5 things to know about treasury management systems (TMS)

In today's fast-paced financial landscape, businesses need more than just traditional banking solutions to manage their cash flow, investments, and payments efficiently.

Treasury management systems (TMS) are software applications that allow businesses to manage their financial operations by tracking and automating processes like cash flow, investments, and payments.

Here are five things to know about treasury management software systems before finding the right solution for your business, Ramp says.

Key takeaways

• A TMS centralizes and automates financial operations via a unified platform to manage cash flow, investments, and payments.
• Core functions include liquidity, risk, and investment management.
• By integrating with bank accounts, ERPs, and accounting platforms, a TMS reduces manual work, minimizes errors, and enhances cash flow forecasting.
• Modern treasury solutions offer AI-driven insights to maximize efficiency, saving hours every week on cash management.

1. What is a Treasury Management System (TMS)?

A treasury management system (TMS) is software that automates certain processes involved in a company's cash flow management. It offers a centralized view of financial data while automating the movement of cash between operating and investment accounts, allowing businesses to maximize returns while ensuring enough cash is available to cover bills and operating expenses.

FAQ: What are the three main functions of treasury management?

The three main functions of treasury management are cash and liquidity management, risk management (both financial and market), and funding and investment management. Ramp will go into these in more detail in the next section.

Treasury management software can calculate upcoming payments and strategically invest idle cash, keeping only the necessary amount of cash on hand in an operating account. By integrating with a company's bank accounts and other platforms where they store financial data, like accounts payable or enterprise resource planning (ERP) software, these systems can optimize cash flow and eliminate the manual work usually required to export data and make decisions about where and how to move funds.

A TMS also supports organizations in maintaining regulatory compliance.

FAQ: What are the four basic tools of treasury management?

The four basic tools of treasury management are cash management, which ensures liquidity and efficient cash flow; risk management, which mitigates financial risks like interest rate and currency fluctuations; funding and capital management, which oversees debt, equity, and financing strategies; and banking and relationship management, which optimizes banking services and financial partnerships.

2. What are the functions of treasury management systems?

TMS serve multiple functions aimed at optimizing an organization's financial operations. Some of the primary treasury functions include the following:

Cash and liquidity management

Through direct bank connections, a TMS gathers and displays real-time data to support daily cash management functions, including cash positioning, funding, and investment. This allows businesses to monitor liquidity, making sure financial obligations are met and unused cash balances are invested strategically.

Payments

TMS streamline payment processes by integrating with accounts payable systems to automate workflows and ensure timely vendor payments. They often support various payment methods, including ACH, wire transfers, and virtual cards. Features like payment scheduling and extended payment terms help businesses improve cash flow while maintaining strong vendor relationships.

Automation of financial tasks

TMS automate repetitive tasks such as payment processing, reconciliation, and financial reporting, minimizing the need for manual intervention and reducing human error. This allows finance teams to spend more time on high-value strategic activities.

Cash flow forecasting

TMS predict cash flow by leveraging historical data and current financial trends. This helps businesses plan for future liquidity needs, address potential shortfalls, and allocate resources more effectively.

Risk management

TMS can identify and mitigate financial risks related to currency fluctuations, interest rate changes, and credit exposure. They may provide tools for treasurers to evaluate these risks, ensuring compliance and protecting the company's financial stability.

Other treasury functions

Other helpful functionalities of treasury management systems include:

• Bank relationship management: With a TMS, you'll have better control and transparency over bank accounts and get access to features for account management, signatory tracking, Foreign Bank and Financial Accounts (FBAR) reporting, and detailed bank fee analysis.
• Cash pooling and in-house banking: A TMS can improve intercompany financial flows since they typically include tools for managing notional and physical cash pools. They can provide real-time position updates and automated interest calculations, too.
• Multilateral netting: Your company can optimize intercompany transactions by calculating net payables and receivables per participant.‍
• Accounting and compliance: A TMS will simplify your accounting processes and ensure regulatory compliance through automated journal entry generation and comprehensive Enterprise Resource Planning (ERP) integration for general ledger (GL) connectivity. It can make GL reconciliation a breeze.

FAQ: What are examples of treasury services?

Examples of treasury services include cash management, liquidity management, payment processing, foreign exchange (FX) management, investment management, risk management, debt and capital management, and bank relationship management. These services help businesses optimize cash flow, manage financial risks, and ensure efficient financial operations.

3. Cash management vs. treasury management

Treasury management and cash management are related but serve different purposes.

Cash management focuses on short-term liquidity to ensure funds are available for daily expenses like payroll and supplier payments. It involves optimizing accounts payable, receivables, and fund transfers to maintain operational efficiency.

Treasury management, on the other hand, takes a broader, strategic approach. It oversees cash forecasting, investment decisions, debt management, and financial risk mitigation.

While cash management ensures liquidity for daily operations, treasury management aligns financial strategy with long-term stability and growth.

4. The benefits of treasury management systems

Maximized yield on operating cash

By leveraging data across a business's bank accounts and financial platforms, TMS can identify surplus funds and invest them strategically, ensuring maximum returns while maintaining sufficient liquidity for operational needs.

Time-saving automation

Typical weekly processes for treasury managers involve exporting business account balances into Excel spreadsheets, calculating upcoming payments, and choosing where to invest excess cash. TMS not only automate these tasks, but optimize cash flow so that the maximum amount of cash is earning interest at any given time.

Centralized financial visibility

TMS offer a centralized view of your company's bank balances and returns on investments, along with upcoming payments and payment history, all in one dashboard. This visibility supports better forecasting and financial decision-making.

Extended vendor payment terms

Some TMS offer extended payment terms on invoices, enabling you to pay vendors on time while opting for 30-, 60-, or 90-day repayment terms to the treasury provider for a small fee. This frees up working capital for business operations without risking missed payments or straining vendor relationships.

FAQ: Is ERP the same as a treasury management system?

Enterprise Resource Planning (ERP) systems are general tools that companies use to manage accounting, procurement, and business operations, while a treasury management system is dedicated to managing cash flow, maximizing yield on investments, and forecasting future liquidity needs.

FAQ: Is SAP a Treasury Management System?

No. SAP itself is not exclusively a TMS, but it does offer treasury management functionalities as part of its enterprise resource planning (ERP) products.

5. How to choose the right treasury management software

Selecting the right TMS for your business requires a strategic, multi-stage approach. Beyond considering cost, Ramp recommends that you:

• Conduct a thorough needs assessment: You can improve the likelihood of CFO approval by positioning the solution as a critical investment. Be specific in naming your desired functionalities/core requirements.
• Prioritize essential features: Look at TMS solutions from various providers and compare their offerings against your specific criteria. Choose a system that addresses current needs and anticipates future growth.
• Plan for long-term scalability: Ideally, your chosen TMS will not only meet immediate demands but can also adapt and expand as your business evolves.

This story was produced by Ramp and reviewed and distributed by Stacker.