Treasury
Treasury
Trinity provides a modular system that can be tailored to individual requirements, enabling effective management of account balances, foreign currencies, financing and investments, interest rates, liabilities, planning and reporting.
Denis Iuliano, Head of Accounting, SCIO Automation GmbH
Topics
Financing and Investment
The following section focuses primarily on corporate loan and investment management within the broader context of contract management.
Does your company have funding or investment needs?
Effective liquidity planning identifies funding requirements and surplus liquidity at an early stage. The more accurately incoming and outgoing cash flows are forecast in terms of both amount and timing, the more precisely financing gaps and investment periods can be determined.
Optimised planning gives companies valuable time to explore favourable sources of financing or compare the returns offered by different investment opportunities.
The market price risks arising from financial transactions are covered in the articles on interest rate risk management and foreign exchange management. Information on guarantee management and trade finance can be found by following the relevant links.
Funding Needs
Internal financing is generally more cost-effective than financing through external counterparties. In practice, however, companies often need to rely on banks or other providers of capital.
Long-term loans and promissory note loans are agreed with repayment terms of varying complexity, while shorter-term money market financing is typically arranged in the form of straightforward term loans or commercial paper.
Unlike fixed-rate arrangements, which are relatively easy to calculate, variable interest rates are more difficult to forecast. They are therefore often converted into fixed cash flows through swaps or hedged in other ways. Interest rate hedging, however, does not remove the need for ongoing interest calculations and valuation of the underlying floating-rate loan.
The applicable interest rate is often linked not only to a specific reference rate, but also to the company’s own credit rating. Financial and non-financial covenants, such as ESG criteria, may affect the cost of borrowed funds. This becomes even more difficult to forecast when pricing is additionally structured through margin grids.
Managing the wide range of cash flows and risks arising from financing requires a powerful treasury management system that provides reliable calculations and planning data for optimal liquidity management.
In addition to maintaining an up-to-date overview of total bank exposure, monitoring limits and credit facilities is particularly important for corporate finance managers. They need to know how much financing capacity remains available with a bank or banking group and how the company’s leverage is developing.
Other key considerations include the cost of capital, remaining maturities and, where applicable, valuations in accordance with international standards. Flexible analyses by financing type, lender and syndicate, investment and project, currency risk, capital and interest rate commitment, as well as simulations and scenario analyses as part of comprehensive financial planning, quickly exceed the capabilities of spreadsheets. Spreadsheets generally provide neither reliable audit trails nor sufficient drill-down functionality.
Trinity TMS Functions at a Glance
- Set-up and management of financing instruments
- Money market loans
- Commercial paper
- Bullet loans
- Instalment and annuity loans
- Promissory note
- Bonds and equities
- Leasing of movable and immovable assets
- External and intercompany counterparties
- Automatic generation of interest and repayment schedules
- Automatic flow of all cash flows into liquidity planning
- Fixed and variable interest rates
- Various interest calculation methods
- Consideration of business day conventions and holiday calendars
- Multi-currency capable
- Syndicated loans
- Audit-compliant, multi-stage workflows
- Portfolio and credit line allocation
- Document attachments
- Collaterals management
- A wide range of analysis and reporting options
- Ready-to-use reports
- Maturity radar
- Accounting module for automated posting processes
Benefits
Maximum Transparency and Risk Reduction
- Up-to-date overview of all financing arrangements and money market and capital investments
- Reliable basis for optimised interest rate hedging worldwide
- Flexible, multi-level pivot analysis
- Monitoring of limits and credit facilities
Time and Cost Savings
- Simple entry and management of financial transactions
- Automated generation of interest and repayment schedules
- Automated transfer of cash flows into planning and cash positioning
- Consideration of bank holidays, weekends and business day conventions
Process Optimisation
- Management of the entire lifecycle of financial transactions, from planning and execution through to repayment and interest calculation
- Automated valuation and posting to the ERP system
Audit Compliance
- Full traceability of all processing activities through audit trails
- Historical records of transaction and market data
- Recognised valuation methods, including valuation adjustments such as Credit Valuation Adjustments
- Individual user permission profiles for front, middle and back office functions
- Rule-based workflows with dual-control approval processes
Investment Needs
If liquidity planning identifies surplus funds that cannot be used effectively within the business, the question arises as to how these funds should be invested.
Money market transactions generally have a straightforward structure and maturities of less than two years. Typical instruments include overnight deposits and fixed-term deposits. In some countries, certificates of deposit, commercial paper and medium-term notes are also commonly used investment instruments.
Depending on their maturity, medium-term notes may also be classified as capital investments. Long-term investments such as bonds, funds and equities are relatively uncommon for companies, as this would imply that higher returns can be achieved in the financial markets than through investment in the company’s own operations.
However, some companies use securities investments to prepare for major capital expenditure, acquisitions or pension obligations. Others manage treasury shares or equity interests in affiliated and third-party companies.
