The Station Never Sleeps

A treasury workstation can help a midsize company manage working capital around the clock.
BY JEFF MCKINNEY

EXECUTIVE SUMMARY
  • A TREASURY WORKSTATION INCLUDES both hardware and treasury management applications. Systems that go by that name generally allow companies to automate most of their core treasury operations seamlessly with a database and communicate directly with banks, other financial institutions and sometimes even customers and suppliers. They can typically take anywhere from one to nine months to install.
  • VENDORS NOW MARKET treasury workstations for midsize companies. The treasury workstation market is growing rapidly and prices are going down.
  • GLOBALIZATION, E-BUSINESS, NEW TECHNOLOGY, simplification, standardization and rapid payback are all reasons to look into using a treasury workstation.
  • CASH, CURRENCY AND RISK MANAGEMENT are some tasks that treasury workstations can facilitate. Risk identification and electronic funds transfer also are available but are not always as effective as more basic functions.
  • ASCERTAIN YOUR COMPANY’S NEEDS, shop carefully and make sure the system can dovetail with the functions your equipment already performs.
JEFFREY McKINNEY is a business reporter based in Cincinnati. His e-mail address is jmckinney@prodigy.net.

The total market for treasury workstations was $164.1 million in 1998. International Data Corp., an information technology data company based in Framingham, Massachusetts, projects it will reach $719.9 million in 2003—more than quadrupling in a five-year period.

n today’s global economy, a treasury workstation is, in effect, a high-speed banking tie-line. The name “treasury workstation” is the catchall for hardware integrated with management applications that handle corporate treasury functions such as managing cash, debt and investment services; maintaining access to capital markets; and generating reports from internal and external accounting systems.

“Treasury workstations have evolved into robust systems that manage cash, support position and portfolio management and offer sophisticated risk management functionality,” says Ann Rodriguez, director of financial services consulting at BDO Seidman, LLP.

Treasury workstation benefits include increased efficiency, better rates on investments and more stringent expense control. They allow companies to automate most core treasury operations seamlessly with a database and communicate directly with banks, other financial institutions and sometimes even customers and suppliers. Treasury workstations eliminate the need for multiple system spreadsheets; increase reliability in financial reporting and decision making; streamline administrative efforts; and reduce manual errors.

Not long ago such sophisticated information technology tools were too expensive for any but the world’s largest corporations. Today treasury workstation vendors are focusing on marketing to businesses of all types and sizes and price ranges. With off-the-shelf enterprise resource planning (ERP) software for midsize companies widely available (see “How Midsize Companies Are Buying ERP,” JofA, Sept.99, page 41), vendors are selling treasury management modules both as separate units or part of larger systems. For midsize companies, a treasury management application compatible with existing systems may be affordable. If a corporate treasurer’s company has annual revenues in the $50-million-to-$100-million range, now may be the time to take another look at what treasury workstations have to offer.

CASE STUDY

Ingram’s System Saves $30,000 a Year

By moving to a treasury workstation, Nashville-based Ingram Industries Inc., a business conglomerate including transportation, wholesale goods and insurance, has been able reduce its annual operating expenses by $30,000, says Thomas Spurlock, a financial analyst at the company. He says the savings come primarily from reduced data-entry time and the better investment rates available when the company enters the markets faster. Those advantages, he adds, can be as much as five basis points, or more, higher than before.

Spurlock says his company’s treasury workstations do a good job of collecting bank data, cash forecasting, debt and investment analysis, risk management and automation of interfaces. However, electronic funds transfer is a function that the big vendors do a better job with than the small ones. He predicts more vendors will begin focusing on adding that feature to their products.

Still, Spurlock says, Ingram Industries uses the treasury workstation to automate numerous accounting transactions and do financial analysis. For example, if the company enters an investment, the treasury workstation creates a transaction for the settlement, one for the maturity and another for the interest. It also updates the cash forecast and creates the wire transfer.

“In addition to the savings, the treasury workstation has freed up time so that our staff can concentrate more on other projects and analysis,” Spurlock says.

HOW THEY WORK

A treasury workstation is an information system that allows a corporate treasurer or other financial officer to manage a company’s treasury operations, comprising all accounting functions, funds transfers, investments and cash—including an organization’s working capital and daily cash position. It consists of software, hardware, and a database.

