Cash flow forecasting is a financial management tool used to predict the expected cash inflows and outflows of a business over a specific period of time. It provides a framework for companies to plan, budget and control their cash resources to meet financial obligations and manage risk. It also enables businesses to anticipate future cash shortages and surpluses and take appropriate actions to manage cash effectively. In this white paper, we will discuss the benefits, the potential pitfalls, and how companies can implement this tool effectively.

Benefits of Cash Flow Forecasting

Better Financial Planning

Cash flow forecasting enables businesses forecast their cash requirements accurately, which helps them to plan their budgets effectively. Companies can use the forecast to identify potential shortfalls and take corrective action before they occur. This tool also helps businesses to plan for capital expenditures, debt repayments, and other financial obligations.

Improved Liquidity Management

It gives businesses the ability to identify potential cash surpluses and deficits in advance. Companies can then use this information to manage their liquidity better, by investing surplus cash or securing additional funding to cover cash shortfalls.

Enhanced Risk Management

Cash flow forecasting helps businesses identify potential financial risks, such as cash shortages, delays in customer payments, and unexpected expenses. Companies can use the forecast to develop contingency plans, such as securing additional financing or negotiating payment terms with suppliers.

Better Decision Making

It also provides businesses with accurate and timely information about their cash position. Companies can use this information to make better decisions about investments, borrowing, and other financial activities.

Pitfalls of Cash Flow Forecasting

Inaccurate Data

The accuracy of a cash flow forecast depends on the quality of data used. Companies need to ensure that the data used in the forecast is accurate, up-to-date, and comprehensive. Failure to do so can result in inaccurate forecasts, leading to poor decision making.

Limited Scope

Any forecast is only as good as the assumptions made about future cash inflows and outflows. Companies need to consider a wide range of factors, including market trends, economic conditions, and customer behavior when developing their forecasts.

Poor Implementation

Forecasting demands a structured approach and a commitment to ongoing monitoring and adjustment. Companies need to have the right processes, systems, and resources in place to implement this tool effectively.

Implementing Cash Flow Forecasting

Identify Key Drivers

Companies need to identify the key drivers of their cash inflows and outflows. This includes factors such as customer payments, supplier payments, capital expenditures, and debt repayments.

Develop a Cash Flow Model

Businesses need to develop a cash flow model that reflects their unique cash flow drivers. This model should be based on accurate data and should include a range of scenarios to reflect potential changes in market conditions and, for example, seasonal variations.

Monitor and Adjust

Companies need to monitor their cash flow forecast regularly and make adjustments as needed. This includes updating the forecast with actual results and adjusting assumptions based on changes in market conditions.

Inter Company Communication and Collaboration

Cash flow forecasting requires collaboration and communication across different parts of the business. Companies need to involve key stakeholders, such as finance, sales, and business unit operations teams, in the forecasting process to ensure accurate data and effective decision making.

Conclusion

Cash flow forecasting is an essential financial management tool providing  businesses with the ability to plan, budget, and have visibility and control over their cash resources.

It helps companies manage liquidity, identify financial risks and make better decisions.

However, businesses need to be aware of the potential pitfalls of cash flow forecasting, including inaccurate data, limited scope and poor implementation that may occur with the use of Spreadsheets or accounting systems with multiple possibilities for data error entry and origin, alongside limited proactive reporting capabilities.

By following a structured approach to implementation using such solutions as a Treasury Management System supporting automated straight through processing and ongoing monitoring, businesses can benefit from the advantages of cash flow forecasting and dynamic reporting and avoid potential pitfalls.

Dublin, 9 March 2023: Salmon Software, a leading treasury management software system provider, is pleased to announce the appointment of Michael Kearney as Chief Executive Officer (CEO). Michael will take up the position at the end of March 2023 and will succeed John Byrne, the founder of Salmon Software. John Byrne will support Michael during an initial transition period and continue his long relationship with the company as a non-executive director with a significant minority shareholding.

A well-respected and experienced leader within the software sector, Michael brings with him a wealth of expertise from more than 25 years leading national and global teams for companies including SAP, Oracle, SAS Institute and Dell. Michael joins Salmon Software from Munich Re Automation Solutions where he was Global VP Sales and Marketing responsible for managing the global sales and marketing team supplying SaaS FinTech applications. Michael will work with Salmon Software’s experienced senior management team to support the company’s growth targets.

Speaking about his appointment as Salmon Software’s CEO, Michael Kearney said, “I am very excited about joining such a talented and capable team. Salmon Software has successfully combined continuously enhanced, deep product functionality together with market leading levels of customer service and support. I believe the company has a bright and exciting future ahead as we continue to prioritise product innovation and the needs of existing and new customers.”

Salmon Software founder, John Byrne said, “The board of directors, supported by our colleagues from Melior Equity Partners, have worked diligently over the past number of months to recruit a professional of Michael’s exceptional calibre, experience and ambition. Michael’s appointment is fantastic news for the company and underlines Salmon Software’s commitment to continue delivering a world-class treasury management system to customers and an attractive environment within which our employees can grow and develop.”

