, but if the team is working towards a strategic goal that has an impact across the organization, it can really people engaged. Of course, whenever the topic of automation comes up, there tends to be a question of whether that ultimately means treasury will reduce headcount. Indeed, when automation first arrived on the scene, some treasury teams built the business case for adoption around how many jobs could be cut. However, Laidhold thinks that was always a misconception. “I have tripled the size of our treasury operations team even after putting automation in,” she said. “And everybody is working on things that are completely value added to the company’s bottom line. And I just think that’s beautiful.” Furthermore, Bergentoft pointed out that having “cool” technology in place can help attract the best talent in the marketplace. “It’s become an expectation,” he said. “If you want to be a destination for top talent, you need to have some of these solutions in place.” From his perspective, investing in technology and in your people are equally important. Only then can treasury truly evolve. “Having the right skills and the investing in training those folks will be incredibly important, as technologies will not live on their own,” Bergentoft said. Tracking Progress Some CFOs are a little more hands-off, and many companies’ departments are siloed. In that kind of an environment, treasury may struggle to emerge as a strategic partner if there is a lack of visibility into the work that it’s doing. Thus it is often imperative to track treasury performance to show the work that the department is doing and the impact it is having. Fernandes’ treasury team has worked extensively on implementing key performance indicators (KPIs) and aligning employee performance with them. Overall, the department sees it as critical to hold people accountable for what they are trying to accomplish. His team has formalized those KPIs and put them into the aforementioned strategic tool that they used to build their roadmap. “It’s created a nice little dashboard for us to sit down with the CFO, at least on a quarterly basis, and show the progress that we have been making with our strategic initiatives,” he said. He describes that process as a “two-way street” in which treasury shows the CFO what they’ve accomplished, what they need to accomplish, and what they need from senior leadership in order to accomplish strategic initiatives. From speaking to clients, particularly those at larger treasury functions, Bergentoft has found that tying those KPIs to groups or individuals actually results in faster progress. “So whether that’s around your visibility into cash, your forecast accuracy, days of liquidity, or opportunities to improve working capital —whatever those measurements might be—I think that helps drive a very performance focused culture,” he said. Since treasury wasn’t even a function before Laidhold joined Peloton, she made an effort to implement “a ton of infrastructure” so that she has visibility into all of her department’s processes and each of the core areas of treasury. She can then leverage that data when she does her quarterly business review with the CFO, going through each area, digging down into its KPIs. However, Laidhold emphasized that for her organization, reviewing the KPIs isn’t so much about tracking employee performance but is instead a way to consider what those metrics mean for the future. “We talk about where we want to be,” she said. “What are the next projects we need to do to start to move the needle? And the conversation is much more productive and thoughtful than it would be if we were just looking at the measurements themselves.” Stark noted that even though there is currently a trend towards treasury being more data driven, many organizations have struggled to extract and show necessary KPI data. Again, technology can go a long way. “Visualization really shows what you’re successful at,” he said. “It can show, ‘Here’s how people are forecasting, here is actually how we reduce their costs of payments or bank fees,’” he said. “So, I find that the data makes a difference. It simplifies it a little bit by having tools to be able to manage the data, and understand the real performance in treasury.” Getting There Ultimately, there are many factors that come into play as treasury seeks to establish itself as a trusted adviser to the CFO and the business. Technology is an essential tool, but treasury cannot rely on technology alone. The department also needs to find the right people who can maximize that technology to take the organization to the next level. Treasury teams have an abundance of data at their fingertips, but if they cannot connect and integrate that data, they won’t be efficient. “How can you be an ally?” Stark asked. “Do your job incredibly well, have the right people on your team so you can trust them and hence be trustworthy yourself, and be incredibly resilient to threats like fraud. And have the right controls in place so when that emergency question comes up, you have all the data and visibility that you need to make important decisions.” Key Takeaways The following takeaways can help your treasury organization build trust with the CFO and business, ultimately helping you be seen as a strategic ally: Establish good communication and transparency with the CFO, within your department and across the organization. Even though treasury is often asked to perform tasks outside of its wheelhouse, it must stay consistent with its core deliverables. When an organization is in transition, treasury typically has an opportunity to distinguish itself and be seen as a relevant group that brings new insights to the table. Treasury management systems and automation are helpful tools that can help free up treasury from manual tasks. However, treasury needs to build a clear business case for adoption. Modern technology can also help treasury utilize its employees in the most effective way, as well as attract new talent. In more siloed organizations, it is often imperative to track treasury performance to show the work that the department is doing and the impact it is having.   Check out this on-demand webinar and learn how 2021 AFP Pinnacle Award Winner HCSC transformed into a data-driven treasury with 1000+ hours of productivity improvement and 90% reduction in working capital requirements.

 A Strategic Treasury Focus Boosts Cash Flow and Minimizes Risks Treasury operations manage the lifeblood of their companies: cash liquidity. CFOs know that their treasury teams are critically important, handling everything from cash flow...

 A Strategic Treasury Focus Boosts Cash Flow and Minimizes Risks Treasury operations manage the lifeblood of their companies: cash liquidity. CFOs know that their treasury teams are critically important, handling everything from cash flow forecasts to optimizing working capital, along with foreign exchange currency risk and investing and borrowing. The team’s performance has a direct impact on the bottom line. Yet, 22% of CFOs and senior finance executives say they don’t see their treasury team as a profit center, according to a recent survey by CFO Research and Kyriba. And only a quarter of the executives say their treasury operations are operating at a high level with a strategic approach. This report examines what the survey says about the links between treasury and overall performance, the obstacles that treasury teams face and how CFOs can boost their treasury performance to improve overall profitability. Which of the Following Best Describes Your Role? KEY POINTS Senior finance executives expect treasury teams to manage critical tasks linked to cash flow and risk, according to a survey. That three-quarters of finance executives view their treasury operations as strategically lacking. Obstacles faced by treasury teams include complex financial structures and siloed systems, and a lack of technology investments, real-time business intelligence, expertise and process automation. A lack of spending on treasury and a focus on everyday tasks over strategic objectives block progress for treasury teams. Working capital optimization is the top treasury concern of financial executives moving forward. The surveyed finance executives also acknowledge that their treasury organizations need to make technology and process improvements to meet industry best practices. Predictive analytics, payments automation and cash management are the top three technology and process improvements that treasury teams need to make, according to the survey respondents. WHY TREASURY PERFORMANCE SHOULD DEMAND YOUR ATTENTION There is widespread agreement among CFOs and other senior finance executives: Treasury performance is critical to the health of their organizations, and they expect their treasury teams to manage a range of critical tasks. According to a 2020 CFO Research/Kyriba survey, senior finance executives give similar weighting to a range of treasury department priorities: accurately forecasting cash flow, operational efficiency, fraud prevention, compliance, optimizing working capital and FX risk management are somewhat evenly matched. Rather than singling out one or a few of the priorities, the 156 surveyed executives indicate that all are nearly equally important. The survey also reveals another theme: finance executives tie treasury performance directly to cash and liquidity management. The surveyed executives measure treasury performance based primarily on free cash flow, cash used for working capital, productivity and efficiency, investing and borrowing performance, and reduced risk exposure. These are all important, of course -- liquidity drives business performance, CEOs often give guidance to the investment community about meeting free cash flow targets and cash is needed for working capital. What Are Your Current Priorities Related to Treasury? But whether or not the finance executives formally track these factors as key performance indicators for their treasury teams, nearly all of the executives have the same expectations. They want better returns from cash, more optimized investment and borrowing, best practices executed for liquidity and cash management, and protection against fraud. On the topic of the best ways for treasury teams to optimize liquidity, the survey respondents again see almost-equal priorities rather than one or two favorites, giving nearly the same importance to reducing borrowing costs, increasing returns on excess cash, generating free cash flow, mobilizing global cash more efficiently and implementing supplier financing programs. They also give similar weights to each of eight areas where their treasury teams could make a better contribution to overall business performance. Increasing cash flow is the favorite at 41%, followed by increasing interest earned on excess cash, protecting against payments fraud, improving treasury team productivity, centralizing treasury data and processes, reducing currency volatility impacts, providing secure and efficient global payments, and providing business continuity planning for global treasury. Finance executives expect their treasury teams to meet all of these cgoals, and if they aren’t done right, it costs their organizations in financial losses or missed opportunities. CFOs recognize that cash is the lifeblood of their organizations. When treasury can manage cash and liquidity well—if it can provide visibility to cash and deploy it effectively, optimize investment and borrowing, and protect cash from fraud and currency risks—then it sets itself up to optimize how cash is made available and deployed, such as for cash operations, stock dividends or company growth in other parts of the world. THE CURRENT STATE OF TREASURY Despite the consensus that treasury operations are integral to company success, the survey also shows that treasury operations are lagging considerably behind the vision that the CFOs and other finance executives have for them. Surprisingly, 22% of the surveyed executives say they don’t see their treasury team as a profit center. On behalf of those who don’t share that view, 53% of the surveyed executives say their treasury teams contribute as a profit center by earning greater returns on cash and 34% say they contribute by unlocking supplier discounts for early payments. Rounding out the profit-center views, 28% see contributions from treasury’s FX intercompany management and 24% from viewing treasury as an in-house bank. On the bright side, 78% of the CFOs and other senior finance executives in the survey view the role of treasury as actively contributing to the bottom line. And most are earning greater returns on cash from areas such as investment income on the large cash balances that companies frequently hold in today’s economy. They also value cash management and see cash as something that can help create profitability and improve margins. The glass-half-empty view? The executives in the 22% contingent probably are not aware of the potential links of treasury to value creation, and are likely not investing in things like cash forecasting or technology that will help their treasury teams contribute in strategic roles, viewing cash merely as a means to pay bills, and not much more. How Do You See Your Treasury Team Contributing as a Profit Center? When asked about their current state, only one quarter of surveyed finance executives describe their treasury operations as “strategic,” the highest level, meaning that treasury “creates value through enterprise-level insight and intelligence.” Three out of every 20 finance executives surveyed say treasury is operating at an “ad-hoc” level, or the lowest level, which is primarily reactive. Anything below strategic is suboptimal. But why are treasury teams being placed in the not-strategic category? The surveyed finance executives report several internal obstacles that restrict the CFO’s ability to support organizational growth and bottom-line value, with a fairly even distribution between those obstacles: complex financial structures, siloed or disparate financial systems, lack of resources, insufficient technology investments, lack of real-time business intelligence, lack of expertise and lack of process automation. All of these obstacles point to a mindset that the company hasn’t invested the time and money necessary to improve treasury processes and the systems that support them. They also signal a lack of collaboration and coordination in the way the financial structure is set up. A lack of spending on treasury and a tactical focus, where time is spent on completing everyday tasks at the expense of forward-looking achievements, translates to lower productivity for treasury teams, especially for the range of critical tasks and high expectations that CFOs have set out for them. Companies are getting in their own way when they fail to prioritize treasury operations and don’t invest in the capabilities and tools that treaury needs. HOW TO GET BETTER CFOs value the importance of treasury operations, and most of them recognize that their treasury teams haven’t reached a strategic level yet. So how do they set up treasury to achieve its full potential? The key barrier is that treasury teams often get so bogged down in reactive tasks that they don’t create opportunities to work on strategic tasks. If treasury can get around its mountain of tactical work, it can be more proactive with insights and analysis. One way that CFOs appear to be attacking this issue is through technology. The survey shows that more than one-third of the respondents use connectivity middleware/payment hub software, data visualization/business intelligence software and mobile devices for multifactor authentication with their finance teams. A slightly lower percentage of the surveyed finance executives employ application programming interfaces to banks and trading partners, as well as machine learning and robotic process automation. All of these technologies help harness data and can make treasury teams more effective and analytical, which helps them make better decisions about managing cash and liquidity. Fostering more analysis of data and information creates an opportunity for treasury and finance to become more strategic. TREASURY ORGANIZATIONS NEED TO MAKE TECHNOLOGY AND PROCESS IMPROVEMENTS TO MEET INDUSTRY BEST PRACTICES. PREDICTIVE ANALYTICS ARE AT THE TOP OF THE LIST, CITED BY 45% OF THE RESPONDENTS AS AN AREA OF INTEREST, FOLLOWED BY PAYMENTS AUTOMATION AT 32% AND CASH MANAGEMENT AT 31%. In Which of the Following Areas Does the Treasury Organization Need to Imporve Its Technology and/or Process to Match Industry Best Practices? The surveyed finance executives also acknowledge that their treasury organizations need to make technology and process improvements to meet industry best practices. Predictive analytics are at the top of the list, cited by 45% of the respondents as an area of interest, followed by payments automation at 32% and cash management at 31%. The number of organizations utilizing technology that still acknowledge the need for improvement show a level of aspiration. CFOs and their organizations are recognizing they need to make changes to achieve the performance standards they’ve set for their treasury teams based on free cash flow and other factors. What Are Your Top Three Treasury Concerns for 2020 and Beyond? Looking ahead, the top three treasury concerns for 2020 and beyond are working capital optimization, according to 41% of the surveyed executives, followed by payments fraud for 29% and low interest rates for 28%. The other items on the treasury concerns list include treasury operating costs, treasury productivity, currency volatility and business continuity. The diverse pattern of responses indicate that other than with working capital optimization, every organization will have its own individual set of priorities for fortifying its treasury operations. Also, with no consensus about treasury deficiencies, each organization will have to carefully examine and gain a better understanding of its own treasury team, which could lead to visibility that hasn’t previously existed. The bottom line is that CFOs and other finance executives value their treasury teams, and they have a good understanding of all the vital benefits that their teams can deliver—a point made repeatedly through the survey results. Although there may not be a simple fix, they’ve identified a list of internal obstacles that they must overcome to improve treasury. They also recognize the opportunity at hand: to bring their treasury operations up to a strategic level where they can fulfill their potential. To make that happen, they need to arm their treasury teams with the right tools to understand and analyze data, and to make better decisions. Starting with some simple investments in technology, CFOs can improve the efficiency and effectiveness of treasury. And as that efficiency and effectiveness grows, it increases the probability of good outcomes like increased profitability. CONCLUSION Treasury performance is tied directly to cash and liquidity management. CFOs know that accurately forecasting cash flow, operational efficiency, fraud prevention, compliance, optimizing working capital and FX risk management are all critical tasks that their treasury teams must manage to sustain the health of their companies. Most of them also recognize that their treasury teams need work. Most treasury operations fail to achieve their full potential because they get bogged down in tactical, reactive work. Treasury teams need investments in predictive analytics, payments automation and cash management. As technology and process improvements help treasury teams to harness more data and employ more analytics, those teams will become more strategic and capable of meeting their CFOs’ expectations. And companies will enjoy improvements in free cash flow, cash usage for working capital, productivity and efficiency, investing and borrowing performance, and reduced risk exposure.     Check out this on-demand webinar and learn how 2021 AFP Pinnacle Award Winner HCSC transformed into a data-driven treasury with 1000+ hours of productivity improvement and 90% reduction in working capital requirements.

A treasury department is only as good as the policies and procedures it has in place. Whether they are formal, specific policies or just general guidelines, treasury needs to have a cohesive framework to...

