Treasury Management Puts Cash & Assets to Work

Corporate Treasury Management

Treasury management is a complex set of strategies and actions taken by corporate finance teams based on available financial data. These strategies are designed to leverage a corporation’s cash and other assets to support business objectives. Carried out by corporate treasurers, this practice area includes day-to-day cash management, liquidity-, risk-, and debt-management.

Global Treasury Management

Depending on the size and reach of the corporation, relationships with banks and financial institutions may extend across national borders. Treasury globalization increases financial obligations like awareness and adherence to international monetary policy, but it also creates opportunities to work with additional finance tools and systems like foreign exchanges (FX).

Cash Management vs Treasury Management

Are cash management and treasury management the same thing? While the terms may be used interchangeably by some entities, the reality is that cash management is just one part of treasury management.

Cash management starts with the real-time cash visibility provided by systems like open banking. It focuses on the factual side of how cash is managed — the actual inflows and outflows on a day-to-day, monthly, seasonal, and annualized basis.

Great treasury management relies on the critical foundation layer of cash visibility, but it is a strategic endeavor which takes into account all of the risks and uncertainties of operating a corporation in the modern, global world.

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Treasury Management Strategies

Treasury management strategies encompass a broad array of risks and opportunities, but fundamentally they address: asset liability management, trading and hedging, asset portfolios, funds transfer pricing, and integration with other financial systems.

The primary objectives of these activities is to lower borrowing costs, get more out of existing company assets, and use leverage to increase the impact of the corporation’s other efforts.

Liquidity Management

But liquidity management goes beyond payment transactions. It also includes strategic planning, account organization, cash flow monitoring, tracking bank accounts electronically, pooling, and netting. Three common liquidity strategies include: physical concentration, notional pooling, and overlay structures.

But liquidity management goes beyond payment transactions. It also includes strategic planning, account organization, cash flow monitoring, tracking bank accounts electronically, pooling, and netting. Three common liquidity strategies include: physical concentration, notional pooling, and overlay structures.

Cash Flow Forecasting

In order to put good liquidity management strategies to work, a corporate treasurer needs good information about the near-term (and longer-term) cash flow, in the form of a forecast. Cash flow forecasts rely on cash visibility and help treasury teams plan for upcoming obligations, but they are also a critical component in acquiring credit or loans to leverage for growth.

Risk Management

Liquidity management is a part of treasury risk management. In terms of day-to-day operations, cash-, liquidity-, and risk-management are so interrelated that it’s often difficult to tease apart where one begins and one ends. In addition to managing liquidity risk, financial risk management includes market risk, credit risk, and operational risk.

One key way to de-risk a corporation’s financial picture is to employ a multi-banked strategy. This way, when an insolvency crisis hits a bank like the jarring Silicon Valley Bank collapse, all of the corporation’s assets aren’t at risk.

Managing a treasury across multiple banks is more complicated, but it’s much easier with modern treasury management systems which make use of open banking and bank APIs to give treasurers a singular view across all of the corporation’s banks.

Treasury Management Systems

Treasury Management Systems (TMS) help CFOs and finance teams streamline financial operations, automate workflows, and achieve real-time cash visibility through integration with banks and enterprise resourcing planning tools (ERP). TMS are critical for financial risk management, regulatory compliance, and are the foundation of a successful cash and liquidity management plan.

A treasury management system addresses more than standard treasury operations. It assists treasurers in mitigating financial risk through intricate hedging, forecasting future cash positions, and providing a comprehensive picture of both working capital and long-term financial health.

Treasury Management Services in Banks

Treasury services is a function of an investment bank which provides transaction, investment, and information services for chief financial officers and treasurers. ]The services provided include logistics solutions, safeguards, securities clearance, and investment portfolio management.

The biggest drawback with these kinds of treasury services is that they limit a corporation’s cash visibility if they bank with more than one institution. Some banks are beginning to provide software-based solutions which might include multi-banking cash visibility.

Digital Transformation

One of the reasons so many corporations are exploring treasury management systems is part of a strategy of Digital Transformation. Not just limited to finance operations, the modern era of computing and always-online data is changing the way many industries work in the 21st century. But financial teams might be benefiting the most through the digital transformation of treasury workflows.

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Treasury Management Software

A treasury management system (TMS) is essentially a software application, the purpose of which is to support and facilitate a treasury’s many responsibilities. There are different forms of TMS, including: cloud-based applications (software as a service, or Saas), locally-hosted applications, and treasury services handled by banks (outsourced CFO/treasury).

Treasury management software does (or should do) many different things because it has many different users. Here are some common features found in Treasury management systems.

  • Cash visibility
    • Cash reporting
    • Cash positions
    • Cash analysis
    • Multi-bank views
    • Reconciliation
  • Cash insights
    • Cash forecasting
    • Scenario planning
  • Payments
  • Connectivity
    • Bank integration via API
    • Integration with ERPs
    • Foreign Exchange (FX)
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Cloud Treasury Management

One of the greatest advances in software between the 1990s and the 2010s is the addition of cloud-based software (usually called Saas). This type of software allows a third-party to focus on critical operations like data security, up-time, and data archiving for all of their clients, while each client gets what they need out of the application (in this case, treasury management).

The biggest advantage of cloud-based computing, and in particular cloud-based treasury management, is rapid deployment. Installing, protecting, and enabling traditional TMS on a local server is extremely time-consuming with lead-times of up to a year (or more), whereas cloud-based TMS are ready to go, right out of the proverbial box. The process of connecting bank data can be completed in less than a month (often much more quickly than that) and therefore can be put to work faster.

AI, Automation, and Machine Learning in Treasury Management

Additional technological advances of the 2020s include automation, machine learning, and the introduction of limited artificial intelligence. But, in order to get the most of these emerging technologies you need to understand the differences between them.

ai intelligence vs traditional

TMS which leverage AI and machine learning are leading the way as the industry moves toward the future of treasury management.

There are already TMS providers offering these sophisticated technologies to their customers, supporting cash flow analysis, cash positioning, and cash flow forecasting efforts. Knowing which ones do is an important part to selecting, procuring, and implementing a treasury management system.

Generative AI (LLMs) have opened the door to interacting with complex financial systems in a more natural way, using conversation to get to answers. Some TMS, like Trovata, include this modern technology to open up the possibilities for cash visibility.

These types of Generative AI systems are fully isolated from other customers and secure from the outside world. It’s not just a toy that can read your cash reports like Shakespeare, it digs deep to find relationships between how your money moves and vulnerabilities in day-to-day operations, scenario planning, and risk management. It doesn’t create insights, it just helps you find answers.

Among the many benefits of AI and automation inside TMS solutions, Machine Learning conducts deep analysis and creates cash flow insights that might take weeks of comparing spreadsheets to reach in any other way. When bank (and other) data is ingested into a modern TMS it isn’t just cleaned and normalized to a software standard, it’s prepared and consolidated based on your organization’s historical trends and tagging systems, even enabling advanced (and long-term) cash forecasting based on those trends and categorization.

Choosing a TMS

While the right TMS for an organization might be different than the right one for a different corporation, the path for choosing a treasury management software package is the same. Maybe a cash flow management platform is the right choice altogether.

Recommended priorities to investigate include: time to deployment, use of automation and machine learning for forecasting and scenario planning, real-time cash flow data, clear and concise reports, ERP integration, and the ability to scale as you grow.

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