For further information:

Louise Cassidy +353(0)86-383-5727 / louise@ckcomms.ie

Dechra Pharmaceuticals is a global leader in the veterinary healthcare market, with a presence in over 50 countries worldwide. Founded in the UK in 1997, Dechra has expanded rapidly over the past two decades, both organically and through acquisitions, to become a major player in the animal healthcare industry. As the company has grown, so too has its need for a robust and scalable treasury policy that can support its global operations.

Before 2014, Dechra’s treasury operations were decentralised, with each subsidiary managing its own cash and treasury functions. This approach led to a lack of visibility into the company’s consolidated cash positions and foreign exchange (FX) exposure, making it difficult to manage risk and optimize cash usage. To address these challenges, Dechra implemented a central group treasury and adopted a netting system in Europe. The cash pool became a zero balancing cash pool and also expanded into the USA when the company  implemented a Treasury Management System (TMS) from Salmon Software, known as Salmon Treasurer, to support its treasury operations.

Key objectives of the new treasury policy

The primary objectives of the TMS were to provide better transparency into Dechra’s consolidated cash positions and FX exposure, as well as to enable the company to hold intercompany positions and capture zero balancing and netting movements. To achieve these objectives, Dechra established a close relationship with Salmon Software and implemented MT-940 reporting of bank account balances and transactions. This allowed the company to account for daily interest and taxes arising from those balances and transactions.

“Dechra manages risk in its treasury operations by centralising FX risk in the UK at group treasury”, explains Steve Card, group treasurer at the pharma specialist.

“For acquisitions, Dechra matches the currency of the acquisition price with borrowings in the same currency. For transactions, we use a daily zero-balancing cash pool for the majority of our operating subsidiaries to centralise FX risk.”

FX position is monitored throughout the month, with actions taken to reduce the impact of currency movements on the group P&L.

“No transaction hedging is undertaken at subsidiary level, nor is there any other translation hedging undertaken by the group. Dechra relies on the Salmon Software TMS for the processes, information, and reporting needed to execute this strategy efficiently,” Card further clarifies.

“Dechra’s approach to liquidity management and funding is reactive, using a combination of cash, committed RCF facilities, private placements, and equity funding. The company’s treasury policy requires that group leverage (total group borrowings/EBITDA) be maintained at a ratio of 2:1 or below. If the ratio rises above this, it must be returned to 2:1 or below within a 12-month period.”

Dechra’s investment strategy to date has been conservative, holding deposit funds only on a short-term basis because of the opportunistic nature of acquisitions and the desire of both the group and its rating agency to minimize outstanding debt. Dechra does not currently have any treasury KPIs in place.

A conservative approach to tech infrastructure

Card is a strong proponent of a policy-led treasury tech stack, rather than having software guide decision-making.

“Dechra is not an early adopter of new technology, and its treasury technology is based around proven technologies such as intercompany netting, TMS from Salmon Software, fed by MT-940 feeds from participating banks, and centralized daily zero-balancing cash pools,” he states. “Dechra has tailored these technologies to its particular requirements, especially in the areas of intercompany accounts, transfer pricing, FX exposure reporting, and dividend management.”

Dechra approaches capital structure management and debt management primarily at the time of assessing the funding structure of an acquisition. There are no hard and set rules, other than the leverage requirement to be 2:1 or below, which is a key element of the company’s treasury policy.

How Caldic transformed its treasury function with a new TMS

Caldic’s adoption of Salmon Treasurer helped the business to standardise processes and grow with scale, freeing up its treasury function to become a strategic part of the business

The world is changing: despite the pandemic, the cost of living crisis, the horrors in Ukraine, and the rising spectre of inflation, the business outlook for many companies remain extremely positive. Many are expanding and whatever short-term difficulties there might be, in the longer term, many are expected to grow and thrive. But this has created several problems across the global economy, for while companies grow, their treasury systems are often very out of date.

While spreadsheets had their day, they are not sufficient to cope with huge multi-national corporate’s (or even a smaller one) treasury needs. Other companies are plagued with too-small treasury teams or an ever-complex setup which means several companies require bespoke treasury management systems (TMS).

But even for the most well-established treasury teams, let alone those of start-ups and new entrants, it can be difficult to know where to start. Company needs vary enormously and there is no size fits all approach. So, what are the challenges, how did they arise, and what should a corporate do when their business is growing, and previous systems are no longer adequate for the job?

In 2017, Caldic, which provides inspiring solutions in life sciences and specialty chemicals, focussing on life sciences (food, pharmaceuticals, and consumer care) and industrial formulation markets, was bought by a private equity company. This transformed the business into a more centralised organisation, dramatically changing its treasury needs in the process.  Previously local management teams had been encouraged to take responsibility for their own profit and loss as well as funding and liquidity management, but now increased debt levels required Caldic to set up a central treasury function. Something had to change.

