From the September 2008 issue of Treasury & Risk magazine

Hosting Takes the Cake

A riskier economy is actually increasing spending on treasury technology for tools that provide global visibility of all cash, improve cash forecast accuracy and clamp better controls on the movement of funds.

Until last year, Liz Claiborne treasury operations in the U.S. and Europe were heavily dependent on spreadsheets and disparate banking systems, says John Engeman, assistant treasurer of the $4.5 billion retailer. Europe essentially had its own treasury operation, and corporate treasury had limited visibility into what was happening there. That has all changed dramatically. With its first treasury workstation from Kyriba, Liz Claiborne treasury staffers can see almost everything from its treasury office in North Bergen, N.J. A European treasury center in the Netherlands still controls many treasury activities there, but U.S. corporate can see exactly what Europe is doing in real time, thanks to one shared system, which is about to be rolled out to Asia, Engeman reports. Welcome to treasury technology 2008, where a fragile economy has raised concerns over control and liquidity management and created a boomlet in automation, particularly through the use of application service provider (ASP)-hosted solutions. "There's no holding back on spending that protects assets and gives increased visibility to cash, even in the face of a recession," notes consultant Craig A. Jeffery, managing partner of Strategic Treasurer LLC, Atlanta. "Across the board, 2008 so far has been a strong year for spending on treasury technology."

Liz Claiborne has validated the benefits: less time spent on manual keying, fewer clerical errors, a better real-time view of the global cash position, fewer idle balances, lower banking fees and more time available for value-added projects. "Our workload hasn't diminished, but thanks to having balances and transactions fed directly into Kyriba, we now have more time to work on expanding how we use the workstation," Engeman reports. "We keep coming up with new ideas to make it work better," he adds. "We're working with Kyriba to build a payment factory and upgrade our collection efforts in Europe. We're pushing to marry different financial processes with Kyriba technology, and it's paying off."

Rather than implement separately by region, Liz Claiborne is integrating globally by bank. "Once we have Citi or HSBC set up for the U.S. or Europe, we bring them on in the other continent, and we'll be doing the same in Asia," Engeman explains. "We keep building on what we have done." Liz Claiborne has 350 accounts with 30 banks worldwide, he adds, and Kyriba has the infrastructure to connect with most of them.

Nonrepetitive wires that require a second approver had historically been sent via installed Chase InSight software, but the move to ASP-hosted Kyriba means that if the essential approver can't get to the office, he or she can still see the wire and approve it. "It's an any time, anywhere system," Engeman says. "We don't want our people to depend on office-bound computers to link to bank systems."

For a good example of how the new technology helps Liz Claiborne's treasury, consider its management of debt. The company draws repeatedly on a revolving credit facility based on the London Interbank Offer Rate (Libor); for same-day funds, it taps a prime-based line of credit. Before, draw-downs, repayments and interest payments were all tracked manually and keyed into cash position computations and debt tracking spreadsheets No more. This is all now handled by a Kyriba debt module. All settlement details flow from that module into the cash forecast. On the day that an interest payment is due, the system automatically debits the cash position for that amount. "We put our entire borrowing operation into the workstation and let the system track the activity there," Engeman reports.

Global expansion of the business, particularly into Asia, excessive reliance on spreadsheets and increased treasury activity dictated the move to a centralized workstation, Engeman says. "We recently issued an RFP for our Asian cash management business and are rolling out Kyriba to our financial staff in the Far East," he reports. We're training them in how to use it to make payments and minimize idle balances."

Liz Claiborne's bold move forward is more the rule than the exception. While companies typically cut back on spending when faced with a recession, treasury so far has been exempt. If anything, tighter credit and a riskier economy have increased demand for tools that can provide global visibility of all cash, improve the accuracy of cash forecasts and enforce tighter controls over the movement of funds, reports Scott Montigelli, Kyriba's vice president for business development. "In this market, everyone wants to manage cash aggressively and reduce the need for short-term borrowing," he observes.