A treasury department is only as good as the policies and procedures it has in place. Whether they are formal, specific policies or just general guidelines, treasury needs to have a cohesive framework to execute on key strategies. Policies may differ greatly depending on company size, structure, location, and industry, but they are undoubtedly a key resource for treasury. This Treasury in Practice Guide, underwritten by Kyriba, looks at how policies around cash management, payments and risk support best practices in treasury. The Need for Treasury Policies In 2004, AFP released the AFP Manual of Treasury Policies: Guidelines for Developing Effective Control, in response to requests from members for sample policies they could adopt for their organizations. In its research, AFP ultimately found that many organizations lacked formal written policies, or had not updated their policies in years. Since that time, as the corporate treasury function has risen in prominence within most organizations, formal policies have become much more prevalent, and are updated more frequently. Indeed, with recent advancements in technology, as well as rapidly escalating threats like data breaches and payments fraud, it is imperative that treasury policies need to be kept current. However, treasury departments must also take into consideration that policies need to be broad enough so that updating is limited to only major needs. “You want to write your policies and guidelines to help protect the company and provide people with the basis of interpretation and how to handle situations—how to handle what to do and what not to do,” said John Nielsen, treasurer for Henniges Automotive. “Given that we’re in an environment now where technology is rapidly changing, the perspective that I would take is that when you write a policy, if you go into the nth detail, it can open you up to new risk.” Jennifer Dale, CTP, assistant treasurer for Sprint, noted that many companies of similar size to hers still don’t have formal policies. But for perspective, having a policy is very helpful. “I don’t think it’s 100% necessary, but from a control perspective, it’s nice to have that document to fall back on,” she said. “If anything, you have no gray area when you have a policy.” Establishing and Writing Policies Nielsen cautions against being too specific when creating policies because that can result in people looking for loopholes to work around certain standards. And again, with technology advancing, there could be big changes that are coming—though not necessary in all aspects of treasury. “For example, policies around payment systems are the types of policies that you should be looking at yearly,” he said. “But maybe you don’t have to look so much at your cash management policy or an overall treasury policy so often. Still, you should be at least looking through it and making sure that there’s nothing in there that needs to be updated.” When crafting policies, one of the biggest challenges that treasury teams can face is trying to determine how much needs to be ironed out at the start. Many treasury organizations try to capture everything at the outset so that they don’t have to frequently refresh their policies. The problem is that there’s only so much you can predict about the future. “One of the hardest things that people have in writing policies is you think, ‘Well, okay, if I write this policy now, what happens when we get a better handle on Same Day ACH? Should I start to write some stuff in there now? No… I’m just going to wait another two months to do this until I find out a little more,’” Nielsen said. All too often, however, that day never comes because treasury practitioners either get busy with other tasks or don’t want to acknowledge that policies may need to change over time. “I think that is part of the problem; people get scared of just moving forward and putting a marker in the sand and saying, ‘You know what? I’m okay with having to update and refresh my policies,’” Nielsen said. Establishing policies also depends largely on support from senior leadership and how the delegation of authority works within the organization. For example, at Henniges, both Nielsen and the corporate controller are responsible for a number of the policies, because they revolve around the controls of the organization. He noted that if both parties agree to a policy change, the CFO is highly likely to sign off on it. “If we get together and we’re fine with things, the CFO will perceive it as, ‘Go ahead; get it rewritten and put it out on our intranet. Send a message out to the people that need to know and say that we’ve got an updated policy, and here’s the section that has changed,’” he said. In contrast, some treasury organizations must go to the board of directors every time they make policy changes. Needing that kind of constant approval can be quite onerous. “And really, your board of directors isn’t supposed to be your operational know-it-all,” Nielsen said. “They’re supposed to be strategic. Maybe it’s appropriate for certain treasury policies like foreign exchange or risk hedging, because then you’re dealing with the strategic direction of the company. But a lot of your other policies shouldn’t have to go all the way to the board for approval.” Communicating Policies

Emerging technologies are changing finance functions from the top down. In particular, treasury and finance executives must evaluate how treasury technology can enhance their overall operations. Read part two of AFP's Executive Guide to...

Emerging technologies are changing finance functions from the top down. In particular, treasury and finance executives must evaluate how treasury technology can enhance their overall operations. Read part two of AFP's Executive Guide to Emerging Technologies, underwritten by Kyriba, to learn how treasury and finance are deploying artificial intelligence (AI) and machine learning (ML) in their processes. While these technologies have many uses in cash and treasury management, this eBook explores treasury use cases for: Actual reconciliation Streamlining collections Data consolidation Fraud detection Be sure to also explore part one of this series, AFP Executive Guide to Emerging Technologies: Robotic Process Automation. Emerging Technologies Are Changing Finance Functions Emerging technologies are changing finance functions from the top down. In particular, treasury and finance executives are being forced to evaluate how robotic process automation (RPA), artificial intelligence (AI) and machine learning (ML) can enhance their operations overall. This two-part Executive Guide, underwritten by Kyriba, explores why and how these technologies are reshaping finance. In this section, we will look at how treasury and finance are deploying AI and ML to improve their processes. Artificial Intelligence and Machine Learning A key limitation of RPA is that it is not actually “intelligent.” RPA does what it is told. AI, in contrast, uses machine learning so that it can essentially think for itself. The software learns, without human intervention, by analyzing data. It can be used to develop new rules, instantly discover exceptions and build forecasts. RPA is like an Excel macro; it is automation that mimics what the user tells it to mimic, noted Bob Stark, vice president of strategy for Kyriba. Treasury management systems (TMS) and other types of financial platforms don’t typically rely on RPA within their product, but rather support their customers’ use of robotic process to automate the interaction with other systems. “Machine learning, on the other hand, learns from the data that it receives within the treasury system so has a natural role within a TMS,” he said. But although AI has incredible potential to improve many processes for treasury and finance, it has yet to catch on, noted Jason Dobbs, senior manager, and Kyle Olovson, CTP, senior consultant, both with Actualize Consulting. They see this as irrational, particularly since humans have the ability to only recognize a few patterns. Machines, meanwhile, can pick up on patterns indefinitely. However, recognizing patterns does depend on human design, which means that AI can contain biases that can skew the outcomes. Dr. Rana el Kaliouby, CEO and co-founder of Affectiva and MindShift keynote speaker at AFP 2019, sees bias as the true “threat” that AI poses. She noted that while many people are apprehensive about the technology, what we should really be wary of is AI that is not ethical—systems that perpetuate biases existing today. Therefore, companies that utilize this technology should take care to steer clear of biases whenever they adopt these systems. In an interview with the AFP Conversations podcast, Dr. el Kaliouby explained that the key to avoiding data and algorithmic bias is diversity. “I think the way we get there is to ensure that the teams that are designing and deploying these AI systems are as diverse and inclusive as possible,” she said. “At Affectiva, at my company, we make sure that we bring in people from different age groups, different genders, different ethnic groups, and different perspectives. We have our machine learning scientists, our data scientists and our computer vision folks around the table, but we also bring artists into the equation or psychologists because I believe they have a very different perspective on how we think about this, and that’s really important.” But for the treasury and finance space specifically, Stark is less concerned about bias affecting AI and ML. Unlike RPA, AI and ML aren’t based on what the user thinks, but on what the artificially-intelligent process is able to glean from the data. “I think in a treasury use case, introducing bias is more likely when using RPA because the ‘bot is automating the steps and finding the data that the user thinks is correct,” he said. “In treasury, at least, machine learning programs allow the data to drive the decision, and not you as a programmer. Machine learning can help you overcome your own bias by potentially finding a very different, objective conclusion.” Stark noted that if, in the initial setup of an AI/ML program, an organization sets certain parameters or thresholds before it has adequate data, then it’s possible that biases could impact the outcomes. “But if you do it right, data should drive your decisions rather than the other way around,” he said. Treasury Use Cases There are many treasury use cases for AI, and even more will likely be revealed as practitioners familiarize themselves with the technology and what it can do. Actual Reconciliation AI and ML have incredible potential for cash management and forecasting, particularly when reconciling prior day bank files with yesterday’s expected cash position. “This is one of the first cash management processes performed each day,” Stark said. “And for some organizations, the volume of transactions is so big that it can take hours and multiple people to do that reconciliation.” ML can be used to identify and resolve those discrepancies on its own. “In the simple scenario where the prior day file reports a $1 million wire and we thought it was going to be $900,000, the cash manager will know through their experience what explains that $100,000 difference and what to do about it,” Stark said. “Machine learning will learn from the user’s manual reconciliation, so next time it will reconcile those transactions without human intervention.” Added Stark: “The tests that we did with our clients reconciled 99% of previously unmatched transactions, just by looking at the past six months of data. With more data, the accuracy approaches 100%. The key, however, is the amount of data. Machine learning cannot ‘learn’ from one or two scenarios a day; it needs a large sample size of information in order to find meaningful conclusions.” But AI and ML can do more than detect anomalies—they can recognize when an exception isn’t actually a problem. For example, your company might make a regular monthly payment to a supplier of approximately $10,000. However, a recent payment made at the end of the current month is $15,000. With rules-based automation or even RPA, you likely have a payment control that flags that 50% variance from the normal monthly amount, quarantining that payment for further review. But ML can recognize that this particular payment is part of a larger pattern where the last monthly payment in each quarter is substantially higher than the average. “ML looks at historic data to determine what the true pattern really is to reduce potential false positives,” Stark said. “But the AI process needs to have access to all historic payment patterns in order to make that determination, much like an individual would use their own experience to make that assessment.” So you do not have a ‘one-size-fits-all’ solution for disputes, credits or cash application. You really have to use machine learning algorithms to identify each customer’s different payment patterns and deductions behaviors that they’ve had in the past.” Streamlining Collections AI and machine learning can also be used in the actual AR process as well. Shankar Bellam, manager, solution engineering for HighRadius, noted that one of the biggest challenges for AR teams is the huge amount of customer transactions that they have to manage. “In the B2B space, where you have hundreds of thousands of customers, you have millions of invoices and you really have to go after every transaction,” he said. “So that’s where a lot of time is being spent by having AR teams manually going after invoices and trying to get paid or trying to figure out why the customer has not paid on something.” While RPA allows AR to automate the repetitive, manual tasks, machine learning algorithms can be used for more intricate work, like identifying patterns in transactions. This can help your organization in its decision-making and really tailor the behavioral change that you want to bring about in your customers, Bellam explained. “Maybe you want to change the way you collect from the customer, or maybe change the amount of manpower that you assign to a certain segment of customers,” he said. HighRadius works with a number of top-tier companies, like Nike, Adidas, Johnson & Johnson, Walmart, and Proctor & Gamble. These companies each manage a massive amount of transactions, going across currencies in different regions. “So you do not have a ‘one-sizefits-all’ solution for disputes, credits or cash application,” Bellam said. “You really have to use machine learning algorithms to identify each customer’s different payment patterns and deductions behaviors that they’ve had in the past.” Improving efficiencies in the collections space can have a positive effect on cash flows. “Because of the sheer volume of these organizations and the magnitude of the size—even if they’re bringing in one day of [days sales outstanding (DSO)] improvement—it’s huge in terms of dollar values for these companies,” he said. We try to analyze the data historically to come up with insights; if you augment on top of the data you already have, you can make this smarter.” Data Consolidation AI can also help treasury as it consolidates copious amounts of data from ERP systems, TMS and other bespoke sources when doing cash forecasting. “Everyone cares about the accuracy in the end, but the process to get there is quite cumbersome in most cases—to get your hands on the data, then to mix all the data, and to make something out of it that makes sense,” said Nicolas Christiaen, CEO and co-founder of Cashforce, who discussed AI and ML in an AFP 2019 session. “And then there are the people involved; you don’t want to have 60 people tripping over each other to make that forecast.” To create the forecast, treasury needs to consolidate the data correctly to make sure it is getting the right data sources from the TMS and ERP systems. To improve the forecasting process for its clients, Cashforce looks at historical GL (general ledger) data. “We try to analyze the data historically to come up with insights; if you augment on top of the data you already have, you can make this smarter,” Christiaen said. He added, as an example, that attempting to forecast based on due dates for payments is pointless, as customers rarely pay precisely when you require them to. Hence why it is so important to look at the historical trends and patterns, if available. The final step in Cashforce’s process is what is called its back-testing algorithm. Based again on historical data, Christiaen’s team looks at how good a system-based forecast measures itself against the actuals. “We’re trying to understand the historical deviation of your system’s forecastable data versus the actuals to come up with a segmented variance, and then inject that on top of the current forecast,” he said. “To summarize, I would say it’s using different smart data sources and different smart algorithms which will optimize the accuracy of your forecast. With the back-testing algorithm, we’ve just scratched the surface, in my opinion, of what we can potentially do.” This works by the model having an understanding of what is ‘normal’ for each account or card and recognizing patterns based on past transactions and behaviors. For example, if 99% of the transactions for one account happen Monday through Friday, a transaction that occurs over the weekend will be seen as abnormal and flagged as such.” Fighting Fraud Financial institutions have gradually been adopting AI and ML solutions to protect customer accounts. AI can help banks and their corporate customers keep track of fraudulent activity and anomalies much faster than ever before, explained David Duan, data science stream lead and principal data scientist at Fraedom. “This works by the model having an understanding of what is ‘normal’ for each account or card and recognizing patterns based on past transactions and behaviors,” he explained. “For example, if 99% of the transactions for one account happen Monday through Friday, a transaction that occurs over the weekend will be seen as abnormal and flagged as such.” Duan noted that anomalous transactions aren’t always fraud incidents. However, using AI to flag any transactions that are out of the ordinary is worth the hassle of slowing down unorthodox legitimate transactions. Earlier this year, Visa helped banks prevent approximately $25 billion in payments fraud using AI, reducing global fraud rates to 0.1%. The Visa Advanced Authorization (VAA) is a risk management tool that monitors and evaluates transaction authorizations on VisaNet in real time to help banks identify and respond to emerging fraud patterns and trends. Visa processed more than 127 billion transactions between merchants and banks last year, using AI to analyze all of them in about one millisecond per transaction, allowing for legitimate transactions to be processed and fraud to be quickly rooted out. Of course, there will always be bad actors that try to use innovative technology to their advantage, and AI is no exception. Micheal Reitblat, CEO of Forter, noted that criminals are using AI to mimic the way good users behave. “So instead of collecting static data like credit cards and addresses and getting access to physical locations, they are actually recording user behavior,” he said. “They understand that AI is being used to track fraudsters, so they need to fight back with a similar technology.” Furthermore, the good actors are actually at a disadvantage. Although they have more data at their disposal now than ever before, they don’t have enough “bad” data, Reitblat explained. “If there’s a fraudulent transaction, we can’t collect a million of them just to learn a better model,” he said. Additionally, using AI to make predictions on fraud isn’t like predicting normal customer behaviors, because fraudsters adapt. They are constantly fighting the efforts of the good actors; the moment they understand that AI is being used to identify and catch them, they change their behavior. Once that happens, the AI model needs to learn from scratch again. KYC Compliance Complying with know-your-customer (KYC) regulations is one of the biggest headaches for corporate treasury departments. AI may be able to relieve some of that burden. In an article earlier this year, Eurofinance pointed out that AI has the ability to replace the current system of “scattered humans and fragmented legacy technology” used to ensure KYC compliance. Even smaller businesses may be required to evaluate a multitude of tax and legal updates on a weekly basis across an international network, so using RegTech solutions like natural language processing and machine learning can help immensely. “By treating regulations as data, software will dynamically help ensure compliance and bring compliance into the enterprise risk environment, enabling treasurers to take a genuinely risk-based view of regulatory compliance,” Eurofinance explained. And KYC repositories are also making use of AI. As noted in a previous Executive Guide, IHS Markit has implemented AI in its KYC Services solution. Using intelligent process automation (IPA), the system gathers and analyzes large amounts of complex information from multiple sources, such as corporate registries, exchanges and regulator sites, to build a visual picture of an entity. The solution, which was developed by encompass corporation, has enabled IHS to improve data quality and achieve a 30% reduction in the time taken to gather KYC data. To date, KYC Services has developed more than 30,000 KYC profiles and has more than 160,000 entities represented on its counterparty platform. Financial Planning and Analysis AI and ML have also found a home on the FP&A side, and the technology has actually been there for some time. Dr. Liran Edelist, President of Jedox Inc., who discussed AI at AFP 2019, noted that although the technology is often seen as experimental, many of the algorithms used for budgeting, planning, and forecasting are already in use and were proven decades ago. “The innovation is around the availability of such technology,” he noted in a recent blog. “Just a few years ago, you had to purchase expensive hardware and software and hire a data scientist to build a model that today is most likely available out of the box.” Dr. Edelist pointed out key areas where AI algorithms may help FP&A professionals in their planning and budgeting. One is time series forecasting and prediction. “What we’re seeing is that many activities, both expenses and revenue-related in our organizations, can be automated by machine,” he explained. “The most common use case for AI is for revenue planning—both budgeting and forecasting. However, standard costs in an organization are predictable. Planners can ask the machine to preform, as an example, time series prediction. The system will do it, in most cases, in a better way than what human beings can do.” Although Jedox does not collect statistics that can show how much AI solutions can improve these predictions, users generally see AI making better predictions than humans. One of those clients is Terminix (part of ServiceMaster Group) which has used the technology to greatly improve customer loyalty. “The information that the AI is giving them really allows them to improve customer loyalty,” Dr. Edelist said. “They’re able to see what enables them to keep loyal customers, and on the other hand, why customers don’t return. By nature, it improves the recurring revenue to the company.” Another area where FP&A can use AI is in data cleansing. AI algorithms can indicate a potential abnormalities in data trends that manual methods typically won’t pick up on. “We’ve seen [abnormalities] happening a lot, especially when you need to consolidate data from different systems and integrate it between different systems,” Dr. Edelist said. “And so, for the user, it’s very difficult to go looking for each individual data point on your database, but with the AI algorithm, you can actually find some discrepancies.” But much like in treasury, it’s not just anomalies that can be identified. The algorithm can also pinpoint trends that users might not be able to see. “Some of those discrepancies are really showing a change in trends,” Dr. Edelist said. “The algorithm can give a clearer picture of the variances, which makes the analysis easier. Where RPA replaces mouse-clicks and Excel macros, AI actually helps the decisionmaking process start sooner. It replaces a lot of collection and aggregation of treasury data, which often consumes many peoples’ mornings, and allows the strategic part of your job to start at 8 a.m. instead of later in the afternoon. You get so much more done when you don’t have to spend your morning finding and reconciling data. It’s not only an improvement on manual processes; it’s an improvement on automation. And anyone that doesn’t recognize that isn’t going to be here in five years.” Taking the Next Step Artificial intelligence and machine learning have the potential to change the game for treasury and finance, in a way that RPA never can. This is because AI and ML software learns, without the need for human interaction. RPA is essentially process decision-making, where is AI/ML is data-driven decision-making, and the latter requires a mind shift for many treasury and finance departments to truly get on board with it. Additionally, as is the case with RPA, treasury and finance professionals may be apprehensive about AI/ML because they fear that their jobs could ultimately be phased out. But it is much more likely their roles will simply need to evolve with the technology. The more familiar they become with it, the better off they’ll be. “Where RPA replaces mouse-clicks and Excel macros, AI actually helps the decision-making process start sooner,” Stark said. “It replaces a lot of collection and aggregation of treasury data, which often consumes many peoples’ mornings, and allows the strategic part of your job to start at 8 a.m. instead of later in the afternoon. You get so much more done when you don’t have to spend your morning finding and reconciling data. It’s not only an improvement on manual processes; it’s an improvement on automation. And anyone that doesn’t recognize that isn’t going to be here in five years.” Want to see how AI in treasury management improves cash forecasting? 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In the past, building a case for adopting new technology has proven to be a huge obstacle for treasury and finance teams. However, with emerging technologies such as RPA (robotic process automation) and AI...