In 2017 Bas Baaten started as a Caldic’s first Treasury Manager in history, to ensure Caldic remained within the adequate liquidity spot and central debt servicing. After setting up a global cash pooling structure and an excel based short-term cash flow forecasting process, Caldic was ready for the next step.

Now it needed standardisation and automation, with a treasury management system that mirrored its move from essentially a family-run company to a private equity-funded level of entrepreneurship. Economic growth, fuelled by an expansion into developing markets, also spurred the need for change, specifically for a more in-depth and detailed cash overview, cash pooling, cash positioning and cash flow forecasting.

Choosing the right provider

The first need to be recognised was the need to move from local management to a more harmonised way of working. The company was expanding and needed to update its processes by implementing a system that would run the day-to-day operations. But there were challenges.

For a start, as in any company making huge shifts in how it operates, in particular the shift of taking the autonomy of the local management to arrange domestic credit lines and funding to group treasury. Although supported by cash pooling, dozens of IC loans and ample administration of those movements occurred, including the accrued interest calculations. Everyone wanted to know ‘where and when is the cash?’ Following that, Caldic had to consider which software provider was the right fit for its business.   Flexibility was the key: given Caldic was in full growth mode, any software needed to ensure it could grow and adapt with the company. At the time of making its software decision, it was making acquisitions of small companies, while merging with a similar-sized peer-based in Latin America. The merger of two different entities, combined with the ongoing acquisition programme shows that it is crucial to get a firmer grip and control of processes to stay on top of its cash positions and visibility.

It was becoming increasingly complex with every acquisition, and full visibility was needed, along with the ability to have daily reporting and monthly profit and loss statements. In the wider economy, cash was also becoming more expensive, another element that had to be factored in. At the same time, any new treasury software provider would also need to cope with existing processes and procedures that could not be changed overnight.

The specific needs for applications centred on visible cash management with real-time reposting and interfacing with bank portals. There was a requirement to centralise FX hedging, including central execution and deal capturing, which included an automated settlement process. Forecasting played an important role too, including data aggregation and data analysis over different time periods (weekly, monthly, and annually), comparing it to the allotted budgets. Another important function was monitoring positions and risk exposures, both on the FX and intercompany (IC) loan administration front. Caldic also required there to be an audit function, a third-party account for future changes to payment processing on the FX side.

After reviewing several potential providers, Caldic opted to partner with Salmon Software. A boutique TMS provider, Salmon offered to provide Caldic with the individual attention required during a treasury overhaul.  Unlike much of the competition, the company was able to offer a TMS that would fit with Caldic’s needs, as opposed to the other way around.

Many systems offer a prescribed way of working, a variation of Henry Ford’s dictum about the cars he would sell: “Any colour as long as it’s black.” To avoid that Caldic’s shortlist would be restricted to TMS systems that Bas worked with before in his career, Bas decided to team up with Dutch-based Treasury consultants Orchard Finance. After discussing Caldic’s functional and technical requirements, a TMS vendor selection process was executed. Several TMS vendors were identified as possibilities, but in the end, it was Salmon that won through.

The reasonable price and quality of the option of course played a role, but perhaps the most important element was the flexibility in both the software and with regards to flexible implementation approach. During weekly progress calls between Caldic, Orchard Finance and Salmon, implementation progress was monitored, and workload adjusted to Bas Baaten’s availability. Flexible interfacing was based off Microsoft’s cloud hosting service, Azure, allowing Caldic to operate in a separate environment, while also providing the ability to aggregate various sources to maximise efforts. Scalability, when new acquisitions are made, is also part of the system. Both incoming and outgoing sources can work with any file format required. Interfaces can be automated meaning no user intervention, while it also provided better cash visibility, making it easier to have in-depth insights on cash positions.

Perhaps the biggest benefit of the new TMS was it freed Treasury Manager Bas Baaten from the minutia of the day-to-day running of the function which gave him more time to concentrate on strategic decisions. It also allowed the treasury function to move from a reactive to a more proactive approach.

The system also created a central connectivity point, important for a company rapidly expanding. Local finance directors were able to input data from their business and geographical area, which could then be used in a logical manner in the TMS. Specific tools across the board also supplied not just connectivity but conversion to make data standardised across the board. Furthermore, the TMS also made it possible to take data from other systems. A core reason for choosing Salmon was its user interface – Caldic needed a system that existing subsidiaries could switch to without impacting their working practices. Salmons’ software did just that and allowed new subsidiaries – bought on through acquisition – to also latch on without problems.

Another benefit was improved cash visibility. When Baaten – or anyone else – walks into an office and turns on a computer, whatever he wanted to see would be there on the screen. Previously this had entailed a lot of work and now it was done in the back office overnight. There is now one system with a single source, which has created dashboards that provide a complete view.

