How the leading-edge enterprise are safeguarding treasury with treasury and risk management software

Managing liquidity during COVID-19 was both challenging and critical for business. The pandemic revealed significant flaws in the frameworks, analytical tools, and processes that corporations used to make liquidity decisions in times of crisis. Today’s fast-paced decisions are usually plagued by a lack of reliable underlying data, insufficient consideration of the market and implications for the larger ecosystem, and a lack of clear oversight. This problem is further aggravated in times of crisis when fast and well-informed decisions are required to avoid financial distress and unforeseen effects.

Challenges faced by treasury due to the pandemic

• Since companies are securing additional liquidity by drawing on credit lines and securing loans, they are unable to emphasize forecasting and liquidity monitoring. Additionally, it is also time-consuming.
• Companies are focusing on maintaining liquidity, but as the global economy continues to deteriorate, businesses in many sectors face increasing operational, financial, and liquidity issues.
• The difficulty in cash management is aggravated by the absence of a consistent decision-making framework and legacy ERP solutions that are slow, rigid, and fail to offer important information, as well as a lack of clear segmentation.

Risk management difficulties

Treasury departments must discover new ways of working as international commerce and digitization grow at a rapid pace. They face similar obstacles, such as the dangers created by market insecurity in other countries, and international trade rules. Their challenges are highlighted in the following sections:

• Treasuries are unable to achieve risk management goals : Treasury is in charge of making sure there’s enough cash on hand and devising measures to offset any financial hazards. But treasuries around the world are facing increasing pressure to meet this goal with fewer human resources and outdated systems at their disposal. As cyber frauds are increasing on a daily basis and the FX risks are escalating, treasuries need to take concrete steps to achieve their risk management goals.
• Working capital management : Working capital management is clearly challenging for businesses of all kinds, whether it’s due to international trade risks, or the need to compromise on payment terms in order to stay competitive. Fortunately, there are a variety of tools and solutions that can help enhance working capital management efficiency, and these are growing more complex all the time.

Different types of risks in the organization

• Business risk : A company’s or organization’s exposure to elements that lower profitability or cause it to fail is referred to as business risk. Anything that compromises a company’s ability to accomplish its financial objectives is considered a business risk.
• Financial risks : The danger of losing money on an investment or business endeavor is referred to as financial risk.
• Operational risks : It refers to the risks and uncertainties that a company faces when conducting day-to-day business operations in a certain sector or industry.

To prevent the above risks, businesses need treasury and risk management software in place to identify, assess, and respond to these unavoidable risks. The process of recognizing, assessing, and managing risk in an organization’s business plan, which includes taking action when hazards are recognized, is known as strategic risk management.

The following are the best practices firms should follow to overcome the risks:

1. Understand requirements and align liquidity : Define the cash portfolio’s goals, keeping in mind the broad requirements of safety, liquidity, and return on investment. Additionally, distinguish different liquidity groups based on business purpose in order to achieve these goals.
2. Categorize cash by liquidity horizon : Maturity matching is a best practice to categorize cash. Companies may not have the same level of insight in the current environment to match investments to the specific time horizon for when cash is required. To prepare for increased uncertainty, liquidity portfolios may need to include an additional cash cushion.
3. Increase portfolio monitoring : The investment committee often meets to examine portfolio structure and allocations in relation to cash flow forecast liquidity requirements. It is critical to include a monitoring and reporting function inside the investment policy in order to follow the portfolio over time and allow for more frequent reporting during periods of ambiguity.
4. Improve cash visibility : Financial transparency is essential for evaluating internal control systems and measuring the company’s financial health. The organization will be subject to unforeseen and perhaps catastrophic situations if they don’t have access to the full spectrum of financials.
5. Implement a liquidity plan : Creating a solid liquidity plan can assist in maintaining and controlling the cash flow. Having enough cash on hand ensures that the corporate treasurer can satisfy the company’s financial responsibilities.
6. Install multiple legal protection layers : It’s not just hard assets on the line; cash losses can be disastrous as well. Firms must factor in intangible losses and expand the view of intellectual property, trademarks, patents, and copyrights when completing a theft risk assessment.
7. Prevent fraud : It’s critical to have a complete awareness of what’s going on across the company while attempting to avoid fraud. A treasury and risk management system can be extremely useful to prevent fraud. A treasury and risk management system, once established, can provide a company-wide picture of all bank accounts and transactions, while also monitoring payments
   and balances.

Financial risk management software enables treasury to:

• Improve visibility of all types of risk, including market risk, credit risk, and liquidity risk.
• Enhance exposure management and derivative management efficiency and control.
• Protect company with best practice hedging strategies.

Benefits of using a treasury and risk management software:

• Proactive financial risk management : Treasury and risk management software helps monitor risk positions, commodity price movements, and currency conversion rates in order to build hedge accounting solutions with a full audit record and limit exposure.
• Debt and investment management : It is easier to gain visibility into available cash, balance risk, and return; automate tedious processes, and keep a close eye on all investments to avoid risk. Debt and investment management features can recommend the best interest rates on short-term debt and maximize the return on investment.
• Identify early indicators of potential risks : Treasury businesses work in increasingly uncertain situations, thus they need a proactive approach to detect and reduce possible risks. Treasury and risk management software assists business leaders by reducing efforts on lesser risk areas and allowing managers to focus their resources on serious threats.