Best-in-class Treasury Management: Measure, View and Manage Enterprise-wide

An often-cited business adage says: “You can’t manage what you can’t, or don’t, measure.” Another one warns: “You can’t measure what you can’t see.” The meanings of these two quotes differ somewhat, but they are related and particularly relevant to two hot topics in the world of treasury management: benchmarking and visibility.

The weaker economy increased the pressure on corporate treasurers to both demonstrate control over their operations and their liquidity. Treasurers are feeling the heat because cash is the lifeblood of an enterprise: cash must be positioned at the right levels, at the right times, and in the right locations to ensure regular transactions complete and, as situations present themselves, to seize strategic opportunities. Achieving these objectives, however, requires putting in place optimal operating practices, policies and processes.

Know What You Have

Whether looking for assurances that their operations represent best-in-class or whether seeking to identify areas for improvement, treasurers know the first step in any improvement journey is to know where they stand today.

Obtaining an objective, third party assessment presents one of the best ways to plan improvements and set priorities. Independent evaluations provide treasury managers valuable ammunition for getting senior management buy-in for proposed changes and related investments.

Citi, for example, offers its clients an online benchmarking service, called Citi Treasury Diagnostics, that measures performance across six areas of treasury operations:

  • Policy and governance.
  • Liquidity.
  • Working capital.
  • Subsidiary funding and repatriation.
  • Risk management.
  • Systems and technology.

The service is designed to help treasurers to identify areas of strength and sub-optimal performance, including gaps and opportunities in their current operations. Once current performance is known, the focus can shift to identifying ways to close gaps and seize opportunities.

Benchmark to Best Practices

Participants receive customised, confidential feedback and a benchmarking report that ranks their performance in each of these categories, plus numerous sub-categories. Each evaluation includes comparisons with both peer companies and the universe of respondents, providing users insight into their own industry, as well as what defines ‘best practice’ in each area.

Over the past two years, many multinationals across all regions and major industry segments have used this service to benchmark their operations and identify efficiency improvements. The collective results of their evaluations, along with research, provide valuable intelligence on treasury priorities, trends and standards of excellence. Last year, for example, a team of more than 20 treasury executives from Fortune 500 companies joined forces in a year-long collaboration to both benchmark their practices against each other and establish guiding principles and operating standards for best-in-class cash management operations. The project, co-sponsored by The NeuGroup and Citi, produced a report called ‘The Principles of World Class Cash Management’.

Increase Visibility

Across the board, cash managers agree that complete visibility into daily cash positions represents the highest standard of excellence. Simply put, if they can’t quickly assemble a clear and accurate picture of all their cash, they can’t effectively control or optimise it.

There are two dimensions to visibility that need to be considered. The first is visibility of the cash balances, and the second is of the ownership and location of the cash.

Visibility into cash positions, by currency, counterparty, legal entity owner and location of the funds yields obvious benefits. Visibility of cash balances:

  • Enhances short- and long-term cash planning and decision making.
  • Improves the overall efficiency of cash positioning and credit usage.
  • Advances a company’s ability to extract excess cash manually or through automated liquidity structures.

Visibility of the legal entity ownership and counterparty of each bank account:

  • Is a necessary first step to rationalise bank accounts and counterparty usage.
  • Facilitates risk management and the enforcement of corporate policies.

Yet when it comes to actual practices most companies still fall short of – and in fact many don’t even come close to – achieving the utopia of immediate access to a consolidated view on their cash, investment and debt positions.

At the same time, well-managed companies are steadily moving in this direction. Among companies that participated in Citi Treasury Diagnostics, there were clear signs that corporates are gaining greater visibility into their cash and investments. Between 2009 and 2010, there was a 10% jump in the number of companies that can view more than 95% of their cash balances and a 10% drop in companies able to view less than 75% of their balances. At the same time, more than a quarter of participants last year said they have visibility into less than 75% of their global balances.

Even a 20% gap in visibility of the cash balances represents a significant amount of cash. For example, 20% of the cash positions of the S&P 500, corresponds to US$312bn.

Align Policies and Practices with Technology

The journey to improve visibility calls for aligning policies and practices with technology to meet both corporate and business unit needs. Many companies think it is difficult to achieve this goal without a global enterprise resource planning (ERP) system or treasury management system (TMS). To the contrary, there are ‘lite’ applications that provide centralised multi-bank reporting, and more, that can be quickly set up to achieve global cash visibility. Many of these applications provide daily reporting on balances, changes in cash position, and key performance metrics. They also allow for the tracking of all bank accounts, and workflow management to increase the efficiency of treasury operations.

A ‘lite’ treasury management platform provides a viable near-term solution for treasurers seeking to jump-start the level of cash visibility, as well as accelerate results while waiting for their company’s large-scale single backbone solutions to come on line. Companies looking for an alternative to single-instance ERP or TMS solutions, or to bridge existing systems, can leverage online portals.

For example, Citi’s TreasuryVision aggregates cash, debt and liquidity data across multiple businesses, currencies and financial institutions and offers a range of reporting, forecasting and analytic functions. It can be used as a standalone solution or as a complement to existing ERP and TMS systems until a single-instance ERP or TMS system is implemented. It can also help jumpstart bank rationalisation efforts by immediately identifying:

  • Accounts at non-strategic banks.
  • High cash balances not actively managed.

The fewer banking relationships, accounts, and platforms that treasury needs to deal with, the easier and more cost effective it is to view and manage balances and funds transfers and leverage foreign exchange (FX) and liquidity solutions.

Rationalisation might not occur as a big bang at the start of a centralisation initiative, but as with the larger effort to increase visibility, a well-defined roadmap will result in a more efficient banking network and will align liquidity and cash management needs at the local, regional and global levels.

Fundamentals of an Effective Cash Visibility Programme

Whether a company is implementing a full-scale global ERP or TMS, or a ‘lite’ TMS that provides multi-institution data aggregation, reporting and analytics, their solution should provide:

  • Integrity with regard to the quality and timeliness of data.
  • Transparency, including consistent and standardised data reporting.
  • Holistic view that encompasses all cash, including forecasts, debt, investments, commodities and jurisdictions.
  • Flexibility, including the ability to customise ways of gathering and examining data to satisfy multiple needs and centralised decision making.
  • Integration with risk management processes.

To read more from Citi, please visit their gtnews microsite.

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