The Treasurers Have Spoken, Episode 4:
What Is Enterprise Liquidity Management (ELM)

Announcer  00:04

Welcome to the Treasury Update Podcast presented by Strategic Treasurer, your source for interesting treasury news, analysis, and insights in your car, at the gym, or wherever you decide to tune in.

 

Paul Galloway  00:17

Welcome to the Treasury Update Podcast. I’m Paul Galloway, Senior Advisor at Strategic Treasurer. I’m joined by Craig Jeffery, Founder and Managing Partner of the firm. This is episode four of The Treasures Have Spoken series:  enterprise liquidity management.  You may find a copy of the report on our website, StrategicTreasurer.com. And in the show notes.  Craig, welcome to the podcast.

 

Craig Jeffery  00:44

Hey, Paul, it’s good to be here. I’m glad we’re talking about ELM, I think probably the fourth of four that we’re going to be covering. So I’m, I’m ready to talk about it.

 

Paul Galloway  00:53

Craig, great. This is really an outstanding topic, given the environment that we’re in today released for treasures as a look at liquidity across our firm. And so I think this will really be a good episode for treasury professionals to bite their teeth into this concept of enterprise liquidity management, because we’ve always considered liquidity management as part of the working components of treasury. But when you think about enterprise that just takes it to another level. So tell me, Craig, what is enterprise liquidity management? And why is it been included in the treasury analysts report?

 

Craig Jeffery  01:41

That’s a good question in a in an easy question, too. So as we’ve looked at technology over the years, sometimes technology continues to grow, people add more functionality to different systems. And the end result of that is there’s a category that doesn’t necessarily fit some of the previous names. I’ll give you an example. In the past the whole area of what we call Treasury aggregators, there were information aggregators that handled some of the information on the receivable side, there was the early players that were handling some of the payment functionality for what we would call payment hubs today, but this continued growth is why we had come up with the phrase Treasury aggregators, which seemed to really fit the development of that industry. And so ELM is the same type of situation where what’s happened with Treasury systems and Treasury suites of products it has extended beyond what we consider kind of core and simple extended Treasury systems to a broader enterprise liquidity manage management function. So it have functionality of all of the treasury management systems, you know, but maybe deeper and richer information in different areas, from payments to cash positioning and things like that. But it would extend to supporting much more advanced forecasting help on the access to capital and working capital management side. So payables and receivables, some of the things outside of traditional Treasury, and might be a full and robust payment hub capability, or it might add function on accounting, and foreign exchange support. So it’s something that goes beyond kind of the core and maybe, to some extent, some of the extended activities that a treasury management system would have. And so this is we will align this up, you know, comparatively to like an ERP, versus just an accounting system ecrm and enterprise commodity risk management system, beyond just trading and commodities, or an ETS or an enterprise trading solution, where it’s really geared towards all kinds of trading, whether it’s foreign exchange related, whether it’s commodity related, there’s systems that are very specialized in these areas. So this is the broader stack its core is a TMS but extends in some of these other other areas and fits up with the the right type of name of enterprise.

 

Paul Galloway  04:14

So how do you compare ELM to, you know, ERP or other established categories?

 

Craig Jeffery  04:14

So enterprise liquidity management still has as its core focus on transactions and liquidity, but is oriented towards the future much in the way Treasury looks towards the future for what is our what are our cash needs? What is our forecasts look like into the future, but it extends into the future in some of these other areas. So it can include services like Supply Chain Finance, that market intelligence, the use of you know, some analytics for the capital markets, but also and often we’ll cover some of the areas for receipts and disbursements, the cash conversion cycle. So what people may look at from a working capital management perspective? So this is a, this is the broader, bigger view of what’s what’s occurring.

 

Paul Galloway  05:12

So how how would you explain, you know, what is an ELM kind of given a high level context of enterprise liquidity management? Well, what’s, what’s really inside it?