Benefits enshrined

Since adopting Salmon’s platform, Caldic has seen its processes harmonised, centralised, standardised, and benefited from its scalability as it has continued to grow and acquire other companies. From the automation of cash flow reporting between the ERP and Salmon Treasurer to improved visibility of the daily FX process workflow, Caldic’s treasury function has been enhanced.

The adoption of Salmon’s software has had an impact on Caldic’s bottom line. Treasury, who were previously bogged down with tediously manual tasks, can now take a greater role in the strategic decision-making so crucial to today’s treasury function. And this is only the beginning: Caldic plans to expand its treasury function further – as it does, new products will be needed.

TMS systems are crucial for today’s treasurers, but companies should take their time choosing the provider who is right for them. A provider should be there for implementation and be able to adapt its offering to each client’s specific needs.

Fast-Growing Irish Financial Software Business Secures Investment to Support Continued Strong Growth

Dublin, 1 April 2022: Leading Irish private equity firm, Melior Equity Partners, has agreed an investment in Salmon Software, a fast-growing financial software business that provides customers with a world-class treasury management software system.  Founded by CEO John Byrne, Dublin-headquartered Salmon Software employs a total of 30 staff across its operations in Ireland and the Czech Republic.

Since its foundation, the company’s treasury management software system has evolved into one of the world’s most sophisticated treasury management products, reflecting the global financial industry’s technological innovation and increasingly complex nature.  The company’s software system enables customers to automate treasury management processes, providing information on debt, derivatives, foreign exchange, banking, cash management and payments which deliver efficiencies that save costs, ensure full regulatory compliance and provide real-time business insights.  Salmon Software’s treasury management system supports a range of blue-chip customers including global businesses such as CRH, Avolon, Dechra Pharmaceuticals, DP World and Ryanair.

Salmon Software’s decision to partner with Melior was driven by the firm’s strategic experience in growing similar Irish technology businesses, its unique global network, and notable investor base.  The investment from Melior will support the future growth of Salmon Software, facilitating further product innovation and the delivery of an even more comprehensive service for new and existing customers.

Salmon Software’s existing management team, including John Byrne, will remain in their current leadership roles and continue as significant shareholders in the business.  Fiona Timmons, an experienced software industry finance executive, has joined the company as Chief Financial Officer (CFO) and will work closely with John Byrne and the existing senior management team.

Commenting on the announcement, John Byrne, CEO and Founder of Salmon Software, said, “The investment by Melior is an exciting development for both our customers and employees.  We have developed a world-class treasury management software system with deep product functionality that receives the ongoing support of a loyal blue-chip customer base.  The Melior investment will allow us to grow and invest further in our team, extend our support and sales infrastructure, and deliver product enhancements including a superior cloud-hosted offering.  This investment will provide exciting career development opportunities for our existing employees, see new talent join the company and will significantly benefit current and future customers.”

Jonathan Cosgrave, Co-Founder of Melior Equity Partners, said, “We are excited to partner with John and his team, who have successfully grown Salmon Software into a world-class provider of treasury management software systems through continued product innovation, customer engagement and market-leading organic growth.  The global treasury management software system market is valued at €1 billion and is forecast to grow strongly over the coming years.  As a leading independent provider with strong reference customers, Salmon Software is ideally placed to meet this demand.”

Melior Equity Partners was founded in 2019 by Jonathan Cosgrave and Peter Garvey.  Melior Equity Partners Fund II is backed by a pool of local and international blue-chip investors and invests capital in, and provides support to, businesses across Ireland to achieve their growth ambitions.  Salmon Software is the second investment from Melior Equity Partners Fund II following the completion of an investment during 2021 in BHP Insurance, a leading independent Irish insurance brokerage focusing on the not-for-profit sector.  Prior to establishing Melior Equity Partners, Cosgrave and Garvey led an Ireland-focused private equity fund for The Carlyle Group investing in companies such as AA Ireland, Carroll Cuisine, GSLS, Learning Pool, Lily O’Brien’s, McCauley Pharmacy, Payzone, Sports Surgery Clinic and The City Bin Co.

For further information contact:

Louise Cassidy: louise@ckcomms.ie / +353 (0)86 383 5727

Claire Keane: claire@ckcomms.ie / +353 (0)87 121 4140

About Salmon Software:

Since its foundation, Salmon Software has focused on delivering a world-class treasury management software system with functionalities that fulfil the requirements of the treasury front, middle and back offices, including integration with third-party systems ranging from dealing platforms and market data providers to ERPs and risk systems.  The solution is based upon Microsoft Azure hosting that allows every client to operate on a separate environment.  The business has achieved great success and coverage with its flagship treasury management software system ‘Salmon Treasurer’.  The system has evolved to reflect the technological innovation and increasingly complex global financial systems that have paralleled the company’s history making it one of the most sophisticated treasury software platforms in the world.  This achievement is due to the dedication of a highly skilled, multi-disciplined support and development team who focus on producing a world-class product.  These capabilities combined with meaningful ongoing client engagement enable Salmon Software to pursue a policy of continuous, customer-focused product enhancement and development.

