The treasury function in finance departments doesn’t get a lot of attention, but it’s a fundamentally important one: to ensure that all funds are accounted for and that there is sufficient cash on hand each day to meet operating requirements. Keeping track of and managing cash, especially in larger organizations, can be complicated because of multiple bank accounts, complex financing requirements and various 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.
Basically, 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 the corporate level. Thus, cash positions must be forecast at a proper level of granularity to ensure that liquidity requirements can be met.
Treasury 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 it’s done manually. In this environment information technology can enable innovation. Dedicated treasury management applications can automatically manage the data needed to orchestrate treasury processes and provide analysis to inform decisions. Yet our benchmark research on use of spreadsheets in the enterprise finds that more than half (60%) of companies with more than 1,000 employees either use spreadsheets exclusively or employ them heavily in conjunction with a treasury management application.
The treasury function is so multifaceted that desktop spreadsheets cannot keep up. When a corporation has excess funds at a business entity or bank account level, it needs to plan for the best way to dispose of them, 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). When 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 risks in interest rates. 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 little or no automation and rely on 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 in handling basic tasks in spreadsheets prevents people – often very skilled people – from performing more valuable work that requires their insight and judgment.
To illustrate, let’s consider one area that would benefit from professionals having more available time: cash and credit optimization. Making good decisions consistently requires solid intelligence with which to weigh options in deploying cash balances and managing 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 lower costs on debt.
As well as handling rote tasks easily, reducing the use of desktop spreadsheets in treasury 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 they also create 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 them to make treasury management more efficient and more reliable and, in the process, more effective by providing greater analytical support and forward visibility into the company’s cash sources and requirements.
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