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Many finance executives want to improve their department’s effectiveness in order to play a more strategic role in their company. However, frequently they find at least three serious challenges to achieving this sort of finance transformation. One is that too much time and resources are devoted to purely mechanical tasks. Another is that the information executives need is not always available immediately. A third is that they lack the data (which is unavailable or too difficult to access), the analytic tools or both to do rapid contingency planning. One area in the Office of Finance that needs particular attention is treasury, as I commented recently. Treasury management is a challenge because it’s highly detailed and demands complete accuracy. These requirements make it an area that can benefit from more automation.

Ventana Research recently named Kyriba for Kyriba Enterprise the VR_tech_award_winner_2013winner of our 2013 Financial Management Innovation AwardKyriba offers a suite of Web-based software for treasury management that automates processes and data management and provides tailored analytics and self-service reporting for the treasury function. Kyriba Enterprise, its core product, manages cash, payments, financial transactions and bank relationships as well as risk management, including counterparty risk. Its “supply chain finance” capabilities facilitate payment of suppliers and optimize cash and credit. In order to make good decisions consistently in this area, organizations require better intelligence to weigh options for deploying cash balances and managing debt levels (by currency and location) as well as to make tactical decisions on whether to accelerate payment of invoices to take advantage of discounts.

One of the most important reasons to automate the treasury function is that it improves a company’s forward visibility into its cash and liquidity. Because business is dynamic, forecasts of a company’s short-term finances are constantly changing, so it’s important that projections can be updated quickly, consistently and accurately. Visibility and the ability to understand the impact of contingencies are critical in the decision-making process, which is why having a tool that can rapidly assess potential outcomes to various scenarios is important. As well, given the importance of cash and liquidity to the day-to-day functioning of a business, financial executives must be able to exercise full control over these assets. Treasury must also be productive, which is why a tool that improves its efficiency through automation and better data management is essential. With today’s low interest rates, paying early to get a price discount offers companies a high rate of return on their cash. However, many companies fail to take advantage of this (or fail to do so consistently) because they don’t have the tools or processes to ensure that valid invoices are paid promptly.

vr_ss21_errors_in_spreadsheetsTreasury management software has been around for decades, but many companies still use desktop spreadsheets exclusively or for parts of this finance department function. Reducing the use of desktop spreadsheets in treasury diminishes associated risks, notably errors. Our spreadsheet research shows that data and formula errors are relatively common: More than one-third (35%) of participants said that errors are common in the most important spreadsheets they use in their jobs, and about one-fourth (26%) said that they find errors in formulas.

Kyriba offers Web-based software as a service (SaaS). For treasury management, SaaS has several advantages, including anytime, anywhere access to data, which can be critically important when issues arise outside of normal business hours or when key people are out of the office. In addition, implementation can be rapid and requires a limited amount of upfront investment. Kyriba Enterprise requires no ongoing IT department support, and for larger organizations it can scale to their requirements. The company also has the requisite security certifications, which can offer an even more secure environment than a company’s own infrastructure.

Making the finance department more strategic usually starts with finding ways to automate as many routine functions and processes as possible, and managing data to ensure its accuracy, availability and consistency. This frees up resources that can be redeployed to do more valuable work. Dedicated software often plays a key role in automating core business processes, managing tasks and handling data. With the right software, treasury organizations can help transform finance departments by providing more immediate, reliable information, as well as analytics-based insights to support consistently better decision-making and improved efficiency. Finance executives who want to improve their treasury organization should evaluate how well their existing technology supports this function. If better software is needed, I recommend evaluating Kyriba Enterprise.

Regards,

Robert Kugel – SVP Research

Along with other aspects of the finance organization, there’s increasing emphasis on having the treasury function play more of a strategic role in the organization. Typically, Treasury is charged with keeping track of and managing cash. Especially in larger organizations, this can be complicated because of multiple bank accounts, complex financing requirements and many methods of receiving and making payments; the complexity deepens when more than one currency is used across multiple jurisdictions, which also can pose regulatory issues. Treasury’s primary directive is to ensure that all funds are accounted for and that there is sufficient cash on hand each day to meet operating requirements. To accomplish this, finance professionals must perform key analytic tasks accurately to produce a clear picture of cash inflows and cash requirements. Analysis often is challenging because these numbers are constantly changing and because the process of collecting, analyzing and reporting all the data can be excessively time-consuming if done manually. This is a situation perfectly suited for dedicated applications that automatically manage the data needed to orchestrate treasury processes and provide analysis to inform decisions. Yet our benchmark research finds that more than half (56%) of companies with more than 1,000 employees either use spreadsheets exclusively or employ them heavily in conjunction with a treasury application.