About Melior Equity Partners:

Melior Equity Partners (“Melior”) is a leading Irish private equity investment firm headquartered in Dublin with a strong track record of supporting Irish management teams and investing in small to medium sized private businesses in Ireland.

Melior was founded in 2019 by Jonathan Cosgrave and Peter Garvey who previously co-headed the management of a €292 million Ireland dedicated private equity fund for The Carlyle Group.  The Melior team members invested this fund for The Carlyle Group from 2014 to 2019 and are one of the most experienced private equity investment teams in the Irish market.

Melior combines best-in-class international standards and far-reaching networks developed at leading global investment firms, with a deep knowledge of the local marketplace to bring a unique approach to investing and partnering with management teams in Ireland.

The Melior team is currently deploying capital out of Melior Equity Partners II, a fund which is backed by a pool of local and international blue-chip investors including The Carlyle Group, the European Investment Fund, Ireland Strategic Investment Fund, Bank of Ireland and AIB.  The breadth and nature of its investors provide Melior with significant capacity to fund transactions of any scale in the Irish market.

Transaction Advisers:

Melior was advised by KPMG and William Fry while Salmon Software and its shareholders were advised by Mazars Corporate Finance and Hayes Solicitors.

Intercompany netting is well known to reduce settlement and currency risk. But the use of a netting centre also poses huge growth potential for companies conducting business globally.

The world is an increasingly complex place and so is its commercial network: there are estimated to be about 60,000 multinational corporations worldwide, controlling more than 500,000 subsidiaries, imposing an onerous set of obligations upon those company’s treasury operation.

The same applies to companies which only operate in one country; they may also have a network of subsidiaries with labyrinthine funding needs which have grown exponentially over the decades.

One of the structures put in place to deal with hugely complicated treasury functions is ‘intercompany netting’: an arrangement between the subsidiaries in a corporation in which each makes payments to, or receives payments from, a clearing house (the netting centre) for net obligations from fellow subsidiaries.

Namely, it is the offsetting of accounts receivable and accounts payable between all business entities within the same organisation.

This not only increases efficiency but also reduces credit/settlement risk. The bank fees involved are also lower. At a time when both transaction fees and currency exchange risk is growing, and lack of transparency is commonplace, netting could be the answer.

Intercompany netting comes in many forms. Firstly, there is bi-lateral (two companies) and multi-lateral (three or more companies) netting which is used in the management of cross-border payments where net receipts or payments can be settled in their local or preferred currency.

Multinational companies often perform transactions with their own subsidiaries or with non-group companies based in different countries. Because of this, companies must keep currency exchange rates in mind. Currency, or foreign exchange, netting allows corporates to offset accounts payable in one currency with accounts receivable in the same currency.

For example, a German entity operating in euros may need to settle with a Singapore entity in Singapore dollars, while the same Singapore entity may need to settle and invoice with a UK entity in pound sterling. The German company might owe S$1,500,000, the equivalent of just over €1,000,000, while the Singapore entity might owe £5 million.

These are separate transactions, all involving forex and transaction risks. Were the FX exchanges involved in the transactions, the FX exposures and requirements would no longer be the responsibility of individual entities, but for the group as a whole. Clearly, this is especially useful for multinational corporations.

At the centre of all this sits the netting centre, which determines the amounts owed or due, and makes the fund transfers. The counterparties involved send their invoices to the netting centre, which are then verified, and any disputes resolved. Once the invoices have been tallied, the netting centre will make the appropriate payments in the appropriate currency. Money owed will be used for payments elsewhere.

Setting up a multilateral netting centre and system means all the exposures are consolidated at a group level, and treasury teams have a clear picture of those exposures and what is required to settle them for all the entities. Foreign exchange risk, therefore, is centralised, and treasury departments will likely spend less time on transactions and managing foreign exchange risk as a result.

Foreign exchange risk can be better hedged and mitigated; rather than spread across a network of subsidiaries it can be centralised in the netting centre. The parent company will almost certainly be able to operate on better terms than a subsidiary and there is no further need for an external foreign exchange centre.

Why intercompany netting?

The benefits of netting are clear and extensive. In the first instance, fees are lower and treasury officials can better allocate their time due to efficiency gains.

For example, netting results in potential mistakes coming to light much more quickly. In general, treasury departments set up rules for managing disputes when setting up a netting system.

When subsidiaries fail to submit payables, a discrepancy in the payment process is logged. Administrators are then able to set up automated escalation protocols, which will alert upper management to payment issues based on pre-defined metrics. As a result, treasury teams can spend less time dealing with disputes due to an automated process being in place.

Netting also increases transparency. When subsidiaries are engaged in bulk payments, treasury departments may struggle to react to liquidity or financing challenges if company-wide visibility is lacking. This can lead to bulk payments backloading, in turn causing cash flow problems.