In the past, building a case for adopting new technology has proven to be a huge obstacle for treasury and finance teams. However, with emerging technologies such as RPA (robotic process automation) and AI (artificial intelligence), more companies are seeing the value and impact that technology investments can have on treasury. With new technology comes new capabilities, and RPA is helping treasury teams extend their abilities beyond the current boundaries of cash and treasury management. RPA helps expand visibility and controls for better risk management and provides in-depth treasury intelligence by transforming data and information. Read part one of AFP's Executive Guide to Emerging Technologies, underwritten by Kyriba, to learn how robotic process automation is improving treasury operations. Be sure to also explore part two of the series, AFP Executive Guide to Emerging Technologies: Artificial Intelligence & Machine Learning. Emerging Technologies Are Reshaping Finance Emerging technologies are changing finance functions from the top down. In particular, treasury and finance executives are being forced to evaluate how robotic process automation, artificial intelligence and machine learning can enhance their operations overall. This Executive Guide, underwritten by Kyriba, explores why and how these technologies are reshaping finance. It will be released in two parts; this first section looks at RPA and how treasury departments are applying it to improve their processes. Robotic Process Automation Robotic process automation (RPA) is the next step in the evolution of automation, using a software robot that mimics human actions. It is typically used in treasury and finance to streamline repetitive, manual processes, freeing practitioners up to focus on more strategic work. According to AFP 2019 speaker Laurens Tijdhof, Partner at Zanders, while there are many new technologies that will ultimately be adopted by treasury, RPA is one that is already having an impact. “The quick wins are typically in RPA,” he said. “This is something that is available today; you can really start implementing it now.” Tijdhof noted that other new technologies such as big data, machine learning and blockchain/distributed ledger technology require much more time and preparation to implement. “You need to have a data strategy to prepare for [those technologies], and you have to make sure your system environment is ready to process these new techniques,” he said. However, even though RPA is easier to adopt than some of these other innovations, that doesn’t mean that corporates are flocking to it en masse. The technology is still new and it will still take some time before it becomes mainstream in treasury and finance. “It’s not very prevalent out there right now and I think corporates are basically exploring these things in terms of pilot testing and they’re starting small,” said Kelvin Ang, Director, Treasury Advisory Group, Americas Head for Citi. Ang, who will is speaking in a session at AFP 2019, noted that many finance departments are playing the wait and see game, seeing what their peers are doing with RPA and whether it makes sense to follow their example. “Everybody’s trying to figure out who is doing what,” he said. “‘What can I learn from company A and company B? What are they exactly working on? And more, importantly why are they doing that?’ We’re not talking about the traditional, typical treasury management system. We’re talking about new tech.” The quick wins are typically in RPA. This is something that is available today; you can really start implementing it now.” RPA Use Cases Although many companies who have adopted RPA are still in the pilot stage, others have taken the initiative and are applying the technology in a number of different areas. Zanders’ Tijdhof has observed multiple treasury and finance departments using RPA for many functions; one organization that he has worked with has automated over 50 tasks. Some of them are fairly complex, such as getting FX exposure information from various systems and access points into one consolidated overview. Ravi Iyer, CTP, Assistant Treasurer for Mallinckrodt Pharmaceuticals who discussed his organization’s RPA pilot project at AFP 2018, noted that most treasury and finance departments who are using RPA are doing so to streamline repetitive, manual processes. “Treasurers should look at the processes where they are spending a lot of time—where you take data from one place and have to rekey it into another place,” he said. “Look at how much time you’re spending and do some cost estimates. Then look at what it would cost you to automate those processes using RPA.” Ang has also observed finance functions primarily apply RPA to tried and tested processes—highly replicable, standard tasks that do not require a high level of deviation. “It’s used for the simpler tasks like, for example, cash positioning,” he said. “So, in treasury, every morning, there is a treasury analyst who comes in, turns on the systems and enters the opening balance for the day. Then, he/she looks for information on the expected payments and expected receipts, and comes up with the expected end-of-day balance. “Some companies are now automating this process so that when an analyst arrives in the morning, they no longer have to do this, but instead spend time onthe decision-making process” Ang continued. “This is a great example in terms of a very standard procedure whereby you can apply RPA.” RPA can also be used very effectively in bank reconciliation. This technology is essentially not new; treasury management systems (TMS) have had a built-in code that allows them to match an amount in the ledger against a corresponding amount in a bank statement. What’s new is that RPA adds a bit more complexity, so that it’s not just simply matching dollar amounts and banks. RPA allows you to more easily jump from one system to the next (i.e., move from the TMS to the ERP), gathering more data in less time. Ang likened the technology to macros. “I would say that most people understand what a macro is,” he said. “If they think about clicking on the exact steps that they’re trying to do, recording all the moves and then playing back again every single time they want to run or refresh the data. RPA does exactly that, except that it crosses and moves across the different systems and different environments.” Treasurers should look at the processes where they are spending a lot of time—where you take data from one place and have to rekey it into another place. Look at how much time you’re spending and do some cost estimates. Then look at what it would cost you to automate those processes using RPA.” Making the Case Building the business case for adopting new technology—any new technology—can be a tall order for treasury and finance. Many treasury functions have been running the same treasury management system (TMS) for a very long time; for example, Allianz has been using the same system for 30 years. In her conversations with treasury and finance peers at other organizations, Camille Felton, CTP, FP&A, Senior Lead Analyst, Financial Analytics and Solutions for Chick-Fil-A, has found that it is often quite difficult to get buy-in from senior leadership to invest in RPA technology. “This is not an easy startup cost to be able to swallow,” she said. “It may be a little bit more cost-prohibitive for treasury in organizations where funding is tight. Yet we must think about RPA as a longer-term strategic decision versus a short-term return.” However, companies may find it easier to sway management to approve adoption of RPA over purchasing or upgrading a TMS for one key reason. The bot can be used anywhere in the company, noted Sarah Schaus, Assistant Treasurer and AVP for Allianz Life Insurance Company of North America. A TMS only touches the treasury department, but a bot can impact the entire organization. Greater Implications Whenever the topic of RPA comes up at a treasury and finance conference or forum, the conversation typically turns to whether adopting the technology could ultimately result in some practitioners losing their jobs to machines. The counterargument to that is that RPA frees up financial professionals from having to execute all of those manual processes so they can focus on strategy. The reality is probably somewhere in the middle; some jobs will ultimately be lost, whereas some individuals’ roles will ultimately become more valuable, as they’re not bogged down by busy work. Bob Stark, Vice President of Strategy for Kyriba noted that his treasury clients have all reported productivity improvements after implementing RPA. In every case, this has led to treasury driving more value for the finance team. “Treasury always has more projects than they have time for, so the ROI is relatively easy to measure,” he said. Citi’s Kelvin Ang believes that some jobs may be lost, especially those that oversee smaller manual processes. “As companies start to automate more and more—and we see this a lot, not just in the treasury environment, but in the business operations as well. If you think about a car manufacturer— during the good old days, they manufactured and assembled cars all over the shop before the automated line came in,” he said. “So, what happened with the automated line is similar to what is happening here. The technology comes in and you’re bumping up efficiency. And guess what? Jobs become redundant along the way, largely due to technological advances.” In the treasury environment, whenever there’s a natural attrition, somebody leaves or somebody retires from a treasury team, they don’t go and hire a treasury or finance person or an ex-banker. They go out and hire a data scientist. They go out and hire an engineer. They go out and hire people with new skillsets, to try to look at the same problem through a different lens.” That said, this isn’t a sci-fi movie; there probably will not be a time in which machines take over everything, Ang added. “Humans are still required, as long as there is a certain level of complexity in terms of what is to be done,” he said. “All you really need to do is shift the job focus from being tactical to more strategic.” Ang has observed a bit of a mindshift in the hiring process in treasury departments. “In the treasury environment, whenever there’s a natural attrition, somebody leaves or somebody retires from a treasury team, they don’t go and hire a treasury or finance person or an ex-banker,” he said. “They go out and hire a data scientist. They go out and hire an engineer. They go out and hire people with new skillsets, to try to look at the same problem through a different lens.” So for people who feel they might be at risk of losing their jobs to RPA, it can be a good idea to expand their skillsets. When Schaus adds new team members at Allianz, she seeks out individuals with robotics experience, preferably with the systems her team works with. But for her treasury group, she simply looks for individuals with an interest in learning the technology. “We send them through the training offered by the vendor, and have them shadow our other internal RPA experts,” she said. And in Allianz’s case, RPA has actually created jobs rather than reduce them. The RPA team has grown from three people to seven. Nevertheless, Schaus also knows that as more businesses adopt RPA, certain positions will eventually be phased out. “I understand that people are nervous about losing jobs, but it’s going to happen,” she said. “So my thought is, why don’t you be one of those early adopters? Why don’t you raise your hand and say that you’re interested in robotics, so that you do make yourself marketable for the future?” Case Studies Chick-fil-A In October of 2018, Chick-fil-A’s finance department embarked on an RPA pilot for multiple use cases. One of the biggest challenges for the quick service restaurant chain was that it was experiencing rapid growth, and finance was experiencing capacity constraints as a result. “Even if we wanted to hire more people, we could not find that many people fast enough to get them on board and up-to-speed in order to do the work at the pace it was growing,” said Camille Felton of Chick-fil-A. “One of the things we really struggled with is that everyone at Chick-fil-A today, like other companies, is running at 110% capacity. So we really just said, ‘Let’s take some transactional work and see if we can reduce that effort to free up capacity in areas that need it most.’ And those use cases were so successful that we were quickly able to see the value that this could have in the business.” We said, ‘What if we used a robot to pull down all of our transactional and balance activity from every single bank that we have?’ And then we can use some tools to push that downstream so that at any given time, we could have the cash position readily available.” For treasury, the pilot use case was related to their cash position, which Chick-fil-A had previously performed manually in Excel. Chick-fil-A’s cash management team had created multiple process efficiencies, but they were ultimately gathering copious amounts of data and then populating spreadsheets. While some of their banks had application programming interfaces (APIs) that could be leveraged to pull necessary inputs, others had not yet explored this capability. Additionally, APIs or even using a TMS required initial connection and ongoing support from an IT team that was equally strapped for time, so the treasury team stuck within technologies where they had direct expertise. Enter RPA. “We said, ‘What if we used a robot to pull down all of our transactional and balance activity from every single bank that we have?’ And then we can use some tools to push that downstream so that at any given time, we could have the cash position readily available,” Felton said. “That initial value-add pilot began to show everyone what RPA could do. Ultimately, we created a new group to do specifically RPA in financial services.” RPA was also used to resolve reconciliation issues in accounts payable (AP). “Chick-fil-A had an opportunity to improve the efficiency of matching what we ordered at our stores versus what we were invoiced. Initially, this was done more manually than we’d like to admit, again via Excel,” she said. “But with RPA, we were able to utilize a bot to identify variances and report the discrepancies to our teams instead of them spending valuable time on this research daily.” Now with RPA, AP, treasury and all of financial services have begun to see process efficiencies that are freeing up teammates’ time to shift their focus towards data-driven decisions. Again, these may sound like problems that would be easily solved with a treasury system. However, in Chick-fil-A’s case, it made more sense to go a different way. “Five years ago, we felt we were too small for a TMS,” Felton said. “We just didn’t have many banks. Now we’re seeing we have a need for that, but we’ve found other ways around it because of our IT’s capacity constraints. Due to our growth, IT’s time is focused, rightfully so, on keeping the wheels on the bus for existing systems and their changes. If we were to implement a TMS, we’d get it stable and then turn around and say, ‘We want to add another bank,’ or, ‘We want to change tools.’ Our business is evolving faster than the pace of current IT implementations.” So RPA may be ideal for treasury departments that want to connect disparate systems but don’t have the bandwidth to support a TMS or an API. “If we had a centralized data management platform that could help different systems talk to each other, as well as manage documents in a better way across departments, then we maybe we could use that instead,” Felton said. “But in absence of that, and in absence of a TMS, RPA pairs well with other things.” Allianz Life Insurance Company of North America In 2016, the CFO of Allianz Life Insurance Company informed its finance department that it needed to reduce its expenses by the end of 2019. Allianz’s U.S. finance arm had already been in the process of cutting costs significantly over the past five years, having moved much of its work to its sister company, Allianz India. Trimming expenses further required the next step in the solution toolbox, hence the adoption of RPA, explained Sarah Schaus of Allianz. “What we’re doing is reallocating resources,” she said. “That’s the way a perfect model should work.” The RPA implementation has been largely successful since finance took time to build out the process for using RPA, rather than just implementing the technology without any familiarity and learning on the fly. According to Schaus, it has vastly improved accuracy in treasury and finance, while performing repetitive tasks and transferring data from one system to another. Perhaps most importantly, it makes no errors. Number one, like everything else, the upgrade always takes longer than you expect. And number two, you do need to maintain your manual processes in case there is an issue with the robots, and it takes a day or two to fix them.” The finance department began by purchasing three basic bots, one for treasury, one for controllers and one for corporate enterprise processes. The company also purchased a component called a scheduler, which sets up the times you want certain processes to run. Schaus noted that adopting a bot takes about three months and should really just be looked at as the implementation of a process. “You just put that process on whatever bot has the capacity for it and isn’t going to need to run the same time another process is running,” she said. “So a bot is basically just an empty database and you’re able to program each of your processes on it.” Finance recently performed an upgrade to the bot software, which proved to be a learning experience for the finance department. “Number one, like everything else, the upgrade always takes longer than you expect,” Schaus said. “And number two, you do need to maintain your manual processes in case there is an issue with the robots, and it takes a day or two to fix them.” RPA has already proven to be a huge success. Schaus formerly had an employee that came in at 8:00 a.m. on Monday morning to run a report from the week before. Now, the bot performs this task at 4:00 a.m. The report is there for the manager to review, and robot never pulls the wrong dates or data. In short, RPA reduced a 30-minute task to three minutes. Using a bot has also improved processes for the reconciliation team. The team reconciles policyholder tax payments, and their ledger doesn’t hold details; it’s purely summary-level. “So we created a process for the bot to ensure all of the individual policyholder payments tie with the journal entry on a daily basis,” Schaus said. “And that went from four hours of a person doing all of this to a bot and a person—because the bot can’t do 100 percent of it—to one hour a day.” Finance began its RPA implementation by setting several goals, including training a single pilot robot with four processes, assessing the results of implementing RPA on a larger scale, and creating post-pilot robot implementation processes within controllership and treasury. Having now achieved all of those goals, Schaus is now focused solely on the treasury bot. “It’s gotten to the point where we’ve created an InfoPath document within SharePoint for treasury employees to put ideas of what processes could go on the robot,” she said. “As a leadership team within treasury, we meet to help prioritize those for the RPA team, as well as for the business within treasury, so they have an understanding of what process is going next and why. Now we’re just going through the list of what we’d like to implement and knocking them out, one-by-one.” Ready for RPA According to the 2019 AFP Risk Survey, underwritten by Marsh & McLennan Companies, fully 25 percent of respondents said they use RPA, artificial intelligence and blockchain in some capacity. RPA particularly shows promise in reporting, reconciling and routine data entry. However, in the same survey only a year earlier, the majority of financial professionals named RPA as a technology that could expose their companies to risk. Despite that, few respondents said they were significantly prepared to manage that risk. That’s the problem with new technology; while in theory it can improve internal processes and free up the department to do more strategic work, there are also a lot of unknowns. Moreover, unless your finance department has a mandate to reduce costs, it may be difficult to build a business case for RPA. However, it may only be a matter of time before this technology becomes mainstream in treasury and finance, as more organizations begin to understand its value. In the second part of this guide, we’ll explore artificial intelligence and machine learning and how they might reshape treasury and finance in the near future. Want to see how automation in treasury management improves cash and liquidity management? 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Driving New Value Through Liquidity Companies that want to grow need money – but even for promising projects, external sources of finance can be difficult and expensive to access. However, for many companies, there...

