Listen to the latest episode of Bramasol’s Insights to Action Podcast Series. In this episode, we covers changes and challenges in the Treasury function and its impact on businesses today.

Also, below is a transcript of the podcast episode:

Vivek Thomas: Welcome to Bramasol Insight to Action series of podcasts. I’m your host, Vivek Thomas. And with me today is John Froelich, the Vice President of Strategy and Marketing at Bramasol.

John Froelich: Hello Vivek. Thank you for having me here. It is a privilege to be here with you in India.

Vivek Thomas: Our pleasure to have you, John. So John, today I thought we’d talk about treasury and its impact on businesses today and there are several areas that people aren’t really aware of and Bramasol is working to highlight that.

John Froelich: Absolutely.

Vivek Thomas: All right, so can you tell us about the treasury, what it does, where it fits into the organization and where you see the changes coming?

John Froelich: That’s a great question of Vivek. And let’s take a half a step back. For those of you who don’t know about Bramasol and Bramasol is the leader in finance, compliance and transformation solutions. We have three pillars of our organization. You’re familiar with, of course, our leasing practice that we’ve had for number of years now and our leaders.

And of course we’re the number one successful partner out there in revenue recognition. We’ve been doing that technically revenue recognition for over 10 years now. We started early on with Apple. Yeah. So there was a logical transition if you think of leasing as managing, the balance sheet and really understanding, you know, your assets and your liabilities and revenue recognition as tied to your P&L. We looked at it from a logical extension and said, wow, treasury is really about the cash flow.
And of course the cash flow is all about the lifeblood of your company and if that’s the case, treasury organization being the heart. And underlying all of that of course is our deep analytics and dashboards, providing as we know, Insight to Action all based on that SAP innovation platform. SAP S/4 HANA. But you asked specifically about what is treasury? Really treasury is the management of four different basic areas. Number one is payments, things like banking, and how do I pay my bills? The second piece is all about cash and cash management. How do we manage cash? How do we ensure that we have enough cash to the company? Statistics show that companies are really don’t go out of business Vivek for the reasons that many people think. For example, lack of revenue or lack of work over expenditures in costs. Most companies go out of business because they have no cash to pay the bills.

John Froelich: So cash of course is a good thing. It’s kind of like you and I, you know, it’s always nice to have money in the checking account. We gotta know how many of you have, but we also want to know what our debts and investments are. So how do we manage that? And finally, you remember managing risk and there’s a couple of different kinds of risks. So we thought it was a natural outgrowth of what we do to get into the treasury space. So, Bramasol is committed to being the leaders in treasury.

Vivek Thomas: Right. I remember once you said something along the lines that if a cash is the lifeblood of a company, the treasury function is, it’s the beating heart, getting it into where its needs.

John Froelich: Absolutely getting the money to where it needs to be, when it needs to be. And you know, if you have too much cash, it’s like having two high blood pressure. If you don’t have enough, it’s low blood pressure and both of those are bad. Nobody wants a heart attack or stroke. Right?

Vivek Thomas: Yeah. And an allergy can be stretched pretty far, but I think that gets the point across. All right. So, can you share why treasury right now? I mean, is there any other changes in the market, are changes technologically, why is Bramasol’s pushing so much now into the treasury space?

John Froelich: Yeah, that’s a great question. Of course. I think today treasurer’s. Why treasury? because it’s where the cash comes from. I mean, that’s a logical extension. And, and as things become more and more complex, it’s important that we have a good cash management, good debt management.But what we’re finding is the CFO/ Treasurer and Controllers are focused on three basic areas. Number one is managing and continuing to manage the ongoing business and that relates a lot to things like better planning and forecasting. You know, there’s not a person out there who doesn’t want to get punished by the street for bad planning and blind forecasting. Streamlined accounting and compliance.The treasurer really wants to be able to manage the costs associated with that and utilize the basic modern tools, to allow them to do that. Enhanced decision-making. You know, it’s really all about having the information at your fingertips, right? Great decisions, lowering costs, reducing error. Right? How many times do you see companies restating because they had errors? And finally, in ongoing management, really, I say decreasing risk and getting higher returns. We’ll talk a little bit more about this, but I think it’s managing to our risk tolerance. So, we can talk a little bit more about that. The second aspect of the is creating an agile finance organization. Today’s world is not the same as it was before. Things are moving faster and faster, right? You know that you have a young, a young one and they’re growing up and just, it’s amazing how quick things happen, but the traditional organizations aligned to individual business units where you have dedicated resources, don’t give you the flexibility to respond to situations and do analysis.

