What is a treasury management system: Benefits, functions & solutions

A treasury management system (TMS) is often seen as the backbone of treasury and finance departments. This is because it helps automate many treasury processes and consolidates all financial data readily for accurate analyses. In this article, we will discuss what a treasury management system is, its benefits and main functions, which treasury technology providers there are on the market, how much a system costs, and whether it’s suitable for your company.

What is a treasury management system?

A treasury management system (TMS) is a system that automates treasury processes and centralizes all cash flow data related to treasury operations. A modern TMS is a cloud-based software offered by expert vendors and is connected to several other source systems, such as banks, ERP systems, and other financial systems. A TMS is designed to provide immediate visibility into group-wide company cash positions, automate manual processes, and facilitate quick decision-making for critical tasks based on comprehensive treasury analytics and reporting.

Benefits of a treasury management system

Treasury management systems have many benefits. The benefits you will experience depend on the TMS vendor and whether you select a full treasury management suite or only several functionalities. But commonly, these are some of the benefits companies encounter after having implemented a full TMS:

1. Centralization

The main advantage of a TMS is centralization. Almost all processes, data, and tasks are combined in the same environment. Whether you are working with different banks, an ERP system, or other financial systems, data is automatically pulled by a TMS and ready to be analyzed. As a result, there won’t be a need any longer to log in to each system or bank or manually collect financial data within spreadsheets.

2. Automation of processes

Most processes, such as data collection, payment reconciliation, cash flow forecasting, liquidity planning, reporting, etc., are automated with a treasury management system. This saves treasury and finance teams lots of time and lessens the chance of errors being made compared to manual processes. Most TMS vendors can also customize process automation to fit customer requirements.

3. Connectivity

Another vital benefit that companies typically experience with a TMS is that it is integrated into their current technology ecosystem. In other words, it easily connects to all banks, ERP systems, and other systems by leveraging the pre-built technical connections of the vendor’s solution. Not only does connectivity enable the centralization of various systems’ data, but it also serves as a format conversion tool sitting in-between several systems; it can read incoming file formats and convert them into the appropriate file format before sending them to another system. Connectivity is essential for business continuity since many companies use several banks and systems that all operate their own file formats, and formats and requirements change continuously. A TMS vendor takes care of such technical changes for you to keep the solution working and ensure that the data flows between the various systems.

4. Improved cash visibility and forecasting

By combining centralization, automation, and connectivity, you can quickly capture overviews that show you all cash positions throughout the entire organization. With all data quickly at hand, it becomes much easier to develop cash flow projections. Some TMS providers can even combine predictive analytics with cash flow forecasting with the help of historical cash flow patterns, industry indices, and seasonality trends in cash flow forecasts and build different scenarios accordingly. Most systems will also be able to include receivables and payables in cash flow forecasts which helps further improve the completeness of forecasts.

5. Accurate reporting

Since all data is automatically pulled from different systems once the TMS is connected to them, the reporting becomes more accurate. Rather than collecting and inputting data manually into reports, reports are generated based on the exact data from each source system. This eliminates the room for mistakes that commonly occur in manual reporting processes. With a TMS, reports can also be generated much quicker, strengthening the company's ability to make financial decisions promptly.

6. Improved risk management

One of the main jobs of treasurers is to manage risk effectively. A TMS is of tremendous value in achieving this goal because it enables quick and accurate analyses of financial risk exposure and creates safe and standardized processes. For example, many systems tackle the main treasury risk types, such as liquidity risk (through liquidity management), market risk (with FX rate exposure analyses & hedging), operational risk (through treasury processes and frameworks), and counterparty risk (through KYC, sanctions screening, fraud prevention, automated payments, etc.).

7. Enhanced control and security

Treasury management systems provide better control over user activities that occur within the system due to audit trail. Audit trail keeps track of what has been changed in a TMS and by which user, and it also helps trace down actions for compliance reporting, for example. In addition, admin users can also easily manage user rights to ensure that the right people have access to the right tools.

In addition, a TMS provides better security because processes are automated and cannot be deviated from. Many systems also offer the possibility to add safety steps in processes, for example, sanctions screening or anomaly detection, which can help prevent fraudulent or erroneous payments.

Main functions of a treasury management system

A treasury management system has many functionalities. These are some of the key functionalities of a TMS:

Cash management

Cash management functionalities in treasury management help optimize daily cashflows and provide insight into financial risk. Cash management covers many facets, including liquidity management, cash visibility, cash pooling, netting, and payment automation — all vital for daily operations and transparency into group-wide balances.

Cash flow forecasting

Treasury management systems are excellent for short-, medium-, and long-term cash flow forecasting. Most systems can help you automatically develop cash projections based on consolidated cash flow data from banks, financial systems, P&Ls, and balance sheets. More advanced vendors can also offer scenario planning, predictive analytics, and cash flow forecasts that comprehend historical cash flow patterns, industry indices, and seasonality trends.

Payment automation – reconciliation and fraud/error prevention

Most treasury systems enable payment automation in different forms. In terms of payment reconciliation, this implies automated matching of transactions between internal and external sources and easy identification of discrepancies between the two. This can be highly efficient when dealing with many payments daily. 