Driving New Value Through Liquidity Companies that want to grow need money – but even for promising projects, external sources of finance can be difficult and expensive to access. However, for many companies, there is a secret and untapped source of cash available to them: the estimated $1.1 trillion worth of liquidity trapped inside companies’ accounts and operations. The problem is one that has existed forever: how to identify and release liquidity across the company. Some organizations have turned to a treasury management system (TMS) to solve the problem, which is an excellent first step, but not nearly enough to make the biggest impact. Many advanced companies have gone further by introducing a better approach to activating and protecting liquidity that extends beyond a basic treasury management system to include payments, working capital and financial risk management. This approach has yielded increased productivity and cost savings, improved transparency and controls, and enhanced risk management. In an age of advanced analytics, some companies have started to turn the data they have gathered into actionable insights. The benefits can be sizable, closing the performance gap between median and best-in-class performance for financial working capital and freeing up around $103 million per $1 billion of revenue, or 10.3 percent of sales, in trapped liquidity.1 Lack of an Overarching Strategy The puzzling question is why traditional treasury management systems have not surfaced these benefits more widely. According to a recent IDC survey, only 1 percent of treasurers believe their companies are currently well equipped to benefit from better process centralization and autonomy, a prerequisite to enabling treasury to play a more prominent, strategic and proactive role as a business partner and adviser to the CFO.2 The benefits can be sizable, closing the performance gap between median and best-in-class performance for financial working capital and freeing up around $103 million per $1 billion of revenue, or 10.3 percent of sales, in trapped liquidity" A major factor in this underperformance is that most organizations have disjointed initiatives, and at the tactical level, the overall goals and tools are fragmented across multiple departments. Deployments ranging from treasury management to supply chain finance to foreign exchange risk management are common at many companies, but lack an overarching liquidity performance strategy. In this article, we make the case for the creation of the ‘chief liquidity officer,’ a leader who takes a strategic and holistic approach to truly activating liquidity, steering cash management and forecasting, payments, risk management, working capital and all of the levers that can affect liquidity. Based on my experience working with thousands of companies over the last 20 years, such a role would not only pay for itself simply through operational savings, but it could benefit the organization many times over through better return on investments, fewer missed earnings targets and faster growth through the additional liquidity made available. Activating Liquidity: The New Enterprise Priority Leading organizations that employ a truly integrated, holistic liquidity strategy have embraced liquidity as an enterprise priority and have invested in organizational change, digital technology and advanced analytical practices. Liquidity is dependent on many internal and external factors, such as taxation, compliance, regulatory environments, economic outlook and internal processes. To get there, CFOs and CEOs need to fundamentally rethink the role of the treasury, from custodian of historical cash activities with a point-in-time view of liquidity, to a more strategic and expansive mandate of enterprise liquidity across the full liquidity lifecycle." One of the challenges most companies face is that separate functions within the enterprise own different fragments of liquidity: treasury owns cash and investments, procurement owns suppliers and spend, and operations owns inventory. Hence, liquidity performance is simply not possible. The good news is that improving liquidity performance through process standardization, automation, streamlining and integration can generate a more than 80 percent increase in productivity, boost capital efficiencies and reduce financial risk. To get there, CFOs and CEOs need to fundamentally rethink the role of treasury, from finding a custodian of historical cash activities with a point-in-time view of liquidity, to adopting a more strategic and expansive mandate of enterprise liquidity across the full liquidity lifecycle. There are a number of fundamental challenges that need to be addressed, ranging from the need for in-house expertise to support such a mandate to the platform and data requirements needed to support decision making. This challenge requires a break-up of the traditional cash management approach and a need to expand the scope to other key components involving the mobilization, protection and growth of enterprise liquidity. A high-performing liquidity management approach relies on harmonized, centralized and automated process flows. The choice of platform must not only cover all potential sources of liquidity for the company but also provide an open, connected architecture allowing for seamless integration with upstream and downstream systems to enable effective and timely decision making. Success Stories When all this is applied, the results can be substantial. An end-to-end, active liquidity strategy allows CFOs to improve cash returns by 15 percent or more by reducing borrowing costs and/or increasing investment yields, eliminating FX-related earnings volatility, and minimizing transaction and operational costs.3 There are a number of companies whose liquidity programs have yielded impressive results. Health Care Service Corporation, a U.S. health insurance provider with $62 billion in revenue, has documented large benefits from its liquidity activation strategy, including 100 percent cash visibility across all holdings and entities, a $3.95 billion reduction in working capital requirements and a $140 million return on long-term investments.4 Brighthouse Financial, a provider of life insurance and annuity products that recently spun out of MetLife with $135 billion under management, was able to improve return on cash by $50 million per year while significantly reducing transaction costs.5 Newell Brands, a U.S.-based manufacturer of consumer goods with $16 billion in revenue, achieved near complete cash visibility across all currencies, 25 business units and 38 seperate ERP systems. The project allowed the company to reduce trading fees by $1.3 million while reducing overall systems spend across affected business lines by $120,000 per year.6 Unfortunately, all these gains can be easily reversed through unexpected foreign exchange rate movements. Businesses reported $23.39 billion in negative FX impacts in Q1 of 2019 – with an average $0.05 EPS at risk due to FX reported in North America.7 Fortunately, the increased visibility and transparency afforded by a holistic liquidity activation program allows best-in-class companies to reduce this impact to less than $0.01, often while reducing their hedging costs through natural organic offsets by more than 50 people. TechData achieved exactly that. The $25 billion wholesale distributor of technology products and services reduced hedging costs by $1.5 million annually, while at the same time reducing time spent on hedging activities by 65 percent.8 The Beginning of a New Era Modern liquidity management is intrinsic to the process of protecting and creating enterprise value. It is this value creation potential that warrants a re-definition of its role, position and investment requirements. The historical challenge of disparate ownership of key liquidity elements can be addressed by designating a single, authoritative, point of accountability in the organization: a chief liquidity officer reporting directly to the CFO, taking charge of the whole lifecycle of liquidity, focusing on the development of a holistic strategy and making informed decisions based on the company’s enterprise objectives. The era of the chief liquidity officer has arrived. References The CFO as Chief Growth Officer Enhancing Treasury Through Digital Transformation Treasury Management for Healthcare Providers How Treasury’s Data Transformation at HCSC Reduced Working Capital from $4B to $25M How a New Insurance Company Hit the Ground Running Using Kyriba Modernizing Treasury: Reducing Risk and Increasing Margins through Automation Kyriba Currency Impact Report, July 2019 FiREapps Case Study, Tech Data

The landscape of global payments is evolving as concerns of fraud and the desire for more efficient processes increase. To give insight into how treasury organizations are thinking about the future of payments, Kyriba...

The landscape of global payments is evolving as concerns of fraud and the desire for more efficient processes increase. To give insight into how treasury organizations are thinking about the future of payments, Kyriba commissioned Strategic Treasurer to survey more than 300 organizations to gain a more comprehensive view of the global payments environment.

There are likely many things keeping CFOs up at night, but it’s a good bet that global payments security and efficiency rank high on their list. In this report, senior financial leaders break down...

There are likely many things keeping CFOs up at night, but it’s a good bet that global payments security and efficiency rank high on their list. In this report, senior financial leaders break down their challenges and concerns, and discuss best practices for improving global payments.

Global connectivity is key to modern treasury management, helping bind all key functions of a treasury operation and fueling its success. In this new Treasury in Practice (TiP) Guide, underwritten by Kyriba, AFP experts...

