Why Automating Treasury Processes Is A Must?

4 mins read

26 January 2023

As new solutions arise in response to technological advancements and shifting company needs, the digitization of treasury operations is a must.

Although ensuring effective use of cash throughout the organization has always been a key priority for corporate treasurers, they have become more critical about maintaining transparency . Treasurers have to make sure their organizations had adequate liquid assets to endure repeated lockdowns, interruptions in the supply chain, and a drop in client demand. After three years into the pandemic, an evaluation is now necessary. How far have businesses come with treasury centralization? What obstacles to process automation still exist, and how may future collaborations between banks and fintechs help to overcome them?

Undoubtedly, the pandemic served as a wake-up call for many treasurers, but it is now more important than ever to provide visibility over and access to funds. The conflict in Ukraine, the sanctions that were imposed on Russia, and the continued COVID limitations in China are all causing supply chain delays for businesses globally, which has an impact on the demand for working capital and liquidity.

In order to free up time to focus on more strategic activities and business partnerships, the treasury function must continually improve automation. This is especially true as we move into a period of renewed geopolitical and economic uncertainty. Automating processes from beginning to end takes time.

Where To Start

To automate treasury activities, a wide range of solutions are available, including bank connectivity, file formatting, cash flow forecasting, data analytics, in-house banking, bank account management, receivables reconciliation, and fraud prevention. Given the variety of suppliers on the market, the variety of choice may seem confusing, but as the financial technology sector develops and grows, it is getting easier to recognize and obtain new capabilities.

To supplement their treasury management system (TMS), enterprise resource planning (ERP), and/or banking systems, some treasurers will still look for and use specialized technologies. However, to enable automated processes and better decision-making, TMS and ERP suppliers have either created or acquired specialized capabilities, or they have collaborated with other providers to achieve this.

The issue facing treasurers is not what they can automate, but rather which task they ought to take on first. Typically, a problem statement like: Which tasks use the most time or resources informs the priorities for automation. Which procedures are most vulnerable to fraud, mistakes, and omissions? What initiatives is the Treasury looking to embark on but cannot fund with its current resource base?

Automation In Practice

For treasurers, projecting cash flow accurately and on time has been a persistent problem that frequently ranks first in industry surveys. Data is frequently kept by numerous teams within the company, each of which has a separate system to create files in a variety of formats. By the time this process is finished, the report may only be of limited value because compiling this data frequently requires time and physical labor.

Therefore, firms must collaborate with technology partners to create a cloud-based, SaaS solution that aids in financial team decision-making. Given that the goal is to apply predictive analytics and AI models to optimize organizational processes, such a system provides real-time visibility over transactions and even goes beyond cash flow forecasting. In order to provide services like working capital optimization, FX hedging suggestions, end-of-day liquidity forecasting, and performance against environmental, social, and governance (ESG) indicators, the solution retrieves data from clients’ ERP and TMS and consolidates it with bank data and data from third-party data vendors on a single platform.

Up until recently, billing receivables reconciliation was frequently a manual or semi-manual procedure, which posed less of a challenge when resolving a small number of high-value transactions. The cash flow dynamic changes from sizable wholesaler and distributor payments to a high volume of little and micropayments as businesses adopt direct-to-consumer (D2C) business models. In order to enable real-time fulfillment and continuous service delivery, these must be quickly reconciled.

As a result, technologies are required to automate the reconciliation process, frequently leveraging AI and ML to generate clever matching criteria. Working with a third-party fintech provider to use their service offering for an integrated, rule-based auto-matching capability is an illustration of this. In addition to providing an intelligent, ML-based matching engine, this combines various payment methods and data sources. It also automates file conversion and optimization for import into ERPs. It gives treasurers a thorough, up-to-date, and precise view of reconciled cash flows to manage liquidity, while business teams may continue to offer customers access to goods and services without interruption.

Continual Digital Transformation In 2023

As new opportunities and solutions arise in response to technological advancements and shifting company needs, the digitization and optimization of treasury operations and decision-making is an ongoing process. When used outside of the finance department, i.e. when combined with an enterprise’s sourcing and distribution value chains, some more recent technologies, such as blockchain and distributed ledger (DLT), have the potential to completely change how treasury processes and transactions are carried out. Although they are still uncommon in the treasury sector, blockchain-based solutions like smart contracts are becoming more developed.

With the possibility for real-time, transparent processes and transactions, these technologies that support AI, ML, and API-based connection will eventually become more common, making the distinctions between finance, procurement, and fulfillment processes less rigid than they were in the past. Treasurers can further streamline and improve the efficiency of their operations and the quality of their decision-making by collaborating with their banks and technology partners, remaining informed of emerging fintech prospects, and becoming an even more valuable partner to the business.