In addition to maintaining a standard liquidity buffer to protect against unexpected payment defaults, companies also manage operational and, in some cases, strategic financial investments. These may likewise be exposed to default, interest rate or foreign exchange risk.
For this reason, most companies limit their investment activities to a small number of instruments that are generally considered low risk.
In all cases, money market and capital investments should also be managed within a treasury management system, as their cash flows affect both daily cash positioning and ongoing liquidity planning.
Trinity TMS Functions at a Glance
- Set-up and management of financial investment instruments
- Overnight and fixed-term deposits
- Commercial paper
- Bonds and zero-coupon bonds
- Equities and fund units
- External and internal counterparties, including the in-house bank
- Automatic interest calculation
- Automatic flow of all cash flows into liquidity planning
- Fixed and variable interest rates
- Various interest calculation methods
- Consideration of business day conventions and holiday calendars
- Multi-currency capable
- Audit-compliant, multi-stage workflows
- Portfolio and limit allocation
- Document attachments
- A wide range of analysis and reporting options
- Ready-to-use reports
- Maturity radar
- Accounting module for automated posting processes
Best Practice
Especially in times of rising interest rates, it is essential for finance managers to keep a close eye on both existing financing arrangements and, in particular, those approaching maturity. Following a prolonged period of low interest rates, awareness of refinancing risks has declined in many companies. At the same time, the COVID-19 crisis may have reduced earnings, while the number of banking relationships has often been minimised to cut costs. These factors can restrict the scope for refinancing decisions and, particularly under time pressure, may result in unnecessarily high financing costs.
Such situations can be avoided through forward-looking liquidity and financial planning:
Sufficient lead time based on complete information not only helps identify additional financing requirements at an early stage, but may also provide access to a broader range of alternatives, for example by obtaining competing offers.
The same applies to money market and capital investments, where early enquiries can also help improve returns.
A particular advantage of Trinity TMS is that financing and investment opportunities can also be offered to the company’s own group entities through the in-house bank. Local users communicate their requirements to central treasury and generally receive more favourable terms than they would from external counterparties. Central financial management retains a complete overview of all receivables and liabilities, can apply market-based interest rates and arrange external refinancing or temporarily invest surplus funds.
Trinity TMS generates interest and repayment schedules for all loans and borrowings. Floating-rate loans are valued on the basis of automatically imported interest rates, with the option to include valuation adjustments such as CVA and DVA, which supplement market price risk by taking counterparty default risk into account. For syndicated financing arrangements, the Treasury Management System supports the management of individual lenders’ shares within the syndicate.
All cash flows arising from financial transactions are immediately incorporated into daily cash positioning without the need for duplicate data entry and are available for a wide range of analyses. Loan agreements can be attached to the relevant financial transaction as documents or generated directly from the system, for example as master agreements for intercompany loans. Loans can be assigned to any number of portfolios, while ESG criteria and other classifications can be recorded and analysed individually.
Payment transactions, interest, accruals and valuations can be transferred to financial accounting through the accounting module as part of an automated posting process.
Credit Facilities and Limits
Credit Facility Management
Credit facility management primarily focuses on credit lines. These may be granted to a company by banks or, where the company operates an In-house Bank, to its affiliated entities.
The purpose of such facilities is to limit access to the funds made available. Depending on its creditworthiness, a company may be granted overdraft facilities on current accounts by a financial institution, allowing the account to be operated with a debit balance and providing additional liquidity.
Trinity TMS Functions at a Glance
- Set-up and management of credit facilities, including utilisation for:
- Accounts
- Loans
- Commercial paper
- Guarantees
- Letters of credit
- Multi-purpose facilities
- Up-to-date information on available facilities and headroom
- External or intercompany counterparties
- Management of syndicated facilities and consortium arrangements
- Classification as:
- Uncommitted, committed or available until further notice
- Under negotiation, blocked, cancelled or expired
- Revolving facilities
- Calculation of facility utilisation
- Calculation of fees and commissions
- Flexible billing periods
- Consideration of business day conventions and interest calculation methods
- Integration of facilities and related fees into liquidity planning
- Support for any currency
- Maturity radar and follow-up reminders
- Historical development
- Audit-compliant, multi-stage processing workflows
- Portfolio allocation
- Document attachments
- Collateral management
- A wide range of analysis and reporting options
- Ready-to-use reports
Limit Management
The purpose of setting limits is to monitor compliance with defined parameters, for example:
- how many US dollars a foreign exchange dealer may trade with a financial institution per day (dealer limit),
- the maximum total amount of liabilities permitted with a banking group (volume limit), or
- the maximum losses that may arise from exchange rate fluctuations before appropriate countermeasures must be taken (loss limit).
Limits therefore do not represent the provision of funds. Instead, they are a control instrument used to monitor requirements and processes.
The definition of limits and reference values in a treasury management system should be as flexible as possible.
When used correctly, limit monitoring can provide effective support for a company’s treasury function. These features are particularly valuable when operating an In-house Bank.