John Froelich: CFOs, treasurers, they’re moving to agile organizations with centers of expertise supporting the business units, but providing expertise through a service model and then really focused on hiring team members as knowledgeable in technology as they are in debits and credits. Right. You asked one question about, a big change. One of the big change of course, is technology. In the past it was very easy to just be someone who entered a debit here and a credit there and moved on. Today we see technology underlying everything we do. And really looking, having a forward looking mindset based on sound data and, and analytics. And to reemphasize, you know, we talk about what the big changes are. One of them is technology, right? I really embracing the technology for the future, whether it’s cloud, big data, cyber-security. And we’ll talk about some of that, but you really want a place where you can go that supports that single version of the truth.

Vivek Thomas: Right.

John Froelich: You know, think about the amount of time that even you and I spend together talking about the results of campaigns. Oh, well I have this report from this day and that report from that day. Well, if you use a tool like SAP S/4 HANA, you eliminate that problem because you’re all looking at the same data.

Vivek Thomas: Yeah. Everybody reading from the same playbook.

John Froelich: Absolutely. Singing from the same sheet, right? So, you know, we also want to provide capability for sophisticated cost and financial analysis. Really come treasurer’s cost accountants are looking for that adaptability, that adept capability, looking at predictive accounting. So there’s a new opportunity. Imagine today that, you know, how do we know when we’re going to receive our, get our receivables? How do we know when cash comes in?
We have to kind of go by gut. Imagine that you have a tool that could do predictive accounting that says, based on the types of orders I have, the number of orders I have and who the orders were, I could predict when I would expect to collect cash. And allow me to do better cash management. That’s an aspect of predictive accounting. Also what if scenario analysis, right? So, you know, you could take a tool like treasury revenue, accounting, CLM, and do what if scenarios. What if I change the balance of my owned assets to leased assets? What if I changed my, calling plans? What would be the revenue impact in the case of treasury? Very specifically, you know, how could I do modeling to look at hedging, taking on hedging solutions or changing my cash policy so that I want to collect faster, pay slower. So instead I’m going to collect in 30 days, but pay in 180. How do I manage the flow? How do I manage all of that?

Vivek Thomas:Right. And lot of these What if analyses are been done today, but it’s all manual. I mean, absolutely you need an expertise and there’s a lot of maybe subjective guesswork in wall. Please do your biases.

John Froelich: Yep. So, you know, it’s great to be able to, to work through those. Another area that we’re seeing a lot of attention being placed on and challenges for the businesses and what my friend and colleague Mike Curry likes to call compliancy, security and compliancy. Really thinking about data privacy is one aspect. GDPR, HIPAA, the California privacy laws, we see that proliferating all over the world. Other aspects like Sarbanes, Oxley, SOC ICFR, SAB 74, Dodd Franks, you know, all things that are coming into, in the case of, Europe in particular, they have a thing called SAF-T where they’re forcing companies to faster and faster provide information. In fact, there’s, in some cases, there’s places where you have to submit your invoices to the government before you submit them to your customer. For approval. So it’s really amazing. And then of course we want scalability and flexibility and the all famous move to the cloud. So it’s sort of a long answer to your question.

Vivek Thomas: All right. So, thanks for letting us know about the treasury aspect, but, how does that tie in with the Bramasol strategy as a whole?

John Froelich: That’s a great question. You know, at Bramasol, our vision is to be the leaders in finance transformation and innovation working side by side with CFOs and their teams to help them position. The office of the CFO is really an engine for innovation and engine for strategic advantage. We really believe that there’s a financial revolution out there. And in this revolution it empowers everybody from the CFO down to the accounting clerk with the information, tools and knowledge that they need to make decisions, real time and drive the business. We also believe it’s one in which repetitive tasks such as cash application, accounts payable, GRIR are now offloaded to tools like RPA, robotic process automation and machine learning, allowing those people in those assets to be freed up to make more strategic decisions. And all of that of course, is underlying, you know, as you and I both know with analytics, so every day we challenge the status quote of these existing dashboards reports that are static. We provide automated tools, we provide dynamic one’s built on a single version of the truth, SAP S/4 HANA and give the access to real time data. We partner in challenge the office of the CFO to simplify their processes. We all know that they have all kinds of complex processes. We help them automate and transform those processes using SAP finance solutions to deliver our own insights, innovation. And of course, you know, the best service in the world.

