Treasury management systems – the basics: What they are, how they work and how to choose one

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  1. Introduction
  2. Treasury management system components
  3. How treasury management systems work
  4. Benefits of using a treasury management system
  5. Challenges associated with integrating a treasury management system
  6. How to choose the right treasury management system for your business
    1. Factors to consider when selecting a treasury management system
    2. Guide to evaluating different treasury management system solutions
    3. Checklist for businesses to identify their treasury management system needs
  7. Best practices and common pitfalls when implementing a treasury management system
    1. Best practices for implementing and using a treasury management system effectively
    2. Common pitfalls in treasury management system adoption and how to avoid them

A treasury management system (TMS) is a specialised software solution that is designed to support the financial operations and strategies of a business. These systems play a key role in managing a company's liquidity and financial risks – particularly in areas such as cash and liquidity management, funding and investments, risk management and financial planning. The global treasury and risk management market is projected to grow from US$5.42 billion in 2023 to US$5.88 billion in 2024, highlighting the increasing popularity of this sector.

Below is a guide to help businesses research, select and implement the right treasury management system based on their unique needs. From key components to best practices and avoidable mistakes to be aware of, here's what businesses need to know to get started.

What's in this article?

  • Treasury management system components
  • How treasury management systems work
  • Benefits of using a treasury management system
  • Challenges associated with integrating a treasury management system
  • How to choose the right treasury management system for your business
  • Best practices and common pitfalls when implementing a treasury management system

Treasury management system components

Here's a rundown of the main pieces of a treasury management system:

  • Cash and liquidity management: This aspect of a system helps with tracking real-time cash positions and forecasting future cash requirements. Tools within this module help to improve bank balances and reduce unnecessary borrowing, which is key to maintaining adequate levels of liquidity.

  • Debt and investment management: Here, the system assists in managing a company's borrowings and investments. It keeps track of interest rates, maturity schedules and compliance with loan agreements. This component is also used for enhancing investment portfolios to achieve better returns.

  • Risk management: This part of the system identifies and manages various financial risks, such as fluctuations in foreign exchange rates, changes in interest rates and commodity price movements. By analysing these risks, the system provides assistance with developing strategies to mitigate them.

  • Payment processing: This functionality streamlines the processing of both incoming and outgoing payments. It includes features for automating payment processes, in turn ensuring accuracy and enhancing the security of transactions.

  • Financial reporting and compliance: This component of a treasury management system generates financial reports and ensures that a company meets all regulatory requirements and accounting standards. It helps to maintain transparency and accountability in financial reporting.

  • Forecasting and analysis: This module provides tools for financial forecasting and analysis, supporting companies in planning their financial strategies more effectively. It also includes scenario analysis to prepare for various financial situations.

Each of these components plays a distinct yet interconnected role in a treasury management system. Together, they provide a comprehensive overview of a company's financial health and support company leaders in making informed decisions to improve financial performance.

How treasury management systems work

Treasury management systems offer comprehensive platforms for financial management, integrating various features to address specific financial needs of businesses. Here's a closer look at how these systems work:

  • Cash and liquidity management: This feature provides a real-time view of your finances. It tracks cash positions across different accounts and predicts future cash requirements, making it easier for businesses to maintain funds for their day-to-day operations and investments.

  • Debt and investment management: This part of a TMS offers financial planning for your business's debt and investments. It monitors loans, interest rates and investment portfolios, ensuring that the company is staying on top of its debt obligations and also making intelligent investment choices. It focuses on balancing what you owe and what you own.

  • Risk management: Financial risks come from many directions, including exchange rates, interest rates and market changes. The risk-management feature in a TMS predicts potential financial uncertainties and helps businesses to prepare for or avoid them. It evaluates risks and suggests ways to reduce their impact.

  • Payment processing: This feature automates and secures transactions, making sure that payments are made accurately and on time, while helping the business to maintain good relationships with suppliers and customers.

  • Financial reporting and compliance: This feature translates complex financial data into easy-to-understand reports. Reporting also keeps businesses aligned with legal and regulatory standards.

  • Forecasting and analysis: Providing businesses with a glimpse into their financial future, it uses data to predict financial trends, helping with planning and decision-making. This feature is important for creating strategies and preparing for different market scenarios.

Benefits of using a treasury management system

Using a treasury management system provides businesses with a range of benefits which can improve financial operations. These benefits can strengthen everything from efficiency to risk management and decision-making. Here are the upsides that a treasury management system can offer businesses:

  • Clearer financial visibility: A treasury management system provides a comprehensive view of your company's financial status. This clarity helps to provide a greater understanding of your current financial position, which is useful for planning for the future.

  • Improved efficiency in operations: By automating many routine tasks, a treasury management system saves time and reduces errors, letting you focus on the more strategic aspects of your business.

  • Better cash management: With a treasury management system, your business can manage its cash more effectively, ensuring that you always have enough cash for your needs – without missing any opportunities.

  • More advanced risk management: A treasury management system plays a key role in identifying and managing financial risks. The system monitors market conditions continuously and alerts you to potential problems before they become serious issues.

  • Informed decision-making: The analytics and forecasting tools within a treasury management system equip your business with the insights needed for strategic decision-making. These tools give you an understanding of how different decisions may play out financially.

  • Regulatory compliance and reporting: A treasury management system helps to ensure that businesses remain compliant with various financial regulations and reporting requirements, reducing the complexity of financial regulations.

  • Reduction in operational costs: By streamlining processes and reducing the need for manual intervention, a treasury management system can help cut operational costs.

  • Improved financial strategy and planning: A treasury management system enables businesses to plan their financial strategies with greater precision and understanding.

