It’s proving a chaotic first half for many CFOs, as they predict how their businesses will fare in the face of global trade-related pressures, continued inflation, and the possibility of recession.
Those with treasury automation in place are likely to be feeling less stressed in the face of the turmoil. These solutions are built to help mitigate risk and provide finance professionals with a real-time view of cash and liquidity, project future cash positions, and model what certain scenarios might do to their standing.
In the increasingly unpredictable global economy, CFOs equipped with treasury automation capabilities have the solution needed to guide the business through choppy waters and proactively manage organizational risk.
Treasury Concerns During Turbulence
Economic uncertainty, stock market volatility, and supply chain issues are nothing new. Going back to the global financial crisis in 2007-2008, banks collapsing during the COVID-19 pandemic, inflation, and supply chain snags – the last two decades have seen spectacular market crashes.
During times of instability, the risks that treasury professionals must manage can seem never-ending. Some may experience reduced revenue and liquidity issues. Others who hold different currencies may face unexpected losses due to ebbs and flows with foreign exchange (FX).
Businesses may also have to contend with a higher likelihood of counterparties failing to pay their debts, which can cause anything from bad cash flow for a limited period to significant financial losses that threaten companies. The business may also need to accommodate for lower yields from their investments as interest rates fluctuate.
In this environment, it’s no wonder that treasurers and CFOs are prioritizing solutions that can help them see and manage these issues, and insulate their companies against these effects.
Defining Treasury Automation
When CFOs automate their treasury function, they replace manual, spreadsheet-based processes with robust software solutions that carry out varied financial processes for their company. It can include digitizing and automating activities related to cash management, liquidity management, cash forecasting, reconciliation, cash optimization, investment management, and compliance and risk management.
Treasury automation tools connect automatically to a business’s banks, bank accounts, Enterprise Resource Planning tools (ERPs), and other internal systems to centralize data and provide real-time visibility into where the company stands with its cash.
Transitioning to an automated department not only boosts efficiency but also positions the treasury team as a key strategic player in the organization.
There’s widespread recognition that automating treasury has far-reaching benefits for the business, especially as it relates to reducing exposures. Deloitte’s 2024 Global Corporate Treasury Survey found that respondents seek out treasury automation for help with:
- Reducing manual processes
- Mitigating risks
- Enhancing visibility and reporting capabilities
- Ensuring 24/7 performance, speed, quality, and operational efficiency
Even with all the benefits of implementing tech in the treasury department, it can seem counterintuitive to make the investment in a rough economy. However, various modular, cloud-based treasury solutions are available today that offer friendlier price points. They’re easier to set up and start using, too, so they enable companies to demonstrate a return on investment even faster. Plus, once the business understands the precise ways that treasury automation can help, it becomes a lot easier to find room for this software in the budget.
How Treasury Automation Builds a Buffer Against Volatility
Here’s a look at the specific ways automated treasury solutions help businesses withstand economic pressures and, in many cases, rise above them.
Increases Visibility
If a company has a limited view of their financial resources, they’ll have a far harder time optimizing and protecting them. With treasury automation, teams can log in to one portal or solution and see all their treasury data in intuitive dashboards and customizable views. No tedious hours spent compiling what’s needed from various systems and bank portals. With cash movements, balances, and future projections available in a few clicks, across the entire business, treasury can spend their time understanding where cash is coming in and going out, what available funds and requirements they have, and where there is potential risk.
They’ll always be able to track if cash is being used efficiently and being put to its best use.
Improves Cash Flow Forecasting Accuracy
Treasury automation solutions pull in past and current treasury data automatically and let CFOs more accurately predict what will happen with the cash coming in and going out of their business for a specific period, such as the next 30, 60, or 90 days. 13-week forecasts are also common, allowing users to optimize their cash management in the short term. Treasury automation tools can also tap into AI and machine learning to illuminate trends and generate even more detailed projections.