The hardware and database often are used for other purposes as well. Some more sophisticated treasury workstations have extensive access to external databases including real time information on capital markets and e-commerce connections with customers, suppliers, investors and providers of financial services such as banks and insurance companies. “External interfaces may be established to the existing accounting system for complete end-to-end processing,” Rodriguez says.

THE BENEFITS

Vancouver-based Selkirk Financial Technologies has a client list ranging from Armonk, New York–based IBM Corp. to a municipality in New Zealand with a population of 60,000. Lyndon J. Harvey, Selkirk’s chief operating officer, says businesses as diverse as a regional electric utility, a small boutique retailer and a major manufacturer use treasury workstations today. (For user perspectives, see the sidebars, “Times Mirror, Reflecting Trend, Relies on Treasury Workstation,” and “Ingram’s System Saves $30,000 a Year.”)

Treasury workstations offer big savings. For example, one vendor says his company might work with a client company that has average daily cash balances of $10 million, spread among banks all over the country. Given the minimal yields many banks offer, money that sits there is “not doing anything for you,” he says. Treasury workstations can reallocate, reducing the amount of working capital sitting idle in bank accounts by as much as 75% and sweeping cash from low interest accounts and investing it. The company can put $7.5 million of that average daily cash balance into higher-yielding treasury bonds or money-market accounts. It’s estimated these systems can pay for themselves within 6 to 12 months, in hard dollars, cost savings or investment earnings.

One case in point: Walter Stark, assistant treasurer at Humana Inc., a Louisville-based healthcare provider with six million members nationally, says his company’s treasury workstation is already paying big dividends. He estimates that over the next three years the treasury workstation—which cost Humana $150,000—will save the company $213,000 directly, as well as $45,000 in efficiencies and $60,000 in additional interest income. That $318,000 in total savings equates to an internal rate of return of 37%.

Another big benefit: standardizing and simplifying. Treasury workstations make it possible to replace multiple spreadsheet systems with a single standardized tool. Such standardization may increase the reliability of the company’s financial reports and financial decision making; reduce administrative work; and enhance internal controls with automated checks. In addition, the workstations can help improve implementation of best practices in areas such as documenting daily procedures, cash forecasting, benchmarking, improving efficiency and monitoring profitability.
Jill Selgrad, a vice-president at Chicago-based Treasury Strategies Inc., which provides clients with advice on payment systems and short-term liquidity management, agrees that more midsize companies are beginning to use treasury workstations. She notes that they can help companies

  • Save on interest when they borrow.
  • Invest more of a business’s cash.
  • Get better rates on investments.

Treasury workstations do this by constantly monitoring both external data on capital markets and internal data on a company’s cash position. That can be especially useful for a large company with multiple entities operating in several countries but may benefit a retail chain with a half-dozen locations, too.

Companies cite other reasons for using treasury workstations: They enable businesses to conduct repetitive transactions without rekeying data; they are very effective with reconciliations; they provide timely data; and they can perform complex financial calculations. Those calculations include helping businesses identify their financial exposure, quantify it, and specify their cash positions in any currency. Such calculations are essential for companies using derivative instruments.

Another popular selling point: The current crop of treasury workstations can interface with a company’s general ledger (GL). Edward Gordon, senior vice-president at Wachovia Treasury Consulting, a unit of Atlanta-based Wachovia Bank, says that’s important because companies are looking for a single database instead of the multiple systems many companies still use.

Companies using multiple systems may keep staff busy calling several banks to get transaction reports, printing them manually and forwarding them to accounting, Gordon says. “The beauty of treasury workstations is that they [replace] a lot of daily transactions done by people with an automated process.” In turn, Gordon says, that allows people to redirect their energies to more important matters, such as analyzing the company’s investment position or developing methods to improve efficiency.

NOT PERFECT YET

Like most off-the-shelf software, treasury workstations don’t always do everything well, however. According to Anne Bacher, cash manager of Times Mirror Co., the Los Angeles–based news and information giant, “What the majority do very well is automate manual treasury and accounting tasks, saving time and money as well as reducing errors.”

Her company has used a treasury workstation, or rather, two systems from two different vendors, for about three years. The first unit she tried did not work out well and needed enhancements the vendor could not provide. Her company’s second try—Treasury Manager from Selkirk—offers investment and debt capabilities that improved system performance.

