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The four expectations of Currency Management Automation
14-02-2022 | treasuryXL | Kantox | LinkedIn |
With FX volatility intensifying and exposing companies to even greater currency risk, treasurers & CFOs are faced with many challenges as they look to step up their FX risk management strategy. The key to this is currency management automation, but what are the critical problems an automated solution needs to solve to become a worthwhile tool in your treasury kit?
Click on the image above for the corresponding episode of CurrencyCast
The four main expectations of currency management automation for CFOs and treasurers are:
Challenge 1: Improving time management
According to the 2021 HSBC Corporate Risk Management survey, 55% of treasurers say FX risk management takes up most of their time; and 44% find that automation frees up time. Throughout the FX workflow, members of the finance team manually execute many tasks. These are repetitive, time-consuming and add little value. The French have a wonderful expression to define those tasks: they call them chronophage — literally, they eat away your time. With more time at their disposal, treasurers could focus on more value-adding activities, such as improving and fine-tuning their forecasts.
Challenge 2: Removing operational risks
Throughout the FX workflow, operational risk is omnipresent. Operational risk is the risk that inadequate or failed internal processes can pose to your business. Take spreadsheet risk. From the moment an FX rate is sourced for pricing purposes to the budgeting process, and all the way to the cash flow moment of the post-trade phase, dozens, hundreds, perhaps thousands of spreadsheets circulate across the enterprise, magnifying the risk of manual data input error.
A recent Citi Corporate Treasury survey showed that 80% of FX risk managers remain reliant on Microsoft Excel. In our conversations with CFOs and treasurers, we noted that often, a handful of people or even sometimes a single individual is in charge of executing most –if not all– the tasks of FX risk management across the entire enterprise. These enterprises can often comprise of subsidiaries, each with its own set of currency pairs. This is the very definition of key person risk.
Taken together, spreadsheet risk and key-person risk are part of operational risks that can cause serious damage to your FX risk management strategy.
Challenge 3: Improving the efficiency of treasury operations
According to this same Citi Corporate Treasury survey, efficiency gains in treasury is the number one expectation of technology. There is a myriad of ways in which the efficiency of treasury operations can be improved in FX risk management.
Consider most Treasury Management Systems (TMS) shortcomings, even those with FX capabilities. Looking at the FX workflow, most TMS are incapable of proactively helping risk managers execute their tasks. Why though?
(a) They lack a robust rate feeder that allows the business to price with the forward rate when forward points are in favour or ‘against’.
(b) They are adequate for balance sheet hedging, but they fail to capture the type of exposure needed in cash flow hedging (e.g. forecasted exposure for individual campaigns/budget periods in static hedging; forecasted exposures for sets of campaigns/budget periods linked together for layered hedging etc. ),
(c) They lack the level of automation –during the cash flow moment of the post-trade phase of a hedging program– needed to efficiently handle the adjustment of hedges to the underlying cash flows.
Challenge 4: The need to make a strategic contribution in terms of enhancing value
HSBC’s survey showed that only 23% of treasurers see themselves as ‘best-in-class’ when it comes to FX hedging. With FX risk firmly under control thanks to a family of automated hedging programs and combinations of hedging programs, CFOs and treasurers would be in a position to:
(a) Diminish the variability of corporate performance
(b) Secure and enhance operating profit margins
(c) Improve the competitive position of the firm
(d) Make more efficient use of invested capital by boosting the sales/capital ratio and by minimising the amount of capital that needs to be set aside for collateral and margin requirements
Improving time management and removing operational risks are the most visible, the most tangible expectations of currency management automation, but they might not be the most important ones. Much more important for your company is to be in a position to improve the efficiency of Treasury operations and to make a strategic contribution towards enhancing the value of the firm.
Digital rules (URDTT) for Trade Finance: Episode 2
10-02-2022 | Wim Kok | treasuryXL | LinkedIn |
Episode 2 of our series of educational videos is now available. Please take a look and let me know what you think. Episode 1 is, of course, still available on our YouTube channel.
Trade Advisory Network Limited and treasuryXL Trade Finance experts launched their second episode of a series of free, educational videos on URDTT. There will be 6 episodes in total covering all aspects of the development, interpretation, and application of URDTT in the context of a digital trade strategy. In the upcoming months, you can expect one educational video per month.
