What is a treasury management systems (TMS)?

A Treasury Management System (TMS) is a software solution that streamlines and automates a company’s financial operations within a single, centralized platform. It allows businesses to manage cash flow, assets, and investments while providing a complete, real-time view of their financial health.

Rather than designating a team to manually handle different tools and data sources to understand the business’s cash position, a TMS shows a real-time view of bank balances, financial transactions, and expected cash flows company-wide. This makes it easier for decision makers to understand the company’s finances and make informed business decisions. A Treasury Management System’s also simplifies activities like reporting or cash forecasting.

Why is a TMS essential?

With a TMS, finance professionals can gain insights into cash positions and risks, which inform decision-making. Integrating a TMS into a techstack enables functions such as covering debt, investments, FX, letters of credit, abiding by local regulations, and bank communications.
Treasury management systems give CFOs visibility into cash assets, bank accounts, liquidity, compliance, investments, debt, and intercompany loans.
This software is invaluable for efficiently managing treasury operations, integrating with other departments, and achieving compliance during the payments process.

Key benefits of a treasury management system

• Automated ledger management: Automates data entry, reconciliation, and reporting to improve accuracy and efficiency
• Optimized cash pooling: serves each subsidiaries interests
• Bank integrations & relationship management: A TMS shows all bank accounts, signatories, and transaction fees. It helps negotiate better banking terms and reduce unnecessary banking costs.
• Regulatory compliance: A TMS tracks transactions, maintains audit trails, and automates regulatory reporting, reducing non-compliance.
• Total financial visibility: A TMS consolidates data from the company’s bank accounts, currencies, and subsidiaries, for a real-time view of available cash. This helps avoid overdrafts, enhance cash flow, make informed financial decisions, and handle market volatility or financial challenges.

How can companies implement a treasury management system?

Implementing a TMS is a massive undertaking for any entity. A TMS can deliver more efficiency, visibility, and improve decision-making capabilities within the finance team. Here are the steps to implement a TMS:

1. 1. Define project goals and scope

Before implementing a TMS, it is crucial to agree on clear project goals and scope. Finance teams may want to spell out the requirements and objectives the TMS should meet. This will avoid delays and give companies a way to measure the TMS’ success.

1. 1. Start vendor selection process with due diligence

It’s critical to choose the right TMS vendor. Evaluate vendors on their expertise, functionality, customer success availability, Scalability, track record, and industry experience. Compare the company’s objectives against who can fit those needs.

1. 1. Create a comprehensive implementation plan

A comprehensive project plan helps ensure a successful implementation. Involve key stakeholders early in the planning process and address their requirements and concerns. Regularly review and amend the project plan as needed, keeping everyone informed.

1. 1. Monitor the process and test that the system works as expected

Monitor the progress to make sure the project stays within budget and gets completed on time. Revisit KPIs and milestones to track progress and conduct meetings to help everyone stay aligned and raise issues.

1. 1. Reduce risks with a contingency plan

Despite creating a detailed plan, teams could face an array of challenges. Mitigate these risks by enacting contingency plans that outline a plan B and plan C in case of unforeseen events. Identify potential risks, such as delays or data migration issues and proactively address them in the contingency plan.

1. 1. Conduct ongoing tests

Regularly test that the system system performs as it should, meets the business requirements, and integrates seamlessly with existing systems. Involve end-users to check the system’s usability and raise flags as they arise.

Choosing a vendor who can assist and support the company with the above steps is crucial for success with treasury management systems.

Cash management system vs treasury management system

“Treasury management” and “cash management” are often compared to each other. Here’s how they differ:

• Scope
  Cash management primarily covers short-term liquidity needs (i.e. making sure there’s enough cash to cover day-to-day operations).
  Treasury management provides wider view into long-term financial planning and includes investment strategies and risk management.
• Complexity
  Global treasury management involves complex tasks such as risk assessment and financial planning, and addresses issues like foreign exchange exposure and investment strategies. Cash management
  Cash management makes sure the company has enough cash to cover day-to-day expenses.
• Risk management
  Treasury management encompasses dealing with market risks, credit risks, and operational risks.
  Cash management focuses on limiting operational risks that impact liquidity.
• Cross-company collaboration
  Treasury management involves other teams to create a strategy.
  Cash management is usually limited to the finance operations, not big-picture strategies.
• Integration
  Treasury management involves other teams, processes, and strategies.
  Cash management focuses just finance operations.
• Responsibility
  The Chief Financial Officer (CFO) or treasury department handles treasury management.
  Finance managers or office managers can run cash management.
• Technology
  TMS are more robust to handle a variety of financial activities. They are built to support analytics and financial predictions.
  Cash management tools are often part of a larger TMS or an enterprise software stack.
• Strategic focus
  Treasury management optimizes the organization’s financial health and sustainability. It means making long-term investment decisions and preparing for financial risks.
  Cash management hones in on immediate needs such as payroll and vendor payments. Its goal is to keep the company going on a daily basis.

As an MSP offering treasury management solutions, ensure clients understand that a TMS provides broader financial control beyond simple cash management.