While researching for this article on Treasury Management Systems (TMS) and with the 2020 tax season around the corner, I was wondering where the word “treasury” came from. It derives from the French word “tresorie” and it was first used in a business context by the The Bank of Scotland in 1658. In a more recent setting, it reminded me of former con man, check forger and imposter, Frank Abignale, who was memorialized by Leonardo DiCaprio and chased by Tom Hanks as an FBI agent in the movie Catch Me If You Can. A Houston Police Chief once said about him: "Frank Abagnale could write a check on toilet paper, drawn on the Confederate States Treasury, sign it 'U.R. Hooked' and cash it at any bank in town, using a Hong Kong driver's license for identification." One must assume that if TMS were around in the 1960s during Abignale’s reign of bank fraud, his career would have been cut short.
On a more serious note, there is not one organization, regardless of their size and industry, that can afford to lose sight of their cash and liquidity positions. And in an increasingly complex business landscape, this can be easier said than done. In a 2018 survey, a total of 371 Finance Executives (companies with more than $250M in revenue) identified a clear and pressing need to increase their capabilities when it comes to cash management, control management, and overall finance functions.
Therefore, it does not come as a surprise that organizations are looking to invest in Treasury Management Systems to automate, record and control many core treasury management functions.
Treasury Management Systems, or TMS, are applications that automate critical financial operations. TMS allow treasury departments to communicate and interface with banking partners while ensuring finance data remains secure. And it’s true that these TMS solutions have come a long way since their introduction in the early 1990s, when they were generally standalone systems. That meant they were difficult to integrate across businesses, especially with existing ERP software. Over the past 2 decades, TMS providers have developed software which integrates with a range of other systems, and functionality within solutions has grown dramatically too.
Treasury management systems (TMS) have evolved significantly over the last few years, in large part thanks to a maturing cloud market and the continued advancement of remote banking communication systems.
The trends in treasury technology are not surprising.
- While still emerging, blockchain has the potential to eliminate float from trusted financial transactions, eradicate settlement processing time and errors in booking, and support real-time global integration between finance and business operations systems.
- On the periphery of treasury, new and disruptive technologies introduced by financial services technology companies (FinTechs) are changing the way customers and businesses interact.
- More treasury systems are being implemented in the cloud, either as a pure Software as a Service (SaaS) application or as a private cloud on dedicated client databases.
Regardless of the clients catered, there is a clear market trend for TMS vendors to provide their products in the cloud. This trend allows treasury to become more independent from the IT function that is needed to support traditionally hosted systems. Some of the newer suppliers in the TMS market focus solely on SaaS- based offers while mature vendors with single-tenant systems have started to offer their products in a private or public cloud environment with dedicated or shared infrastructure.
Despite the changes in technology trends, the core treasury technology remains the TMS, and will likely continue to be the most critical technology component within treasury for the foreseeable future.
TMS Supplier Landscape
It is easy to conflate TMS (specialists) with ERP (generalists), but the key difference is specificity. While ERP systems offer treasury functions and banking links, they are designed to provide a “single system” approach to back-office functions. The complexity of treasury such as the need for high-level risk management analytics, complex product coverage, and compliance with global finance standards, makes a TMS the ideal solution for dedicated treasury support.
- The TMS supplier market has consolidated considerably over the past decade, with private equity firms acquiring TMS vendors, and larger vendors acquiring complementary and smaller companies.
- TMS players are becoming increasingly global, with broad product offerings and strong support networks.
- Smaller players face significant challenges in keeping up with competition from larger, financially strong suppliers, however, they are also unencumbered with a lot of the historical inefficiencies that tend to plague TMS software.
Rapid advances in TMS software have created a thriving but crowded systems market that can be further categorized to assist in finding the ideal TMS solution.
Entry Level Systems – Typically geared towards organizations with domestic operations, low volumes and simple treasury requirements. It is typical that these TMS applications are partnered with ERP systems to provide a more visually appealing offer for cash reporting.
Mid-Market Corporate Systems – These TMS target more complex requirements, are scalable and vary from very customizable to “out-of-the-box.” This type of system works well for companies looking to build full end-to-end automation within a single database or front-end application.
High End Systems – Target Global Fortune 500 corporations and financial institutions with very complex treasury operations. They offer similar functionality and scalability to mid-market systems but allow for more customization, are more risk-focused, can handle commodities and are built to handle higher transaction volumes.
Sourcing and Selection a TMS Solution
The objectives of a TMS are to keep corporate finances on track and provide control to maximize the accuracy of all cash reporting.
- According to a 2017 survey by Strategic Treasurer, 31% of the respondents used only Excel for managing Treasury related tasks.
- A more recent survey from 2019 by GTreasury noted 41% using Excel.
- That same 2019 study reported 44% TMS usage and 50% of organizations currently looking for a TMS because they do not have one or upgrade their current solution.
For those looking to buy or upgrade, there are a host of choices available. Depending on the business requirements, the corporate structure and the objectives of the CFO, each TMS will have its own pros and cons, and it is definitely not an easy task to weed through the various solutions available and negotiate a value optimized deal.
Below are some elements to focus on:
- Define what the TMS should do for you long term and properly balance the influence of TMS business owner with other functions such as IT, Procurement and Legal.
- Focus on questions that are relevant to the treasury operation so that any scoring on irrelevant functionality requirements does not invalidate results.
- Vet supplier market in advance of the RFP process to ensure focus is on functionality required and include on-premise or cloud deployment plans (now or in the future).
- Ensure seamless integration with other systems and allow supplier demonstrations to include “your data” where possible.
- Include variable and rich reporting capabilities that drive outputs provided in an infinite variety of layouts, formats and files to satisfy your clients’ needs.
- Engage Information Security Office and other relevant functions to ensure data privacy and security concerns are addressed.
Transition from perpetual to a subscription right
Almost all of the TMS suppliers have a subscription-based license model in place, but there are still customers that purchased perpetual license rights with annual support payments that are under older agreements.
TMS suppliers would like you to migrate but at first glance it seems counterintuitive, right? Why would you return a product owned and then rent it back? You have the option to stop paying for support but still have the right to use the TMS.
Only for the right reasons should this be considered:
- The migration gives you an opportunity to clean up that old perpetual contract that is missing specific terms relevant today.
- The transition to a subscription-based contract should factor in the cost of the perpetual rights.
- The negotiation opens up the opportunity to align the new terms with the true needs of the business.
- The opportunity allows for internal process review to right size and eliminate, unused licenses.
If you are one those that are looking to invest in a TMS, NET(net) can provide assistance in narrowing down the supplier landscape, execute a market review and selection process using its own Federated Market Intelligence (FMI) and negotiate a value optimized deal. And if you have been asked, or forced for that matter, to give up your perpetual rights for subscriptions, NET(net) can support you in right-sizing your current TMS deployment and negotiate a favorable transition.
To use J. Paul Getty, founder of Getty Oil (Texaco now), "In times of rapid change, experience could be your worst enemy." Just because you’ve done something a certain way before, it doesn’t mean that it’s the best way today. Question everything and never rely on the status quo.
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