Pursuing the real-time treasury opportunity

Enabled by technological advancement, many companies across industries today are increasingly interested in transforming their treasury functions to become more real-time.

This interest is being driven by several factors, from managing global operations and an evolving business model, to adapting to the changing – often volatile – nature of markets and economies, enhancing risk management, cost efficiencies, and keeping pace with technological development.

Transforming the treasury function to a real-time operation offers companies compelling benefits – enhanced liquidity and risk management and efficiency – but its implementation can be complex, time consuming and costly.

As a first step, companies need to fully understand and buy into the concept, recognise the intrinsic value to them of becoming real-time and get to grips with the building blocks that are necessary in this transformation journey.

At its core, real-time treasury refers to the practice of monitoring and managing financial activities and data in real-time or near real-time. It involves utilising technology and automated systems to capture, process, and analyse financial information as it happens, allowing for immediate decision-making and proactive risk management.

By implementing a real-time treasury system, organisations can potentially more effectively manage their cash flows, optimize liquidity, execute instant payments, mitigate financial risks as they are identified, and make informed decisions more promptly.

The real-time capabilities of the system enable treasury professionals to monitor and respond to changing financial conditions and market dynamics in a proactive manner, enhancing overall financial management and performance.

Overall, a real-time treasury model combines technology, data integration, automation, and analytics to enable treasurers to manage cash, liquidity, and financial risks with precision and agility.

By providing instant access to financial information and transactional capabilities, operating with a real-time treasury can empower treasurers to make informed decisions, optimise treasury operations, and drive strategic value for the organisation.

There are multiple factors driving this need to transform treasury, and that make it possible.

Globalisation is one powerful factor. As organisations increasingly become more global in nature, the demands to operate across timezones seamlessly has led to the need to be able to run operations in real-time. No longer is it acceptable to have to wait until a subsidiary opens for business on the other side of the world to be able to analyse their cash holdings, and payments.

Connected to this are two other important factors: increased global market and macro volatility; and an organisation’s exposure to inflation and higher interest rates globally.

Global market volatility in recent years – from the Covid 19 pandemic, to shipping and supply chain disruptions, and the outbreak of war – have made the case for a more real-time approach to treasury management. The need to be able to understand a financial picture more quickly is key more than ever before, to allow treasurers to be able to pivot and maximise cash flows.

Together with this, inflation and higher rates have meant that treasury is reinforced in its role of protecting the company revenue against the depreciation of money over time, by accessing and moving any available cash surplus, as soon as possible, into interest generating assets, or towards reimbursing interest-bearing liabilities.

Three other important driving factors are the need for better risk management, for improved cost efficiencies, and technological advancement.

In risk management, being able to have full visibility across the entire spectrum of treasury at any given moment is becoming a real and urgent need for many organisations. To be able to identify risks more quickly, means potentially mitigating those risks faster and avoiding costly mistakes.

The need to drive cost efficiencies across organisations is another key driver for the emergence of a real-time approach. Real-time payment schemes can often reduce payment costs; “just in time” payment processing can enhance working capital optimization, leading to reduced borrowing costs and immediate receipts can be put to work more quickly in placing deposits with banks.

Finally, technology has made a major contribution to the ability of corporate treasury functions to operate in real-time. This advance includes real-time payment schemes, Open Banking and other API-driven capabilities, as well as the rise of distributed ledger technology and blockchain applications for treasury (for more information see our previous article and video: New payments paradigm). Banks and other financial services organisations have invested heavily in bringing real time into the hands of their clients.

As well as presenting a compelling opportunity, implementing real-time treasury capabilities is complex and challenging. Some of the key challenges, include:

• Technological complexity: Implementing this sort of model requires advanced technology infrastructure, integration with existing systems, and real-time data processing capabilities. This can be challenging for organisations with legacy systems or limited IT resources.
• Data quality and accuracy: Real-time data requires robust data management processes to ensure accuracy, consistency, and integrity. Poor data quality can lead to erroneous insights and decision-making, undermining effectiveness.
• Security and compliance: Real-time access to financial data raises concerns about data security and internal and external compliance. such as data privacy laws (e.g., GDPR) and any financial regulations the organisation may be beholden too. Maintaining data confidentiality, integrity, and compliance with regulations is crucial but challenging in such an environment.
• Change Management: Implementing a real-time model involves significant changes in treasury processes, workflows, and organisational culture. Resistance to change from employees, stakeholders, or management can impede a successful implementation and will clearly require robust change management strategies.
• Costs and resource allocation: Implementing and maintaining a real-time treasury requires substantial investments in technology, staff training, and ongoing maintenance. Allocating resources and budget for these initiatives can be challenging, especially for organisations with limited financial resources or competing priorities. It is therefore essential to be able to create a robust business case, citing the alignment to overall organisation strategic goals.

Like any truly transformational initiative, implementing a real-time treasury function is a complex process, that requires careful planning, coordination, and buy-in from stakeholders across the organisation. It’s a transformation that lies at the very heart of the organisation and can be an essential one to allow a business to fully meet its strategic aims.