Challenges associated with integrating a treasury management system

Integrating a treasury management system into existing business systems can be an involved process and it comes with its own set of challenges. Here's a breakdown of what this process typically involves and the hurdles that businesses may face – along with potential solutions:

  • Compatibility with existing systems: One of the main challenges is ensuring that the treasury management system works well with existing financial systems and software. The solution often lies in thorough planning and testing for compatibility and smooth integration.

  • Data migration and integration: Moving existing financial data into the new treasury management system can be daunting. To make sure that historical data is transferred accurately and securely, businesses can use specialised data migration tools and expertise.

  • Training and adaptation: Employees need to learn how to use the new system effectively. Overcoming this challenge involves implementing comprehensive training programmes and providing ongoing support.

  • Cost and resource allocation: Setting up a treasury management system can be costly and resource-intensive. Careful budgeting and resource management can help to mitigate this.

  • Security concerns: As with any financial system, security is a top priority. This can be addressed by putting strong security protocols and regular audits in place.

  • Customisation needs: Every business has unique needs and a one-size-fits-all treasury management system may not suit everyone. The solution lies in customisation – tweaking the treasury management system to fit the specific needs of the business.

  • System downtime and business disruption: Deploying a new system can lead to temporary downtime. Planning the transition carefully to minimise disruption is key. This may involve rolling out the system in phases or scheduling the launch during a slower business period.

  • Ongoing maintenance and support: The system will require regular updates and maintenance work. Setting up a reliable support system with the vendor or an internal team can help to address any issues that arise post-integration.

How to choose the right treasury management system for your business

Choosing the right treasury management system for your business is a decision that requires careful consideration – it's an important component of your financial operations, so it needs to be right. Here's a guide to help you evaluate different treasury management system solutions, along with a checklist which you can use to identify your specific needs.

Factors to consider when selecting a treasury management system

  • Functionality and features: Look for a treasury management system that offers the features that are most relevant to your business needs. Does it provide comprehensive cash management, risk management, payment processing and reporting capabilities? Make sure that it covers all the bases you need.

  • Integration with existing systems: It's important that the treasury management system can be integrated smoothly with your existing financial systems and software. Check whether it is compatible to avoid technical issues down the line.

  • Ease of use: A user-friendly interface is key. You'll want a system that your team can navigate easily and use effectively, without a steep learning curve.

  • Scalability: Consider the future growth of your business. The treasury management system should be able to scale with your business, accommodating increasing transactions and evolving financial needs.

  • Cost: Evaluate the cost of different TMS solutions, including up-front costs, licencing fees and any ongoing maintenance or support costs. It's important to balance cost with the value that it brings to your business.

  • Security and compliance: The system must have strong security measures in place and comply with relevant financial regulations and standards.

  • Vendor reputation and support: Research the vendor's track record and the level of support available to find one that offers good customer service and reliable assistance when needed.

Guide to evaluating different treasury management system solutions

  • Demo and trial periods: Take advantage of demonstrations and trial periods to get a feel for how the system works and whether it fits your needs.

  • Customer reviews and case studies: Look at reviews from other businesses and read case studies to understand how the system has worked for similar companies.

  • Customisation options: Some businesses may require a treasury management system with customisation options. Assess how flexible the system is in terms of meeting your specific requirements.

  • Consultation with your team: Involve key members of your financial team in the decision-making process. Their insights and opinions are valuable in evaluating the practicality of the system.

Checklist for businesses to identify their treasury management system needs

  • What specific financial processes do you need the treasury management system to handle (e.g. cash management, risk management or payment processing)?

  • What is your budget for a treasury management system solution?

  • Do you require a system that can be integrated with existing financial software?

  • How important is ease of use and user training for your team?

  • Will you need customer support and training from the vendor?

  • Do you have any specific security and compliance requirements that the treasury management system must meet?

  • How quickly do you expect your business to grow and can the treasury management system be scaled accordingly?

Considering these factors carefully, conducting thorough research and involving your team in the evaluation process will allow you to choose a treasury management system that meets your business's unique financial management needs, while also supporting its growth and stability.

Best practices and common pitfalls when implementing a treasury management system

Setting up a treasury management system effectively allows you to maximise its benefits. Here are some best practices and common pitfalls to consider.

Best practices for implementing and using a treasury management system effectively

  • Thorough planning and analysis: Conduct a detailed analysis of your financial processes and needs. This will help you to choose a treasury management system that best meets your requirements.

  • Stakeholder involvement: Involve key stakeholders – including your finance team and IT department – from the start. Their input is invaluable for ensuring that the system meets all the necessary criteria.

  • Comprehensive training: Provide extensive training for all users. Understanding how to use the system effectively is key to getting the most out of it.

  • Gradual implementation: Start using the system in phases rather than all at once. This approach minimises disruption and allows for adjustments along the way.

  • Regular maintenance and updates: Keep the system updated and perform regular maintenance checks so that it runs smoothly and remains secure.

  • Data security and compliance: Prioritise security and make sure that the system complies with all relevant financial regulations.

Common pitfalls in treasury management system adoption and how to avoid them

  • Underestimating the importance of training: Insufficient training can lead to under-utilisation of the system.

  • Neglecting data quality: Poor data quality can render a treasury management system ineffective. Check that the data being migrated into the system is accurate and clean.

  • Lacking adequate customisation: Not customising the treasury management system to fit specific business needs can limit its effectiveness. Work with the vendor to tailor the system to your business.

  • Failing to plan for scalability: Choose a treasury management system that can grow with your business to avoid the need for a costly upgrade in the future.

The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accuracy, completeness, adequacy or currency of the information in the article. You should seek the advice of a competent lawyer or accountant who is licenced to practice in your jurisdiction for advice on your particular situation.

The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.

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