Real-time data is vital for treasury teams, and this will continue as currency markets remain volatile and other crises threaten. Laurent Descout, Founder and CEO of Neo looks at how businesses can maximise data analytics to overcome these challenges.
Treasurers recognise the value of the vast quantities of data at their disposal, no more so when markets are more volatile. When data is appropriately used it enables better, smarter decisions and faster reactions to crises.
A recent survey found that foreign exchange (FX), commodity prices and liquidity risk were all top risk management priorities. Decisions around managing these types of risks were historically driven by humans who didn’t rely on data as much as we do today.
Treasurers now have access to technology which can analyse data speedily, in-depth and at a scale once unimaginable. By removing error-prone and manual processes, as well as unsuitable software tools such as spreadsheets, decisions can be made with more accuracy and certainty.
What is real-time data?
Real-time data is a stream of information generated and processed at the rate it is received, which allows for immediate analysis and decision-making.
Unlike traditionally stored data, this is immediately accessible once it is created or obtained and is forwarded to users as soon as it is collected. In financial services, real-time analytics monitor financial markets, identify trends and inform trades.
This available information can also be transformational for small and medium-sized enterprises (SMEs) as they receive insights into their businesses and the economy. However, the data must be accessible promptly, complete and of good quality.
Enhancing risk management strategy
Financial risk management remains a top three priority for treasurers, which is unsurprising given how volatile financial markets such as FX have been over the past 12 months, hammering the earnings for many companies.
Huge swings in global currencies impacted companies such as IBM, who cited that FX was one of the reasons why it reported a $3.5 billion decrease in its 2022 revenue in fourth-quarter earnings.
The Kyriba Quarterly Currency Impact report for the third quarter of 2022 highlighted that North American and European companies reported $47.18 billion in negative currency impacts. This was 26% steeper than the loss in the previous quarter.
Data analytics can help to optimise and model appropriate hedging strategies, provide detailed insights into payment processes that can transform cash flow management, and limit unnecessary exposure to different currencies.
Have you ever wondered if your payments are made on time or too early? Or what percentage of payments are delayed, and by how much? What effect this has on your cash flow and exposure to different currencies? Are you securing the best rate and hedging at the right time?
Knowing the answers to such questions can improve forecasting, detect patterns and anomalies, and enhance risk management.
Unfortunately, legacy software and manual processes are the root cause of why some CFOs and financial directors can’t access and analyse data almost immediately after it’s generated and captured.
How can treasures harness real-time data?
Today, treasures can utilize real-time data in several different ways. Corporates may stream live rates from their banks, plug into real-time data feeds through an application programming interface (API) or utilise a modern treasury management system (TMS) where such features, along with trade execution and hedging capabilities, are the norm.
Tools which can provide real-time rates with no hidden fees or spreads are crucial to achieving fully transparent pricing. This enables a corporate to see the cost of their FX operations and take control of them.
Maximising data use
Data analytics should be at the heart of all treasury functions. These enhanced insights can potentially be transformational, especially for the owners of SMEs.
SMEs don’t have the resources of larger organisations and can find tasks such as maintaining a positive cash flow a challenge. If they had a more in-depth understanding of their business, they would be able to make better-informed decisions.
By using tailored data and analytics from their trading history, payments and cash flow, treasurers can make smarter decisions, review their specific corporate behaviour and personalise their hedging and risk management strategies.
Treasury teams have always been a forward-thinking function, but the past few years have tested the limits of their operational capabilities and forced them to change their working practices. If they want to continue to be responsive to the fast-changing business environment, now is the time to utilise data analytics.
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