In many ways, the day-to-day tasks of managing a treasury for an organization are similar to how you manage your personal finances. You closely track the inflow and outflow of your money. When you have extra cash for any period of time, you strategically invest or save it. And you try to maximize the benefit of your money by making smarter decisions.
The scale is just much larger for corporate treasurers and treasury managers. And the processing tools needed to turn raw data into actionable insights are considerably more robust than the math used at home. Data is the underlying raw information created while doing business. Analytics – the insights gained from reviewing and examining all your data – should help streamline the operational and strategic functions of your organization.
Building your organization’s analytics program requires expanding how you track data and determining what tools you use to harmonize and mine the data to make it actionable. Here’s how the use of technology will likely evolve as you go from a simple tracker to a multi-stream analytics master.
Step 1: Work on your own
Tools: Automation software
If you’re just starting to deploy analytics, you’re likely using some form of off-the-shelf desktop accounting software or even simple spreadsheets.
These systems can give you basic daily work tools: invoicing, payment tracking and even payroll in some cases. In addition, they may provide basic cash flow forecasting.
These systems are fine if your data is relatively simple – if you have one or two products, a handful of customers and just one legal entity, says Sayantan Chakraborty, head of product with Global Treasury Management at U.S. Bank.
If you’re trying to track cash flows associated with multiple products, with different business entities, across a large customer base, you may quickly find yourself outgrowing off-the-shelf software.
Step 2: A little help from your bank
Tools: Online banking tools
As you work to track growing products and services, you may find you need to supplement your desktop software with more advanced tools.
Most banks offer some type of business banking portal with a range of capabilities, from reporting analytics to cash flow forecasting and more.
Consider it a modular approach. Keep using desktop automation software for what you can, and start to get data from the online banking platform to expand your picture.
Step 3: Track more data
Tools: Enterprise resource planning (ERP) systems
Want to track even more data? Consider a system that can directly connect with your bank using application programming interfaces (APIs) to convert data into meaningful and actionable insights.
The Society for Worldwide Interbank Financial Telecommunications (SWIFT) system, which is used to securely send and receive information such as wire transfer instructions, can help. Many organizations use SWIFT messages, which transmit information through standardized code, to directly update their ERP systems.
Step 4: Organize complex data
Tools: Treasury workstation
As your organization grows more complex, treasury workstations allow for multiple data streams from different providers and different countries to flow into a single decision support system especially as you’re trying to manage cash flow and funding needs for your company, Chakraborty says.
Simply put, these tools take all your complex transactional and bank account data and distill it into specific action items for your treasury. Modules can be swapped in and out as needed, and other systems – like the ones in previous steps – can be used to complement a workstation.
Step 5: Further customization
Tools: New programs and systems
As you build out the analytics program, your organization’s needs will depend more on the unique nuances of your business – and less on the overall size of your business.
You’ll want to map your organizational needs directly to the way you incorporate analytics into your treasury’s decision-making process.
As you grow and modify your treasury workstation functions, new modules and systems can be added for specific tasks, just like adding rooms to a house, Chakraborty says.
“The good news is that with the widespread use of APIs, you can pick and choose various modules from different providers and have those work together to specifically meet your needs,” says Chakraborty.
And as your needs change and grow, you can keep building. If you find you need a better HR system, for example, it can be bought and integrated with your ERP and treasury workstation.
Here are four ways that using data can help you streamline the operational and strategic elements of your treasury.
Let’s say that you send payments to your bank and get a report that 80 percent of the payments are 10 days ahead of their invoicing due dates. That data can be useful for your operations: Adjusting the timing of these payments can help optimize your working capital. That money could be reallocated in your company to fund more pressing matters, including other payments.
“The point is if you knew how much excess cash you are likely to have in the coming week, you can plan ahead and deploy those funds more efficiently,” Chakraborty says. “That would be a good actionable insight – you can change your payment practices based on that. Either you start taking advantage of the early payments you’re making by requesting a discount from your vendor, or you can reduce your working capital.” Overall, making a change will help you optimize the amount of funding you need for your organization.