Vivek Thomas: Right. So, yeah, but it does tie it up really nicely, with, so treasury’s definitely somewhere a place where Bramasol has a lot to offer and a place where companies have a lot to gain. So what are some of the challenges you see, by treasury departments in across organizations? What, you know, if someone from the treasury function is listening in, what are some of the things that he or she would most identify with? Yeah, that’s, that’s me that doesn’t, this is the problem I’m facing.

John Froelich: Yeah, I think that’s a great question. I would divide that up into four basic buckets. And we talk about what are, what is treasury and what are the buckets. Number one, I would say it’s all about payments. How do I make sure I’m making accurate payments to the right person at the right time and have a way of verifying those payments. An example of that is of course the SAP banking communications module. And that is a tool that allows you, enables you to communicate back and forth in a seamless way and gives you real time insights. In the past, you would have to wait until the bank cleared or gave your transactions. This is an automated tool. It gives you almost immediate insights into your cash position. So if you’re struggling with knowing what your exact cash position is, BCM is a great tool to help you do that. And because it’s integrated with SAP, particularly in S/4 HANA, you only have to enter your new bank accounts, your bank account information one’s and this tool picks all of that out. another place that you’re looking at is your cash management, right? there’s nobody out there who really likes bank fees. There’s nobody who likes paying in interest to the bank except the bank. Imagine that you could understand your realtime cash position. Yeah. And if you’re a company like Apple who has a lot of cash in the U S and needs to use that cash to fund other organizations, let’s say in France where interest whites might be a little bit higher or Venezuela or whether there’s hyperinflation, why would I go get a bank loan? Why not take that cash, get a return on an internal investment and do an internal cash pooling, Right?

Vivek Thomas: Right.

John Froelich: There are other tools that they’re using out there, but if your issue and challenges are how do I manage my cash, how do I manage my cash position? We have that solution for you. Managing your debts and investments. I would say managing your debts and investments of course is having clear insight into the balance of your portfolio around your longterm, short term and medium term capital needs. I’m looking at capital versus expense, so commercial paper and do I do, accounts receivable factoring. How do I continue to manage that process? And SAP has a lot of tools out there in the treasury risk management solution portfolio to help you do that. Also to help you interface with, other solutions.

Vivek Thomas: Right. There’s lot of legacy solutios.

John Froelich: Absolutely and a lot of them aren’t integrated. And I think having that integration is important. The last place, and I think the most beneficial for anybody these days is around risk. I think risk is a huge concern for anyone out there. and if you think of risk, you can think of, two phases of it. Number one is thinking of it from the perspective of managing my risk. and that goes to, you know, we all talk about the idea of minimizing risk, right? You wanna minimize risk, go out on, a, drive here in Pune and managing your risk is different than managing your risk in the US right? So if I drive in a car here or in a ricksha or something, I have a certain risk tolerance right? In the US I have a different risk tolerance. The same is true of companies. It’s managing to your risk tolerance. And that’s what’s great about SAP is it allows you to manage your risk tolerance. My risk tolerance is a little bit higher than some, I’ll ride on the back of a bike around Pune. Some people won’t do that, right? But there are three categories. I think one is first managing cybersecurity. You know, I don’t think there’s a day that goes by that either you or I doesn’t see, or are we getting to learn from somebody that says, Ooh, look, your credit card account has been violated. Yes. Right. Now imagine that you’re the treasurer of an organization responsible for all of the cash investments, all the money, right? You’re that guy sitting in front of all the money in the bad guys and the bad link and you click on a bad link or you allow somebody or haven’t managed your security profiles properly. Now you’re hacked. Well, all right, it’s bad enough that I’ve hacked and gotten my money accessed.
But what about the fact that I have ACH information for other companies because I do exchanges with them or exchanges with banks or what if I have credit card information because I collect payments. So cybersecurity is increasingly becoming a huge issue. The other area of that is finance risk and really finance risk, divides up into three different spaces. Number one, is about financial risk, interest rate risk, the fluctuations of interest rates and managing those. We talked about them internationally, you know, in the US as you begin to see different interest rates on different trends and managing your other, your other aspects, it’s very important to you. Right. I’m also thinking about commodities. So for companies that say like our favorite, everybody loves their cup of Starbucks in the morning. If you’re Starbucks, you have to plan and understand your costs in a very linear fashion. Well, they want to manage that commodity risk because of the price of coffee beans may change, right?