What can you expect in the second episode?
Episode 2 of this series of videos focuses on URDTT (Uniform Rules for Digital Trade Transactions). Subsequent episodes will focus on the use of electronic records, payment obligations and, the role of banks/non-bank financial service providers.
Duration: 11.38 min
WATCH NOW FOR FREE
Enjoy, explore and develop!
Interested to know more about this topic and the upcoming educational videos? Contact our Expert Wim Kok.
Wim Kok
International Business Consultant
Trade Finance Specialist
Corporate Treasury: 3 ways to prevent fraud risk in one-time vendor payments
09-02-2022 | treasuryXL | Aico | LinkedIn |
Manual payments are somewhat of an outlier among corporate treasury payments. These one-time vendor transactions to companies or private individuals whose details are not in your ERP system pose a significant risk of fraud. They are challenging to track and easy to manipulate in an enterprise environment. This makes them a target for auditors, who want to clearly see you have monitored all points in the payment process where data can be altered. Changing the payment details or falsifying invoices are just a couple of mishandling examples, leading to massive fraud cases like these.
There is, however, a transparent and secure way to handle these payments as quickly and efficiently as the typical accounts payable invoice automation process.
Let’s look at three preventative solutions to reduce the fraud risk.
1. Enforce approval workflows: The four-eye principle.
Much of payment fraud originates in transferring small sums to non-existing vendors, rather than large payments. It makes such transactions much harder to identify and match over a long period.
The so-called four-eye principle is one of the cornerstones of a preventative approach to fraud management and internal controls in general. Having no means to enforce payment approval workflows across the group’s companies with little to no visibility into initiated payments is a challenge many enterprises struggle with.
A software solution to enforce systemic payment approvals is essential. And so is the ability to easily customise these workflows and apply them to the whole company group in line with your internal and external compliance guidelines.
You may want to enforce one or two-step payment approvals based on value or frequently recurring IBAN details. A mandatory requirement to add an attachment of supporting evidence is another possibility. These are just some examples of how a modern software solution like Aico can help you minimise fraud risk effectively.
2. Secure PAIN file creation and bank transfers.
A holistic approach is essential for effectively implementing internal controls against payment fraud. Eliminating 90% of a leak in your boat still leaves you at high risk. So, payment approvals alone will make it harder to start a fraudulent payment, but they won’t secure you from trickery further down the process.
Once one or more people have approved the payment, it will be sent to the bank in a PAIN (payment initiation) file format. The data in the approved payment request should be identical to the one in the PAIN file. Eliminating any possibility to create or alter the PAIN file manually is the single most effective protection in this part of the process. So ideally, PAIN file creation and transfer to the bank should be fully automated.
In the case of the Aico Manual Payments software solution, the system will create the PAIN file automatically in the background using the master data of the approved payment request. Once approved, the PAIN file goes automatically to the bank for the payment without any further human interaction.
3. Automate journal postings.
Verifying the execution of the payment and accounting for it in a compliant way is the last, but not least, important part of the safe payment process. Just as we want to ensure the bank receives the approved payment document, it is equally important to match the returning bank statement with the original payment order.
And once again, an automated process is the safest solution. In fact, at this point, we can also securely manage the accounting by automatically creating and posting a journal entry into the ERP system. Automation here saves us time and ensures that subsequent journals are posted to the correct accounts with the right value matching the master data of the initially approved payment request.
Is it possible to take one more step to safeguard this process?
In addition to the smart workflows and powerful automation, the Aico Manual Payments solution will also archive the entire activity log and documents related to the specific payment. This extra mile of effort will significantly simplify the audit process and help to identify any irregularities.
About Aico
We help enterprises simplify financial close and record-to-report (R2R) accounting processes. The result is less manual work and faster period-end financial reporting with the assurance of compliance and data accuracy.
Our software platform includes solutions for the key R2R processes – Account Reconciliation, Closing Task Management, Journal Entries, Intercompany Invoicing and Manual Payments.
Unique real-time integration to multiple ERP systems brings increased automation levels and reduces IT system complexity to our customers.
With teams and a network of partners across EMEA, we deliver high-complexity projects for enterprises with a global footprint.
Visit aico.ai for more information about Aico.
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