Some treasury management software can also include safety steps in end-to-end payment processes to enhance security, for example, by automatically screening payments against sanctions lists or setting up rules to detect anomalies or accidental double payments. More substantial payment sums can also be verified by a second or third user with four- or six-eye principles.

In-house banking

Some TMS providers also have in-house banking functionalities designed for cash pooling, intercompany loans, target balancing, and netting. With physical and notional cash pooling and target balancing you can optimize cash balances within the company. This is especially beneficial for companies with several entities where cash in multiple currencies needs to be distributed to cover shortages, for example. In-house banks should also be able to tackle intercompany loans when it makes sense to do so to optimize costs. Some in-house banking solutions also offer netting possibilities, allowing you to reduce multiple obligations to one net payment, which helps lowering transaction costs and credit, liquidity, or settlement risks.

Risk management

A treasury management system’s many components help treasurers manage risk effectively, and certain functionalities aim explicitly at reducing risks, such as FX or interest rate risk. For example, systems should allow you to consolidate all risk-relevant data, combine it with real-time market data on currency exchange rates or interest rates, and run exposure analyses to help develop hedging proposals. In addition, there are treasury management systems that allow you to execute hedges or run at-risk calculations and scenario analysis by simulating hedges and their effect on exposure and risk.

Trade finance

Some treasury management systems can offer solutions for managing trade finance to minimize counterparty risk when trading. They do so by providing functionalities for guarantee management, for example. Such functions can fully digitalize and centralize guarantee management on a group-wide level and cover the entire guarantee lifecycle from application to bank approval to storing all guarantee-related records. All communication and tasks related to guarantees are also done centrally.

Bank and ERP connectivity

We have already covered how connectivity and centralization are vital benefits of treasury management systems. Treasury systems typically have the functionality to connect to most ERP systems and banks through different types of connections, such as APIs, host-to-host connections, local connections (like EBICS), leveraging networks like SWIFT Alliance Lite2, and more. In addition, source system communication protocols are usually already established and covered by a TMS, and file format conversions are handled automatically.

Reporting

Another necessary functionality of a TMS is treasury reporting. With treasury reporting, you can leverage standardized reports or develop your own based on group-wide data consolidated from any system or bank. The reports are updated continuously to reflect the latest cash flow changes. With some systems, reports can also be generated in Excel or Power BI and customized there.

Top 8 treasury management system solution providers

There are several treasury management system providers on the market that you can choose from. This is a list of treasury management system vendors that are well-known in the treasury industry:

Note that this list is not in any particular order.

1. Nomentia
2. Kyriba
3. TIS
4. Gtreasury
5. SAP
6. ION Group
7. Serrala
8. Treasury Systems

1. Nomentia

Nomentia is a European cash & treasury management solution provider with over 30 years of experience and more than 1600 clients globally. With Nomentia’s Software-as-a-Service, you can build your cash and treasury management technology stack from scratch or add solutions to complement your existing technologies.

Nomentia’s system offers solutions for payment automation, payment fraud & error prevention, payment reconciliation, liquidity management, cash flow forecasting, predictive analytics, cash visibility, bank account management, bank connectivity management, trade finance, in-house banking, risk management, FX risk, and treasury workflows and reporting.

2. Kyriba

Kyriba is an American company providing treasury solutions for working capital, liquidity management, risk management, payments, connectivity, cash flow forecasting, and fraud prevention.

3. TIS

TIS is headquartered in the US and helps companies with liquidity management, cash forecasting, working capital, bank account management, payments, and risk management regarding payment fraud and compliance.

4. Gtreasury

Gtreasury is another American company with solutions that can help you with liquidity management, cash forecasting, in-house banking, reconciliation, payments, netting, risk management, and financial instruments.

5. SAP

SAP, a German company that offers a wide range of software, also provides software that helps with working capital management, risk management, cash flow forecasting, payment management, and in-house banking.

6. ION Group

ION Group is a treasury vendor that is headquartered in Dublin. They offer treasury solutions for accounting and hedge accounting, bank account management, cash management, debt management, payments, and risk management. 

7. Serrala

Serrala is a treasury management system provider located in Germany and offers solutions for AP automation, cash management, cash flow forecasting, collection management, credit and risk management, document management, payments, and EBPP & RTP.

8. Treasury Systems

Treasury systems is a treasury management system provider with headquarters in Sweden. Their solution covers risk management, cash management, and treasury reporting.

How much does a treasury management system cost?

The cost of a treasury management system depends on the pricing level of the vendor and the buyer’s technical setup and required technical support. Pricing also varies based on your needs and whether you buy an entire treasury suite or only a few of its functionalities. Frequently, treasury system vendors charge a monthly or yearly fee for using the system and separate charges for the resources required to implement and maintain the system.

Is a treasury management system suitable for your company?

You may wonder whether your company needs a treasury management system. That ultimately depends on your current setup and your objectives. For most companies, a TMS becomes interesting once cash flow operations become increasingly complicated, hence challenging to manage without a system. In such cases, the benefits and functionalities start outweighing the initial investment when getting a treasury management system.