Vivek Thomas: That’s what one primary commodity, larger organization or for the more complex organization, that’s going to be a lot more difficult.

John Froelich: Absolutely. Imagine automobile companies where they have to manage the prices of petroleum or metals or all different aspects as a huge know, look at the, and this’ll lead to you know, a topic in a minute of, of you know, the tariffs that have been put on. We’ll talk about geopolitical risk. And the third space really in financial is currency risks. You know, and I’ll give you an example. When I came here last year, you know, the Rupee was 62 to 1$. Now it’s 72 to 1$, great for me, not so good for other people, but depending on how I sell my goods in the country or I make them and ship them, I want to hedge that, I want to manage that. And of course SAP has tools to help you, number one, have a real good sense of what your risk or exposure is, but secondly, to interface to different hedging platforms and tools to help you proactively manage that. Okay. Process.

Vivek Thomas: Okay. And geopolitical risk, like you talked about.

John Froelich: Absolutely. Geopolitical risk, we talked about that. You know, you take up the, the US China trade Wars, but here in India, and certainly if you’re in Europe and listening to this Brexit, you know, what’s the open questions about Brexit and what’s going on, what’s the open questions about the Greek economy or the Turkish economy? You know, what’s happening in the middle East. All of those have bearing, you know, not just on your ability to manage your supply chain, but your ability to manage, your assets. Right? Right. So you, you have to kind of manage that, an underlying piece of that certainly it are two aspects. One is tax, right? So the U S has recently changed all their tax regimens. well how do you manage that process? What’s, what’s the change? Brexit again, brings in these issues of tax and tax management. So you want to think about tax SAF-T is another example of tax management, right? but you know, the, the other aspects are, you know, trade trade tariffs, how am I managing trade and trade tariffs? So there’s certainly a lot of aspects of these geopolitical areas that you have to manage.

Vivek Thomas: Right. And, one thing that immediately comes to mind when we talk about all those kinds of, functionality is the more functionality you have, the more data you tend to generate and the more data you have is the richer your data set for analysis for analytics.

John Froelich: Absolutely.

Vivek Thomas: That’s another area. I mean, it’s not exactly a part of treasury, but you can see big improvements if you pair it up with analytics. Would you agree?

John Froelich: No, I agree with you. I think that’s a great point. And certainly we focus on that in one place that you take advantage of that, you know, certainly is in the area of compliance. You know, as you have to go through the compliance, and we’ll talk a little bit about that maybe, but data is a huge issue. It’s not just about the data governance. How do I manage all of my data, but how do I determine what data is important? Right? I have the good fortune together with our CEO Dave fellers of going to a talk by Malcolm Gladwell and he talked about two different kinds of challenges that you face. One is a puzzle and a puzzle as you know, is something where you don’t have all the pieces and you’re looking for the piece and you want to put it in into the puzzle fitting in all together. Right, The other one is a mystery. A mystery is where all the facts are there, but you have to sort through all those facts and figure out which ones are the pertinent ones and which ones are not. Right, and I think increasingly, and I agree with, you know, God forbid I agree with Malcolm Gladwell, but you know, I agree that his perception that we’re entering a space where the world is all about mysteries. Really the amount of data that you will have will be huge. It won’t be a problem as you use a tool like S/4 HANA or any of the others, how much data and what data do I have? The mystery and challenge is going to be how do I make meaning out of that data? And you know, and for Bramasol and for any company that’s doing this, it will be about focus and expertise. You’ll want to be able to understand why do I care about this data? What’s the important aspects of this data? And that’s where I think our expertise can be broad. I want to talk one other second if I mind.

Vivek Thomas: Of course.

John Froelich: You know, you and I talked earlier and we’ve talked many times about compliance and you’ve said, you know, from a treasury perspective, John, why does a treasurer care about compliance? I mean, obviously there are certain banking compliance rules. I’m certainly the idea of the foreign corrupt practices act as another space where you to be managed, you know, where you send money. There are a lot of global trade things, etc. But think about a couple of, number one, of course we know the easy ones like IFRS 9, which is your impairments and the similar one that the US has, which is your current expected credit losses, right? Which is where they’re all kind of coming together to really look at what’s that impact, right? And changing the way we measure them and look at them. And in the insurance industry, similarly, you know, it’s a RevRec/Credit impairment. Thinking about, you know, God forbid somebody gets disabled or something happens and they can’t pay their insurance policies or different insurance liabilities come up, what’s the likelihood they have to minimize that? Right? But it extends beyond that. You know, we know as experts, in ASC a 42, the leasing place, regulations that, you know, that has a huge impact and what you’re seeing is companies having a huge pile of assets and liabilities being added to their balance sheet. And one of the big things that banks look at is certainly your return on assets return on invested capital and your debt to equity ratio, yet, right?

