A practical guide to strategic treasury

Much has already been said about the evolution of the treasurer’s role since the 2008 financial crisis. Nevertheless, we should take an opportunity to reflect on the topic: is treasury really a strategic corporate area, or is treasury being called into the corner office as a result of its cash management responsibilities?

The term ‘strategic treasury’ has encouraged sales representatives acting as “advisors” to exploit the idea of centralisation, in-house bank (IHB) implementation and SWIFT connectivity as enablers for chief financial officers (CFOs) and treasurers to jump on the strategic treasury bandwagon. While these actions may propel treasury towards a more strategic role, these solutions – amongst others – aren’t intended to be generic.

This article aims to provide a pragmatic guide to making treasury a strategic business function, by creating awareness of the treasury’s impact to other business areas and its contribution to issues at management level.

Treasury’s dual roles

In order to determine whether or not treasury plays a strategic role within the organisation, we should agree on what range of activities is managed by the treasurer.

Although treasury responsibilities will vary from corporation to another, according to the UK’s Association of Corporate Treasurers (ACT), the following are the core day-to-day tasks typically performed by treasury:

1. Cash management
2. Currency management
3. Funding management
4. Investment management
5. Bank relationship management
6. Risk management

Additionally, in some companies treasury also oversees credit management and investor relations.

Each of the six tasks outlined require the treasurer to carry a dual role: one strategic and the other operational. The table below outlines some elements of those responsibilities.

Table 1 Treasury Daily Tasks

By adding to the table the overall principle of “ensuring the organisation has the right amount of cash in the right place at the right time”, treasury is a pivotal area throughout the financial value chain, connecting all cash-related processes predominantly under the cash management section; where cash forecasting and payment management require strict cooperation with accounts payable and accounts receivable (AP/AR), taxes and payroll.

Moreover, CFOs and treasurers who decide to focus their treasury team’s attention on strategic tasks and decisions can now avail themselves of specialist firms, which offer treasury outsourcing services with dedicated resources, technology and knowledge to sustainably drive the treasury operational (and sometimes dreary) tasks.

Think and act strategically

Having established what the treasury responsibilities are and the extent of its relation to other corporate areas, it is here when CFOs and treasurers alike should think of treasury as a strategic area.

To start drafting a treasury strategy we first need to know what is treasury’s current situation (AS-IS) and what represents the ideal one (TO-BE); but in order to identify the ideal situation, there is a quality we all need in order to be future-ready: vision.

Vision aims to answer the question “why?”- why we do what we do, giving purpose and a qualitative motive, as opposed to setting mere objectives; which answer the question “what?” – what do we do? An approach primarily focused on quantitative analysis. Figure 1 below illustrates the two basic questions.

Figure 1. What vs Why

Figure 1 What vs Why

Defining the treasury vision provides purpose to a cause, supporting a holistic approach to the treasury objectives. A treasury with vision will have a magnetic appeal that encourages other areas in the organisation to cooperate in the achievement of its vision, thus taking bold steps towards the path to the success that both CFOs and treasurers want to achieve.

Moreover, the treasurer’s vision should be aligned with the overall corporate vision statement; setting the foundations to establishing a unified treasury strategy purposefully supporting other finance areas: AP, AR, accounting and other. As a consequence, treasury becomes more strategic.

The treasury vision should then embolden and outline the treasury strategy which is aimed to answering the question “how?” – how to realise the vision? For instance, one strategy statement could be “to efficiently manage financial risk”.

If we take the example of Google’s CFO who led the company in creating and retaining its “strategic ability to pounce” and the ability to move “on a dime”, what would be the treasurer’s strategy to contribute to this mandate?

A strategic treasurer should be able to support the corporate strategy by:

  • Outlining efficient treasury policies.
  • Ensuring permanent visibility and access to cash.
  • Delivering accurate cash forecasting.
  • Defining optimal hedging strategies.
  • Monitoring financial markets.
  • Creating working capital culture.

A pragmatic method to become more strategic could be outsource the daily non-strategic tasks. For example, Touchstone – a treasury outsourcing company based in Scandinavia – works with customers while aiding them setting a list of S.M.A.R.T. goals; an acronym that stands for Specific, Measurable, Achievable, Realistic and Time-bound, prior to outsourcing non-strategic tasks to its team of experts who provide standardised policies and processes, assisted by specialised treasury technology.

Conclusion

It is true that treasury has been elevated to a more senior position since the 2008 financial crisis. However, the treasurer’s various goals and objectives require that he/she places themself as a strategic partner in the organisation by defining their own vision and strategy statements.

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