Treasury management is a broad topic, and treasury management systems (TMS) offer different capabilities depending on the needs of an organization. All treasury management systems connect to an organization's banks and provide tools to manage cash. The tools offered by different vendors vary drastically depending on the specific capabilities of the vendor and the peculiarities of the user. Below, we will explore the most common tools provided by treasury management platforms, and limitations thereof.
Connectivity is the backbone of any modern TMS. Without robust bank connections, it’s impossible for the software to perform its most fundamental task: to aggregate bank data and make that data available to the user. A capable TMS will have multiple ways of connecting to a user’s financial institutions: API, SFTP, and SWIFT. Each type of connectivity has benefits and challenges, but fundamentally they each allow a TMS to collect financial data and to use that data for the purposes outlined later in this article. In addition to bank connectivity, a capable TMS will also connect to a company’s ERP system for additional liquidity data, such as AR and AP.
Once a TMS has been integrated with a company’s financial institutions and ERP system, the financial data must be presented in a way that’s organized and intuitive. Each company has unique internal needs and processes when it comes to treasury management. A robust TMS must adapt to a user’s workflows and allow the user to easily manipulate liquidity data into meaningful and relevant charts and tables.
After the liquidity data has been ingested and organized by a TMS, the system should allow the user to build a forecast based on historical transaction patterns and ERP data. The aggregated real-time balance data pulled from the user’s banks provides a more accurate basis for forecasting than an excel spreadsheet, and ERP connectivity adds another layer of enrichment and accuracy. Combined with intuitive tools for creating recurring transactions, a TMS system can be a superior platform for building cash forecasts.
Issuing payments from dozens or hundreds of bank accounts can be burdensome, so payment capability is another critical TMS feature. A TMS without payment capability is an analytical platform optimized primarily for monitoring. Introducing the ability to initiate account transfers and issue payments takes the TMS to a new level, allowing the user to act upon the intelligence that is generated by the platform. Payments can be issued by ACH, wire, or RTP (real time payments) either on an individual basis or in bulk. Of course, the TMS must incorporate approval workflows like those required for sending payments from most commercial bank accounts. Some TMS platforms focus specifically on payments alone, and are optimized for streamlining the payment workflow.
Large and complex organizations often need additional functionality from their TMS platforms that are not necessary for companies in the mid-market. TMS platforms for companies with foreign currency exposure may need the capability to execute currency hedging strategies. Companies with extensive interest rate exposure may need TMS features to hedge interest rate risk. Commodity price hedging may also be necessary for certain users. While this functionality exceeds the needs of most organizations, it may be critical for clients with certain needs.
Most mid-market US-based organizations need the fundamentals: connectivity, visibility, analytics, and forecasting. Companies that issue a large volume of payments from different bank accounts will also benefit from a native TMS payment functionality. Complex large cap and multinational organizations introduce the need for derivatives and other complex instruments beyond the scope of domestic mid-caps.