Trinity TMS Functions at a Glance
- Definition and monitoring of limits based on:
- Freely selectable financial instruments and/or
- Dealers, entities and counterparties and/or
- Volumes and currencies and/or
- Results such as profit and loss or facility utilisation
- External and internal counterparties, including the in-house bank
- Individually definable weighting factors
- Aggregation on a gross or net basis
- “Effective from” logic for straightforward administration
- Audit-compliant, multi-stage processing workflows
- User-specific allocation of reporting results
- A wide range of analysis and reporting options
- Ready-to-use reports
Benefits
Maximum Transparency and Risk Reduction
Up-to-date overview of facility utilisation and available headroom
Can be integrated into liquidity planning and financial status reporting
Consistent information for all parties involved
Continuous monitoring of limits
Reduction of unwanted actions and potential conflicts
Time and Cost Savings
- Fast access to information and up-to-date overviews
Process Optimisation
- Simple monitoring of requirements
Audit Compliance:
Logging and historical tracking of changes over time
Configurable recipients for limit notifications
Limits can be assigned to individual users, instruments and entities
Rule-based workflows with dual-control principle
Guarantee Management
The management of guarantees and surety bonds, including the associated fees as well as the monitoring and reporting of liability relationships, can be optimised.
Surety bonds and guarantees play an important role whenever business relationships require additional security. Depending on the industry, these may include advance payment guarantees, bid guarantees, performance guarantees or warranty guarantees. In international trade, customs guarantees, payment guarantees and many other types of guarantees are used. Within a corporate group, letters of comfort may also come into play, for example when a parent company assumes liability on behalf of a subsidiary.
Florian Buksmann, Head of Treasury Operations and Projects, Telefónica Deutschland
Guarantee Commissions affect Liquidity
Funds under these guarantee facilities are generally only transferred in the form of fees paid in return for assuming the liability. A certain percentage of the guaranteed amount is charged as a fee, calculated according to different models, and paid to the guarantor, usually a bank, a credit insurer or the parent company within the group.
Depending on the volume of guarantees, a term commonly used to collectively describe surety bonds and guarantees, the cash flows arising from guarantee fees can have an impact on the company’s overall liquidity and should therefore be taken into account by financial management when planning and managing the company’s ability to meet its payment obligations.
Guarantee Facilities Need to be Monitored
The ability to utilise guarantees is often provided through agreed credit facilities, a certain portion of which can be used for issuing guarantees. In these multi-purpose or global credit facilities, the individual types of credit affect one another. For example, the available overdraft facility may decrease when additional guarantees are utilised.
Monitoring credit facilities, guarantee maturities and the respective guarantee utilisation per guarantor are among the key responsibilities of risk managers responsible for guarantee business within the company. For documentation purposes, all relevant information can be added to the financial transactions, for example through direct data entry in the TMS, by attaching documents and by assigning transactions to portfolios that allow analyses based on any desired criteria. Both issued and received guarantees can be included in the analysis.
Managing surety bonds and guarantees in spreadsheets is simple and practical, but it provides no audit compliance.
Digitalisation of Guarantee Management
Whereas the process of applying for guarantees previously involved extensive paperwork and time-consuming coordination before the guarantee document could be issued, there are now ways to accelerate the process and even digitalise it completely. Find out more
Trinity TMS Functions at a Glance
- Creation and management of surety bonds, guarantees and letters of comfort
- Individual transaction definitions, e.g. for bid guarantees, advance payment guarantees and customs guarantees
- Linking to underlying transactions
- Fee calculation
- Maturity lists
- Attachment of documents
- Portfolio assignment
- Application for/amendment of guarantees via
- EBICS using existing electronic banking systems (banks/SWIFT)
- API to the DVS Guarantee Vault Platform* (banks/insurance companies)
Benefits
Maximum Transparency
- Clear overview of all issued and received liability relationships
- Assignment to projects or investments, guarantors, beneficiaries, etc.
- Wide range of analyses by transaction type, guarantor, term, maturity and purpose
- Documentation through attached files or references to files
- Daily determination of contingent liabilities arising from guarantee business
- Full integration into liquidity planning, facility management and cash forecasting
Time and Cost Savings
- Clear overview of all issued and received liability relationships
- Assignment to projects or investments, guarantors, beneficiaries, etc.
- Wide range of analyses by transaction type, guarantor, term, maturity and purpose
- Documentation through attached files or references to files
- Daily determination of contingent liabilities arising from guarantee business
- Full integration into liquidity planning, facility management and cash forecasting
Process Optimisation and Audit Compliance:
- Automated verification of guarantee fees through bank statement reconciliation
- Straight-through processing from planning and application through to posting and derecognition
- Use of a modern REST API for issuing and amending digital guarantees
- Extension of digital processes to banks and insurance companies
- Integration of foreign banks via the SWIFT network through electronic banking
- End-to-end process tracking, audit trail and dual-control principle
Best Practice/Blogs
As planning and safeguarding liquidity are among the most important responsibilities of a company’s finance department, Trinity has published a number of best-practice articles on this topic:
