The evolution of treasury management

As businesses recover from the global meltdown, treasury management is becoming essential. World Finance presents its 2012 Treasury Management Awards to companies which show promise for the future


Treasury management has long been an important aspect of many corporations’ financial management. It ensures the business is accurately tracking its daily sales and payments in an effective manner, while also having sufficient liquidity to meet both expected and unexpected financial obligations.

Significant changes to regulation that will be coming into force in the following years are set to transform the ways in which treasury managers do their jobs. These regulations, in particular Basel III, will affect how Treasury Management Systems (TMS) are utilised, and how important they are perceived to be. Single Euro Payments Area (SEPA), a new financial instrument, is also drastically altering the effects on money transferred throughout the EU – easing the flow of resources throughout Europe by ensuring all transfers meet the same standards.

The industry is facing a period of change as the way companies employ treasury management is shifting. There are more choices of which system a company wishes to use, as well as how they install it. The cloud is opening up opportunities for outsourcing at lower costs than creating or buying an in-house treasury management system. Companies can opt for ever-more customisable systems that particularly suit their business model and needs, in order to ensure they get the most from treasury management.

More companies are realising the importance of treasury management. A global survey by Accenture, the professional services consultancy, found that the top-performing companies considered their levels of liquidity risk as either their primary or secondary concerns. After all – cash only has value when it is easily accessed. With the industry adapting to change coming from a number of directions, World Finance is proud to present the 2012 Treasury Management Awards. Our winners of these awards are recognised for their continuing efforts in the sector, and we are confident they will continue to be leaders in their respective fields for years to come.

Basel III regulations
As globalisation strides forward and previously unavailable markets are opened up, staying-up to-date with numerous regulations is becoming increasingly complicated. International companies must keep track of a variety of regulations impacting them from different locales – each has to be correctly tended to in order to ensure a prosperous business.

This year, elections and new governments in China, Russia, and the US mean that world order and global regulations will be affected by multiple influences. However, treasury managers also need to remain aware of local regulations that can change quickly and substantially in smaller regions. The most substantial new regulation affecting the financial sector, and particularly the treasury management industry, is Basel III. With its introduction planned over the next few years, it is set to have a large impact on the global treasury management industry.

The latest instalment in the Basel Accords lays down a new global regulatory framework that builds on previous versions; Basel I & II. Designed to develop risk management and transparency in the banking sector, Basel III aims to improve all banks’ ability to deal with economic stress. It does this by setting a series of rules, the most important of which are that banks must hold 4.5 percent common equity (up from two percent in Basel II) and six percent Tier one capital of risk-weighted assets (up from four percent). Banks will build progressively larger buffers of capital in order to absorb financial damages and protect themselves against more downturns.

Although Basel III is meant to start coming into effect from the beginning of 2013, late agreement on details and a close deadline has meant some banks are already struggling to meet its requirements. Germany is being given an extra six months to ready itself, and other unprepared banks may follow suit if they can’t make the deadline. Full implementation of Basel III is expected by 2019.

EU financial instruments
Europe has been developing a simpler method of transferring money between banking systems. SEPA should improve the efficiency of cross border payments and will allow anyone to make a payment between European countries as easily as they would within their home country, effectively harmonising and streamlining the transfer of money around Europe. A further benefit is the reduction of cost to the European economy of moving capital around the area – which has been predicted to be as much as two or three percent of total GDP.

The 27 EU member states and the four members of the European Free Trade Association are adopting SEPA, which is believed to be the single largest project undertaken in the EU. If it goes successfully, future regulations could be easier to implement in order to further harmonise the EU in other economic areas. The adoption of SEPA instruments within the EU will be mandatory from February 2014. Although the deadline is legally binding, some central banks and national governments have indicated that they may offer an extension in some circumstances; although this is not definite.

A number of multinationals have already adopted the system, with an increase seen once the 2014 deadline was set. Though there is still some time before the SEPA deadline, businesses seem to be welcoming the changes. Once SEPA is fully implemented, it will be a large step forward in the solidifying of Europe as a single body rather than a collection of individual states. All members will benefit from being able to send payments under the same standards, rights, and regulations – regardless of location.

Cloud SaaS
Many companies use spreadsheet systems for treasury management because of the lower costs. However, the use of macros is time-consuming, prone to human error, and a drain on resources. There are also potential risks as the system struggles to cope with increasingly complicated demands. Despite this, spreadsheets are still used because many companies cannot shoulder the up front costs of investing in an integrated TMS or Enterprise Resource Planning (ERP) module.

The cloud is now making access to previously unattainable technology possible for businesses everywhere. The treasury management industry is just one of many that are taking advantage of the developments in the cloud. Instead of opting for in-house TMS, many companies are now utilising the cloud for an affordable alternative: Software as a Service. SaaS allows for affordable and powerful cloud-delivered TMS, and it’s quickly gaining popularity. A 2011 survey by gtnews found that 44 percent of TMS installations are delivered via SaaS. The survey also found that in the Asia-Pacific, the usage of SaaS TMS rises to 61 percent.

It may be no huge surprise that the majority of businesses using TMS in Asia-Pacific countries are opting to outsource their TMS via SaaS. The cost of the subscription fee for cloud-delivered services is comparatively little compared to the setup costs of purchasing and implementing an in-house TMS. The long-term costs may eventually outgrow those of a TMS, but regardless, SaaS is an excellent choice for smaller companies who want a TMS, but have less available capital.

SaaS is appealing for a number of reasons: companies have increased visibility of their cash; in-house staff hiring or retraining isn’t required; there is no need for an up front investment in hardware, OS or database software; and there are lower running costs compared to an in-house TMS because the hardware and software maintenance is outsourced to the SaaS provider. It also grants access to large amounts of computer processing power to handle large calculations quickly and accurately.

Some firms, however, are holding back from investing in SaaS. Although SaaS companies undoubtedly do their best to achieve high levels of security, so too have many other companies and even governments that have been compromised in the past few years. Many companies are worried that storing their important data in the cloud may put them at risk from outside sources; though most worries are based purely on anecdotal evidence and a fear of innovation rather than industry-wide vulnerabilities in SaaS and cloud systems. Treasury managers that research a reliable SaaS provider with a good security history are likely to be rewarded for their time investment – outpacing competition slow to embrace the latest technologies available to the industry.

Popularity of TMS is being driven by the increasing availability of SaaS via the cloud, changing regulations, and the importance for companies to pay debts in a consistent manner. Treasury management systems are enabling companies to maintain efficient working levels of liquidity in order to deal with the unpredictable economic environment. World Finance has selected a number of deserving recipients of its 2012 Treasury Management Awards – recognising them for their contributions to the industry.