Everything You Need To Know About Automated Treasury Management

Introduction

In today’s fast-paced and unpredictable economic environment, the need for robust financial management solutions has never been greater. Effective financial management is crucial for running a successful business, as it involves optimizing cash flow, managing financial risks, and maintaining liquidity to enhance profitability and shareholder value.

This is where the importance of the Treasury Management System (TMS) becomes crucial. A TMS helps businesses automate and optimize their treasury functions, ensuring efficient cash flow management, financial risk mitigation, and maintenance of optimal liquidity levels. 

In a market characterized by economic uncertainty, fluctuating interest rates, and global financial volatility, the adoption of a TMS is more critical than ever. In this blog, we will explore how leveraging treasury management software can help businesses navigate the complexities of the modern financial landscape, ultimately leading to improved financial performance and stability.

What is Automated Treasury Management?

Automated treasury management refers to the use of advanced software and technology to manage a company’s treasury functions efficiently. These functions include cash management, liquidity management, financial risk management, and investment activities. By automating these processes, businesses can improve accuracy, reduce manual effort, and make more informed financial decisions.

What are the Functions of an Automated Treasury Management Tool?

An automated treasury management tool (TMS) is designed to handle various aspects of treasury operations, providing comprehensive solutions to enhance efficiency, accuracy, and control over financial activities. Here are the primary functions of a TMS:

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  Cash and liquidity management

  
  

  Automated treasury management tools provide real-time tracking and reporting of cash balances across multiple bank accounts and geographies, enabling businesses to maintain optimal liquidity levels. A solution like HighRadius’ cash management automation solution helps businesses increase cash management productivity by 70%. They also forecast future cash flows to ensure funds are allocated efficiently and centralize bank account management, simplifying the processes of opening, closing, and maintaining account details.

  
  
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  Financial risk management

  
  

  These tools identify and assess financial risks related to currency fluctuations, interest rate changes, and commodity prices. By implementing and managing hedging activities using financial instruments, they help mitigate these risks while ensuring compliance with regulatory requirements and internal policies through comprehensive risk management practices.

  
  
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  Debt and investment management

  
  

  Automated treasury management tools monitor and manage short-term and long-term debt, including loan schedules and interest payments, and support refinancing activities. They also manage investment portfolios to maximize returns within acceptable risk parameters, tracking and reporting investment performance, and optimizing borrowing and investment activities to maintain liquidity and support business operations. In fact, HighRadius solution manages the Debt/Investment (D/I) instruments, auto-populates settlement instructions, and even provides a clear view of interest payments, repayments, and reinvestments. 

  
  
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  Intercompany transactions

  
  

  These tools manage loans and advances between different entities within an organization, centralizing and netting intercompany transactions to reduce the number of payments. This optimization of cash flow enhances efficiency and supports the overall financial health of the organization.

  
  
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  Payment management

  
  

  These tools automate and streamline the processing of domestic and international payments, ensuring efficiency and accuracy. They reconcile payments with invoices and other documents to ensure completeness and implement robust security measures to detect and prevent fraudulent activities, enhancing overall payment management. A solution like HighRadius helps businesses minimize the risk of financial fraud, with a centrally controlled system that supports automated and manual payments, reducing bank fees by 30%.

  
  

Advantages of Using Treasury Management Software

Using Treasury Management Software (TMS) system providers offers several significant advantages, helping businesses optimize their financial operations and maintain better control over their resources. Here are some key benefits:

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  Centralized access to data

  
  

  One of the key advantages of using TMS is centralization, where all data, processes, and tasks are combined in one centralized dashboard. This eliminates the need to log in to multiple systems or manually collect data within spreadsheets. A TMS automatically pulls data from different financial systems and makes it readily available for further financial analysis. In fact, by leveraging solutions such as HighRadius Bank Connectivity Manager, businesses can manage the lifecycle of bank accounts, from requesting, opening, modifying, and closing bank accounts. It also offers out-of-the-box support to parse the industry-standard bank file formats (BAI2, MT940), making it easy to access real-time insights into bank statements that have been received and processed. 

  
  
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  Process automation and customizability

  
  

  A TMS automates many processes, such as data collection, payment reconciliation, cash flow forecasting, liquidity planning, and reporting. This saves time for the treasury and finance teams and reduces the risk of errors compared to manual processes. Most TMS vendors can also customize automation to meet specific customer requirements. For example, by leveraging HighRadius Treasury and Risk solutions organizations can experience a 70% enhancement in cash forecasting productivity. Solutions like cash accounting software help businesses handle GL posting rules for bank transactions. In addition to this, features such as Bank and Cash Reconciliation automate the reconciliation between planned prior-day cash transactions and bank statement items and identify unmatched items in bank statements or cash transactions.

