Cross my palm with silver. Look into my crystal ball.
In the future, all of the treasury processes that can be automated will be automated.
All physical and financial supply chains will be electronically interconnected or integrated.
Straight-through processing (STP) will be standard.
And smart cognitive technologies will optimise cash collections and forecasting, market data analysis, liquidity risk and performance, and so much more.
Eventually, most manual and paper-based processes will become a dim and distant memory. Presumably. Probably. Possibly. Potentially.
Meanwhile, manual and paper-based processes remain a reality – and across treasuries of all shapes and sizes.
So, although treasurers are increasingly using specialist software and technology-enabled services to tackle challenges around cash visibility and optimisation, forecasting and liquidity planning, financial risk management and regulatory compliance, they are also surrounded by manual and semi-manual processes in areas such as accounts payable (AP) and receivable (AR), bank account management (BAM), credit and collections, and FX.
In FX, voice trading remains common. “I often end up simultaneously holding two phones, with a banker the other end of each one, so that I can be sure I am getting a competitive rate,” says a treasury assistant, who wishes to remain nameless.
Access to a trading platform does not necessarily remove such interactions, as one treasury analyst explains: “I still talk to the bank on the phone about some FX trades, then I book them using our multi-bank platform, because this is quicker than waiting for the bank, particularly if I want to forward-lock the rate today for an exchange in the future.”
Reasons for manual and semi-manual processes can range from established counterparty and supply chain practices and relationships to the functionality and connectivity of an existing technology infrastructure.
For Sunil Boorman, assistant treasurer with the learning company Pearson, how quickly and easily its technology infrastructure can be connected or integrated with other third-party software and services has been one of the determining factors in how quickly and cost-effectively manual processes may be eliminated.
“To avoid rekeying and manual data uploads and downloads, we are aiming for STP across all of our treasury technology infrastructure,” says Boorman. This would be easier to achieve with more support from banks and treasury management systems (TMS).
Boorman notes: “I’d like banks to have common interfaces and template requirements, especially across their own branches globally,” he says. Standardised interfaces from the TMS providers to other systems would take a lot of the pain from corporate implementations. “Often," he adds, "interfaces between different systems must be built from scratch.”
Lack of common standards, interfaces and templates is a perennial thorn in the side of many treasurers and a significant barrier to STP, but not all barriers are so techy.
Another impediment to automating manual processes that have an impact on treasury can be their location outside the department. The efficiency of AP and AR processes, transactions and strategies, can impact significantly on the effectiveness with which treasury can manage cash and liquidity, its ability to meet its department-level goals, and how well it can align these with enterprise-level priorities.
Using technology to help automate, standardise or centralise treasury-related activities does not always need to happen within the treasury department – or the organisation. The most efficient and effective way to automate some manual processes may be to outsource them.
“Instead of AR employees spending two days each month sorting through cheques, they could spend that time requesting customers to stop sending cheques and start sending money direct to the bank account,” says Boorman, “then this can free up staff to take this further, for example, by setting up automatic reconciliation of those bank transfers and remaining cheques.”
Just as treasury can benefit from the automation of manual processes outside the department, so other departments can benefit from greater automation inside treasury.
At the insurance company EmblemHealth, moving from semi-manual processes and spreadsheets to a TMS has enabled the treasury team to improve its cash forecasting and advanced cash management, increase payment security and free up more time for strategy, as well as delivering some benefits to the accounting department.
“The accuracy and efficiency of our cash position allows for increased opportunities to optimise working capital metrics, such as making investments earlier in the day or reducing the cash-conversion cycle, says Charlton Correa, treasury operations manager at EmblemHealth.
Rather than log on to multiple individual bank websites to pull up prior and current-day activity and initiate wire payments, the automated BAM functionality in its TMS is used. “We have streamlined payments and have more control over who is entering the wires,” Correa adds.
Strong integration between the TMS and other internal systems at EmblemHealth have helped to spread the benefits beyond core treasury functions into areas such as month-end close processes. There was a time (before it had a TMS) when treasury had to add an entry to a spreadsheet every time it moved any money.
Now, when cash-related general ledger entries are recorded in the TMS, an automatic electronic feed squirts the data into EmblemHealth’s enterprise resource planning system – helping to save the accounting team the three days each month it previously spent making manual postings.
FX is also an area where spreadsheets abound, which can be an impediment if treasury wants to focus on risk management and reduction, and align this with wider company strategy.
In its 2016 annual report, when Jaguar Land Rover outlined its strategy for growth, it noted the importance of its ability to “manage transaction risk through the use of foreign currency derivatives to hedge forecast exposures” – which is why it migrated its FX hedging portfolio and commodity hedging platform off legacy systems and spreadsheets onto a dedicated hedging management solution.
As treasury becomes more strategic and some of its most complex aspects become more specialised, it can be increasingly difficult for in-house treasury teams to develop and maintain the level of expertise required to make their professional judgements without greater automation of some of the associated processes.
Take sanctions. “This is a big thing these days, especially when you are dealing with certain jurisdictions where there could be concerns,” says Boorman. Keeping track of the individuals and entities affected by financial sanctions is challenging.
Various jurisdictions from the UK to the US operate sanctions regimes. With so many potential pitfalls, externally managed and hosted services that screen your incoming and outgoing messages against the latest sanctions lists and flag exceptions have some appeal.
“I have not come across any violations of sanctions, but we’ve explored this area,” says Boorman, as it can be comforting to have additional checks.
He adds: “From an AP point of view, for example, an external provider could add additional checks in the review of payments that might violate any sanctions or be exempted by an OFAC licence.” (From the US Office of Foreign Assets Control, allowing transactions that would otherwise be prohibited.)
With so many factors affecting the need to automate treasury-related processes and the ease and speed with which this can be done, it’s impossible to be certain which manual processes are most likely to disappear or have the greatest longevity.
Even so, it is difficult to imagine strategic decisions around funding and risk appetite becoming entirely automated. As Daniel Wong, head of mergers & acquisitions at British American Tobacco (and its previous head of global treasury operations), observes: “There is a lot of complexity in treasury that makes it hard to completely remove a human’s touch.”
I’d like banks to have common interfaces and template requirements
Lesley Meall is a freelance journalist specialising in technology and finance.
This article was taken from the Jul/Aug 2017 issue of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership