Common pitfalls of treasury management software

In an era of interconnected economies and global trade, businesses operating internationally face a myriad of challenges in managing their financial operations. The establishment of relationships with financial and banking providers in different countries is one of the most critical challenges for companies conducting business globally - paying suppliers, receiving payments from customers and making payments to international workers. As the business expands globally, more and more financial institutions are engaged, resulting in fragmented treasury solutions that require a great deal of maintenance, impede efficiency and decision-making, give poor control of company assets, increase business continuity risks, and hinder growth. In practice this looks like logging in and out of different systems to process transactions and wasting time on consolidating data from various sources. By the time data is aggregated, it may already be outdated leading to serious spots in decision-making. A unified treasury management system is essential however for global businesses to stay on top of their funds across different locations, subsidiaries, and currencies to minimise FX exposure, optimise working capital, and take proactive steps in volatile markets. Spreadsheets, platforms aggregating banking and financial systems through open banking, or using a single provider that gives access to accounts in a wide variety of currencies are the most common ways to unify global treasury. All of those approaches have certain downsides, however. Let's examine the potential pitfalls of all those solutions and how you can protect your business from them.

The more countries a business operates in, the more currencies, providers are involved and the more complicated managing treasury becomes. Also often overlooked is the issue of connecting expense management systems and cards to get a comprehensive picture of spending and assets. The result is a highly decentralised banking system, finding its makeshift solution in cumbersome spreadsheets. Using these spreadsheets requires a lot of manual input, making them time-consuming, error-prone, and unscalable. As businesses expand, spreadsheets create more work and prevent organisations from staying ahead of market trends and taking advantage of them.

This solution also has a compliance pitfall. Across all the different financial institutions they work with, finance teams must constantly deal with different compliance requirements, which involves contractual agreements, KYC processes, and meetings, and as a business expands internationally, operational costs rise. As a result, expanding to new markets and countries is impossible without adding extra work and manual burden that distracts the financial team from strategic tasks.

Global businesses will opt for providers offering multi-currency digital wallets and local IBANs to access multiple currencies and set up their operations in new countries. It’s an attractive solution as all currencies and accounts are consolidated in one place, with a comprehensive overview of the funds across all subsidiaries and locations in real time.

This approach, however, has some major drawbacks. Despite having access to different currencies and countries, all funds are still with one financial institution, meaning liquidity risk is not diversified. In practice, this means that should anything happen to that one financial institution, business operations may be disrupted which can impact relationships with suppliers, clients and investors in the long run.

For example, a downtime or major disruption in the processing of payments on the financial institution's end can cause delays and disruptions. As a worst-case scenario, if the financial institution closes down completely, the business would not only have to find a new solution, but also may not be able to access funds for months. This has been the case with, for example, SVB.

In a nutshell, unifying treasury through various financial institutions may indeed help scale financial operations and expand global footprint, but it puts business continuity and long-term financial health at risk.

Another option is using a dedicated treasury platform that aggregates, analyses and even forecasts financial data by bringing them all to one place using an open banking API. Those platforms centralise all financial and treasury data into one place and give an instant overview of all funds across all currencies, institutions and subsidiaries. This eliminates the need for manual aggregation of data by logging in and out of different systems, collecting information and consolidating it. All treasury operations can be performed with a single login once it's all connected.

A downside of this solution is that it doesn't simplify global growth - companies still have to find the right banking partners and products as they expand into new countries and currencies. Additionally, the connections are not always real-time, stable, and expire every 90 days, disrupting the continuity of data, resulting in blind spots that impact decision-making.

To successfully unify, diversify, and simplify global banking, partnership with a technology provider who has built its platform on top of a network of financial institutions is your best bet. These technology providers offer some unique benefits that cannot be found in other solutions:

Diversification of liquidity risk which ensures business continuity as the funds are secured with the underlying financial institutions.

Ability to open bank accounts in new currencies from the same platform without additional KYC or compliance processes which makes it easy to grow and scale globally to new markets..

Consolidation and centralisation of financial data in one place, as well as automation and simplification of all treasury operations. This removes hours of manual work, giving increased visibility and contributing to better decision-making.

Managing treasury is just one aspect of the financial operations challenges faced by global businesses today. To delve deeper into this topic and explore other pertinent issues such as global payments and expenses, we’re organising a free webinar on the 27th March at 12:00 CET. If you're unable to attend, we'll provide a recording for your convenience. Don't miss this opportunity to gain valuable insights into optimising your global financial operations.