treasury systems and broken promises

Treasury Systems

Globa l treasury management

Whafs in a Systems "Solution"? By Susan Griffiths G loba l Cash Management Ltd.

Focusing on the basics of what you want your systems to do leads to bet­ter (and often) cheaper solutions.

Systems do offe1· so lutions fo r treasuw However, systems diffi culties-both internal and external-can also exac­erbate problems: forc ing treasurers to wear the hat of IT manager in addition to treasu ry. In other words , trends toward automation w ith improved sys­tems development capab ili ties, and the ava il ability of numerous free-standing systems packages are good news fo r MNC treasurers, but only after a signif­ica nt amount of work, eva luation, and insta ll ation effort.

The groundwork is essential, because despite th e adva nces in tec hno logy, there is still no "black box" or si ngle system which can effective ly handl e al l MNC international treasury tasks. W hat is needed to do the job?

The right stuff at the right time

Few treasurers would argue that obta in­ing forecasted cash flow in formation, 'oy currency, i s essenti al in ord er to manage FX exposures and global liq­uidity-the two most co mmon ele­ments of intern ational treasury manage­ment. However, this is a complex task co nsiderin g the t ime zo ne and geo­graphic distances, the va rious tax and lega l structures inherent in a MNC, and the myri ad of banking sys tems and commercial practices globa ll y. And th is says noth ing about the po li tica l issues lurking beneath the surface.

Timely information-both forecasted and actual- is the primary req uisite for effectively managing in tern at ional treasury. Thu s, some of the most basic and effect ive systems so lu tions are

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those that bring abo ut more t imely delivery of actionable in formation .

Fortun ate ly, these so lu tions are also the most read ily achieved. The imple­mentation of globa l E-mail and compat­ibl e off ice software pac ka ges o n a worl d-wide basis-such as M icrosoft Office, faci litating the cross-sharing of data between spreadsheet, wo rd-pro­cessi ng, and presentation applications - goes a long way to creating a trea­sury in fo rm at ion system. It even may serve as a treasury systems "platform " for a majori ty of companies. Most trea­sul·y appli cat ions ca n indeed be per­formed on a sp readsheet. Th e on ly potential glitch is data inpu t- the ri ght stuff must be put in w ith accuracy.

If eve ryo ne has the same for mat spreadsheet, reporting timely i nforma­tion to treasury is ju st a matter of downloading the relevant fi les through E-mail (or a WAN) so that they can be retr ieved and linked by treasury. The problem, then, is not so much the sys­tem, but dete1·m in i ng th e fo rm at and information requirements.

What information to capture? Treasu ry has to make the effo rt to develop and "se ll " its ideas, to all com­pany locations, about what data should be collected and transm itted to trea­sury. Thi s is particu lar ly true for fore­casted info rmation, which is the key to va lue-added treasu ry management.

For exampl e, expected inflows/out­flows by week, by month, by cu rrency, and by bank, are very simple for local controllers to estimate, the trick is to te ll them that this " forecast" is not used for performance measurement purposes.

A far eas ier item to include is bank balances-thus sav ing the onerous task and expense of bank balance reporting (especia ll y if a " netwmk bank" is not used). Of comse, ba lance information may also be provided by a bank system (espec ially if a network bank is used).

From communication to integration?

Accounting systems. A nother trend witnessed in today' s sys tems impl e­mentation dec isions is to move beyond co mmon offi ce app li cat io ns to th e

insta llat ion of the standard accounting system globally-SAP, Orac le, and JD Ed wards are the most recogni zed names.

Whil e more expe nsive, installin g common accounting systems does pro­v ide a number of benefits, th e most basic be ing ease of sta nd ardi zat ion - i.e., common input formats, accoun t labeling, and financial reporting. At a minimum, this sta nd ardizat io n w ill ass ist in st rea mlinin g the ard uo us monthl y closing process, important for the accounting function .

Shmter process ing cycles also benef it treasury in th at inform ation about booked transactions can be passed on more qu ick ly, w hich in turn all ows treasurers to get a faste r handl e on how w ell forecasted f lows/exposures compare w ith actuals.

For some companies, the ex istence of a common format and single data entry allows them to consolidate accounting funct ions on a 1·egional basis.

Often, thi s consolidation takes the form of a Shared Service Center (SSC), w hich can either mirror or be incorpo-

Being SWIFT

Another related development which wi ll streamline international treasury

activit ies, in this case cross-border trans­actions, is a new SWIFT message format that allows "batch" messages to be trans­mitted. Although a couple of large banks have software which allows batch multic­urrency transfers to be initiated from a PC (e.g. Citibank's World/ink), the new SW\H message format will enanle any SWIFT member bank to offer a somewhat simi lar capability, which may be included in its balance reporting/transaction initia­tion service.

The new format allows transactions to be received at the loca l, even correspon­dent bank level and processed in that country's payment system. Thus, the costs may be lower than ex isting international wire transfers. Although treasury may not "shop" the FX in these transactions, it is assumed that anything transferred in a batch mode is lower value and subject to 1·etail1·ates anyway. This is not exactly an international ACH mechanism, but simu­lates the efficiency and cost effectiveness.

International Treasurer/October 16, 1995

ra ted w ith a treasury center.

The SSC is only possible with the streamlined accounting package in place and its effectiveness for treasury is enhanced when treasury is involved in this streamlining process.

