Every corporate treasury department can benefit from undertaking a thorough review of its technology and processes. Yet once the department has completed that review, identified ways to become more efficient and plotted a course to achieve those improvements, there’s a further element of optimisation that must be addressed in order to succeed. That element is managing resistance to change.
When is it time to optimise?
Most treasury departments lack the amount of resources or capacity to optimise their entire operation all at once. On occasion, treasury managers – including accounts payable (A/P) and accounts receivable (A/R) managers – will experience pain in specific areas, suggesting the need for a thorough analysis and focused improvement effort. Here are some common situations that could trigger the need for an optimisation effort:
- Outdated software platforms: A critical treasury system, such as your enterprise resource planning (ERP) or expense reporting system, isn’t providing the functionality or features you need to stay competitive.
- Too much paper: At some point, for the sake of efficiency and cost reduction, most companies conclude that it is time to make a concerted effort to migrate from cheques to electronic payments.
- Emerging payment solutions: You attend a conference and learn about a new electronic payment method that others in your industry are using to be more efficient or generate rebates – and you want to know whether it could do the same for your business.
- Too many receivable exception items: Too often your company doesn’t know how to apply the payments it’s receiving. Alternatively, perhaps you’re getting too many cheques coming directly to your office, which in turn is requiring an excessive number of trips to the bank.
- Your company’s days payable outstanding (DPO) and days sales outstanding (DSO) are “out of alignment”: You know it’s time for a change when you are paying out funds much faster than you are collecting them.
The above are just a few of the situations that can signal the need for an end-to-end review of either A/P or A/R processes. Conducting such an A-to-Z review will reveal opportunities to identify a comprehensive long-term solution.
For example, an A/P manager fed up with the inefficiency of checks could simply decide to switch to all Automated Clearing House (ACH) payments. However, a comprehensive review of the company’s payables process and supplier base might suggest that a blend of ACH, card and a few cheque payments will provide the optimal solution.
Analysing current processes and formulating optimal A/R and A/P solutions takes time and effort. No matter how time-consuming the process might be, it is only the beginning of managing a treasury optimisation effort. Often, the hardest part is gaining buy-in from the treasury “ground troops”, who are most affected by the proposed changes in their day-to-day workload.
An important starting point for effectively managing treasury optimisation is realizing this simple fact: Most optimisation efforts and the changes they bring impact people, which becomes apparent when you encounter resistance to change from employees. Here are four common reasons for resistance that you should anticipate:
- Job security concerns. The goal of most optimisation efforts isn’t staff reduction; nine times out of 10, the company is looking to reallocate human resources to more productive tasks – not just eliminate full-time equivalents (FTEs). Nevertheless, when treasury managers start talking about executing treasury duties in new, more automated ways, staff members sometimes fear the change.
- A general aversion to change. Change requires stepping into the unknown and moving outside of one’s comfort zone. It forces people to adjust or abandon established habits and engage in new learning, which means working harder for a period of time. These requirements typically elicit resistance rather than a willing embrace. Some employees just don’t like change and their immediate reaction to proposed new ways of doing things is negative.
- Lack of buy-in for the need for a change. This is the “we’ve been doing it this way for years and it’s always got the job done” argument. Employees may not see or fully understand the need for change, making it difficult for them to fully commit to new practices and ideas.
- Hiding the truth (employee fraud). Treasury optimisation often brings greater controls and visibility to financial transaction processes, creating a compelling reason for any financial staff member engaged in fraudulent activities to resist proposed changes.
Strategies for addressing resistance
The following are just a few of many strategies you can use to respond to resistance to your optimisation efforts:
- Incorporating “found time” into the business plan for optimisation: This strategy can help you offset concerns about job security. Your plan should explicitly spell out how you intend to reallocate staff hours when staff members are freed up from manual duties as a result of new, more automated processes.A recent working capital consulting engagement with one client revealed a practice that highlighted the inefficiency of the company’s cheque-heavy payables process. The company was printing cheques every Tuesday and Thursday, following which four employees would spend four hours in a room stuffing them into envelopes.Moving to an electronic payment process would eliminate the need for that practice, freeing up 32 hours of staff time. Working with the company identified treasury tasks that management wanted done but there previously wasn’t time for: in areas such as audit compliance, implementing controls, and supplier enrolment into an electronic payment programme. As part of the plan for optimisation, the four employees were re-tasked to perform those duties.