Global connectivity is key to modern treasury management, helping bind all key functions of a treasury operation and fueling its success. In this new Treasury in Practice (TiP) Guide, underwritten by Kyriba, AFP experts explore best practices in treasury connectivity, as well as dive into emerging technologies that are essential to the future of connectivity. In this guide, you will learn: All the systems that treasury connects to, and related connectivity protocols Why treasury connectivity is so important in today’s global business landscape The role that a treasury management system (TMS) can play in enhancing connectivity, including recent bank connectivity technologies Read this guide to discover how to seamlessly connect your diverse ecosystem of banks, financial institutions, ERP systems, and other key systems. The Importance of Connectivity in Modern Corporate Treasury Connectivity is the glue that holds all of the key functions in modern corporate treasury together. Without it, there’s very little that a treasury department can accomplish. In this Treasury in Practice Guide, underwritten by Kyriba, we will examine best practices in treasury connectivity. We’ll go through the systems that treasury connects to; the different connectivity protocols; external connectivity through treasury management systems (TMS) and internal connectivity through enterprise resource planning (ERP) systems; and new technologies that are, essentially, the future of connectivity. “Treasury has different connectivity requirements,” said Bob Stark, vice president of strategy for Kyriba. “Most people immediately think of bank connectivity, which is very popular and changing with the pending adoption of application programming interfaces (APIs). But within treasury’s universe, connectivity can have different meanings.” Bank Connectivity – What to Know Bank connectivity is among the most essential for treasury teams. There are multiple facets to bank connectivity, from downloading reports, to uploading payments, to considerations around how technology is changing. “When we start talking about bank connectivity, most will think about bank formats,” Stark said. “While formats are a big part of connectivity, it’s best to start with the protocol—how you actually connect to a bank.” When connecting to banks there are many choices that treasury can choose. In North America, FTP (File Transfer Protocol) is typically the standard for domestic connections, whereas SWIFT is the most common for connectivity to international banks. While there are global protocols such as EBICS that are for specific countries, these are not often used by American companies. However, as banks begin to open up their platforms via APIs, many predict that both FTP and SWIFT connections could become obsolete, especially as banks identify opportunities to expand real-time cash management services via APIs that were not possible using protocols such as FTP. When it comes to bank formats, there are many choices, largely dictated by geography. For bank reporting, we often see BAI files in North America and MT formats internationally. Banks are starting to offer XML ISO 20022 CAMT files as an alternative to these traditional formats. Many expect XML CAMT formats to become the market standard, a position SWIFT has endorsed as it looks to replace MTxxx formats with ISO 20022. Connectivity Protocols and File Formats Given that treasury typically relies heavily on vendors for connectivity, there is often a lot of confusion around the difference between connectivity protocols (FTP, SWIFT, APIs, etc.) and file formats, which are the language of connectivity. Though confusion around this is common, it’s really not terribly complicated when it comes to bank reporting. Your bank will deliver a few different file formats; they may give you a choice, or they may not. The bank always dictates the protocol and it always dictates the file format, so when it comes to “When we start talking about bank connectivity, most will think about bank formats. While formats are a big part of connectivity, it’s best to start with the protocol— how you actually connect to a bank.” payments, you need to be sure that you can accept what is offered. “Your bank may say, ‘Here’s what you’re getting. Hope your TMS can support it.’ There may be a little collaboration, but in the end, it’s their decision,” Stark said. “So it’s important to know that there are different file formats and you want to make sure you have the flexibility to support those.” This is important for two reasons. First, you want to be sure you can actually see the file in your treasury system. And second, your ERP system needs to see it as well, and your ERP may not have the same flexibility as your TMS. For example, your ERP may only be able to accept BAI files. If so, you’ll need to be able to convert all files to BAI for the ERP. In the case of wine and spirits company Brown-Forman, its banks are moving to Secure FTP (SFTP) for bank payments and other activities, but it’s been an easy process to deal with because treasury wanted to move that way anyway, given the enhanced security. “It’s been hand-in-hand; if we were starting from scratch with them and didn’t have a legacy, they would go with SFTP,” said Robert Waddell, director of global treasury. “But since we have a legacy infrastructure in place, they made an exception to stay with what we have and we’re slowly migrating to SFTP. And from our end, we’re dealing with PCI compliance and moving credit card data, so we’ve turned on SFTP for that activity.” When we start talking about bank connectivity, most will think about bank formats. While formats are a big part of connectivity, it’s best to start with the protocol—how you actually connect to a bank.” Bank Connectivity – What to Choose To determine the most appropriate methods for bank connectivity, a good place for treasury to start is with its banking profiles. For example, if you have three domestic banks, and one is your “lead” bank, that network would likely be best managed by hostto-host connections. You probably won’t require third-party software or the use of a network like SWIFT to be able access your banks. You can connect to them through FTP or an API directly, which would allow you to download statements and upload payments without any middleware or intermediary networks. The treasury department at telecommunications giant Sprint typically uses the online portals that its banks offer. Treasury manually logs in and pulls the bank file and imports it into its treasury workstation. “Because we’re on the website for multiple reasons like initiating payments, we just go ahead and download the BAI formats that our banks offer for our workstation,” explained Howard S. Smith, CTP, treasury manager. “It’s a small enough operation. We just got in the habit of doing it this way so we don’t have to compete for IT resources. And we have an older workstation; some of the newer workstations have an easier setup in the cloud. So we’re probably on the back half when it comes to automated connectivity.” Sprint has used its treasury workstation for about a decade and is in the market for a new one, and will likely go with a Software-as-a-service (SaaS) module that is managed by a TMS vendor. And connectivity between the treasury workstation and the banks could possibly be simplified, depending on the relationship between the TMS vendor and the banks. “If the vendor already has a relationship, then it could just be a matter of signing an authorization,” Smith said. “It could be as easy as flipping a switch. Or maybe it works well with the bigger banks, but maybe with the smaller banks, you have to involve IT.” Internationally for treasury we see that the connection will be more expensive, but we are eliminating the aggregation in the U.S. as well, and net we will be saving money for our treasury connections.” Sprint’s treasury department is also looking to do more international reporting with its new system. International payments may also be possible in the future, but right now they are handled by third parties in local entities in-country and that looks unlikely to change anytime soon. “I don’t know that the system will be able to handle the payment mechanics of it,” Smith said. “There’s a lot of front-end stuff—the AP aspect of it—right now, it’s decentralized and you would have to grant them access to the treasury workstation.” For treasury departments that are changing or looking for a TMS and don’t want to disrupt their bank connectivity, Mack Makode, vice president and treasurer for sports apparel and footwear manufacturer Under Armour, recommends considering an aggregator. “The beauty of an aggregator is that if you change your treasury management system, you still have the connectivity with the banks,” he said. “An aggregator can collect all the information from the banks and pull it into a consolidated feed. You can pull that consolidated feed into your TMS and the TMS will start reporting it. An advantage of an aggregator is that if you are not happy with your TMS, you can change it, because the feed coming from that aggregator can be connected to any TMS.” Though an efficient solution, Makode has not yet observed many treasury departments using aggregators for their connectivity needs. “Usually, when treasury departments think about automating collection and consolidation of information, a TMS comes to mind,” he said. “They install a TMS and maybe that TMS has its own connectivity or its own contract with an aggregator and will get that information to them. But then they are married to that TMS and if they switch, the new TMS has to get all that connectivity done for them again.” Like Sprint, Brown-Forman also currently uses hostto-host connections. “We considered SWIFTNet, but we only have three global banks and we connect to them host-to-host through FTP,” said Waddell. “We have electronic bank statements coming in that feed our ERP system, as well as issuing the payments going out. Those are the two primary files. We have all types—BAI2 files for incoming bank statements, we have IDocs and XML versions 2 and 3, primarily for outgoing payments from our ERP. We also have payroll aggregators that connect to our banks that pass through payroll files in XML format.” However, most corporations that have large domestic and international banking relationships will typically look to an intermediary for some or all of their bank connectivity. The volume of what treasury sends and receives becomes much more important, because an intermediary such as SWIFT factors transaction volumes into its pricing. In some cases, corporates have to spend that money, because there is no other way to connect to those banks. And then from there, it’s a matter of deciding which SWIFT service best suits your needs. “Are you sending lots of wires? Are you sending mostly low-value bulk payment files? Do you have significant volume or just a couple payments here and there to a bank? What is that makeup? That will determine what the best strategy is going to be,” Stark said. “It’s complicated, but again, it’s a decision of what you need to connect to, and what you need to send and receive. Those answers will determine the choice(s) of solution.” And sometimes, choosing different bank connectivity methods can ultimately save money. The treasury department at multinational courier FedEx is in the process of moving over to SWIFT for all of its payment files. Currently, when a bank wants to send treasury an MT940 statement, it has to go through one of FedEx’s two aggregator banks. “We connect to the aggregator, and they transmit a BAI file to us and those files are structured like MT940s,” said Kyle Kremser, CTP, treasury systems and controls principal for FedEx. But now by moving to SWIFT, treasury will be able to connect to those banks around the globe and receive those statements directly. FedEx should achieve substantial cost savings with this effort. “Internationally for treasury we see that the connection will be more expensive, but we are eliminating the aggregation in the U.S. as well, and net we will be saving money for our treasury connections,” he said. This is part of a larger initiative from FedEx’s treasurer to move to SWIFT payments enterprise-wide. “We are already moving to SWIFT for the treasury payments, but we’re being challenged additionally to move everything to SWIFT, including accounts payable and reconciliation statements coming in,” said Kremser. We value data security and try to have the best options available at the time for processes. Our info security team does periodic flow-ups with vendors to ensure all connections are maintained.” 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. Security 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,” Earyes 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 SFTP also adds another layer of protection. “We value data security and try to have the best options available at the time for processes,” Kremser 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. Most people start with a spreadsheet, and 80 percent of their time usually goes into collecting and consolidating. 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.” Automation 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. Under Armour’s Makode 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.” Navient’s TMS receives multiple BAI files a day per bank to do its cash forecasting and cash position. It’s all automated through run cycles, which are critical because Navient receives hundreds of ACH payments and wires per month. Of course, no system is infallible, and if a technical issue causes a file to fail to be loaded in time, Navient’s treasury team has to handle things manually. “Of course, we have a buffer between the time we’re expecting the bank to load the file versus the time that the system will go to retrieve it,” Earyes said. “But there are times when the file isn’t there are we have to retrieve it.” Earyes noted that in the past five years, file errors per bank have decreased, even as the number of Navient’s banking relationships have increased. “This has come as a result of Navient’s growth through acquisitions—stabilizing the occurrence of manual intervention as we onboard those new bank relationships,” Earyes said. For FedEx, as it moves to its SWIFT connection, 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 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. In Brown-Forman’s case, the company 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,” he said. 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.” Still, that doesn’t mean that treasurers need to be experts in connectivity. And let’s face it; you’ve already got a lot on your plate to deal with. The more you know, the better, but ultimately, as long as you have a solid idea of what you need, it shouldn’t be too difficult to find a technology partner that can provide the right service. “You’re outsourcing this for a reason,” Stark said. “You can’t have or don’t want your IT involved and you shouldn’t want treasury staff project managing the onboarding of banks, trying to make decisions about whether XML or BAI formats are needed, or whether you should use SWIFT or an API. You want the expert to tell you what’s important.” 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,” Smith said. “So for that stuff—the ACH and check files—there is definitely enough to justify the cost.” Reliability 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. ERP Systems and Treasury Portals Almost every organization will connect their treasury system to one or more internal ERP solutions. When connecting a TMS to an ERP system, there are several important factors to consider. ERP When considering how the treasury and ERP systems should connect, treasury teams must know what information within the TMS should be synchronized with the ERP. Does accounting want to receive original bank statements and/or journal entries from bank transactions? What type of information is within the ERP that treasury can use for cash forecasting? Will the TMS be used as a payments hub to standardize ERP to bank connectivity? These are the types of questions that need to be answered to determine who is involved and how connectivity should be structured. When connecting to the ERP, you’ll be working with your IT department, as they are the ones that own the platform (or multiple platforms) that the company is using. Presuming you have established what information touchpoints between TMS and ERP are required, the next step is identifying what, if any, pre-built connectivity is available. You may find that everything you need is already there. Or you might find that connectivity does not exist yet. If it’s the latter, then you need to determine what has to be built as an interface. IT may prefer to make the connection a very simple file interchange, like an FTP. Or, they may prefer something more advanced like an API and even be willing to bear the brunt of the cost. Obviously, TMS/ERP connections can be seamless if your treasury system is actually part of the ERP, as is the case for Brown-Forman. “We use SAP’s treasury workstation and we’re an SAP global shop,” Waddell said. “We have one system globally and one system for treasury on that module. All the payments are host-tohost through SAP AP, updated through treasury and out the door via a payment file to the banks.” However, Stark added that the final piece of ERP-tobank connectivity can still remain a challenge, even if the ERP-to-TMS is easily managed. That is why many CFOs adopt payment hubs; to offer the final link of connectivity automation from ERP to bank. Makode noted that many treasury departments are still mired in manual processes when it comes to connecting to the ERP. “People try to take accounts receivable and accounts payable information, download it from the ERP system, create a spreadsheet and then create their own dashboard,” he said. “You can get a product from the market now that will connect to the ERP system and have that dashboard readily available so you can monitor your working capital very easily.” Again, automation is the key; Makode added that having the ability to quickly gather all your receivables and payables information from the ERP can simplify the process immensely. “You can pass on that information very easily to your platform or to your bank, and help them value the AR,” he said. “It’s the same thing on the AP side; you could get all that information connected automatically into a product where your banks can look at it and help you with your supply chain finance program.” Treasury Portals Maturity of the cloud has developed many new portals for treasury—for foreign exchange, cross-border payments, investments, debt covenants, and much more. SaaS platforms are easily suited to connect with each other as they natively support APIs, but also support technology that allows “reskinning” the user interface to make the systems look alike. Banks have adopted this approach for years by incorporating third-party systems into their banking portals. For treasury systems, the most important consideration is what information is being shared. For example, when managing investments, treasury teams have historically chosen to download investment data and set it up in their TMS as either transactions or summary balances. “More recently, organizations are preferring a two-way integration where they wish to make cash decisions in the TMS, digitally present that to their investment portal, and then manage the post-trade activity in their TMS,” Stark said. “There is an entire before and after experience that requires additional connectivity.” While not every organization will demand complicated integration, those that do need to know what information they want downloaded. “Do you just want balances for your account, so you can see your overall cash and liquidity? Or do you want to see actual transactions where you can actually apply some workflow, such as automating trade settlements in your TMS. What information I need will determine the best way to integrate,” Stark said. The mechanics of connectivity to third-party platforms does not need to be complicated. Sometimes that integration is already pre-built; there may be a web service between those two platforms. If not, you may be able to integrate via an FTP or an open API. You need to figure out the best option for the volume of what is being transferred back and forth. If you have significant activity and automation is a priority, investing more in that interface will drive value. If you only have trades once a day, twice a week, etc., then you probably aren’t too concerned about having a real-time API. Minimizing Internal Resources Availability of resources is incredibly important when it comes to connecting your treasury platforms. Makode noted that treasury typically has to compete for IT resources within the organization, so using a SaaS TMS can minimize your own internal resources. “If I were looking to implement any system, I’d go with a cloud-based system,” he said. Using a SaaS system can also be very cost-effective for treasury. Makode noted that SaaS TMS vendors generally should be able to leverage their experience managing the needs of multiple treasury departments. “Presumably you are not creating anything new; the expertise is there, because they’ve already gone through the connectivity for other treasuries,” he said. “They just need to replicate the connections for your corporation. Obviously, your ERP system could be different from those of their other clients. But even on the ERP side, most companies utilize well understood ERPs and your SaaS provider most likely has already made those connections. Therefore, using a SaaS TMS can be very cost-effective, as opposed to hosting your own system and having to make those connections from scratch.” APIs APIs are the future of treasury connectivity, as they offer a much more fluid interaction than FTP or financial networks can. That’s why banks that want to implement services like real-time payments are looking at doing so through APIs rather than FTP; it’s simply much more efficient. “An FTP delivers a batch file at a certain point in time rather than offering a constant refresh of information,” Stark said. “It’s very difficult to do real-time payments and real-time acknowledgements of payments over a batch driven protocol.” But for all their promises for the future, APIs are already heavily in play today as well. As Makode noted, most of the connections between different systems to the ERP are done through APIs. “APIs are the language that allows one system to talk to another and automates the transfer of information from one system to another,” he said. “That’s another thing about using a cloud-based system; these APIs have already been created. Say your system has to be connected to the ERP system; the vendor knows what API needs to be used to take the information from the ERP system. They will provide that API to your IT people, who can take that API and modify it, if it’s needed.” For treasury, APIs not only represent a quicker and more cost-effective method of integration, they also offer a transformation in the way we manage treasury information. For example, today’s cash management processes are driven by point-in-time files delivered by banks—the prior day file, the first and second presentments. APIs will offer a stream of information rather than batched bank reporting, meaning that over time, treasuries will begin to manage cash more fluidly, rather than at a single time each day. While this may be hard to grasp because “doing cash by 10 a.m.” has been ingrained within cash managers for decades, the combination of real-time information alongside globalization means that treasury is ready to become more on-demand throughout the day. API-supported connectivity can drive that. Conclusion It may not be essential for every treasury professional to have an intimate knowledge of connectivity. After all, much of treasury’s connectivity is managed by software vendors and banks. But the more you know about connectivity, the more you’ll be able to understand your needs in terms of bank statements, payments, etc. You may find that you’ve been paying for services you don’t actually need, or there are services out there that you haven’t been getting that would make your life much easier. So take the time to educate yourself on connectivity. Key Takeaways Formats are a big part of bank connectivity, but protocols are how corporates actually connect to their banks. In North America, FTP is typically the standard protocol for domestic connections, whereas SWIFT is the most common for international connectivity. To determine the most appropriate methods for bank connectivity, a good place for treasury to start is with its banking profiles. Companies with fewer banks can usually get by with host-to-host connections, while corporates with vast banking networks are better served using an intermediary. Four factors matter most for connectivity: security, automation, cost and reliability. Treasury departments need to consider all of these as early on as possible. When considering how the treasury and ERP systems should connect, treasury teams must know what information within the TMS should be synchronized with the ERP. Maturity of the cloud has developed many new portals for treasury—for foreign exchange, cross-border payments, investments, debt covenants, and much more. Availability of resources is incredibly important when it comes to connecting your treasury platforms. Treasury typically has to compete for IT resources within the organization, so using a SaaS TMS can minimize your own internal resources. APIs offer a much more fluid interaction than FTP or financial networks can. That’s why banks that want to implement services like real-time payments are looking at doing so through APIs.

Few functions are more fundamental to the corporate enterprise than treasury. Few have a longer history, either. Managing cash and liquidity, along with all attendant processes and risks, have been critical undertakings for as...

Few functions are more fundamental to the corporate enterprise than treasury. Few have a longer history, either. Managing cash and liquidity, along with all attendant processes and risks, have been critical undertakings for as long as there have been businesses. And the importance of having a good treasury function has only accelerated in recent years as business enterprises have become increasingly complex. So why do so few organizations excel at it? A new CFO Research Services survey of more than 150 senior financial executives in a wide variety of industries—conducted in collaboration with Kyriba—finds that only 8 percent say their treasury function is operating at a best-in-class level. In fact, nearly half see their treasury functions operating at an average level. That’s a problem. As professional services firm Ernst & Young noted in a recent report on treasury management systems, “Finding the right response to the right questions on the treasurer’s and CFO’s agenda can make the difference between a thriving company with a solid credit rating and an organization struggling with liquidity and credit downgrades.” The challenges to doing better are many, but the top three, cited by about a quarter of all survey respondents, are (1) the complexity of their organization’s financial structure, (2) inadequate technology for conducting effective analysis, and (3) a lack of a standardized approach to working capital management. See Figure 1. What’s interesting about those answers is that the first of those three challenges can be addressed by dealing with the second and third. It’s no surprise to anybody in the treasury function, of course, but many treasury operations still rely on spreadsheets for much of their work. They are electronic spreadsheets, to be sure, but still a tool whose paper roots trace back thousands of years. And even electronic spreadsheets remain prone to a laundry list of shortcomings, highlighted by version control issues and a broad susceptibility to errors associated with manual data entry. In fact, only six in 10 survey respondents say their organizations make use of a dedicated treasury management system, the sort of system that Ernst & Young credits with being “at the forefront of driving the automation of treasury functions.” Figure 1. CFO Listing of the Largest Challenges Working Against Effective Treasury Management Three Key Areas of Need: Risk, Cash, and Working Capital Management All this suggests that treasurers and their organizations have a vast opportunity to do better. The survey respondents are clear, too, about where CFOs see the greatest needs. By a comfortable margin, they consider risk management, cash management, and working capital management the three key areas where treasury needs to be much more strategic and do a much better job of supporting business objectives. To be even more specific, 43 percent of survey respondents say treasury needs to do a better job of supporting business objectives in the area of risk management, 40 percent in the area of cash management, and 35 percent in the area of working capital management. About a quarter also see room for improvement around payments management, liquidity management, and data visualization and reporting. Risk management—including managing liquidity risk—has been viewed with greater urgency by many organizations ever since the 2008 financial crisis, when many sources of credit dried up. Since then, new regulatory measures adopted to prevent a repeat of the crisis have added to the complexity of the treasurer’s risk management challenges. And even though the financial crisis is fading further into the rearview mirror, a study by The Global Treasurer just two years ago found 44 percent of treasurers still concerned that their risk management performance was mediocre or poor. The study added that this was particularly relevant at organizations using spreadsheets and enterprise resource planning software for risk management rather than dedicated treasury and risk management systems. To be fair, treasurers have notched some wins over the past decade. In its 2018 US Working Capital Survey, for example, the Hackett Group found that the top 1,000 U.S. companies ended 2017 with a stronger working capital position than they had at the start of the year, in part by improving their days payables outstanding. They did this despite a turbulent environment that included rising interest rates, accelerating merger and acquisition activity, and climbing prices for raw materials. Still, The Hackett Group said, those top 1,000 companies “left more than $1 trillion (in working capital) on the table and ignored a proven opportunity to increase profits by as much as 20 percent.” For CFOs, shortcomings in the treasury function have real consequences for the enterprises they help lead. Forty percent of the respondents to the latest CFO Research survey say unreliable cash visibility and forecasts are the biggest area of potential concern emanating from their treasury function as it operates today. This is because accurate and timely cash forecasts are essential to optimizing capital structures, thereby enabling better decision making for both short- and long-term needs. An additional 38 percent of CFOs cite an inability to optimize working capital management, while more than a quarter list concerns about potential payments fraud and investor expectations. In fact, 17 percent of survey respondents say their CFO would not agree that their treasury organizations are able to provide cash visibility forecasts, risk exposure data, or insights related to global compliance that are extremely effective for the stakeholders who receive them. See Figure 2. Figure 2. The Treasury Issues That Cause the CFO the Most Potential Concern A Way Forward: The Importance of Technology and Communications While most of the world’s major economies are growing—with growth particularly strong in the U.S. right now—challenges related to managing risk, cash, and working capital are not going to disappear. Among the many variables treasurers are wrestling with now, and will likely be wrestling with heading into 2019, are higher oil prices, new trade tariffs, rising interest rates, and political uncertainty. CFOs and other senior finance executives see two key ways that treasurers can help themselves and their organizations. One is by embracing technology that can help make their jobs easier and allow them to do their work with greater efficiency and deeper insight. The other is by building a better rapport with the CFO. A third of the respondents to the CFO Research survey say CFOs want to see treasurers substantially improve the technology solutions their organizations are using to match industry best practices around cash management. A quarter or more also want to see better use of technology for data visualization and reporting, payments management, working capital management, and risk management. See Figure 3. Figure 3. Most Frequently Cited Areas Where CFOs Say Treasury Must Improve… Meanwhile, when asked what one thing treasurers should do to develop a better working relationship with their CFO, 50 of the 116 survey respondents who answered focused on improving transparency and communications. Not surprisingly, it’s not that CFOs just want more face-to-face meetings with their treasurers—although some do. More commonly, survey respondents indicate that the treasurer needs to be doing a better job of communicating with the CFO in a timely fashion, bringing insights that would allow the CFO to respond more quickly and precisely to issues of critical importance—changes in the cash flow forecast, for example. All this reinforces the survey’s findings that CFOs are looking to their treasurers to implement technologies and processes that will enable more timely insight into how their enterprise is functioning in key areas like cash management, risk management, and working capital management. In fact, one survey respondent explicitly urges treasurers to embrace “more automation that raises red flags when necessary,” while another advises that they “have all their data analysis reports right before giving the CFO a report.” The bottom line is that CFOs are looking to treasurers to be a partner who doesn’t create problems for the enterprise, but rather helps to prevent them, quickly identify them when they do arise, and then solve them—protecting the organization from loss. Even more, CFOs want a partner who can help them accelerate the organization’s growth, unlocking opportunities that in the past might have been overlooked. A tall order? Perhaps. But certainly achievable. By equipping themselves and their organizations with the right tools, implementing the right processes, and keeping open the channels of communication, treasurers have ample opportunity to become the business partners CFOs want them to be. References “Treasury Management Systems Overview,” Ernst & Young, 2018. “Risk Management and Compliance: Two Growing Treasury Challenges,” The Global Treasurer, November 30, 2015. “2018 Working Capital Performance of Top US Companies,” The Hackett Group.