Put simply, treasury management is a challenge because it’s highly detailed and demands complete accuracy. Those of us who struggle to balance a checkbook can appreciate that the requirements at the corporate level are several orders of magnitude more demanding. Beyond enforcing the straightforward requirement that numbers be accurate and available in a timely fashion, controllers and CFOs must have forward visibility into future cash positions at an elemental – not aggregated – level because payments must be made by the right legal entity, not at a corporate level. Thus, future cash positions must be forecast at a proper level of granularity to ensure future liquidity requirements can be met. Where a corporation has excess funds at an entity level, it needs to plan for the best way to dispose of it, taking into account all legal requirements (including covenants by lenders, lessors or others that might constrain the disposition of cash by some part of the company). Where it has obligations to pay off debt, it must track and prepare for these events. For cash balances and debt, companies must take into account interest rate risks. Often there are intercompany transfers of cash that must be accounted for in cash-flow planning. As well, companies operating in multiple currencies must have forward visibility to project cash balances and flows by currency to determine the best levels of currencies to be held by each corporate entity, taking into account exchange rate risks. Further complicating matters, in the wake of the recent financial crises, treasuries must be able to manage counterparty risk to avoid losses on liquid or semiliquid balances, or having their funds stranded by regulations that impair their ability to freely transfer money.

Processes this complicated typically consume a considerable amount of Treasury’s time if they have limited or no automation and rely heavily or entirely on desktop spreadsheets. Two basic tasks in particular can eat up lots of time: entering data from multiple systems and reporting accurate and relevant information promptly to executives and managers. In the first instance time is lost in rekeying data from multiple systems into spreadsheets for analysis and in the second as individuals repeatedly create periodic spreadsheet reports that are distributed (usually by email) to interested parties. As is the case elsewhere in an organization, time spent handling basic tasks in spreadsheets prevents people – often very skilled people – from performing more valuable work that requires insight and judgment.

One area that would benefit from professionals having more available time is cash and credit optimization. Making good decisions consistently requires better intelligence to weigh options in how to deploy cash balances and manage debt levels (by currency and location) as well as tactical decisions on whether to accelerate payment of invoices to take advantage of discounts. Today, because short-term rates are so low in many parts of the world, companies can, in effect, earn a higher return on cash by having less of it. Having accurate, detailed and up-to-the-minute forward visibility enables finance executives to manage cash and debt more actively to achieve better returns on financial assets and to lower costs on debt.

As well, reducing the use of desktop spreadsheets in treasuryvr_ss21_errors_in_spreadsheets management diminishes the risks associated with their use. Our research shows that data and formula errors are relatively common. More than one-third (35%) of participants said that errors are common in the most important spreadsheets that they use in their job, and about one-fourth (26%) said that they find errors in formulas. Given the importance of these files it is reasonable to assume that users tend to be cautious in checking for mistakes, which requires more time. Even so there’s always a data integrity issue when desktop spreadsheets are involved, mainly because errors in spreadsheets are common and, in complex ones, difficult to detect until a major problem erupts. When desktop spreadsheets are used in a collaborative process there are also issues of security, auditability and fraud control. Processes can become bogged down because the system has no effective workflow oversight and management. As well as consuming time in checking for errors and resolving the ones that are found, people spend more time in updating, revising, modifying and correcting their spreadsheets. Based on our research we estimate that people spend on average 12 hours per month (equivalent to one-and-a-half eight-hour days or 30 percent of a 40-hour workweek) on these activities.

Software to manage the treasury function is more capable and affordable than ever. Corporations that rely entirely or heavily on spreadsheets should investigate how greater automation will enable it to make treasury management more efficient and more reliable and, in the process, enable it to become more effective by providing greater analytical support and forward visibility into the company’s cash sources and requirements.

Regards,

Robert Kugel – SVP Research

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