- Reviewing the road map for change with employees. You want to ensure employees know they won’t be losing their jobs and are apprised of how their duties will change. Explaining the rationale for change can also earn buy-in from those who initially resisted, either because they just don’t like change or they don’t see the need for it.
- Exploring cross-functional training opportunities with staff. The changes associated with treasury optimisation don’t generally get implemented overnight. That means there is often time to work with employees to discover what other activities within the organisation they might enjoy and train them appropriately. Again, there is an opportunity to let employees know they are valued and there is a place for them, despite proposed changes.
- Providing incentives to drive buy-in. Optimisation efforts are often accompanied by cost-savings or rebate targets for the treasury department. Tying treasury employee compensation to achievement of these goals can often generate the buy-in for change.
- Digging deeper if the reason for resistance isn’t clear. If you’ve sat down with a resistant employee, addressed job security concerns, explained how change will benefit the company, and possibly even offered incentives – and the employee still won’t buy in – it’s important to continue searching for the source of the resistance. One possibility to consider is that the employee fears the proposed new processes will bring inefficiencies to light. This was seen in a couple of recent working capital engagements with clients (see sidebar story).
After changes are implemented
Once you’ve implemented changes to effect treasury optimisation, there are still some important people considerations that should be addressed to ensure the success of your initiative.
First of all, you want to recognize the role staff has played in achieving any metrics that were established as part of the initiative. Particularly where there are no financial incentives tied to meeting these targets, it’s important to congratulate staff members and publicly show appreciation for their contributions when savings or other quantifiable benchmarks are reached.
Also make sure you take the pulse of your staff following the implementation of change. Is everyone happy with the result? Is there more they can do to achieve the goals that have been set? Or has the effort achieved everything possible and left everyone completely exhausted? You want to make sure you max out the optimisation effort without overextending staff. That way you are well positioned when the need to optimise treasury arises again – as it inevitably will.
- Case study: ongoing fraud disguised as resistance
One working capital consulting engagement engaged by US Bank involved a corporate client that sought to optimise its payables process. The company was making 99% of its payments by cheque and regularly issued more than 1,000 cheques per month, some of which were being printed manually. All of these disbursements were handled by accounting staff.
A thorough review of the company’s payables process resulted in a recommendation for moving more payments to an electronic method, leveraging commercial credit cards where appropriate, and outsourcing cheque printing via an electronic file.
The company’s chief financial officer (CFO) liked the advice, but the accounts payable manager insisted the time savings would be minimal and that the current process was working well. As a result the recommendations were tabled.
Two years later, the organisation upgraded its ERP system and gained more visibility into the payables process. The CFO noticed the company’s accounts were off by a significant amount and called a staff meeting to figure out why.
As a result of that meeting, it was discovered that an employee had admitted to writing cheques manually and had been embezzling for the past decade. Only through the optimization effort was the fraud uncovered.
While this case is extremely rare, it highlights the importance of uncovering the real reasons that resistance is occurring. The more common reasons, listed above, are just as likely to stop significant process savings in dollars, productivity, and employee satisfaction.
Many banks around the world, large and small, continue to experience major security failures. Biometric systems such as pay-by-selfie, iris scanners and vein pattern authentication can help.
The implementation date of Europe's revised Markets in Financial Instruments Directive, aka MiFID II, is fast approaching. Yet evidence suggests that awareness about the impact of Brexit on MiFID II is, at best, only patchy and there are some alarming misconceptions.
Despite all the automation and improvements that digital banking has the potential to achieve, customers and their needs still form the very core of the banking sector.
Banks might feel justified in victim blaming when fraud occurs, but it does little for customer confidence.