Maximizing the visibility of the cash surpluses and shortages in a corporate organization invariably scores highly in industry surveys of corporate treasurers’ priority objectives. Ever since the financial crisis, the efficient management of internal...

Maximizing the visibility of the cash surpluses and shortages in a corporate organization invariably scores highly in industry surveys of corporate treasurers’ priority objectives. Ever since the financial crisis, the efficient management of internal cash has been an important focus for finance management. Cash resources may be used to pay down external borrowing, and finance policy may require that some surplus cash is held in reserve and invested, rather than being recycled into the business. Efficient liquidity management is generally seen as an important measure of corporate health, enabling companies to deploy cash quickly to where it is needed, in support of corporate profitability. The key to achieving best practice liquidity management is gaining dependable and timely visibility of the company’s cash, so that it can be quickly mobilized to best effect. It is accordingly surprising that many companies report sub-optimal performance in this area, and cash visibility levels as low as 60 percent are frequently seen. This white paper describes the steps that can be taken to achieve a best practice solution in this most important treasury business process, substantially enhancing the available cash resources of the organization, and contributing to enhanced profitability and commercial effectiveness. The components that need to be implemented to deliver a complete and integrated cash visibility solution are: Bank account management Bank connectivity Cash positioning and reporting Cash forecasting The implementation of each component on its own will result in the realization of several best practice benefits – on the way to achieving optimized cash visibility for the whole corporation. Best Practice Tools and Facilities The key to achieving complete cash visibility is enjoying dependable, unbroken access to all the relevant cash flows in the organization’s financial ecosystem. This requires the roll-out of next generation treasury technology, to deliver the necessary functionality to define and control treasury processing and communications, to provide analysis and intelligence, to centrally manage consolidated treasury data, and to generate the necessary reporting. The key to achieving complete cash visibility is enjoying dependable, unbroken access to all the relevant cash flows in the organization’s financial ecosystem.” The treasury technology achieves the required connectivity with the organization’s cash management banking partners via a communication hub, to manage the import of bank balance reports, and to process wires effectively and transparently. The third facility is the provision of expert support services, to monitor system and connectivity performance, and to research and repair errors quickly and effectively. The combination of efficient SaaS technology and bank connectivity with expert and responsive service provision provides the operating environment that enables best practice – and cost effective – cash visibility to be realized in practice. Bank Account Management Best practice Bank Account Management (BAM) solutions enable the company to gain central visibility of the organization’s global network of bank accounts. It is impossible to gain visibility into account balances without first having control of the organization’s bank accounts. It is impossible to gain visibility into account balances without first having control of the organization’s bank accounts.” A best practice BAM solution is based on maintaining a central repository of information about the organization’s global network of bank accounts, including identification, type, contact information, signatories, mandate, power of attorney details, and fee and interest calculation bases. The responsibility for opening, closing and maintaining accounts may be centralized, decentralized, or shared, according to finance policy. The solution uploads BAM information from banks, and includes secured process to manage signatories. The BAM solution ensures that the database is kept up to date with information right across the organization, to produce dependable reporting that minimizes the risk that there are invisible pockets of cash and funding requirements buried in the corporate structure. It enables the company to analyze the accounts across the entire corporate network, so that the risks and costs can be accurately measured. In turn, this enables the value of each account to be determined so that accounts can be combined and redundant accounts closed, with the potential to make substantial bank fee reductions. The BAM analysis gives the company powerful and objective insight into the costs and benefits of each account, providing valuable input for negotiating improved costing and service agreements with banks. The BAM solution provides the organizational and information foundation for implementing the further components needed to optimize cash visibility, and achieve full best practice. Bank Connectivity Automated bank connectivity is an obvious requirement to achieve visibility into actual cash balances and transactions. Achieving visibility to all banks can be a daunting challenge, especially where banks are dispersed around the world. The two biggest barriers to achieving the desired automation and visibility are: Cost effectiveness Technical knowledge/access to tools Next generation treasury technology can provide solutions to both issues, with the development of lower cost methods to access bank reporting and the deployment of technology solutions to the cloud, which eliminates the need for internal IT resources to support secure bank connections. In total, there are five ways to connect to banks: Host-to-host or direct connections (e.g. FTP) Country networks (e.g. EBICS) SWIFTNet – concentrator SWIFT Alliance Lite2 SWIFTNet Service Bureau The best choice(s) completely depends on the number of banks, location of banks, number of accounts, and transaction volumes. It is invariably the case that a combination of methods is the most cost effective. Using only one of these methods for all your global banks means you are likely overpaying. In addition, monitoring of bank connectivity is often a requirement of corporate treasury teams, simply because they have neither the time nor technology resources to effectively troubleshoot bank reporting problems. Most technology providers will proactively monitor bank connectivity to fix issues ahead of time, so corporate users are unaffected. The cloud increases the efficiency of such monitoring as all clients using a specific bank are on the same treasury system, which yields valuable information about whether an issue is specific to a client or universal across all that bank’s customers. Once visibility into bank reporting is achieved, treasury teams will know how much cash they currently have, which allows them to accurately determine cash positions and reconcile against cash forecasts. Cash Positioning and Reporting The goal of cash positioning is to determine how much cash and liquidity a company expects to have by end of day in order to make effective cash management decisions – concentration, transfers, investing, borrowing, and sometimes even hedging. Cash management systems create, maintain and report the cash position, combining current bank reporting with expected transactions that are yet to occur. While there are different methodologies in EMEA vs. North America based on timing of bank reporting, the cash position is generally calculated by:     Prior day bank balances + current day bank reporting + expected payables/receivables that have not yet cleared the bank + open treasury transactions Since cash positioning is effectively forecasting cash for end of the current day, it is common that the cash position is combined with a short term forecast. Information sources may vary based on the quality of the information available, however it is common that: Prior day balances – automatically downloaded from banks first thing in the morning Current day bank reporting – also automatically downloaded from banks throughout the day Expected payables/receivables – this may come from ERP/accounting systems or may be based on spreadsheet uploads or simply treasury’s expertise Open treasury transactions – these are financial positions, such as maturities or settlements, that would be tracked in the treasury system and automatically update the cash position A best practice cash positioning solution includes flexible, user-defined interactive dashboards for the essential reporting function. Such dashboards are designed for easy use by busy cash managers, enabling them to select specific sets of cash information for reporting. They allow the user to drill down through multiple levels of the database, to research any component of a cash position efficiently. Best practice cash position reporting uses the web to communicate information and analysis as required right across the corporate network, 24/7. It is possible to extend reporting beyond treasury, to finance management, corporate subsidiaries and others, as required. Once visibility into bank reporting is achieved, treasury teams will know how much cash they currently have, which allows them to accurately determine cash positions and reconcile against cash forecasts.” The end result is the provision of enterprise wide cash visibility. Fully dependable and up to date cash reporting is made available to all the individuals who are permitted to see it, scheduled, structured and formatted according to company-specific and individuals’ requirements. The scope, precision and flexibility of the result can only be achieved through the integration of powerful technology and communications management with expert support services. Best practice 360° enterprise cash visibility brings a number of substantial enhancements to treasury operations: Management reporting can provide the Board with reliable and accurate cash position information. Cash may be confidently mobilized across the organization for funding and investment purposes Efficient cash management processes such as pooling, sweeping, concentration and intercompany borrowing and lending are enabled Interest income and expense are optimized by accurate borrowing and lending operations, as cash managers can refine their decisions on yield, maturity and counterparty External borrowing may be reduced through the most effective use of the revealed internal cash resources, further reducing interest expense, and also enhancing the organization’s credit worthiness Cash Forecasting The final element of a best practice cash visibility solution for corporate treasury is the optimization of cash forecasting. A good cash forecast will be accurate and allow confident decision making, empowering treasury to take a more strategic view of longer term liquidity, as an aid to better decision taking. Successful forecasting is based on three key steps: Collaboration – with the right people who own data and process in the organization Consolidation – of the right information within the organization Measurement – analyzing forecast accuracy and implementing a feedback loop so that forecast inputs can be optimized Collaboration is important as key data points needed to estimate future cash flows are owned by different teams. Accounting, FP&A, legal, sales, and supplier/customer teams all own information that can help. Consolidation requires deciding upon – and then aggregating – the right data sources for your business. For some organizations, projecting receivables from the ERP offers no value – and using historical averaging and trending is more applicable. For others, extending forecasting tools to regional controllers is the best way to gain insight into upcoming cash events. The specific methods depend on a variety of factors, much of which are industry-based. Regardless of the organizational profile, once information sources are identified then it is a matter of implementing technology tools to automate the consolidation of forecast information. Treasury technology providers will not only provide the tools, but also find the best methods to utilize those tools to generate a good cash forecast across different time horizons. A good cash forecast is only as good as how well it is measured. Forecast accuracy is a relevant KPI to measure the effectiveness of treasury teams, as it is indicative of how confident the organization can be relying on that data. While every treasury team should measure forecast accuracy, the detailed variances are important to help improve the underlying forecast data that led to the variances in the first place. Creating a feedback loop to the people/systems that delivered forecast information will help improve the quality and accuracy of the information being provided. Over time, the forecast will improve and become a strategic data set that can be relied upon. Best practice cash forecasting adds strategic vision to treasury’s abilities, enhancing the quality of management reporting that can be delivered. This enables organizations to optimize the planning of their borrowing and lending operations; for example the action to be taken in response to a maturing bond issue can be decided against longer term projections of cash needs and surpluses. Refinancing can therefore become more precise and cost effective. Best Practice Cash Visibility Cash visibility is consolidating key treasury data and presenting as organized, financial analysis. The implementation of each of the components of a best practice solution – bank connectivity, cash positioning cash forecasting, and bank account management – will yield measurable and significant business benefits. A comprehensive cash visibility solution will enable the organization to invest strategically, minimize debt and interest expenses, improve effectiveness of hedging programs, and reduce risk exposure. Organizations implementing treasury technology to optimize visibility will increase business value. Want to learn more about how to achieve cash visibility for better cash forecasting? Check out this webinar to hear Kelkoo Group, a leading e-commerce company, shares their best practices and the payoffs of superior cash forecasting.

Global Business Intelligence (GBI), a global research and advisory firm, conducted more than 30 interviews with corporate treasurers who have implemented various early pay programs or are thinking about implementing various programs to provide...

Global Business Intelligence (GBI), a global research and advisory firm, conducted more than 30 interviews with corporate treasurers who have implemented various early pay programs or are thinking about implementing various programs to provide deeper content than press release-type information. This corporate guide is designed to help finance, procurement, treasury and supply chain professionals evaluate the latest trends, issues and perspectives that are impacting buyer-led early pay techniques.

It’s been a long time since CFOs moved beyond financial reporting and accounting and added “strategic business partner to the board of directors” to their list of responsibilities. Nonetheless, a new survey from CFO...

It’s been a long time since CFOs moved beyond financial reporting and accounting and added “strategic business partner to the board of directors” to their list of responsibilities. Nonetheless, a new survey from CFO Research, in collaboration with Kyriba, finds that CFOs aren’t always delivering the information and decision support that boards want as they seek to manage corporate risks. The survey identifies six key areas, led by fraud monitoring and mitigation, where CFOs need to communicate more effectively, and act more decisively, in helping boards protect shareholder value. (See Figure 1). To do that, the survey suggests, CFOs need not only the right training and instincts but also the right technology. FIGURE 1: Six Key Areas Where CFOs Aren’t Giving Boards Everything They Need The top areas where Boards most often fail to receive critical information and decision-support data from the CFO The Board/CFO Relationship The relationship between the CFO and the board of directors must support the board’s mandate to protect shareholder value. The good news? Ninety-four percent of the 167 U.S. senior finance executives surveyed by CFO Research—at companies with revenues between $100 million and $5 billion, across a range of industries—say CFOs are perceived by their boards as critical, strategic business partners. According to those surveyed, the most important areas where a strategic CFO can deliver value to the board and the CEO are: Managing business planning and continuity (cited by 52 percent of the survey respondents) Managing financial risk to prevent loss (51 percent) Reducing costs and improving margins (43 percent) Helping unlock working capital to spur growth (37 percent) Ensuring regulatory compliance (30 percent) What Boards Need From the CFO To some extent, then, CFOs serve the board’s interest merely by doing their jobs. But boards also depend on CFOs for critical information and decision-support. Although CFO insights and advice are sometimes funneled through the CEO, most directors today—especially those on the audit committee—expect to have a close, direct working relationship with the CFO as well. According to the finance executives polled by CFO Research, the areas where it is most important for boards to receive information and decision-support from the CFO are budgeting and forecasting, strategic decision-making, and cost control and reduction. (See Figure 2). FIGURE 2: Where Boards Want Help from the CFO The top areas where it is most important for Boards to receive critical information and decision-support data from the CFO The Six Areas Where Boards Aren't Getting What They Want—and Why The survey found that a substantial percentage of board members appear to not be getting the information and insights they need from their CFOs (See Figure 1). And the areas of shortfall are mission-critical, led by fraud monitoring and mitigation, which was cited by nearly half—43 percent—of the finance executives surveyed. Rounding out the Top Six list were performance risk management, strategic and operational risk management, growth strategy support, controlling and reducing costs, and strategic decision-making. After decades of investing in finance, treasury, and risk management systems, why are some CFOs still not able to meet their board’s expectations for information and insights? The most commonly cited factor is a suboptimal organizational structure in which different corporation functions and business units are walled off from each other in their own silos, a hindrance cited by one in every two survey respondents. Other major contributors include a corporate culture that does not promote or facilitate a better relationship between the CFO and the board (41 percent), a lack of time on the CFO’s part (30 percent), straightforward communications issues (29 percent), and, finally, the composition of the board itself, cited by 27 percent of respondents. The Role of Technology To their credit, CFOs seem to have gotten the message that they need to do better. A whopping 94 percent of the survey respondents say their CFO is seeking better ways, and better technologies, to meet demands from the boardroom and the CEO. On the technology front, finance executives say, the specific areas where CFOs need better tools to help boards make better decisions are, in order of respondent popularity, fraud risk, compliance risk, performance risk, and regulatory risk. Fraud risk is high on boardroom agendas in large part because it remains a stubborn and growing problem. Although many companies have embraced a broad range of fraud-fighting tools and strategies, including user authentication processes, expanded use of electronic payments rather than more vulnerable paper checks, and daily reconciliations, the incidence of fraud shows no signs of slowing down. Indeed, in the latest CFO Research survey, 40 percent of finance executives say their industries are experiencing higher rates of payments fraud than they did two years ago. Similarly, the 2017 AFP Payments Fraud and Control Survey conducted by the Association for Financial Professionals found that 74 percent of organizations had experienced attempted or actual payments fraud in 2016, up from 62 percent in 2014 and the highest level of payments fraud the AFP has recorded since it began tracking the problem in 2006. Given that a big part of corporate treasury’s role is safeguarding corporate cash, it’s not surprising that this focus on payments fraud interests the board. The treasury functions most important to boards, the CFO Research survey found, are cash and liquidity management and forecasting (cited by 66 percent of the survey respondents); risk management, as it relates to all risks (cited by 46 percent); and financial transactions, including debt, investment and foreign exchange (46 percent). Providing information directly from the systems, without the opportunity for teams to ‘Clean it up,’ is critical." Moving from Theory to Practice The finance executives polled by CFO Research say that apart from acquiring better technology, CFOs can take additional measures to make that technology, and the insights it can help provide, more useful to corporate directors and CEOs. For starters, says one finance leader, CFOs should establish a consistent way of providing information to boards so that board members aren’t continually forced to learn new ways of seeing things. “Put together a standardized set of metrics and formats of financial data that you share with the board of directors at every meeting,” this executive suggests. “Don’t make them try to understand new formats all the time.” CFOs also can hone their own listening skills. “Learn what matters to them (directors) by listening first, and then tailoring the message accordingly,” one survey respondent writes. Along those same lines, another encourages CFOs to have an “honest give-and-take with (directors) on what current technology can provide, versus what information is desired by the board of directors.” All that said, another finance leader cautions CFOs against falling into the trap of “prettying up” reports to the extent that boards don’t get the full story that data has to tell them—even if that story isn’t always upbeat. “Find ways to eliminate manipulation and prettying up of reports,” this executive says. “Providing information directly from the systems, without the opportunity for teams to ‘clean it up,’ is critical.” Notwithstanding these comments, CFOs should continue to look for ways to improve how they present data to the CEO and the board. There’s a big difference between “cleaning up” data so that the bad news is hidden—no CEO or corporate director wants to be surprised when that bad news inevitably surfaces—and presenting data in a clear, easy-to-follow, and, ideally, interactive, format. That’s becoming all the more important now that big data and advanced data analytics create the potential for decision-makers to be inundated with information. For CFOs or those laboring under them, being a whiz with spreadsheet or presentation software may not be enough to make all that data understandable. Fortunately, new data visualization and business intelligence tools are coming to market all the time that can help make data-driven insights more readily understandable and defensible. These tools can be invaluable for CFOs looking to provide guidance to corporate directors. For CFOs or those laboring under them, being a whiz with spreadsheet or presentation software may not be enough to make all that data understandable." In all of these efforts, CFOs can further their cause by working with other business leaders in their companies to break down silos and promote faster and more complete sharing of information across the enterprise. As Big Four accounting and consulting firm Ernst & Young put it in its 2016 study, “The DNA of the CFO,” “a bold technology strategy for the finance function should include systems and tools that enable disparate teams to share information and make connected, data-driven decisions.” CFOs also can push for the adoption of technologies that can automate many of the standardized processes and procedures employed in the finance organization—and in those parts of the business that interact with it—to free up more time for the CFO and his or her staff to spend on strategic initiatives. As EY noted, CFOs and their finance teams “will only be able to focus on higher value tasks, such as analytics and forecasting, if the technology is in place both to take care of transactional processes and to provide the data needed for the generation of strategic insight.” As for that finding that 27 percent of finance executives say the makeup of the board can impede the CFOs ability to get critical information and insights to directors? In an article last year examining the relationships between CFOs, CEOs, and boards of directors, Jenna Fisher and Clare Metcalf, senior executives at executive search firm Russell Reynolds Associates, advise CFOs to get to know their directors on their boards and to be empathetic to the pressures they face. Understanding directors’ individual personalities and preferences, they write, will make it easier to deliver information to them in a clear, concise manner. Here, too, there’s plenty of work to do. In a recent survey of 100 CFOs, Russell Reynolds found that only 34 percent rated their relationship with their board as very strong. That same survey also revealed that CFOs were unlikely to have a strong relationship with their board if they didn’t already have a strong relationship with their CEO, the chair or lead director of the board, or the chair of the board’s audit committee—thereby reinforcing the importance of relationship-building. Conclusion CFOs have long battled for a seat at the strategy table. Today, most have made it there; 94 percent of finance executives surveyed by CFO Research say finance chiefs are perceived by their boards as critical, strategic business partners. CFOs jeopardize their ability to impact the enterprise, though, when they fail to deliver the insights and advice that CEOs and corporate board members need to make decisions. Right now, surveyed finance executives contend, many CFOs are indeed failing to deliver critical information and decision-support data to boards in six key areas, headlined by fraud monitoring and mitigation, which is cited by 43 percent of the executives polled. Nearly a third also say CFOs aren’t providing the same valuable support on performance risk management, or on strategic or operational risk management. And one in four say CFOs aren’t delivering on growth strategy support, cost control and reduction, and strategic decision-making. The surveyed finance executives, along with other recent research, suggest there is a clear way forward for CFOs who want to do better. CFOs must work to break down functional and operational silos that impede the sharing of information across the enterprise. They must embrace technological innovations, including fraud detection and monitoring systems, that automate standardized processes and procedures and allow them to spend more time on higher-value, strategic activities. Finally, where personalities appear to be getting in the way of progress, they must spend time getting to know the people who serve on their boards, understanding the pressures they are dealing with, and looking for ways to forge more productive relationships. CFOs who do all this don’t just have a seat at the strategy table, they cement their position as one of its most valuable constituents.