 

Craig Jeffery  05:27

Yeah, and so this is where, you know, as we define this, it’s likely to change. And we’ve, we’ve kept it not somewhat broad, but somewhat flexible. So if you think about the first level, what you keep track of in liquidity or visibility to is like, I need to know, my cash where it is, well, maybe I also need to make decisions on cash positioning or some short term forecast, I want to track my some investments may be short term cash investments, and maybe maybe lines of credit. But then as you extend what goes into there, this would include things like intercompany, lending, maybe investment or custody accounts, different types of asset classes that may be managed. And if you continue to expand it, level three might include items in the cash conversion cycle, or the working capital management, domain of disbursements and collection activities. And then some other areas, like like I mentioned before, supply chain finance might be a way of D linking some of this activity to tap more liquidity, debt market intelligence, as you plan for what your balance sheet needs to look like, into the future. So this is where we see expanding and extending much of the way ERPs were really, you know, they were good accounting systems, then they grew functionality for planning for ordering. They continue to expand and add other functionality. It’s the same the same type of function, as people look at the cash conversion cycle with treasury at its core.

 

Paul Galloway  06:59

So does ELM and fit within AP or AR activity? If yes, how does it?

 

Craig Jeffery  07:08

I would phrase it differently. AP and AR activities may fit within ELM, but not the other way. So, you know, AP tends to focus on might be procurement all the way through payment. If you think of order to pay, that may be the domain of accounts payable. But I think about ELM it naturally includes all of the core liquidity that we think of Treasury, but it would also handle the cash conversion cycle. So when you put money into inventory, money sitting in there from a receivable, it gets converted to cash. And then you’re you’re making payments through accounts payable. So I would say that the bigger domain is enterprise liquidity management, the subdomains would be the ones that you mentioned, like AP AR, and treasury.

 

Paul Galloway  07:53

How does ELM fit within organizations technology stack? Yeah, easy question. Right?

 

Craig Jeffery  08:02

Well, it’s it’s, it’s a good question. It’s like how does an ERP fit within the tech stack? How does a TMS I think, as we’ve gone through the development of the tech stack over time, you know, more and more this has moved, this has long since moved to a SAS environments software as a service. And in some senses, portions of it are moving to platform as a service. But the idea that it’s it is fitting into the tech stack. When we think about the conceptual tech stack of data, connectivity systems, and report analytics. If we lump those two together, there is a there is an aspect of ALM that either handles some of the connectivity that we normally think of treasure aggregators, or it’s, you know, it’s either doing that function or it’s tapping into that function, whether it’s run internally, whether it’s run through a vendor service, whether it’s using APIs, SFTP connections, using networks like Swift. So that is a that is certainly a way that we would think of that the first couple elements of the tech stack, so data and connectivity. And then when we think about the the systems, the functions that are done in making payments, managing risk modeling forecasts, looking at what our balance sheet needs to look like, over time, that function I would be either baked into the ALM directly, or might be functionality that’s coming down the road being added to it. The idea as well on the tech stack one, the last layer of reporting analytics. We expect every system to grow and its functionality for reporting and analytics, particularly with its own data, but also that not only to be able to tap other data but also to support other methods of managing data. So whether that’s a In a blob or a data lake and some of the analytics that are being built on the corporate level, we’d expect good interaction between those systems, we would also expect the newer elf gems newer ERPs, newer ETs to support much more of a streaming or a live functionality, whether that’s using, you know, an API gateway or a set of APIs, but just something that’s set up for sharing information more efficiently. It could be file based, but it should certainly be open to faster, faster turnaround of data to take advantage of the analytics that are needed.

 

Paul Galloway  10:44

So how do you distinguish ELM from a TMS we talked about earlier aggregators, treasury management systems, ERPs. Other systems? How how do you distinguish the two when you think of enterprise liquidity management at TMS?