It also helps that the front-end cost for most of the sophisticated technology tools has fallen dramatically. The technology and the price are now so scalable that cost is seldom a deal-breaker, Montigelli says. Gains are most conspicuous in the middle-market, where treasuries often could not afford best-of-breed solutions that needed to run on software installed on a company's client/server platform and required strong IT support. Now those solutions are highly affordable and treasuries are buying. Thomson Reuters, for example, reports a 60% increase in the number of clients using its Web-based Treasura workstation in 2007.

Other vendors are riding the same wave. In 2006, only 20% of the users of Wallstreet Treasury were on a hosted solution, but 50% of the new sales that year were for hosted. In 2007, 90% of the sales were for hosted services, reports Juergen Jensen, director of product management for Wallstreet Systems. "There's no question that interest in a hosted solution is growing," he observes.

The evolution and increasing popularity of hosted solutions is setting off a battle between treasury software vendors and banks over who will get what share of corporations with more than $50 million but less than $2 billion in annual revenue, Jeffery suggests. Some banks like Citi, Wells Fargo and Bank of America are adding treasury workstations or workstation-like capability to their offerings, he reports. "They're offering GL (general ledger) feeds, good visibility across all cash, and some ability to track debt and investments," he reports. Others are making modest enhancements such as single sign-ons or investment portals, he adds.

Treasury staffs are not turning up their noses at incremental improvement, notes Brian Hinton, executive director of new business development for receivables products at JPMorgan. That bank's Receivables Edge is now used by 16,500 of its 22,000 lockbox customers and is a surprise hit among middle-market companies.

Receivables Edge uses Web-based communication to report and resolve exceptions on the same day payments arrive so that the lockbox transmissions get very close to a 100% match for automatic posting, Hinton explains. And that means that users get a full day's jump on resolving discrepancies, which may not mean quicker cash availability but does mean lower days sales outstanding (DSO) and fewer write-offs, he says. Every day users send an open receivables file to the bank, which archives the information in a data warehouse and matches arriving payments to invoices.

About two-thirds of the mismatches that cannot be resolved by programmed matching routines could be resolved less expensively by workers in low-wage countries, Hinton points out, but companies still are leery of handing off the resolution of discrepancies with their valued customers, Hinton adds.

Wells Fargo is wrapping up pilot testing of its new treasury workstation and getting it ready for release with a pipeline full of treasuries that have signed up for post-pilot implementations, reports Danny Peltz, executive vice president for wholesale, Internet and treasury solutions. The first generation will be an information module, with debt and investment modules slated for future development. Since payment execution is conducted over the bank's existing Corporate Electronic Office (CEO) platform, most workstation users will be CEO users opting for more technology.

Wells Fargo also is shifting its payments systems to what Peltz calls a FedEx or UPS model--one that allows users to track individual payments all the way through the system. And it is moving its domestic and international services from separate platforms to one platform for global services, he reports.

But hosted solutions are also picking up fans in large corporate treasuries. "It started in 2007," reports Ari Mouris, senior director for client services at Thomson Reuters. Before then treasuries had hesitated. "They were control conscious and wanted everything within their walls. Now they are open to ASP solutions, and a few have actually decided to go that way," he notes. Historically, treasury workstations have been very operationally focused but the trend is to look outward now and connect to trading portals and feeds of external financial and economic data, he says.

Even among the largest corporations, "it's a rare RFP that doesn't ask about hosting capability," says Andrew Woods, group vice president for Global Treasury at SunGard. The new technology has radically reduced treasury's dependence on IT support, Kyriba's Montigelli notes. "It used to take IT to interface different corporate systems, but we can do it through a hosted site, even if a company uses multiple Enterprise Resource Planning (ERP) systems in different business units. We can make the information flow automatically to and from the GL, A/R, A/P or billing systems."

