While the raw commodities at the heart of the energy sector have remained stable and unchanged for many years, the industry that surrounds them most definitely has not. All you have to do is take a look at a commodity price chart to see how much volatility is inherently baked into the industry.
It’s also a very capital intensive sector, with massive cash flow requirements and heavy reliance on global supply chains. That’s an environment which demands a sophisticated approach to financial management.
Because of this, energy sector treasury management professionals often find that traditional TMS platforms fall short of delivering the agility and precision they need. Legacy systems struggle to keep pace with the demands of modern financial operations.
The result is often outdated data, operational inefficiencies, and an inability to make informed decisions in real-time. APIs offer the key to unlocking better cash forecasting and management.
The Importance of Forecasting in Energy Sector Treasury Management
Many of the corporate failures in the energy industry can be at least partly attributed to missteps in forecasting. One of the biggest energy company bankruptcies in history, the $36.4 billion Energy Future Holdings, came as a result of an incorrect forecast that natural gas prices would rise.
In 2013, one of the world’s largest solar panel manufacturers, Suntech, collapsed after borrowing heavily to ramp up production at a time of high prices, while failing to forecast and plan for the impact of an increase in supply across the entire industry.
These are just a couple of the many examples over the years from all corners of the energy sector. While forecasting demand in any industry is a challenge, the key differentiator in the energy industry is the wide range of potential outcomes.
A natural disaster, supply chain disruption or a new discovery can change the price of a commodity overnight, with an immediate flow on impact to companies who rely on it for their profits.
The right forecasting therefore not only needs to consider the baseline, expected scenario, but also provide the capabilities to consider a wide range of possible outcomes.
Traditional Treasury Forecasting Limitations
For energy companies, accurate forecasting is not just a financial exercise — it’s often the backbone of their entire business model. The ability to predict the cost of acquiring, producing, or processing commodities versus the potential selling price is vital for profitability.
In a market where price volatility can significantly impact margins, having a precise and timely forecast can be the difference between a profitable quarter and a financial shortfall. However, traditional treasury management systems often hinder rather than help in this critical aspect.
Manual Processes and Data Aggregation
One of the primary challenges with traditional treasury management is the reliance on manual processes for data collection and aggregation. For many energy companies, this means pulling financial data from various sources, often in disparate formats, and manually compiling it into a usable format.
This process is not only time-consuming but also prone to errors. In an industry where split-second decisions based on the latest data can impact millions of dollars, outdated or incorrect information can lead to misguided forecasts and, ultimately, financial losses.
The time spent on manual data aggregation also takes away from the time that treasury teams could be using to analyze data and refine their forecasts. Instead of focusing on strategic decision-making, teams are bogged down in routine tasks, leaving them less prepared to respond quickly to market changes.
Inflexibility of Legacy Systems
Compounding the issue is the inflexibility of legacy treasury systems. These systems, which were often implemented years or even decades ago, were not designed to handle the real-time demands of modern energy markets. They can be slow, cumbersome, and expensive to maintain.
More importantly, they lack the agility needed to adapt to the rapid changes in commodity prices, interest rates, and other financial variables that energy companies must consider in their forecasts.
Legacy systems often operate in silos, making it difficult to get a holistic view of the company’s financial position. This fragmented approach to data management can result in inconsistent or incomplete information, further undermining the accuracy of forecasts.
The complexity of these systems also often requires significant IT support to implement any changes or integrations, slowing down the process and limiting the treasury team’s ability to make timely adjustments to their forecasts.
But energy companies need more than just accurate data. They need it delivered in real-time, with the flexibility to adjust to new information as it becomes available. This is where modern solutions, particularly APIs, come into play, offering a way to overcome these challenges and enhance the forecasting capabilities that are so vital to success in the sector.
The Impact of APIs on Forecasting
APIs solve many of the problems that come with traditional forecasting processes, offering a level of speed, accuracy, and integration that traditional systems simply can’t match.
Real-Time Data Access
Having real-time access to financial data is a huge advantage for any business, but particularly in the energy sector where prices change by the minute. APIs enable this by providing instant connectivity to financial institutions, ensuring that cash flow data is updated continuously.
Unlike traditional methods, which might rely on batch processing or delayed updates, APIs offer near-instantaneous visibility into financial transactions. This real-time data access allows treasury teams to monitor cash flows as they happen, providing a more accurate foundation for forecasting.
