Trying to track 300+ internal promissory notes with Excel proved to be a challenge for the treasury team at The Heritage Group.

With 60+ operating companies under the ownership umbrella, The Heritage Group is a multi-generational family business employing more than 6,000 people across 170 locations. When including holding companies and controlled disbursement accounts, the company has nearly 200 bank accounts to monitor for activity each day.

Promissory notes between operating companies and the parent company are set up where a higher interest rate is charged if the operating company borrows from the parent company, and a lower interest rate is earned if the operating company loans to the parent company.

Since all the operating companies are set up using a zero balance account (ZBA) structure with the parent company as the master account, the promissory note balance can change from a borrow to a lend position multiple times throughout the month.

Manually tracking promissory notes was time-consuming and burdensome, so it became clear that the team needed to switch to a new treasury management system (TMS) that could automate the process.

Their TMS Search Criteria

The search and implementation team consisted of the Director of Treasury; Lead Treasury Analyst; and Supervisor, Cash Management. They also consulted the Cash Management Staff. The CFO and VP of Finance were only involved in the signoff.

The team set a budget of approximately $100,000 for implementation and $50,000-75,000 a year for recurring fees.

Their must-haves included:

• Connectivity to their banks
• Cash positioning
• Scheduled reporting
• Ability to tag transactions automatically using a set of rules
• Ability to initiate and approve electronic payments with their primary banking partner
• Ability for different interest rates to be charged against the same internal promissory note depending on if it was in a borrow or lend position

Their wish list also included a few nice-to-haves:

• Credit facility tracking and reporting
• Dashboards
• Forecasting
• Ability to initiate and approve electronic payments with non-primary banking partners

The TMS Search

Since all the potential solutions offered the same “basics” they were looking for, the team honed in on their interest rate conundrum and looked for a provider that could solve the problem of automatically changing the interest rate based on the promissory note balance.

Their demo set included three major providers and a custom-built solution by a software consultancy company.

TMS Provider A: This solution would require them to maintain two versions of the same promissory note in the system and monitor the note balance every day. For example, if the balance flipped from borrowing to lending, they would need to make a manual adjustment to version 1 to bring it back to a $0 balance and make a corresponding entry on version 2 to record the amount adjusted off the version 1 note.

TMS Provider B: This solution had the same proposed workaround as TMS Provider A.

TMS Provider C: This solution had an out-of-the-box ability to create rate tables based on whether the promissory note has a positive (“In”) or negative (“Out”) balance. The “In” rate would be X% (higher), and the “Out” rate would be Y% (lower). When creating the promissory note, you apply a rate table code, and the system automatically applies the correct interest rate based on the balance.

Custom-Built Solution D: This solution would be custom-built to solve their interest rate issue and all the nice-to-have items on their list.

The TMS Finalists

Given that two of the providers would require manually adjusting transactions and note tracking to ensure that the appropriate interest rate was being applied against the promissory note balance, the team narrowed their search down to two finalists.

No. 1

TMS Provider C

This provider offered an existing platform with experts in treasury. It was within their pre-planned budget, offered an out-of-the-box ability to solve the “basics,” and came with routine (minimum quarterly) maintenance and upgrades.

However, the custom reporting was complicated and creating the automatic scheduling module could be time-consuming as it requires 4+ steps for every report or task. Additionally, the Daily Cash Worksheet was limited to a single day’s view while other solutions provide the option to view a date range.

No. 2

Custom-Built Solution D

This provider offered a solution that would be designed to their exact specifications, with everything customized to their liking — all under budget. However, this meant the team would need to design and think of absolutely everything, as nothing would be ready to use out-of-the-box.

Additionally, there were no pre-planned upgrades, so any upgrades or enhancements would come at an additional cost.

The Final Choice

Their TMS:

TMS Provider C

The team opted to implement an existing platform rather than build a custom solution. The customization capabilities didn’t outweigh the work necessary to build a solution from scratch. TMS Provider C met all their must-haves and some of their nice-to-haves, including debt facility tracking.

Across all the companies, both parent and operating, they have three distinct credit facilities, which they were previously tracking in Excel spreadsheets. After implementing their new TMS, they were able to track borrowings at the individual tranche level and run a report to ensure they were being charged appropriately for interest and fees when banks sent invoices.

Approximately a year and a half after implementing their TMS, the team is very happy with their decision. While there were a few hiccups along the way, they were able to manage them, and the new TMS has allowed them to focus on other automation efforts to improve team efficiency and morale.

Tips for a Successful TMS Search

Chris Pennington, CTP, FPAC, Director of Treasury at The Heritage Group, has seven tips for a successful TMS search:

1. If you have the ability, make it a treasury staffer’s full-time job to work on the implementation.
2. Hire a third-party implementation firm to handle the technical side of the implementation instead of accepting the TMS provider’s assigned resource (in-house or third-party contractor). You want to own this relationship!
3. Be very specific about your must-haves when going through demonstrations, and make sure you see exactly what you are looking for in those demos.
4. Think outside the box and cast a wide net when researching potential solutions (not just TMS providers).
5. Get input from all staff members early and often. This generates a sense of ownership, makes everyone feel like they have a say, and ensures everyone’s input is heard and considered.
6. Communicate with your banks and try to have resources lined up at the beginning of the implementation.
7. Have a member of the treasury staff operate as an internal project manager for tasks to be completed internally. This ensures nothing slips through the cracks, keeps the project on time and on budget, and can be a tremendous development opportunity for an up-and-coming staff member.

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