What is the value of a corporate treasury software?

Impact of recession on treasury

The following are examples of risks in treasury during a recession:

• Variations in interest rates: During a recession, economic activity slows, and the government reduces interest rates to stimulate the economy. As a result, businesses frequently need to monitor the shifting interest rates.
• High cost of borrowing: Late payments on loans can cost businesses a lot of money during recessions, making it difficult for firms to cover overhead costs and manage their cash flow. Overnight sweeps and last-minute borrowing are done at high-interest rates to compensate for this.
• High FX risk: Treasury teams that deal with different currencies face multiple challenges in recession. The profit and loss statements are greatly impacted by currency swings, making it challenging to evaluate FX risks.
• High cash buffer:Companies increase their cash buffers because they aren’t prepared adequately for macro-level volatility due to manual and time-consuming processes. Additionally, they cannot promptly identify idle cash due to data being dispersed across numerous spreadsheets and platforms. 

With increasing inflation and rising rates, businesses should proactively improve their abilities to manage turbulent times. They must prepare early before a recession hits and leads to financial losses.

How should businesses prepare for a recession?

Companies should follow the following steps to stay prepared for recession:

• Automate processes: Automate processes such as data gathering, cash forecasting, and reporting. This helps improve efficiency, reduces costs, and strengthens control levels. Moreover, the team would have more time to focus on the activities that require immediate action.
• Plan for multiple scenarios: Prepare for as many what-if scenarios and possible responses in advance as you can. There may be numerous layers to each scenario. Start by asking yourself, “What if?” Analyze the impact of various scenarios on your company and establish the KPIs or trigger points that would allow you to implement a recession strategy. There may be numerous layers to each scenario.For example, if sales drop 10%, you might decide against business trips and reduce advertising spending by 50%. A 20% decline could result in converting a specific percentage of your staff from full-time to part-time.
• Safeguard the cash flow: Secure and safeguard the money that comes in. Make collections seamless and faster, identify risky customers by credit score, and maintain good relationships with clients and banks.
• Transform treasury operations: Take on several strategic tasks, such as transforming from a cost center into a value-adding service center, enhancing working capital management, and practicing better treasury management by:
  • Collaborating effectively with stakeholders such as A/R, A/P, accounting
  • Tracking trends and variances.
  • Providing accurate cash forecasts and reports to make executive decisions.
• Leverage treasury analytics: Invest in analytics. Analytics provide a clear view of current cash position, future cash flows, and trends and irregularities to help you decide strategically based on potential future outcomes related to cash flow, bad debts, and customer bankruptcy.

Treasuries can reap these benefits of software for corporate treasury:

• Centralized treasury management: Treasury software centralizes cash management by:
  • Improving investment and borrowing decisions
  • Providing continuous data visibility across all systems to optimize strategic financing decisions
  • Enhancing comprehension of how global projections are impacted by transaction-level activity
  • Drilling-down into specific customer accounts or transactions to identify probable sources of variation
• Automated data gathering and reporting: Corporate treasury software solutions automatically recognize and gather information from numerous sources (such as TMS, bank portals, FP&A systems, and A/P and A/R departments).

  The benefits of automated data capture are:

  • Improved accuracy
  • Decreased costs and paperwork
  • Reduced human error
  • Faster reporting
• Multilateral netting: Corporate treasury software aids in the calculation of net payables and receivables positions. Corporate treasury software systems for multilateral netting combine two parties’ outstanding accounts payables and receivables into a single payment. Additionally, it lessens the likelihood of settlement and other financial risks involving two or more parties.
• Seamless integration with internal and external data sources: Software for corporate treasury effortlessly combines data from both internal and external sources. Additionally, they clean the data to address concerns with formatting or other data quality. Data access is simple and ongoing when bookkeeping is done in a single repository.
• Transactions tracking and reconciliation: Corporate treasury software solutions automatically reconcile transactions based on common and user-defined tagging standards, manually or automatically reconciled with rare deviations.
• Company-wide risk management: Corporate treasury management software helps reduce risk exposures by proactively monitoring real-time FX rates and commodity prices.

  Corporate treasury software allows to:

  • Conduct routine analyses to confirm that risk exposures are within the organization’s risk appetite and that internal controls are functioning correctly.
  • Perform benchmarks frequently to ensure that hedging functions correctly and that risk limits are not exceeded.

An agile treasury function is crucial for the whole business to remain competitive. It also helps the team and department prepare for the challenges ahead, such as deciding on the treasury’s future organizational structure, needs, strategy, technology, and partnerships.

How corporate treasury software tackles a recession?

• Incorporates scenario planning into cash forecasting: Scenario planning aids decision-makers in managing many scenarios, assessing actions, and anticipating potential outcomes and repercussions. External factors like changes in raw material prices can also be considered to capture trends and produce a cash flow forecast.
• Forecasts cash frequently: Regular forecasting involves developing precise and updated forecasts using all available historical and current data. It allows the treasury department to base choices on the current state of the firm rather than a potential budget that was determined months in advance. With frequent cash forecasting, businesses can take remedial action, such as improving payment and collection techniques, selling assets, or approaching lenders.
• Provides in-depth cash flow analysis: A thorough, in-depth cash flow analysis gives treasurers better visibility and allows them to precisely calculate the ideal cash requirements. They will be able to use techniques like notional pooling and just-in-time funding to construct regional and local liquidity arrangements that meet these demands.

  Software for corporate treasury improves maintenance of intercompany and notional pool balances. The software easily captures all mirrored and notional bank accounts’ intercompany transactions, balances, and interest.

• Address FX risk management: Treasurers can use natural hedging, intercompany loans, currency netting, and local currency borrowing to address FX risk management.

  Financial risk management software enables treasury to:

  • Increase the transparency of all risks, including market, credit, and liquidity risks.
  • Increase the effectiveness and control of exposure management and derivative management.
  • Use the most excellent hedging practices to safeguard your business.