A netting system provides daily reports and monitoring tools which provide treasurers with cash flow visibility across the group. The reports include details of dates, currency conversion rates, and the details of the transaction – helpful for an organisation’s auditors.

Other benefits include reducing the number of intercompany cash flows to each subsidiary; simplification of the financial processes; streamlining invoice reconciliation between companies and the quarterly reconciliation of accounting ledgers.

Because not all netting systems are the same, a TMS, Treasury Management System, needs to be able to offer flexibility in the way it can facilitate a treasury teams requirement in terms of the configuration, workflow and the controls in order to be able to best meet not only today’s needs, but also be in a position to evolve for future advancements in technologies and strategies.

Salmon Treasurer supports the entire in-house banking process including a dedicated multi-lateral intercompany netting module. This allows for both payables and receivables-driven netting including both inter-company and external invoices. The netting process includes defining netting cycles, dispute resolution with a full comment history, multi-stage approvals and workflows and the ability to customise netting rulesets.

Multiple netting centres can be involved and the participants defined, including their default settlement currencies and accounts, as well as support for non-cash settlements which will automatically effect the intercompany position. In the case of cash settlements, these automatically feed into the electronic payments and settlements capabilities of the treasury system including the same workflows and security as any other settlement processed by the Salmon Treasurer.

The system also produces a wide variety of reporting and dashboarding to provide analysis of the netting process including automatic distribution of netting statements to the participants. The underlying invoices to be netted can be uploaded automatically from a wide variety of sources including ERPs, meaning that a proper straight-through process can be achieved, including granting subsidiary participants access to view, dispute and resolve as appropriate through the browser-based Salmon Treasurer Portal.

By ditching a web of hundreds of spreadsheets and emails in favour of a TMS from Salmon Software, the liquidity management team at the Zurich Insurance business unit Switzerland and CI EMEA has been able to facilitate accurate and insightful short- and long-term cash forecasts as well as enhance its treasury payments & reporting capability.

Celebrating its 150th anniversary this year, Zurich Insurance Group (Zurich) is a global multiline insurer with around 55,000 employees providing a suite of insurance products and services in more than 215 countries and territories. Zurich’s customers range in size from individuals and SMEs to multinational corporations.

With a market capitalization of CHF60.0bn (approximately US$65.38bn) in 2021^[1] and a recently-announced business operating profit of US$5.7bn in 2021^[2], Zurich is entering its next 150 years on a solid footing. This is particularly the case for the Swiss-based liquidity management team of the Swiss business unit and CI EMEA, which has recently implemented the Salmon Software TMS, Salmon Treasurer.

Before the implementation, the main challenge facing the liquidity management team was that the processes were highly manual. For example, there was a significant dependency on partners due to various services being outsourced to Zurich’s service centers around the world resulting in a vast number of emails containing business-critical data coming in daily.

Mauro D’Ambros, Head of Liquidity Management, Zurich, recalls: “We would receive the same information from various sources in various formats. We had to be very mindful of this – we could receive something on February 11 from Person B that we’d already received on February 7 from Person A. The numbers could be slightly different for the same payment as well, where the first email might be an assumption and the second one was the real payment, for example.”

Depending on the day and month, the team dealt with outflows that could vary greatly, all of which were being managed in Excel. Moreover, if one person was working in the spreadsheet, nobody else could do so at the same time.

Another area where the use of spreadsheets was hampering efficiency was counterparty risk analysis. If D’Ambros wanted to know Zurich’s exposure to a counterparty for the past six months, this was not possible at the click of a button. He had to open a huge number of Excel spreadsheets before keying in that respective number into another spreadsheet and then drawing a graph, all manually.

Finally, Zurich wanted to be able to support its cash forecasts, as the figures from the various departments for its long-term liquidity planning could only be compared with the actual data with a great deal of effort.

“The entire project aimed at getting away from these highly manual processes and the dependencies that we have to make a state-of-the-art treasury solution,” recalls D’Ambros. “We also wanted to be able to run reports and do analysis at the click of a button.”

Scoping, analyzing, selecting

Having identified the issues they wanted to fix, Zurich embarked upon a rigorous selection process that would eventually lead them to Salmon Treasurer. This began with an analysis phase and the scoping of the project to identify exactly what was required.

“This process looked at what our current daily tasks were and what they should look like in the future,” notes D’Ambros. “We did an analysis of cash flow data sources to map out where we were getting the information from. We had to identify various dependencies that rely on our data and understand from whom we wanted to get the data in future.”

Several internal challenges had to be overcome. For example, the team required a functional and technical data blueprint for the entire IT environment. Another major issue to be addressed was the classification of data from the various upstream systems with issues such as GDPR to be tackled in advance of any system implementations.

Once the analysis phase had started, the vendor selection process began in earnest. An initial market analysis of potential vendors revealed many of the ‘usual suspects’ for Zurich. However, the company still made a number of reference calls. These weren’t to vendors but rather to contacts known to the team members and trusted consultants to broaden the list of potential partners.

