A Technology Strategy for Treasury

4 minute
Technology mural

The inflation chatter continues, and the Fed indicates an expectation of increasing the Federal Funds rate earlier than anticipated and hints at starting to wind down Quantitative Easing. Against it all, rates remain attractive and tax-exempt ratios remain very low. So, the borrower’s market beat goes on.

June 26 chart

SIFMA reset this week at 0.03%, which is approximately 32% of 1-Month LIBOR and represents a 0 basis point adjustment versus the June 9 reset.

Technology and Strategic Treasury

A main thread in our conversation over the past several months has been the need to anticipate an environment of challenged resources—margin pressures paired with ongoing investment demands. And an important part of effectively responding is to continuously improve efficiency in three areas:

  1. Financial resource accumulation, which is the ability to generate the financial liquidity that creates the broadest array of deployment options
  2. Strategic resource deployment, which is how resources are deployed to pursue a broad and sometimes competing set of enterprise interests, such as mission, financial return, capital formation, or resiliency
  3. Tactical resource deployment, which is how the strategic resource deployment portfolio of initiatives is implemented, monitored, and managed

If you knit these together, the work becomes optimizing Treasury’s position along a functional to strategic continuum. Functional excellence is a constant imperative, but the environment we expect to confront over the next five years will escalate the importance of strategic treasury frameworks. One of the important considerations is the role technology can play in advancing one or more of these efficiency targets. The central technology question is always the relationship between cost of acquisition and how successfully a product meets a functional need; but there are frequently ancillary benefits attached to a product that might significantly influence what emerges as the best choice.
Maybe the clearest example of this is the contrast between banks and financial technology providers when it comes to the question of “useable credit.” For most banks there is a relationship between revenues realized from treasury relationships versus willingness to extend credit to the organization. Typically, the greater the size of the treasury spend the more credit the recipient bank will make available; however, variability exists in the unit characteristics of total spend.  For example, core commercial banking revenues will typically have more appeal and generate more credit than deposits. There is no comparable credit benefit available from a fintech product provider, which leads to an important ancillary benefit assessment: Does the product-related spend create credit access and if so in what amount? Can it be used broadly, or does it have limited application? And does the credit generated tilt the decision in the direction of a bank provider or not?
Another interesting consideration is whether a technology solution is solely functional, or whether it also offers strategic decision-support. An example of this is Treasury workstations, which some organizations have installed to help automate certain cash management related functions. Every currently available commercial workstation option was built to accommodate the broadest possible range of corporate users, which results in a functional-only value proposition for most not-for-profit healthcare providers. Strategic considerations—such as what is the right amount of working capital—must be addressed using a different technology (typically back to spreadsheets) that uses information generated in the workstation. A consistent challenge seems to be that it is difficult for technology solutions that are not built specifically for healthcare to offer users both a functional and strategic value proposition.
A third consideration is the relationship between a technology solution and functional integration (which creates a better opportunity for strategic integration). There is a lot of current buzz around patient financial engagement solutions like InstaMed or PatientCo. Both tools have a core revenue cycle foundation, but there is also a connection to Treasury in terms of the useable credit question thread described above as well as the ability of these solutions to drive faster cash collections (faster financial resource accumulation). The interesting question is whether technology can create a bridge between different but related functions (strengthening the connecting revenue cycle and Treasury). The opportunity takes a different shape for organizations that do not have a centralized Treasury function. For those organizations, the risk of functional and strategic inefficiency escalates as different jobs and technology decisions are fragmented. The question for that universe of CFOs is whether technology tools can bind the fragmented functions together to create what might be thought of as a virtual Treasury team?
The place to start is always with a functional map of your organization’s Treasury function and existing technology tools (both with a direct and indirect Treasury connection). From here you should determine the aspirational position, both for the total Treasury function but also for its core components: commercial banking, cash management, debt management, and invested asset management. These two lenses (current vs. aspirational) can be used to identify both key gaps and as well as potentially responsive technologies. As a Treasury technology plan emerges there will be a better opportunity to complete an informed assessment of whether ancillary benefits might be available and how they could be realized; in this phase the implementation plan and process become critical, not just for pursuing the primary functional benefit but also for harvesting identified ancillary benefits. Also critical is close coordination between Treasury and related Finance functions during the entire technology journey from assessment to selection to implementation.
A well thought out technology plan is an important element of building a strategic Treasury function and it is worth careful consideration whether your organization has a dedicated Treasury function or not.

Trending in Healthcare Treasury and Capital Markets is a biweekly blog providing updates on changes in the capital markets and insights on the implications of industry trends for Treasury operations, authored by Kaufman Hall Managing Director Eric Jordahl.

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