It seems counterintuitive. Even as businesses spend more time and money than ever combatting payments fraud, the crime itself becomes more ubiquitous. In a new study by CFO Research, 40 percent of senior finance...

It seems counterintuitive. Even as businesses spend more time and money than ever combatting payments fraud, the crime itself becomes more ubiquitous. In a new study by CFO Research, 40 percent of senior finance executives report that organizations in their industries are experiencing a much higher incidence of payments fraud than they did two years ago. Payments fraud is any fraud that involves falsely creating or diverting payments. Check fraud, credit card fraud, access fraud, and “spear-phishing” are common varieties seen by CFOs. Some finance chiefs report that the risk associated with payments fraud now approaches the materiality of foreign exchange risk and other high-value uncertainties. Indeed, beyond the sometimes substantial hard-dollar costs, payments fraud can result in lower productivity among employees tasked with dealing with the fallout, adverse customer experiences, the actual loss of customers, a stained corporate reputation, and, for publicly traded companies, losses in stock market valuation. For CFOs charged with safeguarding corporate coffers, there is no silver bullet that can stop payments fraud in its tracks. Managing and minimizing the problem is a discipline unto itself. Done well, it is a holistic, proactive undertaking that combines best-practice processes with dedicated detection and monitoring programs built on the latest advanced technologies. Done well, it also allows CFOs to do a better job of keeping corporate directors apprised of the risks their companies face in this area, and the safeguards in place to mitigate them. Figure 1. The Biggest Challenges My Finance Team Faces in Trying to Combat Payments Fraud Identifying—and Resolving—The Challenges to Success The biggest challenge that CFOs face in combatting payments fraud is finding and implementing the right technology. Technology was cited as a key challenge by nearly one-in-two (45 percent) of survey respondents in the recent CFO Research survey. Conducted in collaboration with Kyriba, the survey polled 167 U.S. finance executives at companies with more than $100 million in annual revenues across a wide range of industries. (See Figure 1). Other commonly cited obstacles include securing the budget for anti-fraud initiatives (38 percent), and finding the time to pursue them (37 percent). Rounding out the top five challenges, finance executives say it’s a challenge to assemble a team with the skill sets (29 percent) and knowledge base (25 percent) needed to fight payments fraud effectively. And, anecdotally, some respondents also suggest that companies aren’t doing enough on the front lines to fight fraud. “Work with the clerks and managers that are likely to be the first people to be contacted or become aware of a fraud attempt,” one survey respondent advises. “They can stop attempts before they get to the payment phase.” Another finance executive suggests it is simply time to buckle down to the task at hand and do a better job of it. “Set aside sufficient budget, do the proper research, then employ the right specialists to get this in place,” the respondent admonishes. “Invest in strong technology and air-tight workflow,” writes another. “Allocate the people and resources to combat and reduce fraud—(the) benefits fall to the bottom line,” writes still another. Report from the Front: Fraud Is on the Rise Payments fraud is on the rise. Four in ten (40 percent) of survey respondents say organizations in their industries are experiencing a much higher incidence of payments fraud than they did just two years ago. Another 15 percent say they can’t confirm or rebut the idea, leaving open the possibility that increases in payments fraud are broader still. These findings are directionally consistent with other studies, including the 2017 AFP Payments Fraud and Control Survey conducted by the Association for Financial Professionals. It found that 74 percent of organizations had experienced attempted or actual payments fraud in 2016, up from 62 percent in 2014 and the highest level recorded since the AFP began tracking the problem in 2006. Contrary to what one might expect, it isn’t always smaller, less sophisticated enterprises that are being impacted by payments fraud. In 2016, the AFP survey found, organizations with at least $1 billion in annual revenue were actually more likely than their smaller counterparts to have been hit by the crime. And while the majority of the respondents to that survey reported that their company’s direct payments-fraud losses were relatively small—less than $100,000—32 percent of financial professionals at companies with at least $1 billion in revenue and more than 100 payment accounts reported losses exceeding $500,000. Within that group, 16 percent said their losses exceeded $2 million. The reason behind the growing incidence of payments fraud isn’t hard to fathom. Throughout history, criminals have demonstrated a remarkable dedication to trying to outsmart their victims, and the advent of new technologies such as social media and mobile shopping and mobile banking have simply widened the field of opportunity. While check fraud remains the most common type of payments fraud, for example, criminals today are increasingly exploiting the digital technologies that make it faster and easier for companies and consumers to interact with each other. Last June, the Federal Bureau of Investigation felt compelled to issue an alert warning about the growing problem of “business email compromise,” in which fraudsters target businesses working with foreign suppliers, or businesses that regularly make wire transfer payments. The relentless enthusiasm exhibited by criminals searching for new ways to defraud businesses means that businesses must combat their efforts with equally relentless countermeasures. Elevating Payments Fraud Detection to a First-Order Priority Only 10 percent of the executives in the CFO Research survey feel strongly that most finance teams in their industry have strong processes and technologies in place to capably and efficiently detect fraud or ensure fraud-related compliance. It is a weak endorsement of current strategies for managing payments fraud. And where companies do seek to battle back, the tactics they use often are aimed at historical threats rather than evolving fraud strategies. Asked which are the most important tactics used by their companies, 45 percent of survey respondents cite auditing (audit trails). That’s followed by expanded use of electronic payments (41 percent) and daily reconciliations (35 percent). All three are valuable tools, to be sure. By contrast, consider that only about one-third of survey respondents (34 percent) say they employ dedicated fraud detection and monitoring systems that can proactively ferret out fraud attempts. The CFO too often appears to be checking the rear-view mirror instead of scanning the road ahead for trouble. Many finance executives also admit that they need to be doing more to support their boards of directors in this area. Asked where their boards most often fail to receive critical information and decision-support data from the CFO, 43 percent list fraud monitoring and mitigation—more than any other area. Thirty-seven percent also say their organizations lack the tools or technology to enable the board to make good decisions on this issue. Figure 2. Tactics for Managing Payments Fraud That My Finance Team Should Substantially Improve The Way Forward: Fraud Detection Where to begin? Dedicated fraud detection and monitoring systems top that list of tactics that the finance team should substantially improve. Cited by 36 percent of survey respondents, fraud detection and monitoring handily outpaces other tools and practices that include limiting the use of paper payments (26 percent), automated approval workflows (24 percent), audit trails (22 percent) and daily reconciliations (22 percent). (See Figure 2). Several survey respondents noted that the ever-shifting and expanding payments-fraud landscape is sufficiently daunting that they advise turning over the work—particularly fraud detection and monitoring activities—to third-party providers for whom it is a core capability. As one survey respondent puts it, “Outsource much of the fraud function to companies that have strong controls. Third parties may be better at this than your team.” Ten Best Practices for Combatting Payments Fraud Understand your vulnerabilities. With so many types of payments fraud, it’s impossible to do a good job of combatting them without understanding what they are. Examples include external threats such as hacking of treasury systems by third parties, as well as a raft of internal threats. The latter include fraudulent payments sent by employees to a company’s bank, either willfully or as an unknowing consequence of a spear-phishing attack; and fraudulent purchase orders and invoices created by employees that are then paid out to related third parties. Erect roadblocks to unauthorized access to corporate information systems. Deploy robust login and user authentication procedures, including dual-factor and in some cases multi-factor authentication. Move finance data to the cloud. While data security has long been cited as a reason for not moving data to the cloud, the growing consensus today is that cloud providers, for whom security is a core competency, offer greater, not weaker, security systems and protocols than most companies can deliver on their own. Because a significant percentage of payments fraud originates internally, moving corporate finance data to the cloud can reduce the opportunity for it to occur. Boost control over global bank accounts. Maintaining a handle on bank accounts becomes more difficult as companies grow and expand globally, but it’s a task that can’t be ignored. Companies need to make sure they have systems that can provide transparency into accounts, authorized signers and account documentation; track all bank activity; and efficiently reconcile accounts with banking partners. Make use of digital signatures. All commerce and banking today is electronic at some point in the payments cycle. Digital signatures, which can help authenticate transmitted payment files, can minimize opportunities for payments fraud. Centralize payments activity in a single system. Coupled with multiple, standardized and electronic approvals, an integrated payments system allows for a complete and detailed electronic paper trail for all payments, minimizing opportunities for fraud. Standardize settlement instructions for financial trades. For any kind of investment transaction, including foreign exchange and derivatives transactions, embedding standardized settlement instructions in corporate financial systems can not only improve efficiency but also help block any redirection of funds to unauthorized accounts. Educate employees. Even the best anti-fraud program will spot fraud only after it’s occurred. That’s still extraordinarily valuable, especially when the system is able to spot the fraud quickly. But one of the best ways to prevent payments fraud is to educate employees about the various types of fraudulent schemes they may encounter, so that they can avoid being duped by them and prevent fraud from occurring in the first place. Update and test your fraud-detection capabilities. Corporations should review their payments-fraud detection/monitoring systems and protocols to make sure they’re working. Some companies may have the resources to do this internally, but many will find it makes sense to engage a third-party expert to both create defense systems and to test them regularly. Regularly participate in opportunities to share with and learn from other organizations. Few “industries” adapt and evolve faster than the payments-fraud industry. A company can no more allow its fraud detection and prevention program to remain static than it could allow its products or services to remain unchanged. Companies should make sure the finance function, and any others that touch on the payments process, participate in conferences and workshops where they can share with and learn from other organizations combatting the same challenges. Conclusion Focusing on the five core challenges to addressing payments fraud is a strong way to get started. Technology, Budget, Time, Skills, and Knowledge are all critical components to developing and implementing an effective strategy. The sidebar, “Ten Best Practices for Combatting Payments Fraud” adds some tactical specificity to the CFO’s search for an answer to payments fraud. No matter which route CFOs take, it’s clear that getting going sooner rather than later makes sense—especially if they count their own organizations among those that are only modestly effective at managing payments-fraud risk today. CFOs increasingly feel that fraud detection and monitoring must become one of their core responsibilities, because it is the only chance they have of staying at least even with an evolving threat. And that threat is not only about the money; it is about the customer, and the brand, and the business. “You need to start already,” concludes one survey respondent. “The criminals are adapting faster than we are.” You Need to Start Already. The Criminals Are Adapting Faster Than We Are.” Check out this on-demand webinar and learn from cybersecurity experts from Corelight and Kyriba on how to build B2B payment fraud defense programs to maximize end-to-end protection.

While many treasurers hope they are well prepared to prevent fraud from occurring, every successful fraud attempt exposes weak controls and detection methods that serve as a learning opportunity for others. This guide offers...

While many treasurers hope they are well prepared to prevent fraud from occurring, every successful fraud attempt exposes weak controls and detection methods that serve as a learning opportunity for others. This guide offers excellent insight into the magnitude of fraud threats, ranging from internal collaborative attempts to external hacks and ransomware schemes.

Corporate fraud is at an all-time high -- is your organization protected? One of the mandates of the modern CFO is to make sure they have secure, end-to-end financial controls in place to prevent...

Corporate fraud is at an all-time high -- is your organization protected? One of the mandates of the modern CFO is to make sure they have secure, end-to-end financial controls in place to prevent both internal and external fraud and protect against loss.

The FinTech revolution is upon us and emerging technologies are already having an impact on corporate treasury and treasury technology. See how AFP's latest Treasury in Practice (TIP) guide highlights the treasury potential of...

The FinTech revolution is upon us and emerging technologies are already having an impact on corporate treasury and treasury technology. See how AFP's latest Treasury in Practice (TIP) guide highlights the treasury potential of distributed ledger technology, machine learning, APIs. (FP TiP Guide underwritten by Kyriba)

A cash forecast is only as good as its source data. This seemingly simple statement underlies a reality that pervades the treasurer’s office in multinational and domestic corporations: reliable cash forecasting, even in the...

A cash forecast is only as good as its source data. This seemingly simple statement underlies a reality that pervades the treasurer’s office in multinational and domestic corporations: reliable cash forecasting, even in the short term, has proved to be extremely difficult to achieve in practice. Securing accurate cash forecasting always scores highly in surveys of corporate treasurers’ priorities, but very few working treasurers claim to attain the high levels of cash visibility and usage that will be achieved when a truly effective short-term forecasting solution is in place. This unsatisfactory situation originates from several sources: The inability to monitor and manage the complete cash management process The use of flawed forecasting models The use of outdated technology that lacks the necessary levels of control and visibility The lack of understanding as to where to source the data required for an accurate cash forecast This research focuses on short-term cash forecasting, which for practical purposes in most corporations projects the future cash position over a two- to three-month term. We will consider: The benefits of effective cash forecasting The challenge of achieving an accurate cash forecast Outdated forecasting models How traditional solutions fail in the challenge How to achieve cash forecasting nirvana Corporate treasurers must not minimize the importance of cash forecasting. A company’s financial health strongly depends on the treasurer’s ability to foresee cash needs as tied to the company’s current monetary availabilities and projected inflows and outflows.” —Enrico Camerinelli, Strategic Advisor at Aite Group The Benefits of Accurate Cash Forecasting Truly effective cash forecasting enables treasurers to achieve a range of best practice results that are simply not possible in sub-optimal forecasting environments, based on flawed models and inadequate technology and service provision. A complete short-term forecasting solution can enable treasurers to achieve a range of valuable benefits that will increase the quality of treasury operations. Liability Management As liquidity is made fully visible, treasurers may use surpluses to pay down expensive external debt. A fully integrated liquidity management program increases the visibility to cash balances and cash flow trends throughout the organization, enabling corporate treasury to mobilize and consolidate intercompany cash positions. Through higher consolidation of cash at the corporate or regional level, treasury can utilize these funds to pay down external debt, thus reducing interest expense. As a result, Treasury is able to borrow at more favorable terms, thereby lower interest expense and enabling credit status enhancement. Liquidity Management Surplus internal liquidity may also be put to work productively by providing low cost finance for investment in commercial development and other strategic initiatives. There are a number of ways in which cash resources of the organization revealed by best practice forecasting can be put to use to provide superior results. These include low cost internal funding, consolidation into a notional pool or physical sweeping in a zero-balancing arrangement. An accurate forecast enables treasury to consolidate and invest surplus cash with the required maturity profile to meet forecasted future needs. It also enables the amounts needed to service known future cash outflows to be retained. Treasuries benefit through the combination of maximized interest income and minimized interest expense, as determined by the evolution of the net cash position. FX Exposure Management Forecasting can additionally identify upcoming foreign exchange exposures, so that treasury can plan and execute effective hedging operations to mitigate the risk. A cash flow hedge program typically involves a separate forecast process mandated to the global business units. However, integrating applicable currency exposures such as intercompany sales into the cash flow forecast process, can both improve treasury efficiencies and reduce duplicative efforts from the global subsidiaries. Saving Bank Overdraft Costs In an environment where most or all liquidity needs are accurately forecasted, the need to use overdraft facilities is sharply reduced or eliminated, achieving significant reductions in bank fees and interest charges. Eliminating “Idle Cash” A reliable forecast has the ability to mobilize ‘trapped’ or ‘hidden’ cash. This consists of current and projected cash surpluses that are being held around the corporate infrastructure for a variety of reasons such as the future cash utilization needs of the individual corporate entities in question or legal / tax planning reasons. The interest management of the entire organization benefits from this enhanced efficiency, which is directly attributable to enhanced cash forecasting. Understanding the Future An accurate cash forecast provides treasurers with a dependable and complete view of the evolution of the organization’s capital position and planning into the future. Essentially, this enables the cash managers to see the known inflows and outflows of cash that are committed to happen over the forecast period, so they can plan and execute the most effective capital allocation. The timeframe for this analysis can vary from week(s) to year(s) out into the future; in this discussion, the focus is on achieving precision in the short-term forecast. Best practices as to the forecast timeframe is variable, based on each organization’s needs and business patterns. The Challenges of Accurate Cash Forecasts In practice, generating a reliable enterprise-wide short-term cash forecast has proved to be an elusive issue for treasurers globally. The benefits of doing so are well known, but there are multiple obstacles and challenges to doing so successfully. The issues include using up-to-date and precise information, managing change effectively, working with errors and omissions and managing the workload effectively according to the demands of the corporate organization. Up-To-Date Information Is Essential The first and most profound challenge is that of ensuring that the forecast is being generated using accurate and up-to-date financial information, so that it reflects the true capital position of the organization. Essentially, a short-term forecast is composed by consolidating all the organization’s bank account balances with payables, receivables, payments and collections, and with th maturity schedule of treasury transactions – such as loans, deposits, bond issuance, commercial paper issuance and investment and money market fund investments, which are recorded in the treasury management system database. The difficulty that confronts treasurers in practice is that traditional treasury processes and technology are disparate in nature, thus introducing accuracy risk to the cash flow forecast. For example, traditional treasury management systems do not have embedded or integral end-to-end payments management functionality; consequently the forecast cannot accurately reflect the actual events as they are unfolding, and so cash management decisions will be based on unreliable data. Similarly, the bank balance and transaction reports that comprise the basis of the position must be dependably gathered, reconciled and consolidated. If there are unresolved issues with the bank position, these will inevitably lead to uncertainties and inaccuracies with the forecast. These issues lead to potentially expensive errors, when cash is moved based on inaccurate information, and through the effects of the consequent false assumptions. The Challenge of Change In reality, events that impact the cash forecast are happening continually within corporations’ financial ecosystems. Business activity is occurring, in new purchases, sales and expenses. New invoices are being issued and received. Receivables arrive in bank accounts. Direct debits are actioned. Payments are transferred out of bank accounts, and continue their progress to the beneficiary’s bank account – usually out of the sight of the originating treasury or payment management system. Treasury is executing debt, investment and hedging transactions. An accurate forecast must be updated promptly with all significant data. If the model in use embeds any significant approximation or estimate, the forecast process falls short – perhaps significantly short – of best practice cash management. Managing Errors and Omissions It is essential that errors and omissions within bank account statements and payment processes are detected promptly and are effectively resolved. – and this presents a complex and demanding set of operational challenges for the team managing the exercise, especially if necessary levels of visibility and process control are lacking. Precision Is Essential The most effective cash management requires the highest level of accuracy with source information, to achieve optimal cash movements, investments and borrowings. Without this precision, treasury needs to spend precious time validating their data, and performing the research required to quantify any necessary adjustments. Timely and consistent variance analysis is an important component of an effective cash flow forecast process. Validating actual cash flows is a critical step in improving the accuracy of future cash flow forecasts. An Uncertain Workload Forecasting can – and often does – provide a heavy and unpredictable workload for treasury departments, which are generally lean operations. Forecasting may require extensive research and manual effort. The most effective cash management can only be performed based on accurate forecast information, so that cash movements, investments and borrowings can be accurately performed. The forecasting solution must meet the challenge of managing the necessary data, on time and with complete precision, so that the subsequent cash management operations can be properly executed. Accommodating the Corporate Organization A final forecasting challenge is meeting the specific policy demands and organization structure of the parent institution. The corporate organization must be accurately reflected in the forecast structure. This approach ensures intercompany cash positions are accurately forecasted and future intercompany cash flow decisions are compliant with both corporate tax and legal requirements. The solution in a specific corporate treasury depends on the centralization level, the nature of the business in terms of commercial function and geographic distribution, and other analytical dimensions that may be required by finance policy. Automating the cash forecast can be challenging on several fronts. When using available payables and receivables data for cash forecasting purposes, certain adjustments have to be made, which are typically manual: for example - due dates on invoices don’t necessarily align with actual cash flow dates. If certain customers, for example, pay on a certain date of the week/month, adjustments have to be made to capture the actual value of the cash receipts.” —Frederik Westerling, VP of Treasury at Veolia Water Technologies & Solutions Outdated Forecasting Models Treasury cannot achieve best practice cash management results if it is working with the outdated and flawed forecasting techniques that are still in use in many regions. An organization’s short-term cash forecast construction model may be flawed if it attempts to integrate imprecise budgetary and financial planning techniques with actual treasury cash flow information. A budgetary, or indirect cash flow forecast methodology, will often yield inaccurate short-term forecast results, thereby reducing the treasurers’ ability to effectively manage short-term liquidity. This difficulty originates from a lack of clarity about the difference between a budget type of forecast (indirect method) and a treasurer’s short-term cash forecast (direct method). Budget-based forecasts combine hard information derived from bank balances, cash flows and accounts payable and receivable with less precise FP&A (financial planning and analysis) data originating from budgeting and long-term planning exercises. Such forecasting solutions are constructed for strategic planning purposes, and do not contain the timing details required for treasurers to effectively manage short-term liquidity. Some treasuries use statistical treatments to try to make sense of the FP&A data they are receiving by analyzing it against history. Adopting a statistical approach effectively means that the essential need to predict the short-term liquidity outlook is not being effectively met by the methods in use, and so statistics are used as a type of Band-Aid to try to to find a closer approximation to actual reality. This is important from a strategic perspective, but may be less than ideal for immediate short-term cash management purposes. Such hybrid forecasting inevitably leads to unsatisfactory results, as the construction process is not rigorous or fully controlled. Hence, many treasurers report low levels of satisfaction with the projections they are receiving through inconsistent methodology, when it is precision that they need to achieve best practice cash management results. FP&A and budgetary forecasting are valuable tools for strategic finance analysis and planning, for medium-term (beyond three months) and perhaps long-term purposes. Treasurers can play a strategic advisory role however, by comparing their comprehensive short-term forecast against the FP&A and budgetary plan. Treasury’s ability to compare the current quarter cash flow projections versus the original FP&A and budgetary plan can serve as an invaluable perspective to the CFO and executive management. For the short term, payables and receivables data that is available should reflect closely what the actual collections and disbursements will be, but for the medium or longer term, the completeness of this data diminishes, and manual adjustments should be incorporated to create a more complete forecast.” —Frederik Westerling, VP of Treasury at Veolia Water Technologies & Solutions How Traditional Solutions Fail the Challenge Virtually all treasury management technology includes a forecasting module. However, these solutions frequently fall short of treasurers’ core cash forecasting demands, and so users time and again resort to spreadsheets to cobble together some kind of forecast. Consequently, finance management is often not receiving accurate reporting on the enterprise’s true cash position and prognosis. This most unsatisfactory situation results from a flawed theoretical approach based on old technology and spreadsheets, incomplete functionality and service, and, ultimately the lack of control by treasury. A Flawed Theoretical Approach The issues that arise from trying to combine treasury forecasting with financial planning and budgetary exercises are analyzed above in ‘Outdated Forecasting Models.’ Fundamentally, this approach tries to forge a compromise between two essentially incompatible disciplines with respect to short-term forecasting. The strategic concerns of budgeting and financial planning are distinct from operational urgencies of managing short-term cash in treasury. Treasurers complain constantly about the poor quality and timeliness of cash forecast data submitted by finance subsidiaries. A key reason for this is a lack of appreciation for treasury’s needs in the commercial business. There is no apparent value to the originators in the exercise, as they do not generally understand treasury’s operations – and they do not (directly) suffer the consequences of inaccurate and late forecasting. Treasurers absolutely need to be in control of the forecasting process. Short-term cash forecasting – and the resultant cash management decisions and operations – are their professional responsibility, and therefore treasurers require direct responsibility over all elements of forecast construction. The starting point needs to be a forecasting model that consistently delivers a timely and accurate short-term forecast. This is simply not available from many traditional solutions, and hence the general dissatisfaction with forecasting in many sections of the contemporary treasury industry. Spreadsheet Failings The many forecasting solutions that depend on spreadsheets are relying on technology that is not fit for the purpose of supporting a core function of finance and treasury. There are many documented spreadsheet failures that support this assertion, such as the recent discovery of a copy and paste error in a spreadsheet analysis in an academic paper that resulted in incorrect assumptions being made about the optimum indebtedness levels for several G20 countries’ economies. Spreadsheet solutions tend to be loosely developed and poorly documented, and their users are very vulnerable to failures that often prove to be very difficult – and even impossible – to recover. The Consequences of Incomplete Functionality and Service Traditional treasury technology solutions lack the necessary functionality to penetrate the banking system, so that up-to-date balance and transaction statements will often not be available, and the true status of payment execution and the current position at the bank are not in practice visible. This means that users of such technology do not have the means to monitor and understand many of the critical bank-corporate processes that are essential components of forecasting, and also of general cash and treasury management. They are, in effect, flying blind in the performance of a time critical financial management business function, in an environment of elevated financial and operational risk. This failing is as much a function of service provision deficiencies as it is of treasury management system functionality. For example, if the approach being used does not have the means to interrogate banks effectively, or to interact with the dynamics of SWIFT message management, it is difficult or impossible to identify, research and resolve any problem issues in an effective timely manner. The resultant delays and uncertainties can lead directly to errors in treasury operations. A corporate treasury working on a single instance ASP or hosted system, without the means to penetrate bank payment management and balance and transaction statement reporting processes, will have to join a potentially very long queue of others with similar issues as they compete for the bank’s all too finite trouble-shooting support services. The technology of the solution in practice restricts the company’s ability to resolve the most critical issue of consolidating the organization’s cash position and forecast. Treasury’s efficiency is therefore compromised. A treasury lacking in the necessary functionality and support services is not in proper control of its critical cash management function. Similarly, treasury requires control over securing up-to-date and complete payables and receivables information from ERP and accounting systems. Decisions based on incomplete and uncertain data are seriously sub-optimal for cash planning purposes. How to Achieve Short-Term Cash Forecasting Nirvana While delivering best practice in cash management is by no means a slam dunk, it’s not to say that it’s an impossible task. However, in order to do so, treasury teams need to ensure that they have the necessary systems and processes in place. The fundamental requirement for a best practice cash forecasting program is the ability to develop accurate and dependable data. The ability to do this requires a treasury management solution which not only contains the data, but also has the processing capabilities to manage it. In addition, treasury teams need to have processes in place to cover where bank operations sometimes fall short: including transmission failures and account reconciliation differences that impact the effective delivery of timely cash forecasts, and all other elements of the cash management process. The TMS must be in real time contact with all relevant elements of the organization’s financial ecosystem. The necessary connectivity includes a communications hub, bureau services and the external banking universe. Technology can now empower treasurers to overcome historical barriers and achieve full short-term forecast visibility. Conclusion Effective cash forecasting can have a huge impact on a company’s ability to manage its debts and investments, and make smarter, more informed decisions about its cash. Overdrafts and other external borrowings can be minimized or eliminated altogether. With the ability to deliver accurate short-term forecasts, organizations can manage their short-term cash in a more effective manner. Developing a best practice short-term cash forecast requires a complete and robust picture of all the elements on the current cash position, based on up-to-date balance and transaction reports, and real-time visibility of all the payments and collections in process, and open treasury transactions, combined with all payables and receivables held in the organization’s ERP and accounting systems. With these elements in place, a treasury team’s ability to deliver a reliable cash forecast is amplified immensely. Cash management decisions will be taken in full confidence of the accuracy and completeness of the short-term forecast. The benefits that accurate cash forecasting can have on the organization are widespread, and can lead to significant improvements in cash return, decreases in the cost of business, and further enhance the treasury function as a strategic partner supporting critical capital allocation decisions. Join our demo webinars to learn more about cash forecasting best practices. Register Today!

What is an In-House Bank? An in-house bank provides an internal current account structure and other services to group entities, which replicate the services typically provided by an external bank. In-house banks provide services...

What is an In-House Bank? An in-house bank provides an internal current account structure and other services to group entities, which replicate the services typically provided by an external bank. In-house banks provide services similar to those of a commercial bank, such as offering payment processing, liquidity management and collection functions to various subsidiaries of large global corporations. Technology is a key enabler to in-house banking (IHB). There are many treasury technology platforms (TMS & ERP) with various IHB capabilities. In-house Bank Defined “A dedicated group or legal entity which provides banking services such as cash management, payments on behalf (POBO), collections on behalf (COBO), FX requests, funding and working capital to business units within an organization.” What Are the Top Five Benefits of Introducing an In-house Bank? Banking fees can be reduced by limiting the amount of intra-company funds transfers that subsidiaries are executing, with in-house bank physical cash transfers reduced significantly. This will also reduce operational risk by avoiding unnecessary movements of cash. Higher returns can be earned on investments by pooling all cash and credit balances instead of having them lying dormant in subsidiary accounts. If your organization is global, foreign exchange and cross-border payments can be minimized, and transactions can be conducted by the corporate office, rather than going through local in-country payment processing. Corporates can negotiate better pricing, service and flexibility from banking providers through aggregation of spend into a centralized treasury function. Instead of subsidiaries going to banks, loans can be provided to subsidiaries. Lending internally is much less expensive than paying interest to a third party. What Services Could an In-house Bank Provide to an Organization? An in-house bank will operate just like a commercial bank by providing resources and services to the participants, including payment processing, collections activities, liquidity management, FX and servicing funding requests. In-house Bank Account Design By creating an in-house bank structure and moving to a mostly internal transaction basis and “on-behalf-of” processing (i.e. corporate headquarters executing transactions on behalf of subsidiaries), bank accounts can be rationalized. The in-house bank account design should be based on the following: Internal payments are settled without the need for physical cash transfer whenever possible. Specific exceptions (e.g. dividend payments) should be identified by the Tax department. Cash is only moved to manage the consolidated needs of the IHB. Account Structure (Master vs. Sub Accounts) The in-house bank owns multi-currency master accounts with banks. The in-house bank manages liquidity in the master accounts through external borrowing or lending. Business units maintain current accounts with the in-house bank sub accounts. Business units may run net credit (cash) or debit (overdraft) balances in the sub accounts. Business units earn/pay interest on net debit/credit balances. Overdraft balance limits are set and reviewed in accordance with company policy. FX and the In-house Bank An in-house bank structure will provide many benefits to your FX program, including: Greater visibility of corporate-wide FX exposures More effective hedging, better currency protection Reduced number of hedging transactions (and costs) Realized gains: Reduced cost of trade spreads due to lower tradi