“The next step was to carefully structure our RFP,” continues D’Ambros. “We put together a thorough document with 230 questions and involved the procurement function in this process. In addition to the questionnaire, the RFP also considered the system landscape, what it looks like now and how we want it to look in the future, our selection criteria and so on.”

Evaluating the feedback from the RFP enabled Zurich to start ruling out some of the potential vendors. As a next step, the company then held half-day workshops with the remaining potential vendors providing them with information from elements such as MT940s, various static data items (e.g. internal and external counterparties, bank accounts, etc.) as well as reporting requirements that should be presented by the vendors during the workshops. Each workshop went through a specific agenda and included seven to 10 participants from various Zurich departments. These participants scored every point covered by the workshop, and there was a weighting per agenda topic in the scoring.

“The top two potential vendors from the workshops were presented to the steering committee, which had been involved from the very beginning, and we updated on a weekly or monthly basis depending on what was happening,” comments D’Ambros. The final step was a financial viability process with a dedicated Zurich team. Once all of this was complete, we were pleased to sign with Salmon Software.”

There were various reasons why Zurich selected Salmon. One important driver emerged during the workshop process, as D’Ambros explains.

“We gave every system provider some vendor homework to do. Some did this well and others less so. From Salmon’s response, it was clear that they really cared about us. Their dashboards presented at the workshop were amazing and so it was clear to us that they were taking this seriously. We could also tell that they were keen to get Zurich on board, as we would be both their first customer in Switzerland and their first insurance company.”

The Zurich team also knew that some of the other vendors had significant programming changes in the pipeline and were essentially developing new systems. “We knew we would not be presented with a completely new Salmon Software within the next five years – there will be enhancements every year, but we don’t have to expect a dramatic change that requires us to adapt everything again,” admits D’Ambros.

New TMS swings into action

At the time of the signing, Zurich had already started the cloud-approval process for the TMS with Salmon. This included delivering IT solution blueprints and a specification regarding the architecture and security due diligence, software procurement, governance processes and gaining legal approval. Overall, a few months were spent on this process.

Once that was complete, work began on ensuring the optimal number of interfaces between the TMS and the various data sources with which the Zurich team wanted to work.

“We started defining and agreeing on the requirements and testing the implementation of the interfaces,” recalls D’Ambros. “This took quite a long time, almost a year in fact. Having started with 10 to 12 interfaces, we’re now up to 15!”

In parallel with the interface work, phase one of the implementation swung into action. This included setting up both the short-term forecast and the static data. “We started collecting the static data information, such as bank accounts, which was quite a challenge as there were various teams within Zurich taking care of different bank accounts so we were collecting data from various sources,” recalls D’Ambros. “It was hard to know if we had the complete picture or not because we were dealing with a huge number of bank accounts.”

Once the bank account information had been collated, the entire set-up of the system could begin including the naming conventions – what was the unique identifier and what was the long name, what made sense for the liquidity management team and what did not. In addition, there was the possibility to add custom fields. Much of what Zurich wanted from its new reporting capabilities would come from these custom fields, so the challenge was to look ahead and consider which fields they wanted and how these would be structured. Around 10 custom fields were added. During the implementation and afterwards, more were added. We have now reached 19.

“Once we had that ready, we imported the static data and then started working with Salmon on designing and testing the dashboards,” explains D’Ambros. “Salmon’s dashboards are extremely flexible. They have a variety of standard dashboards, but you can tell them exactly what you want and they will configure the dashboards that way. While we didn’t want to replicate our old spreadsheets, we did use these as the starting point to design the dashboards. This helped us understand what information we wanted to see in which row and in which cell, the filters we wanted to apply and which graphs we wanted to include.”

User training on the short-term cash management also started with Salmon during this initial phase including testing of the application to ensure it did exactly what was required. This was particularly important to get right due to the nature of Zurich’s business.

“In a typical corporate treasury environment, you often try to adapt the existing processes in such a way that few adjustments have to be made to the new treasury management software. However, due to the complexity of our business, we needed a system that could adapt to us.,” explains D’Ambros. “That was a real benefit of Salmon, which we discovered earlier in the workshop. They presented their TMS but wanted to hear our needs and how we wanted to work with it. They added updates to align with our wishes so we didn’t have to change too many processes.”

Phase one of the implementation ran in parallel with the existing operations for almost six months before going live in September 2021. Phase two, the long-term forecast, had already begun as the main challenge here was also an Excel-based issue.

“When we had the workshops with Salmon, we brought up the fact that we have a long-term forecast and we knew they had a module, but we thought this could be enhanced to work even better,” says D’Ambros. “We agreed with Salmon that if we selected their offering, they would implement a brand-new module within Salmon Treasury from scratch based on our inputs. Salmon started developing the module and, when I got to see the first draft of it, I was astonished by how good it was. This module was supposed to work for all Salmon customers, not only Zurich.”