  
  
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  Simplified connectivity

  
  

  A TMS is integrated into a company’s current technology ecosystem and can easily connect to all banks, ERP systems, and other systems using the vendor’s pre-built technical connections. In fact, HighRadius’ treasury solution can integrate with multiple ERPs, banks, and financial data sources. This is critical for business continuity, especially for companies that use multiple banks and systems with different file formats and requirements.

  
  
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  Improved cash visibility and forecasting

  
  

  Centralization, automation, and connectivity enable treasurers to get a quick overview of all cash positions across the organization, making it easier to develop accurate cash flow projections. Treasurers can gain continuous and granular cash visibility through a single automated cash management system. Leveraging HighRadius’ Cash Management solution allows users to create unlimited cash position templates to analyze global cash visibility by company, bank account, banks, categories, region, countries, dates, etc. enabling them to quickly identify the bank accounts with low balances and fund them.

  
  
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  Business cost reduction

  
  

  According to a survey conducted by McKinsey, companies that automated 50-70% of their tasks experienced cost savings of 20-35% annually, along with triple-digit ROI. By implementing a TMS, companies can eliminate bank fees associated with cross-border payments and payments across multiple vendors. By leveraging the HighRadius solution, businesses can minimize costs maximize efficiency, and save up to 30% on average cost per payment. The resulting cost savings can be directed toward business expansion, debt payments, M&A, and other growth initiatives.

  
  

Overcoming Cash Forecasting Challenges: A Real-Life Example

Let’s take a look at an example of how automation and AI revolutionized cash management for a billion-dollar construction firm.

A billion-dollar construction firm struggled with numerous challenges in cash forecasting due to its reliance on spreadsheets and manual data gathering. However, with the help of automation and AI-based cash forecasting, the company was able to transform its cash management process, achieving impressive results, including:

1. Increased visibility: The company gained greater visibility into all cash flows with the new system, enabling them to make better-informed decisions.
2. Improved confidence: Automation and AI-based forecasting improved the company’s confidence in their cash management decisions, as they had greater accuracy and better data to work with.
3. Increased accuracy: The new system improved accuracy up to 95% for both A/R and A/P forecasts, enabling the company to better manage its cash flow.
4. Short and long-term forecasting: The company was now able to perform short and long-term forecasts with more accuracy, which was crucial for planning its operations.
5. End-to-end automation: Automation was implemented across all key processes, from data gathering to variance analysis, enabling the company to reduce manual effort and save time.
6. Reduced line of credit: The company was able to reduce its line of credit by $1.2 million, a significant achievement that helped it manage its cash flow better.
7. Variance analysis: The new system enabled the company to perform variance analysis and identify variance drivers with drill-down functions, which was not possible with the previous manual processes.

Overall, the company achieved 94% cash forecast accuracy, which was a significant improvement over the previous manual process. In addition to this, the company was able to reap several benefits, including:

• Reduced manual effort: The company was able to reduce the time spent on cash forecasting from 20 hours to just a few hours per week, freeing up valuable time for other tasks.
• Improved decision-making: With greater visibility and accuracy, the company was able to make better-informed decisions about its cash management.
• Better cash flow management: The new system enabled the company to manage its cash flow more effectively, reducing the risk of cash shortages or surpluses.
• Increased efficiency: By automating key processes, the company was able to increase efficiency, reduce errors, and save time.

With these impressive results, the company was able to overcome its cash forecasting challenges and streamline its cash management process, setting itself up for long-term success.

How to Get Started with Automated Treasury Management?

Getting started with automated treasury and risk management software involves several key steps. Here’s a step-by-step guide to get you started:

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  Assess your current treasury processes

  
  

  Begin by thoroughly reviewing your existing treasury operations to identify inefficiencies and manual tasks. Evaluate your cash management, liquidity planning, and risk management processes to pinpoint areas that could benefit from automation. This assessment will help you understand where automation can have the most impact and guide your decision-making process.

  
  
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  Define your objectives

  
  

  Clearly outline what you aim to achieve with automated treasury management. Objectives may include enhancing cash visibility, optimizing liquidity, reducing manual errors, and improving financial controls. Defining these goals will help you select the right solutions and measure the success of your automation efforts.

  
  
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  Research treasury management systems (TMS)

  
  

  Go online and research various TMS solutions available in the market to find one that fits your requirements. Consider aspects such as integration with existing systems, scalability, key features like cash flow forecasting and risk management, and the vendor’s reputation. Testing different solutions through demos and trials will help you make an informed decision.

  
  
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  Plan for Integration

  
  

  Strategize a plan for integrating the TMS with your current systems, including your ERP and banking platforms. Look for solutions like HighRadius Treasury Solution, which allows integrations with multiple major banks, ERPs, and other financial systems. Address data migration and integration challenges early in the process to ensure a seamless transition. Proper planning will help avoid disruptions and ensure that the new system works effectively with your existing infrastructure.