Analytics can help you see the trends and risk in your foreign currency payments and receipts. Currency hedging involves the purchase or sale of currency for delivery at a future date. This allows you to lock in an exchange rate or buy insurance against adverse changes in exchange rates. By reviewing the data, you can make more informed decisions about how much currency risk your organization faces and how best to act and reduce that risk.
“If all of your receipts are coming in British pounds (GBP), but your vendor payments are due in dollars (USD), your profit margins will be impacted by changes in the GBP/USD exchange rate. Many companies elect to hedge this risk,” says Chris Braun, managing director and head of FX Sales at U.S. Bank. By better analyzing the data, you can gain a deeper understanding of your exposures and make better decisions on how much to hedge. “If the exchange rate between pounds and dollars moves adversely, you’ve protected your margins,” Braun says.
Now let’s say your typical biweekly payroll runs around $500,000, but it fluctuates every time you send it to the bank because of temporary staff and additional consulting fees. Using insights derived from your analytics, your bank might be able to track all of your previous payroll files and establish an average. If your next payroll week is much higher than, say, your last 12-week average, you could get a message alerting you to the inconsistency.
“If the bank gets a file worth a million dollars that says you have 750 employees, that would be a red flag,” Chakraborty says. “You would know that you didn’t hire 250 employees last week. Maybe there’s an error in the system or maybe there’s a fraud, but whatever the issue, you would immediately know so that you can halt the payroll and investigate. Operational uses of analytics like this are critical to the ongoing health of your organization.”
Your analytics dashboards can be set to trigger alerts based on the number of manual payments or payments exceptions, which can help you benchmark your processes for efficiency.
“You might get a report saying that, in your peer group, only 5 percent of the payments are being stopped because of human error, whereas 25 percent of yours are,” Chakraborty says. That would provide an opportunity for you to improve your operational process.
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6 steps to implement an analytics strategy
Whether your organization is new to advanced analytics or you just want to refresh your treasury department’s view of the company data, these six steps will help you implement a new strategy.
Step 1. Prep your data
Review the internal and external data you’re tracking and consider what else you should be tracking.
TIP: Make sure the details of what you’re tracking are clearly defined.
Step 2. Get buy-in
Talk to your stakeholders, including IT, senior management or advisory boards to make sure everyone understands the new strategy.
TIP: Before you bring your plan to others, fully work through the implementation timetable and costs.
Step 3. Partner up
Talk to your data and analytics partners to see how existing services or products can be modified to fit your new strategy.
TIP: Relationship managers at financial institutions can help you find the right partners and products.
Step 4. Choose the right tech
Your software and hardware solutions need to give you useful analytics, but they also need to be serviceable. Work with your IT department and stakeholders to develop the right architecture.
TIP: Software applications are often modular and can be modified to work with your existing analytics solutions.
Step 5. Implement
Your goal is usable analytics, so make sure the data inflows from your new system can transform into what you need. Also, make sure IT has reviewed the security of your system.
TIP: Leave time and budget in your plan to test and reconfigure during implementation.
Step 6. Monitor and refresh
You’re up and running! Make sure you work with your banking relationship manager to monitor the system’s usefulness and make changes as needed.
TIP: Assess the effectiveness of your strategy on a yearly basis.
Source: U.S. Bank Global Treasury Management Senior Vice President and Head of Product Management, Sayantan Chakraborty.
Collecting the right data creates visibility into what’s happening at your organization. However, converting that data and visibility into actionable insights is what makes analytics so much more powerful.
“We can help treasury managers and corporate treasurers make better decisions,” Chakraborty says. “They can improve their own internal processes, how they conduct their banking, or how they perform against their peer group.”
For more information on how your business can best track your data and analytics, contact your banking relationship manager.