 

Craig Jeffery  11:07

Yeah, so a couple you know, one example might be advanced forecasting. So in addition to supporting the loading of forecasts information from let’s say, Excel models, and being able to report on those and do variance analysis, it might provide a home and ability to render more significant forecast capabilities from with with the data itself, through the use of machine learning and some other modeling that might be one. The second when we think about capital access and working capital management. So the inclusion of features such as supply chain financing, some of those services that let you d link, when I pay is when you receive payment, maybe it’s I can pay later, but you can get payments earlier, the ability to dealing though so you can support your suppliers or vice versa, you can be supported by your customers without forcing them to pay you earlier. So some some of the elements about capital access and working capital management. So SCF, cash conversion cycle solutions would oftentimes be part of that, you know, you mentioned earlier, the Treasury aggregation functionality, the ability to connect to all kinds of data sources, not just balances and transactions, but different rates, different tables, that would be another component, the other area that we see and oftentimes use this to look at a system and say, This is not just a very powerful treasury management system, but it would be an ALM system, enterprise liquidity management system, would center around the depth of capabilities for foreign exchange, FX volatilities massive, some of these systems can track the flow of funds, the volatility of the currency, and help Treasury groups manage these much more cost effectively have better visibility to them. So there’s less less surprise and more knowledge. There’s other areas as well. But I would invite people to look at the report to see some of these areas of of distinction for themselves.

 

Paul Galloway  13:11

Oh, Craig, enterprise, liquidity management, alm, there’s a lot you unpack there. And as you think about where things are at today, the environment that we’re in, as corporations, take a harder look at their systems or processes, and consider things across the entire enterprise. What do you think? Or how do you see this category developing or changing over the next three to five years?

 

Craig Jeffery  13:45

I think there’s two things that are developing and we’ll see this develop over the next couple of years, maybe it’s more than two. One is the the growth of functionality within the system is one of the reasons why systems can increase in value, as long as it’s not joined with an equivalent amount of overhead. So the ability to do more on a particular system has always been appealing to a majority of companies and people, I have less issues to deal with. So that’s one area where we see that extending, I’ve got the date in the system, it works, we’re familiar with it, we have an easier time supporting it. Now, that is also there’s a parallel process where this idea of open banking, open Treasury open finance grows, the more we make our systems open, the more they can interoperate easily. And you may hear terms like embedded treasury, embedded banking, that has definitely grown. Now, these are not completely two separate tracks. So those are two of the areas where we see developments over the next three to five years. Definitely more embedded banking, more open treasury, more embedded treasury, we see this we see this developing and so some of the players that can support an ELM structure, which has has more more capabilities, we see that continuing to grow for some of the leading players, others will continue to be niche players. And we’ll look to add onto their ecosystem, other players who may fill some of these gaps that an ELM player may manage. But that’s really the exciting part. There’s competition, and there’s different bets on technology. Do you bet on the ecosystem? Do you bet on a bigger platform, but those are some of the things that I think are developing. But the other things I think about is the the overall drive to efficiency and better forecasting. And when we think about business processes, Treasury tends to be pretty discreet with their banks and their trading partners. When you get into forecasting, you tend to look into AP and AR. And as you try to get efficiency and ability to scale, you have to look beyond your organization, you have to look to the your trading partners. receivables and payables are partners. And so this idea of an end to end view within the company has to be extended to an end to end within and an end to end to your trading partners. When we look at how many companies are actually looking at the end to end within their trading partners. That’s a very small percentage, or it’s, it tends to be between around 17% and 25%, depending on the survey in the research that we look at. That’s a lot of room for greater efficiency and more improvements, I would say. So we look at the category continued to develop over the next three to five years heavily. And some of these two tracks, you know, may they may merge more in a system more open an interoperability, that’ll be the most interesting way to see how people move into the ELM space, but they definitely are moving to the ELM space, mentally as a company, will the software providers, the vendors help support them technologically?

 

Paul Galloway  16:57

Well, Craig, lots of great points. You have unpacked a lot in that 15, 20 minutes, and we talked, really appreciate the comments. I think this will be valuable information for treasures and your teams. As I started thinking about liquidity management on a broader basis, it’s definitely changed. Changed my perspective and view of how people should can should manage liquidity across the organization. It is a broader base brush. It’s not something that’s finite to Treasury alone. It touches a lot of areas and you point out a lot of those and the functionality is developing along with it certainly see a lot more ahead of us to come in this area and appreciate the comments and the time. Thank you, Paul.

 

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