  
  
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  Develop a strategy and implementation plan

  
  

  Create a detailed strategy for implementing the TMS, including timelines, resource allocation, and key milestones. Assign a dedicated project team to oversee the implementation and ensure that all aspects are managed efficiently. A well-structured plan will facilitate a smoother transition and help achieve your automation goals.

  
  
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  Monitor and optimize

  
  

  Once the TMS is in place, continuously monitor its performance to ensure it meets your objectives. Collect feedback from users and make necessary adjustments to optimize processes. Regular evaluation will help you address any issues promptly and enhance the effectiveness of the system.

  
  

HighRadius Treasury Solutions: Streamlining Cash Forecasting and Management with AI-Powered Tools 

HighRadius Treasury and Risk Suite offers a comprehensive suite of AI-powered treasury management applications that improve cash forecasting and cash management for treasury teams across all enterprises.

Features of HighRadius Cash Forecasting Software:

The HighRadius Cash Forecasting Software comes packed with a range of features, including:

1. Customized AI models: The cash flow forecasting models are customized to offer high-accuracy forecasts across all categories, including A/R and A/P.
2. Seamless integrations: The solution is designed to integrate easily with any ERP, banks, TMS, accounting solution, or other legacy systems through API or SFTP, allowing treasury to go online in weeks with minimal IT involvement.
3. No-code forecast: Users can handle data and build models using familiar Excel-like functions and interfaces. 
4. Global forecasting capability: Cash forecasts from various teams, geographies, and units are instantly consolidated at the global level with customized multi-user access, with up to 95% accuracy.
5. Variance analysis with detailed insights: Users can track the variance between the forecasted cash vs. actuals and identify discrepancies for different time horizons to identify, report, and reduce variance over time.
6. Scenario analysis: It provides a scenario builder that allows users to easily create and tweak what-if scenarios over a base forecast and compare multiple scenarios with one another. 

Features of HighRadius Cash Management Software:

The HighRadius Cash Management Software also offers an array of features, including:

1. Seamless integration with multiple data sources: The software processes files in all formats, including XML, BAI2, MT940, ISO20022, XLS, and CSV, and connects easily with all banks, ERPs, and independent market data sources.
2. 360-degree view of cash position: Treasurers can check real-time cash holdings across bank accounts, corporations, pools, and currencies with transaction-level drill-down capability.
3. Real-time tracking of expected and actual transactions: Users can make cash or intercompany transactions in Cash Transaction Explorer and then search for them using the advanced search.
4. Auto-reconciliation of transactions: Transactions from the prior day are automatically reconciled based on standard and user-defined tagging rules, with rare deviations reconciled manually or automatically.
5. Bank account management: The software easily captures intercompany transactions, balances, and interest across all bank accounts. 

FAQs

1) What is treasury management software?

Treasury Management Software (TMS) is a specialized financial tool that automates and optimizes treasury functions, including cash and liquidity management, risk management, debt and investment management, and payment processing. It enhances efficiency, accuracy, and control over financial operations.

2) What are the advantages of treasury management software?

The advantages of treasury management software include enhancing efficiency by automating tasks, improving accuracy by reducing errors, and offering real-time cash visibility. It streamlines payments, optimizes debt and investments, provides advanced analytics, and leads to significant cost savings.

3) What are the top features to look out for in treasury management software?

Top features in treasury management software include cash forecasting, positioning, payments management, investment tracking, risk and liquidity management, financial reporting, and system integration. Additional features include multi-currency support, compliance management, and bank relationship management.

4) What types of organizations can benefit from using treasury management software?

Organizations of all sizes and sectors can benefit from treasury management software, including corporations, financial institutions, government agencies, non-profits, and multinational companies. TMS is especially useful for those with complex financial operations, extensive cash flows, and diverse investment portfolios.

5) How does treasury management software improve cash visibility?

Treasury management software enhances cash visibility by consolidating data from multiple sources, including bank accounts and payment systems, into a single, centralized platform. This integration provides real-time visibility into cash balances and cash flows, enabling more accurate and efficient financial management.

6) How does treasury management software help with risk management?

Treasury management software aids in risk management by offering tools to identify, measure, and analyze various financial risks. It enables the development and implementation of strategies to mitigate these risks, ensuring that the organization can maintain financial stability and achieve its objectives.

7) Can cash management be automated?

Yes, cash management can be automated using specialized software. This automation includes tasks like cash flow forecasting, cash positioning, reconciliation, and payment processing. Automation enhances accuracy, efficiency, and real-time visibility, enabling better financial decision-making and resource allocation.