Th is brings up the two most important things to keep in mind for companies seeking to set up an sse (or otherwise in tegrate their accounting systems):

(1) It's not a rush job. Th e im ple­mentation process always takes much \ or~%e~ tnar~ ar~)lo ne ant ic ipates and this is even more true when a cross­border installation is involved.

(2) Treasury better have a hand in. Treasury should be involved in the very early stages of the implementation to insure that account designations pa rti c­ularl y for cash fl ow, FX, and banking tra nsac ti ons w i II meet i ts needs. Generall y, the concept is to des ign a chart of accounts that fac i I ita te forwa rd­looking, proacti ve management, rather than merely stati c reco rd keeping fo 1· the preparation of financial statements. To help achieve this, it makes sense for treasury to play an active role even in the selection of the appropriate vendor.

Treasury workstations. Often bridging treasury/accounting needs ·Is the trea­sury workstation. Before investing in a treasury workstation, however, treasur­ers need to ask themselves what they actua ll y can do for managing t hei r international activities. Basica ll y, a trea­sury wo rkstat io n shou ld " hook" the cntJ;iPc; created by treasury-e .g., inter­nat ional rece ipts/payment, inte rn al/ external loans/ repayments, FX contracts -to the accounting system.

Th ere are often other va lue-added modules, depend ing on the vendor, which can allow Reuters feeds, market l inkages, and modeling capab iliti es. Treasury workstations are provided by ba nk and no n-b ank p rov id ers. However, very few banks (e.g., BofA and Chase) have gotten into full -b lown treasu ry wo rksta ti o n ap pli cat io ns because of the amount of customizing that is requ ired for each customer. It fo llows then that the degree to which a

Internat ional Treasu rer/October 16, 1995

workstation can be customized to the needs of treasury is a crucial se lection criterion-one th at grows more impor­ta nt to treasurers, the more sophisticat­ed their treasury acti vit ies become.

Pitfalls. Interest ingly, workstation ven­dors may emph as ize fro nt-end "cash manageme nt" o r " FX" capab ili ties, wh ile in some cases the ir workstat ions are rare l y used o u tsi de " the back off ice ." So i n se lec tin g a vendor, bewa re of w ho they c ite as "c us­tomers," as those compan ies may use th e workstation fo r operat ions oth er than w hat you have in mind. And, due to the costs involved-from $25,000 to $1 00,000-think before you sigri up.

If your FX vo lume or inte rn at iona l transaction activity (e.g.,wire transfers) is low (25-50 a week) , all you may need is an interface routi ne w hi c h downl oads your t ransact io ns in an app rop ri ate entry fo rm at in to yo ur accounting system.

Be extremely wa ry of large account­ing sys tem vendors wh o also offe r a "treasury module"-to da te, no o ne has insta lled one.

Outsourcing or in-house?

Other automated appl ica ti ons aiding intern at io nal t reasury manage ment in c lu de interco m pa ny nett in g and stand-a lone FX software. These appl i­ca tions are fa r less cumbersome and costl y than full -b lown treasury work­sta tion s. Lower cos t and increas in g soph isticat io n mea ns mo re va lu e­added treasury act iv iti es can be per­formed in-house.

Nett ing syste ms are an exce ll en t examp le. Traditi onall y, a handful of ba n ks have offe t· ed nettin g se rv ices-nota bl y Citi ba nk and Bank M endes Ga ns. Th ese se rv ices have excell ent reputat ions, but netting is a form of outsourcing w hich can have a hefty cost. Th e monthl y fees do not include th e "spread" w hich the bank w ill ta ke on each FX transaction.

Purchas ing spec iali zed softwa re to do the netting in-house-unava ilable a few years ago-may be the idea l so lu­tion for the MNC that wants to further

Treasury Systems

A Band-aid

No matter how many integrated appli ­cations you may have, a prob lem

you w ill li kely always face is how to extract informati on from financial fil es generated by an accounting system. These often do not provide treasury with an appropriate view of the data.

For example, let's say you want to review all OEM sa les last quarter. However, sales are only reported by legal entity. An interesti ng software product ca lled "Monarch" (Personics) [te l 800-445-33 11 ] allows you to take an existing computer file -from the mainframe or another PC-and extract the data you require by creating a "soft" copy in a trea­sury PC. In th is way, data can be entered in to your own Lotus or Excel files.

Despite all the integrat ion of account­ing and treasury systems this is a simpler approach than going to the M IS depart­ment and asking them to "sort" for you-you still might not get what you want.

centrali ze and control intern ati onal treasury from a single locat ion. These off- the-shelf so lutions elimin ate th e need to des ign an in-house application from scra tch.

Packages such as " FX W orkbench" and " N ett in g W o rkbench" by Hypermedia, Inc. [708-615-2552] are rece nt entrants to th e marketpl ace. And, as all uded to above, all the trans­ac ti o ns co ul d be entered in to th e accounting system via a routine set up during installation.

Systems improvements in terms of upgrades in accounti ng systems, more soph isticated workstations, intern al PC applications, linkages, and user friendly tr easury software offer a variety of choices. In assessing them, it is essential that treasurers tnoroughl y investigate and revi ew bank and third-party; cus­tomized and generi c; and outsourcing and in-house altern at ives . Final ly, as t reas ury becomes more tuned to i ts in format ion needs it should cons ider getting active ly involved in the se lection and implementation of every major sys­tem throughout the company. •

Ms. Griffiths is reached at (708) 295-64 14.

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