TREASURY AND  CASH MANAGEMENT ESSENTIALS

Systems

For treasury activities, the importance is growing of the technology that organizations use for automating processes, performing calculations, communicating with internal and external partners, monitoring risk and generating compliance reports.

Straight-through processing (STP)

The effectiveness of transaction processing is usually determined by the degree to which it facilitates straight-through processing (STP).

Straight-through processing is the efficient, secure and instantaneous flow of information:

The treasury function is responsible for ensuring that cash flows (receipts and payments) throughout the business are processed as efficiently and securely as possible. Optimizing bank charges and float (the period of time that a transfer is ‘in transit’) can save considerable amounts of money. One way of doing this is by organising bank accounts into ‘cash concentration’ or ‘notional pooling’ structures:

  • Within systems in the treasury department, such as the electronic confirmation-matching system that automatically updates deal-confirmation status in the treasury management system (TMS)
  • With other internal systems, such as the automatic posting into the general ledger system of journal entries created in the TMS
  • With other parts of the business, such as the capture of foreign exchange (FX) transactional risk by forecast FX transactions reported from subsidiaries
  • With external parties, such as cash balances reported from banks or mandatory derivative trade reporting/reconciliation.
Treasury management systems

For large organizations, all treasury transactions should be recorded and managed within a treasury management system (TMS), which forms the heart of most corporate treasury technology infrastructures. While spreadsheets are commonly used for broad forecasting roles, proper risk management techniques are available in dedicated systems.

A TMS:

  • Facilitates the processing and management of specialist information
  • Provides secure information through workflow controls
  • Defines user rights, ensuring the segregation of duties
  • Provides an audit trail
  • Produces treasury reports and accounts for treasury transactions, which under International Financial Reporting Standards (IFRS) and equivalent local standards may be complex.

These issues are important for a number of reasons:

  • The amounts of money handled by treasuries are always large relative to the size of transactions typically handled elsewhere in an organization. This means the potential cost of even a relatively minor incident of error or fraud can be material, even fatal, for the business.
  • Treasury needs reliable information to help make decisions on risk management, liquidity and funding, the financing of investment and acquisitions, structuring debt and more.
  • Corporate governance is on the agenda of every CFO and treasurer, and may to some extent be externally imposed. For example, the US Sarbanes-Oxley legislation requires rigorous operational controls, which are only achievable with specialist technology.

The TMS will often need to be supplemented by or interfaced with additional systems covering payments, market information or other specialist tools. These are presented in the diagram below.

Figure 7: Typical systems used in treasury

Typical systems used in treasury

Many smaller organizations will not require a TMS, as their treasury operations are relatively simple and involve low volumes.

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