Trovata’s API-first approach to bank connectivity ensures that treasurers can view real-time cash balances across all connected banks from a single dashboard.
This holistic, up-to-the-minute view of cash positions enables treasurers to make informed decisions quickly, whether it’s reallocating resources, managing liquidity, or adjusting forecasts based on the latest financial data.
Enhanced Forecasting Capabilities
But APIs do more than just deliver data quickly. They also enrich it with detailed metadata that enhances the quality of forecasts. APIs provide richer data sets, including transaction types, counterparty information, currency codes, and other relevant details that go beyond the basic numbers.
This enriched data allows treasury teams to build more sophisticated models and scenarios, improving the accuracy and reliability of their forecasts.
For instance, with APIs, energy companies can categorize transactions more effectively using customizable tagging features. This not only streamlines data analysis but also allows for more precise forecasting, as treasurers can easily identify patterns and trends within their financial data.
By providing deeper insights into each transaction, APIs empower energy companies to forecast with greater confidence, ensuring that they are better prepared for market fluctuations.
Accelerated Implementation and Integration
One of the significant advantages of APIs is the speed at which they can be implemented compared to traditional methods like Host-to-Host (H2H) connections or SWIFT.
Trovata’s API-driven solutions remove the need for IT support, allowing treasurers to integrate real-time data feeds in a matter of weeks.
APIs also allow for simple integration across a company’s entire tech stack. Whether it’s connecting with an Enterprise Resource Planning (ERP) system or integrating with cash management platforms, APIs ensure that all financial data flows smoothly between systems.
This interconnectedness reduces operational silos and ensures that all relevant data is available for forecasting, leading to more comprehensive and accurate financial models.
Future-Proofing Treasury Operations with APIs
With long term projects that can take decades to fully realize, the technology used in the energy sector needs to be as future proof as possible. That means using systems and processes that are scalable and flexible to a changing landscape, and APIs play a key role in this future-proofing process.
Adapting to Industry Trends
The financial technology landscape is changing rapidly with more corporate banks and fintech solutions embracing the benefits of open banking and API-driven approaches. For energy companies, staying ahead of these trends is not just about keeping up with the latest technology; it’s about maintaining a competitive edge.
The simplest way to think of APIs is as a software language. Once a bank and treasury software speak it, the data that is transferred can be customized and scaled without the need to make any structural changes.
Because of this, APIs enable treasurers to seamlessly integrate with both their existing software, and new financial platforms and tools which are created in the future.
All of this can happen without the need for extensive overhauls of existing systems. As more banks and financial institutions adopt APIs, energy companies that have already integrated these solutions will find it quicker and easier to integrate new services and tools and enhance their forecasting capabilities.
“I gravitated to Trovata because of the APIs. The daily feed makes data readily available. Transaction tagging allows for easy categorization and a clear picture of cash flow. Logging in provides instant updates, eliminating the need for manual data pulls.”
Bruce Edlund – Group Director, Assistant Treasurer at Cloud Software Group
Scalability and Flexibility
As energy companies grow and their financial operations become more complex, the need for scalable and flexible treasury solutions becomes increasingly important. That’s especially true at a time when there’s a strong level of M&A activity in the sector.
APIs provide the foundation for this scalability, allowing companies to expand their financial operations without the limitations imposed by legacy systems. Whether it’s handling larger volumes of transactions, integrating with additional financial systems, or managing more complex forecasting models, APIs offer the flexibility to scale operations seamlessly.
Trovata’s cloud-native platform is designed to grow with the needs of energy companies. With unlimited data storage and scalable processing power, Trovata ensures that even as your financial structure becomes more complex, your treasury operations can keep pace.
This scalability is crucial for maintaining accurate forecasts as your company expands, enabling you to easily manage larger datasets and more complex financial scenarios.
Create Better Forecasts with Trovata
Energy companies live and die by their financial forecasts, and the days of wrestling with outdated systems and manual processes are numbered. APIs offer a solution, with real-time visibility, seamless integration to existing tech stacks, and the flexibility to adapt as your business grows.
For energy sector CFOs and Treasurers, the message is clear: it’s time to embrace the future of treasury management. By leveraging API-driven solutions, you’re not just improving your forecasting capabilities, you’re building a more resilient, agile, and future-proof operation.
Trovata’s API-first approach is designed to give you the edge you need in an increasingly competitive market. Schedule a demo with Trovata today and see how we can help you transform your treasury operations.