With this module, Zurich again went through the static data set-up, testing and gave Salmon feedback about potential enhancements for the next versions. Having received and tested the final version, the conversation again turned to dashboards.

“We discussed what we wanted to see in the long-term forecast dashboards and how the data should be presented,” notes D’Ambros. “Once again, the user training had a parallel run of roughly six months getting the users up to speed. We have now been live since January 1, 2022, so now everything is in Salmon – the short-term forecast, the long-term forecast and treasury payments.”

The benefits of automation, visibility and control

Having now implemented Salmon Treasurer, Zurich has been able to achieve its goal of reducing the amount of manual intervention in its cash flow data to an absolute minimum. All the data that was previously being painstakingly keyed in manually is now being automatically populated in the system via various interfaces.

“Out of our 15 interfaces, 13 to 14 interfaces deliver the data so all the manual queueing data has been drastically reduced,” D’Ambros says. “Around 95% of the emails we used to receive have gone and we’ve reduced the amount of duplicate information being received. We now are not only importing outflows but we are also importing expected inflows so we also know what should come in. This, of course, helps us with the daily cash management.”

The new TMS also provides daily visibility of some hundred bank accounts. This enables the team to run risk analysis, such as monitoring counterparty exposures, for example. We have introduced around 20 controls that automatically check, for example, the various interfaces or bank balances on a daily basis.

“We have certain regulatory requirements where, in the past, the control of a potential breach was time-consuming and done manually. With Salmon Software, we have introduced an automated pre-warning system to alert us that there might be a chance of a breach if something unexpected happened on a specific bank account,” explains D’Ambros. “With the interfaces and controls we have in place, we will get an alert, for example, if bank account A has a critical balance, which enables us to act.”

This visibility marks a huge change for Zurich, which has a vast database where some hundred thousand bank transactions are imported annually and up to several thousand transactions daily depending on the situation at any hour of the day or night.

“We now have an amazing data hub where we can run comparisons,” says D’Ambros. “For example, December and January are the months when the ”big money” comes in for insurance companies. We can now compare December 2021 with December 2020, for example, much more easily and efficiently and also run comparisons between specific days. This helps us to spot patterns and have a much better understanding of when the money really comes in. It is a good tool to use in the future for forecasts and, importantly, it’s not only the liquidity management team using this. Various other departments are also using Salmon to run their reports for management.”

Treasury payments have also greatly benefitted from the new TMS. In the past, it was a highly manual process involving communication with some of our service centres via email and capturing the payments by them in a 3^rd party software. The manual nature of this process meant that errors could occur along the way. Now all treasury payments are managed directly in the TMS.

“We now do our treasury payments in Salmon as well as short-term forecasting and long-term forecasting,” says D’Ambros. “This is all thanks to the capabilities of the dashboards. We now have more than 30 users actively using Salmon. They can access the dashboards and use the information to explore what they have forecast and how this matches up against the actual cash flows and positions. This helps them improve their processes, which is a huge step forward for us.”

Reporting has also changed drastically for the better since the implementation. Where analyzing counterparty exposure used to involve opening numerous spreadsheets and manually adding data to another one, that is now all consolidated in Salmon. “For that, we have our dashboards, we have the graphs, we can use the various filters and quickly see the results onscreen,” states D’Ambros. “Then we can export it to a PDF, we can drill down or we can export the underlying data to Excel if anybody wants to see some of the data in a different way. That is a great step forward.”

Thinking outside the box

Having disposed of the manual processes the dependencies, and the wrong information that used to hamper the liquidity management processes of Zurich, the team is happy with the massive gains in efficiency that have been achieved. However, the journey doesn’t stop there. The enhancements have sparked new ideas as to how the company could approach certain tasks in a different way. Zurich is, D’Ambros admits, constantly tinkering with dashboards to bring about greater improvements as well as add new ones.

“Treasury management systems have so much potential to enhance your work,” D’Ambros concludes. “Don’t keep doing what you did in the past. Think about your perfect world and start from there. Involve the system supplier, let them also give you input on how they can see it because they have worked on many more implementations than you have.”

^[1] https://www.zurich.com/reports/2021/annual-report

^[2] https://www.zurich.com/media/news-releases/2022/2022-0210-01

  Mauro D’Ambros

    Head of Liquidity Management at Zurich

Mauro D’Ambros joined Zurich Insurance Company in 2019. Initially as Head of Liquidity Management for the Business Unit Switzerland & CI EMEA. In his new function as Head of Project and Process Management, he is now focusing on the automation and efficiency enhancement of processes.

Together with his team, he was responsible for the evaluation and implementation of Salmon Software including several interfaces. Previously, he worked in the treasury department at various companies including SIX Group and Bucher Industries. During his 20-year treasury career, he was responsible for several selections and implementations of various treasury management systems. He holds a Master of Advanced Studies Corporate Finance and a Certificate of Advanced Studies Swiss Certified Treasurer, from the Lucerne University of Applied Sciences and Arts.

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