Buying treasury technology: All-in-one vs. best-of-breed
Treasury technology falls into one of two categories: All-in-one or best-of-breed. Both approaches are viable options for making treasury’s life operationally easier. The determination for which choice is right for you depends on your organization's growth and your specific needs.
While treasury teams can select from many technology options, these solutions fall into one of two categories: all-in-one or best-of-breed. Using a home tool analogy, the all-in-one treasury technology is like a multipurpose tool containing a knife, screwdriver, and bottle opener. All-in-one platforms combine multiple functions in one system, such as cash management, debt management, and hedge accounting.
In contrast, a best-of-breed solution is a specialty tool, such as a chef's knife or a sommelier's corkscrew. Treasury best-of-breed solutions include stand-alone bank fee analysis tools, FX trading portals, hedge accounting solutions, financial risk management platforms, among others. As a treasury technology user, how do you determine which approach is right for your organization?
All-in-one treasury platforms
All-in-one treasury solutions encompass a broad range of functions and features. The main benefits they offer are having multiple treasury tools at your fingertips and anticipating future needs by providing on-demand access to those you may need later. While current needs might center around cash management, for example, the technology is ready should you decide to elect hedge accounting. Plus, you do not need to worry about integrating different solutions or managing various vendor relationships.
The challenge with all-in-one solutions is that the available tools may not be appropriate for your situation when the need arises. The saw in the multipurpose tool may work to snap a twig but it cannot cut through planks for your carpentry project. Similarly, the all-in-one approach may not be suitable for complex functions, such as hedge accounting. The hedge accounting solutions in these systems may be able to handle simple, low-volume hedge accounting strategies. However, if you require any flexibility to automate your program, if your hedging portfolio includes commodities, or if you need to adopt a long-haul approach, chances are the all-in-one solution will not meet your needs.
For an all-in-one solution to be the right choice, you have to accept that some of the tools may not be good enough when you really need them. This is especially true if you experience significant business changes.
Best-of-breed treasury solutions
Best-of-breed solutions focus on excellence in a specific functional area. If your carpentry projects regularly require you to cut large planks, you should invest in a motorized saw to make your work faster and easier. Within treasury, one area that often demands a specialized tool is hedge accounting. For example, if you are a U.S. multinational company with diverse business lines, you may have multiple hedging strategies that require different applications of hedge accounting. With a best-of-breed hedge accounting solution, you gain the flexibility to manage the volume and complexity.
The challenge with best-of-breed is that it is specialized in its ability and not designed to handle anything outside of its focus area. For example, you cannot use that saw to hammer a nail. For treasury technology, that means your hedge accounting technology solution will not be your bank fee analysis tool; you need to invest in a separate tool.
Selecting the right approach
Fortunately, with the advent of APIs and the refinement of SFTP connections, the days of difficult, costly, and time-intensive integration efforts are over. Connecting systems has grown dramatically easier, freeing treasury technology users to choose the best pieces of risk, accounting, and cash management software knowing each system can seamlessly connect with others to deliver best-in-class capabilities.
For the best-of-breed approach to be the right choice, however, you must select the superior solution; "good enough" is not an option. As your business continues to grow and change, you want to be confident you have selected the best solution for your organization's evolving needs. Bringing in key financial risk management and hedge accounting stakeholders early in the process can ensure you select a system that meets all of your objectives and operational requirements.
So how do you decide which approach is right for you? The good news is that both are viable options for making treasury’s life operationally easier. The right decision for you depends on your organization's growth and your specific needs. For businesses in the early days of designing their hedging program or who hedge on a limited basis, all-in-one tools may be a great place to start. However, the moment your hedging program grows and you require additional tools in your arsenal, along with a deeper insight into the risk program, a best-of-breed model will put you at the forefront of risk management.
ChathamDirect is a groundbreaking financial risk management and hedge accounting platform that supports foreign exchange, interest rate, and commodity hedging programs. ChathamDirect provides a clear view of your entire hedging program, including cash flow forecasts, balance sheet exposures, and hedge requests — all securely available on a leading SaaS platform. ChathamDirect is backed by Chatham Financial, an employee-owned, independent market leader with a global team of capital markets experts, risk management advisors, CPAs, lawyers, quantitative analysts, and technology developers who serve more than 3,000 clients annually.
Schedule a demo of ChathamDirect
If financial risk management is a meaningful part of your treasury program, we should talk. Contact us now to schedule a demo of ChathamDirect.
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.20-0385
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