Journey to a Best-in-class Treasury

“The greatest wealth is health,” wrote Virgil, the Roman poet, nearly 2000 years ago. It was an insightful observation. Whether looking at one’s personal health or, in today’s world, the well-being of a corporation whose undertakings were unimaginable in Virgil’s time, there’s no doubt that health is wealth. Unfortunately, too many people wait to seek medical advice when there are clear signs that something’s wrong. They cite a multitude of reasons for ignoring seemingly minor symptoms and foregoing regular medical check-ups: “I’m too busy.” “It will take too much time.” “I’ll do it next year.” “It’s an unnecessary expense.”

They might not be sure where to go for it. Or they simply think that if they treat the symptoms themselves, the problem will go away. The truth is, many companies have approached diagnosing treasury operations in the same way. They know that they should be looking for every opportunity to improve practices in today’s demanding business and financial environment. More than ever, the pressure on treasury is to deliver high performance, so that the businesses can focus on driving operating revenues and managing to the bottom line. But all too often, companies defer having their treasury policies, practices and programmes undergo a comprehensive check-up. What’s holding them back? The reasons vary from company to company just as they do from individual to individual.

A Little Time Well Spent

Each company will find themselves at a different stage along the journey to ‘best-in-class’ treasury operations. An objective diagnostic of internal policies and practices helps in identifying strengths, priorities and opportunities for improvement. It’s also a crucial component for the subsequent planning process, development of a roadmap, and most importantly, senior management buy-in. Of course, ‘best-in-class’ is not necessarily the objective in every situation. The right solution for a company depends on its specific circumstances. The results shed light on key treasury practices and allow for a fact-based dialogue towards developing a roadmap for improvement.

Citi released its first annual treasury diagnostics online benchmarking survey, completed summer 2009, to a group of multinational clients headquartered in the US, western Europe, and Asia. It measures a company’s performance in six critical areas:

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

The results were very interesting. Companies generally have disciplined treasury control frameworks and good coordination of subsidiary funding and repatriation processes. This shouldn’t be surprising. Over the years, most large companies have become diligent in establishing documented treasury policies and procedures and being proactive in managing subsidiary dividend repatriation and funding processes.

Corporate practices are much more varied in liquidity management and working capital processes. This is less expected. Since the onset of the financial crisis, three things have been on corporate treasurers’ minds – liquidity, liquidity and liquidity. Centralised visibility, global liquidity structures, and accurate cash flow forecasting permit more effective deployment of liquidity across the firm and reduce requirements for external funding. Centralisation of payables and receivables working capital processes also facilitates better coordination of liquidity usage and allows companies to eliminate unnecessary local cash buffers.

However, the results show that many companies have room to improve in these areas. In the area of risk management, faced with increased market volatility and heightened uncertainties, diligent firms have been making significant advancements in liquidity, counterparty, foreign exchange (FX), interest rate, and commodity risk measurement and mitigation. But a large number of firms lag behind. Finally, with technology as a key enabler of best practices, the results show that many companies need to invest further resources to in this area. While many companies have appropriate treasury strategies and policies in place, the results highlight how the absence of appropriate infrastructure severely inhibits execution (or even awareness of the gaps between expectations and reality).

Maximise Effectiveness

Whether treasurers are looking for assurances that they are at the top of their game or trying to identify opportunities for improvement in their organisation, the time invested in benchmarking their performance provides priceless insight into how they measure up relative to other organisations, particularly those that have set the bar for excellence. More importantly, it can be invaluable in prioritising investments for operational changes and improvements. As a frequently heard mantra among management consultants goes, to improve performance, you have to measure it. Now is the time to do it.