Enterprise Resource Planning (ERP) systems are at the core of treasury operations. ERPs are often used in treasury for automating treasury processes instead of using a treasury management system (TMS). Even when there is a TMS in place, ERP systems are still a crucial part of creating treasury workflows, as this is where essential treasury data is located.
No matter how you run your treasury department, your ERP is one of your most essential resources. If you’re running your treasury solely on an ERP and executing too many tasks manually, it’s perhaps time to consider upgrading your tech stack. The same is true if you have more than one ERP system within the group, as managing all treasury tasks without a central system can result in less visibility into your cash positions and increase your risk profile.
In this article, we will dig deeper into whether running your treasury on an ERP system is enough, when it is time to start thinking of a TMS implementation, and your alternative to a full-blown TMS.
Can you run your treasury operations on an ERP system?
ERPs are business management software solutions that play a central role in unifying organizational processes for efficient operations. For example, ERP systems are often used for supply chain management, sales and marketing, human resources management, tracking information and gaining visibility across various tasks, analyzing data and creating reports, and accounting. In addition, most ERP software providers have understood the increasing demand for automation of critical tasks and integration across tech ecosystems, so like other departments, treasury may also utilize it to automate mundane everyday tasks.
It is quite common that the treasury department relies on an ERP system to run specific treasury processes such as treasury accounting, reporting, and paying received invoices of suppliers. As some ERPs may have competing functionalities with treasury management systems and can carry out the treasury function to a certain degree, it is a popular alternative when the treasury department is still in the process to become well-established.
When is it time to move away from your ERP system?
The core task of any treasury department should be risk management and advising leadership and the board on strategic investments. When the treasury role exceeds an operational role (like executing payments), an ERP system may not be sufficient, which is when many treasury teams start to investigate whether they should implement a TMS.
Using an ERP is a good choice when there’s a need for accounting services like budgeting and invoicing. However, when the treasury department wants to focus on more strategic objectives, such as creating insightful cash flow forecasts to identify excess and idle cash or minimize foreign exchange-related risk (to name only a few options), it’s time to decide whether to plan a TMS rollout.
Whether you need to implement a TMS depends on your objectives, company structure, and plans. When planning the rollout of a TMS, consider your current responsibilities, what you could improve on, what financial instruments you are dealing with, or in which countries you are operating. For many, a deciding factor is also compliance and regulations, which often forces the treasury to start looking for a TMS.
What to do when you have too many ERP systems within the group?
Another limitation of using an ERP to operate treasury is that you may have more than one ERP within the group. More extensive global reach means that you usually deal with several entities (some came through mergers and acquisitions with their own ERP system, and it takes time before you can roll out your own in that specific entity). From a centralization and control perspective, having multiple ERP systems is a challenge, making it more difficult to have one common way of working throughout the group. It is also inefficient to run treasury processes on an ERP because the rest of the ERPs should be also integrated.
When you have multiple ERP systems, setting up a TMS will mean that you must integrate all your ERPs where essential treasury information may be located. But to make the TMS work for you, you also need to centralize and unify processes so that all the entities would work in a similar fashion. Another benefit will be that you can connect your bank to the central TMS instead of the different ERP systems so that you can also take better central control of your bank connections and bank accounts.
Moving away from relying on your ERP systems for vital treasury functions won’t only mean that the group treasury can have more control over processes and the cash of your entities, but it can also drive the transformation of the treasury department by automating manual processes and adding new solutions that can bring strategic benefits for the whole group.
An alternative to a full-blown TMS: best-of-breed cash and treasury management solutions
What should you do if you are not quite ready to implement a full-blown TMS, but your ERP doesn’t serve you sufficiently anymore?
You can choose a best-of-breed implementation approach which can mean two things:
1. You start the implementation gradually according to your roadmap and priorities.
It’s a good approach to implement solutions in phases – in our case, our customers often like to roll out a payment hub to start with and then add solutions later on, like liquidity management. Usually, already in the beginning, they have a roadmap for the next five years, but they want to start with smaller steps. Sometimes, our customers also want to start the implementation in a particular country to test how the new way of working serves them before rolling it out in all the other countries.
2. You may want to add a new solution on top of your ERP system
After reading this article, you may still think that it’s fine to continue using your ERP to run your treasury, but you could be interested in adding a specific solution that your ERP cannot handle. It’s possible to do so with a best-of-breed approach – however, in the long term, you may need more solutions. Therefore, you may want to think strategically about which vendor will be able to help you the best now and in the future.
Where to start with a TMS implementation project?
If you think that it’s time to upgrade, start with careful planning. Identify details about your operations that may affect treasury, like the corporate structure, countries you are operating in, your organization’s goals, coming M&As, financial instruments, and anything else to help you make decisions.
Once you have all the details, evaluate the market. Shop around, discover different vendors, and learn more about their offerings. You can do a lot by browsing the internet, reading various whitepapers and materials the vendor provides, watching videos, or, if you are ready for it, booking a demo and asking questions. There may also be a treasury conference near you where you can meet the vendors, but most importantly, you can also meet your peers, who will be happy to advise on how to start and what to consider.