Five to ten years ago treasury workstations were rudimentary information reporting machines. Although the technology has changed dramatically, offering graphics and more system compatibilities, the downside is that the new systems are harder to install. It used to be that a bank or vendor could install an old-style basic information reporting system in about two weeks. In comparison, installations today can take three to six months—and they are major investments for most companies.

Treasury Workstation Vendors and Manufacturers

Software and related accessories may be obtained from the following:

Company* Web site and telephone
XRT-CERG www.xrtcerg.com ; 610-254-0300
SunGard Treasury Systems www.sungard.com ; 650-244-4200
Trema Group www.trema.com ; 617-973-5771
KPMG Information Solutions www.kpmgis.com ; 203-353-4850
Advanced Risk Management Solutions (ARMS) www.arms.com.sg ; 011 65 734 9803
Agresso† www.agresso.com ; 888-AGRESSO
Financial Sciences Corp. www.fisci.com ; 201-451-2700
Selkirk Financial www.selkirkfinancial.com ; 604-682-2862
Integrity Treasury Solutions www.integra-t.com ; 312-782-0202
Richmond Software www.richsoft.co.uk ; 416-596-9308
SimCorp A/S www.SimCorp.com ; 011 45 35 44 88 00
CCK Treasury Systems www.cck.com.au ; 011 2 9251 2188
Financial Software Systems www.fssnet.com ; 215-784-1100
Beyers and Partners www.beyers.com ; 011 32 3 206-9-211
* In order of treasury workstation sales volume, including software and related accessories. Locations are North American, if available, and international.

† Agresso is headquartered in Oslo, Norway. Most treasury products are sold through the unit in France, Concept Agresso SA. Telephone: 011 33 1 46 09 30 00.

Source: International Data Corp. (Framingham, Massachusetts; www.idc.com ).

For other links, try the Association of Financial Professionals (formerly the Treasury Management Association). Click on library & research; buyer’s guide; treasury workstations at www.afponline.org .

CHEAPER AND MORE POWERFUL

Wachovia’s Gordon estimates that a midsize company can purchase and have a treasury workstation installed for as little as $30,000 to $50,000, but those prices certainly are not the average. Industry experts say the systems—including hardware, software and installation—can cost up to $300,000, depending on the user’s needs and the system’s functionality and complexity.

The variables affecting the cost of a treasury workstation include the number of applications a company needs, the number of people who will be using the system and the number of feeds that integrate the system. “If you need FX, debt and investment functions, it can easily be in the six figures,” says Selgrad. She says banks—the traditional vendors of treasury workstations—are getting out of the business and being replaced by third-party vendors that basically provide the software, implement the various functions and get the systems running. (See resource list, at right.)
Jeffrey A. Cooley, vice-president of treasury manager services at Chicago-based Bank One, agrees, saying that only a handful of major banks—including Citicorp, Chase Manhattan Corp. and his company—still offer treasury workstations. Although most treasury workstation vendors are now independent, users still must hook up with banks to transfer funds with regional and multinational banks, particularly when it comes to handling foreign-currency transactions.

A treasury workstation allows a company the option to deal with one or more banks. But users still need “a stem” that links them to the global banking system. The reason: Banks settle transactions, transfer funds or exchange currencies primarily with other banks. The treasury workstation translates corporate data into the electronic language that banks all over the world use to communicate with each other.

Midsize companies can buy treasury workstations with software that they can operate on a basic PC network, including a Windows NT environment or client-server platform. A diverse range of modules to fit accounting, investment or cash management needs makes this possible. The modules can be customized to fit company needs and be expanded as required.

How a treasury workstation interacts with other financial systems a company may already have in place is key when considering buying one. “Controls and reconciliations must be consistent with the level of automation, to keep pace with the complexity of treasury deals and ensure accurate and timely accounting information,” Rodriguez cautions.

A financial manager needs to know how a workstation and the existing financial software dovetail. Today’s treasury systems have modules offering the following capabilities:

Cash management. Cash management modules are used for scheduling and forecasting, bank account data retrieval, electronic funds transfer (EFT), real-time position reporting and targeting, in-house banking and pooling, reconciliation and multicurrency transactions.