More useful help is coming from data consolidators, which are including SWIFT data, Jeffery reports. "We're seeing some pretty exciting gains in visibility, and collecting data is moving away from treasury staffs to specialists who don't just compile data and report what's missing but organize it into reports. It's tremendously important for treasury staffs to take advantage of this development,"

While smaller companies are happily trashing spreadsheets and moving to basic, economical hosted solutions, large companies are refining their search for the best solution and it's increasingly clear that comprehensive, integrated solutions are losing. There will be no "mother of all treasury systems" coming down the pike, asserts Gary Greenwald, head of global information products at Citi. "The world has grown more complex, with shared service centers and payment factories doing more and more with liquidity management. The solution today is taking stock of your needs and then finding the right pieces. Today's solution is a mix-and-match mosaic."

That's what the $34 billion Honeywell International Corp. has discovered. "No one system does it all," concludes Susan E. Puente-Duany, director of banking and cash management at Honeywell International. "If you try to do everything in one system, you give up some functionality." Honeywell searched for an overall system in 2002, settled on SunGard's Quantum, installed it in 2003, but discovered that Quantum worked best for a range of global cash management functions, particularly bank interfaces and some U.S. debt payments. Honeywell had been decentralized prior to 2003 and was seeking a workstation to improve its global cash visibility and cash forecasting.

Honeywell turns to other software for its "best-of-breed mosaic," she reports. Many of the pieces of that mosaic are not commercial software but programs Honeywell has built itself. "We have a great IT department with people who understand treasury and support us well," Puente-Duany notes. "Most of what we needed was built in-house."

Honeywell gets about 90% of its global bank balances through Quantum--all those that are able to communicate in standard ways--and uses home-grown technology to collect the stragglers. Quantum, installed on a Citrix network that provides global access, also generates Honeywell's GL transactions and interfaces with its U.S. Oracle system. Globally, Honeywell still has a quilt of ERP providers--SAP, Oracle, JDEdwards--but is moving to put every business on SAP, Puente-Duany explains. "In a perfect world, everything would be integrated, but we keep buying companies," she notes.

Some software vendors are putting together their own mosaic. SunGard's strategy is to expand outward from core treasury automation and bring in more tools for working capital management, Woods says. That's the rationale for recent acquisitions of GetPaid, Aceva and Trax. Treasury staffs are increasingly interested in DSO and following the status of unpaid invoices to anticipate when they will be paid, he says. A lot of systems do a pretty good job of tracking treasury transactions and bank balances, but there's a lot more happening now with bringing in information from the business side, he explains.

The watchword for the future at Citi is "analytics," Greenwald says. "We're pushing metrics across all our product lines to make them more useful. We're working with a couple of large multinationals to push back to their shared service centers a variety of metrics to help them find ways to operate more efficiently."

While hosting and mosaics comprise the dominant trend, comprehensive, installed solutions are competing with strong functionality and integration. "We still see very strong demand for on-premise solutions," insists Jim D'Addario, director of financial marketing at SAP. "Companies like the control and the ability to integrate with their IT infrastructure. That is still our comfort zone for delivery." To capture some of the companies that want ASP hosting, last September SAP began to offer Business by Design, which includes some cash and treasury applications but not functional parity with the best-of-breed alternatives, he concedes.

D'Addario reports a shift in locating on-premise servers in shared service centers instead of corporate finance departments. "We have a big customer that has consolidated its whole treasury operation in an in-house bank run out of a shared-service center. It handles treasury operations for 50 subsidiaries in 11 currencies from one center with just eight employees," he reports.

Being an SAP shop and implementing SAP's treasury modules (2002 vintage) helped Brown-Forman, the $3 billion wine and liquor provider based in Louisville, Ky., make some impressive cuts: 60% in cash management headcount, 81% in resources required to manage cash and payments, 50% in subsidiary cash balances and 10% in transaction costs. "We like the integration with accounting," reports Rob Waddell, global treasury manager. "We used to take one big, fat entry to accounting at the end of each month, but now it happens daily, including bank reconciliation, and everybody loves it. It gives us better visibility of our cash and makes month-end closing a faster process."

The technology tools are better and cheaper. "Web-based, on-demand technologies have introduced a new level of agility," Citi's Greenwald points out. And that has treasury managers across the spectrum finding ways to use the new tools.

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