Vivek Thomas: Well think, think about that a reasonably.

John Froelich: Yeah. Yeah. In fact, Moody’s came out with something recently that they are revamping their ratings yet even though they used to impute value for what they thought was, or could begin to identify as leases. Now these leases over 1 trillion worldwide are coming on your books. So how does that impact your debt to equity ratios are companies that are heavy asset-based companies are their debt to equity ratios and the things that investors look at going to change. Just as importantly for the treasurer though, banks put covenants, right? When you and I buy a car, we buy a house. They want to know how much debt do I have before they gone loan me, you know, a couple of hundred thousand bucks to buy a house. Absolutely. Well, now think about these companies. It’s the same thing, right? They have hundreds of millions, if not billions of outstanding loans from banks, bonds, commercial paper, etc. All of that is now impacted by what we call debt covenants that say you cannot have more debt and now all of a sudden these assets that used to be just expenses are showing up as real assets reliabilities for the debt, treasurers are going to have to really understand what that means and really balance and understand the lease versus buy decision a little bit more carefully.

Vivek Thomas: That’s going to be a big impact. Right. So just before, I think we’re coming up on our time, but before we go are there any specific areas of the new SAP treasury solution that you’d like to highlight compared to the old one? The new one?

John Froelich: Certainly we talked about, you know, the banking communications manager. I think that’s a great one. Another one is associated with it that helps manage risk is the business integrity screening. I’m really excited about that tool and how it works with some of the others. Business integrity screening is a proactive tool that allows you to use really machine learning type technology and look at the patterns and behaviors and identify fraud upfront. Right. If you applied it for example, to payments, you can begin to analyze and look at payments. Maybe there are fraudulent bank accounts, fraudulent payment types, fraudulent receivers don’t know. Another place that we’ve looked at is in the space of Leases where you can begin to apply it to, fraudulent vendors or fraudulent payments as well that’s a really great application that I’m very excited about. SAP has made a lot of of effort and focus on integration with a lot of the trading platforms and banking platforms. We talked about BCM. They have a hedging, derivatives and investment tool that also allows you to interface to, tools like, Georgia bores that allows you to go out and trade commodities and you get real time information fed back and you can see some real time, data there even more.I think the biggest thing that’s exciting for me overall and across SAP is analytics, right? Um, you know, Dave likes to say, Dave, our CEO likes to say that analytics is the face of finance transformation and I agree with him 100%. I think that analytics is what’s going to empower people and empower change information empowers change. And so you know, all of the tools that SAP has introduced, whether it’s the closing cockpits, whether it’s the cash management cockpit, the debt cockpits, all of these are great new tools that allow you to really manage those aspects of your business and in a proactive way. Right? And when you layer on some of the analytics that Bramasol is going to be providing and gives you this concept of drill down, drill through and drill back. You know, I’m really excited about that. The other spaces again in, in the concept of machine learning, I think there are some great new applications for GRI our goods receipts and invoice receipt matching. I couldn’t say right now. Who wants to be sitting there and matching, you know, this to this, to this right? Cash application is another great example of you. You know, if somebody pays you a lump sum but you’ve given them a bill with 30 different line items, how do you match what got paid? And, SAP has some great machine learning tools. I think that one thing that you mentioned, and we will mention again is those are great tools, but if you don’t take care of the business processes and you don’t care, take care of the data up front, all you’ve done is accelerated and automated, less than,stellar results. So I think those are the areas that are, I’m personally most excited about. Excellent.

Vivek Thomas: Well John, it’s been really good to have you with us. Thank you. And I think, it was really fun talking to you.

John Froelich: Very great being here. Thank you.

Thank you for listening to this episode of Insight to Action podcast series. We hope that you found it helpful to ensure that you never miss a future episode. You can subscribe to Bramasol at iTunes or wherever you get your podcasts. For more information about Bramasol and detail on our solutions for compliance optimization and financial transformation. Please visit www.bramasol.com or email us at [email protected]

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