Investment management. Treasury workstations can handle multiple portfolio environments for money markets and mutual funds, short-term and fixed-income investments, equities and options. Other functions track secondary market trades, interface with pricing services and produce mark-to-market reports.

Debt issuing and tracking. The debt capabilities of treasury workstations include tracking of short term debt with a link to a dealer-based commercial paper program. They can also be used to manage fixed and floating rate long-term debt instruments with automatic recalculation of payment schedules.

Risk analysis. Risk management modules allow a user to perform “what if” modeling through yield-curve manipulation and scenario analysis. The user can determine performance on a risk-adjusted basis and calculate “value at risk”—a measure of what could be lost in a certain timeframe given certain assumptions.

IS IT YOU?

A financial manager wondering which way to go should do some careful homework to determine whether a treasury workstation will help his or her organization. “The approach to treasury management should be based on several considerations: corporate strategy, system functionality, technology and process design,” Rodriguez says. Approach cautiously and get answers from vendors to the following questions.

  • How can the company benefit from using a treasury workstation?
  • How will such a system affect the company’s internal and external procedures?
  • What internal and external support will be needed?
  • What are the costs and benefits of implementing such a system?

Do sufficient research to have a solid understanding of the system’s suitability for the company’s current and future needs. Become familiar with the vendor’s product capabilities. Calculate the total cost of implementing the workstation and project the payback period.

To help determine how well a treasury workstation will work for a company’s treasury operations, industry experts say potential users should request a cost/benefit analysis from vendors. That analysis should specify how the workstation will contribute to current and future company objectives, how it will make internal and external accounting functions more efficient and what the bottom line effect should be. Other questions might include

  • How long should the evaluation, selection and implementation take?
  • What features are “musts” vs. which are “bells and whistles”? (Get corresponding price-range quotes.)

Also seek

  • At least three references.
  • In-person demonstrations.
  • Assurances that there will be timely and skilled support during the implementation process.
CASE STUDY

Times Mirror, Reflecting Trend,
Relies on Treasury Workstation

Anne Bacher, cash manager at Times Mirror Co., loves it that the company’s treasury workstation does things she can’t do for herself or, more specifically, her company’s vast financial empire. According to Bacher, the $3.3-billion Los Angeles–based multimedia giant uses a treasury workstation because it helps the Times Mirror treasury and accounting departments implement “best practices” for documenting daily procedures, improve cash forecasting, assist in benchmarking and improve efficiency and profitability.

Bacher says the treasury workstation she uses saves her company six hours daily, bringing efficiencies to both the cash management and accounting departments. She says the workstation automatically dials Times Mirror’s four banks—including banking giant Bank of America Corp.—before she arrives at work. The system retrieves the company’s previous and current balances and transaction details, then parses the data into an easy-to-use cash position display. The system also recognizes most of the company’s bank transactions and assigns appropriate GL codes to them. “It saves our accounting group several hours a day, compared to manually keying all the transactions into the GL directly,” she says.

Bacher says Times Mirror uses the treasury workstation to manage its short-term debt and investment portfolios, enabling the company to accurately and quickly track its exposure in domestic and foreign financial markets. Her company uses the system to create accurate ad hoc reports quickly when senior management requests them.

“The Internet and other electronic commerce opportunities have increased companies’ desire to use treasury workstations because of the simplicity of automating electronic data processes from beginning to end,” Bacher says.

A GROWING MARKET

If a company is not quite ready for a treasury workstation, not to worry. The market is growing fast. Brian McDonough, a research analyst at International Data Corp., a Framingham, Massachusetts–based firm that researches and analyzes the software industry, says the treasury workstation market “will only expand.” He thinks that’s good news for potential users, because that will help drive down the costs of the systems, increase their functionality and make them more practical.

“Growth rates will increase after 2000, when the portion of companies’ treasury budgets formerly allocated to solving Y2K issues becomes available for the purpose of other packaged applications such as treasury workstations,’’ McDonough says.

The bottom line is that treasury workstations can be a vital resource for midsize organizations. The systems help companies minimize interest expense, mitigate their risks and maximize investment returns. Much as other advances in information technology have helped transform many aspects of business, treasury workstations have put treasurers in closer touch with their banks and other financial suppliers, allowing them to make better decisions faster and giving their companies a useful tool for managing working capital more effectively.

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