Liquidity planning process; why simplicity matters…

Liquidity planning process; why simplicity matters…

Everyone will agree that liquidity planning is an essential part of managing a company. As dedicated provider of liquidity management software, the Trinity team talks to many different companies.

One of the reasons we are invited to speak with the CFO, is because the company’s current processes are no longer considered to be efficient. In most cases we come across two different situations:

Using Excel

The liquidity planning is done in Excel and management acknowledges that this has some essential disadvantages. At a certain point, the use and maintenance of the spreadsheets become time-consuming and the error risk increases continuously. Usually the calculation sheet is managed by one person only, meaning that the knowledge is not distributed in the organization and therefore creates an additional risk.

Furthermore, most spreadsheets miss valuable functionality like e.g.:

  • drill down from consolidated plan positions to their details
  • currency differentiated planning and easy conversion
  • reflection of cash flows from financial deals in current forecast without delay
  • automated and immediate import of cash flows from ERP systems
  • easy PLAN/ACTUAL deviation analysis
  • audit trails and user access rights system to comply with corporate governance guidelines

Using the ERP

The second situation is when we encounter a liquidity planning process that is supposed to work via the existing ERP platform. Due to the complexity of operation the cash forecasting process does not work as required. Next to the above, various other difficulties in handling can appear in ERP-based solutions, e.g. missing calculation of market values, no consideration of interest rate curves, impractical change of planning structures, inadequate automated integration of cashflows from different sources.

Another issue we encounter, is that the implementation of the solution has failed as a result of too much internal resistance from local subsidiaries. This reason, of course, is agnostic to the system in use, whether it is self-made spreadsheets or ERP-based solutions. Therefore, it might be a good idea to implement an easy-to-use system which is especially designed for integrated liquidity planning automatically reflecting all cash flows from financial deals without delay and accessible for all users via internet.

To make a project a success, it is important that different stakeholders, often based in different countries, need to work together in a positive spirit. A simple demo of Trinity’s liquidity planning module can be very convincing and will help to align people.

Did you know our liquidity module can be implemented in 5 days only?

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Invest in liquidity planning with Trinity TMS during a crisis?

Invest in liquidity planning with Trinity TMS during a crisis?

“So far we have got along very well with EXCEL, why should we do something different now?
Our specialist has built a complex planning sheet over the years and continuously optimized them. If something is unclear to us, we can always ask him. However, he has been in quarantine since last Tuesday and we all hope that he will soon return to the office healthy … “

We hope that this does not apply to your company and that we can all get through the pandemic in good health. Of course, a spreadsheet can be of great help in planning finances and is usually cheaper than using professional planning software. Nevertheless, there are many aspects that speak in favor of switching to an audit-proof system that is easy to use by all users:

An integrated system like the Trinity TMS stores the cash flows from all financial transactions in a single database. This means all interest and redemption payments of a multi-year loan are immediately available in the medium and long-term financial planning but also in the short-term cash forecast. There is no need to transfer the data and record it again, which can result in errors.

The same applies to cash flows from money market, foreign exchange transactions, securities, letters of credit and guarantees. In addition, data (creditors / debtors / rent / tax / salaries etc.) from ERP system(s) can automatically be transferred in the background to the Trinity planning module.

In order to obtain, as complete as possible, a basis for decision-making, additional manual entries or changes can be made by authorized users, both in the head office and at local subsidiaries.

As a private cloud solution, the Trinity TMS can be accessed via the internet, both from the office and from the home office. The planning data of individual companies can be consolidated across different levels in order to optimally and proactively carry out regional or company-wide financial planning for the next few days, weeks and months.

Planning is as easy to use as EXCEL but it can do a lot more. The risk of accidentally destroying the planning is almost zero and it is always clear from which source the data originate.

Speaking of “risk”: of course, in liquidity planning with Trinity TMS, simulations, e.g. for different interest rate, rate and turnover developments so that “worst case” scenarios can be avoided by initiating suitable measures at an early stage. If foreign currencies play a role, the exposure analysis and automatic calculation of the hedging ratios’ provide valuable support for financial management.

Later, the plans in Trinity can be filled with actual data using rule-based automatisms and deviation analyzes can be carried out to determine the cause and continuously improve the planning quality.

And if anything is unclear about any of these functions, just contact our support: We have several people here who are familiar with the software and who can help you.

You don’t have to set up your own data center to switch. Simply use ours and get the powerful ORACLE database with regular backups.

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Disadvantages of using Excel for liquidity planning

Disadvantages of using Excel for liquidity planning

Many controllers and treasurers of smaller and medium sized companies still use Excel to manage their treasury but there are many disadvantages of using Excel for liquidity planning. Of course, you can use Excel to manage some loans, FX contracts, Interest Rate Swaps and even do your liquidity planning and exposure management.

But at a certain point it will cost too much time and the chances of errors using Excel for liquidity planning are getting higher. Usually the ‘spreadsheet’ is managed by one person, meaning that the knowledge isn’t deep embedded in the organization.

Typical problems we encounter are:

  • Financial Transactions:
    • floating rates / holidays are difficult to manage in Excel
    • the calculation of market values is complex
    • Excel doesn’t generate journal entries
    • No 4 eyes principle
    • No generation of payment files (redemption & interest)
  • Liquidity planning
    • No drilldown possibility
    • No currency differentiation
    • Cash flows from transactions not automatically included in forecast.
    • Problems with version controls and comparison (Actual – Forecast)
  • Reporting
    • No standard reports available
    • Compliance and audit trail not available

When asking them if they have ever considered the use of a treasury management system, the answer is usually that they ‘do not have a budget’ and/or ‘do not have the time to implement it’.

It seems that, two key-assumptions already have been made here: a treasury management system (TMS) is expensive and takes a lot of time to implement.

Our sales team will be happy to prepare a solid business case together with you and prove that the above-mentioned assumptions are incorrect.

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