Plus, CFOs can input various scenarios into the software to see how macroeconomic changes would impact their cash flow, such as what it would look like if their major suppliers implemented huge price increases. With easy-to-update cash flow forecasting modules, these leaders can keep their forecasts current and rerun projections as needed.
This ability to rapidly and precisely “see” the future lets finance avoid cash crunches and answer questions like, “Will we have enough liquidity to cover upcoming price fluctuations?” and “Do we need to improve cash flow efficiency?” The Office of the CFO can then guide the business to the appropriate actions for current and near-future conditions.
Over the long term, improved cash flow forecasting helps the company refine its overall financial planning and budgeting.
Helps Optimize Working Capital with Insights into Investments, Borrowing, and Other Financial Instruments
Many treasury automation solutions enable stakeholders to track and manage their entire capital structure in the same system, such as credit facilities, loans, bonds, money market funds, and foreign exchange (FX). These tools can then alert treasury about different types of financial risks, such as currency fluctuation and interest rate changes. With advance intelligence on these risks, the treasury team can know how and when to make arrangements around these different financial instruments and transactions. For example, they can see if a credit line isn’t necessary and reduce the fees incurred from this unused/unnecessary line of credit.
Creates Bandwidth to Build a More Resilient Business
Treasury automation removes the manual steps and inefficient processes involved with viewing the company’s cash position, forecasting, reconciliation, reporting, and more. When these critical tasks are automated, it reduces human error, which can cause a ton of rework and back-and-forth.
With time freed up, treasury team members can devote more attention to business-building activities like risk analysis, strategic planning, and cash optimization. They can also build stronger relationships and collaborate more closely with the teams that directly impact cash flow, such as the Accounts Payable and Accounts Receivable teams. When treasury and other parts of financial operations can get aligned on goals and share information more seamlessly, this helps improve working capital management.
How to Implement Treasury Automation Sooner Rather than Later
Once treasury has decided the time is right for getting treasury automation in place to better identify, measure, and mitigate various risks, the path forward can look something like this.
1. Assess the Current State of Treasury and Existing Processes
Review the business’s current infrastructure, data, workflows, and processes to fully understand the status quo. Lay out the objectives to accomplish with treasury automation. Determine who the key stakeholders are, and which resources will take part in the implementation.
2. Scope out Automation Priorities
Determine which parts of treasury need to be automated first, whether it’s cash management, forecasting, payments, reconciliation, cash optimization, and/or other processes. It’s helpful to get granular and define what specific tasks to digitize and which parts of the process need the most refinement. It can help to categorize these items into “must haves” and “future needs.”
Come up with a list of treasury automation providers who can help the business accomplish its key objectives.
3. Evaluate and Select Treasury Automation Partners
Attend presentations/solution demonstrations with a short list of potential solution providers. Ensure IT and other stakeholders are included in these sessions as needed, so they can ask their own questions and understand how the solution impact them. Get an understanding of what and who will be needed during implementation.
If necessary, make sure that providers at the top of the list can implement the treasury automation solution in a phased approach, where the company can start with the few critical pieces of functionality, and build on that foundation as needed.
4. Implement Treasury Automation and Train Stakeholders
Configure the solution to the company’s needs. Ensure connectivity to banks and existing tech stack. Test workflows and ensure treasury data is coming through correctly.
5. Measure and Monitor Performance Improvements
Narrow down treasury automation success metrics. Track them as soon as possible and watch the numbers over time. To specifically track how the company is improving its risk exposure, key identifiers might include cash visibility percentage, cash flow forecast accuracy, funding buffer, days sales outstanding, cost of funds performance, and interest rate exposure.
Treasury Automation Is No Longer Optional
When treasury doesn’t have a good handle on the company’s cash, they’re not able to seize new opportunities. It also puts the company in a more vulnerable position. But by combining all treasury data in one place and automating all the work of cash management, forecasting, reconciliation, and optimization, companies are far better prepared to respond to market challenges. In a changeable market, this can become a key competitive advantage.