A New Era of Treasury Centralisation

While the 2008-09 financial crisis has been a trigger for more recent centralisation projects, centralisation has been a trend for a number of years. There are several objectives for the centralisation of treasury, such as:

  • Visibility and control: Achieving visibility and control over liquidity and risk are typically the treasurer’s primary centralisation objectives. A single, consistent view over balances, flows, exposures and future financial obligations makes it possible for the treasurer to manage the company’s liquidity requirements and mitigate risk exposures.
  • Cost savings: Centralisation can also bring cost savings. Multiple systems can be replaced by a single treasury technology infrastructure. It can streamline bank relationships, create greater economies of scale, reduce bank charges, simplify bank connectivity and lower the cost of managing bank relationships.
  • Control and compliance: By centralising the treasury function processes can be standardised across the business, allowing for more consistent controls and greater efficiency.

An Evolving Trend

Treasury centralisation is now a proven means of enhancing both financial and operational efficiency, adopted by a wide spectrum of ‘early adopters’ of large MNCs across all industry sectors. The trend has not stopped at liquidity and risk management, or at large MNCs. Treasurers and finance managers, who have already demonstrated the benefits of centralisation, are now seeking to extend these advantages to financial activities such as payables and receivables in order to optimise working capital.

Smaller companies’ treasury needs are becoming more complex as they expand their geographic footprint through organic growth, mergers and acquisitions. These companies are now seeking to centralise liquidity and risk in order to leverage the same benefits as their larger peers.

Enablers of Treasury Centralisation

Technology is a vital enabler, both for companies seeking to centralise cash, treasury and risk management activities for the first time, and those seeking to extend the benefits of centralisation further. The challenge for smaller companies is that the technology tools on which larger companies have relied are often out of reach, with lower budgets and access to fewer resources. Consequently, there is growing demand for lower-cost ’plug and play’ and self-service models, which newer technology is facilitating.

It is not only smaller companies that are benefitting from these emerging technologies. Treasurers from all sizes of company, who are extending centralisation into working capital functions such as payables and receivables, also seek to do so more easily and cost-effectively. Technology innovation and simplified deployment models mean that treasurers are able to focus on managing business-critical financial decision-making rather than the processes and transactions that underpin them.

Diverse Stakeholder Objectives

Different stakeholders will have varying objectives and constraints, and will often be concerned about a loss of autonomy, influence or resources. This complexity and diversity becomes even more apparent as centralisation projects extend further into the working capital cycle.

For example, while payment factories have become prevalent amongst larger MNCs in particular, centralising collections is more challenging. In the past, technical and legal issues have hindered centralisation efforts, but in Europe these have been largely addressed through the introduction of the single euro payments area (SEPA) and the Payment Services Directive (PSD) that underpins it through a harmonised legal framework for payments and collections.

Looking more broadly, closer alignment of clearing systems and formats, such as ISO standard 20022, also helps create synergies regionally and globally. However internal issues often still remain – particularly commercial sensitivities about customer engagement and relationships, which need to be navigated carefully.

A Partner in Centralisation and Transformation

In many cases, centralisation has transformed treasury’s role into becoming a trusted business partner for the group, and a key contributor and enabler of business strategy. Banks such as Nordea are highly experienced in supporting this transformation, through the first steps towards treasury centralisation through to mature, for highly experienced treasuries that are extending their influence into the working capital cycle.

By working closely with treasury technology providers that are at the forefront of a new era of solutions and services delivery, banks can also enable their customers to leverage the benefits of centralisation both in treasury and beyond, achieve visibility and control over cash and risk, and deliver on strategic financial and operational efficiency objectives.

24 views

Related reading