Strategic treasury: what does it involve?

In the wake of the 2008 global financial crisis, increasing risks from financial market volatility has driven companies to shift their focus swiftly from pursuing growth to liquidity preservation and from acquiring new business to strengthening internal controls. As a result, there has been increasing pressure for the corporate treasurer to “step up” and be more strategic in their role and drive liquidity solutions and foreign exchange exposure visibility. They are also required, more and more so, to be a provider of real-time market analysis for forward-looking strategic planning by the senior management.

A Deloitte survey conducted in 2015 asked chief financial officers (CFOs) what they thought are the important roles that corporate treasurers should play. As per Figure 1 below, in order of priority, more than 80% chose:

1. Liquidity risk management.
2. Access to capital market to finance growth.
3. Steward for risk management in the company.
4. Strategic advisor to the business.
5. Value-add partner to the CFO.

Figure 1

CFO Mandates for Treasurers

These priorities represent a seismic shift from the traditional receipts and payments transaction management role often associated with corporate treasury.

Shifting away from transaction processing

For many years, a company’s treasury function was typically decentralised with local finance/treasury teams being more transaction focused – for example cash payments and receipts and conversion of foreign currencies to/from local currency – and where many processes such as trade confirmation and settlements were manual. Communication between headquarters and the business units on cash/exposure information were largely conducted via emails and records were usually kept on Microsoft Excel spreadsheets.

More recently, treasury technology advancements, improved banking infrastructure and the emergence of cloud computing are enabling quicker – in some cases cheaper – and more robust financial reporting while increasing the overall efficiency of treasury risk management. Tactically, treasurers are able to use tools like exposure data analytics to provide insights on supply chain, consumer payment behaviour and trade payment flows. Treasury technology, when correctly implemented, allows treasurers to focus away from the daily grind of transaction management to become more strategic – assuming the role of strategic advisor to the business, a value-add partner to the CFO and, ultimately, a steward for risk management.

Strategic treasury operating model

As companies embrace technology, CFOs and treasurers also have to reconsider their business model and processes; especially in foundational areas like payment methods, account reconciliation and liquidity management.

The term ‘strategic treasury’ is one that encompasses a growing number of areas ranging from managing an in-house bank (IHB), running a centre of excellence (COE) and operating a group of regional treasury centres (RTCs). Structurally, the common underlying treasury operating model across these areas is “centralisation”.

A centralised treasury function refers to a company’s effort to aggregate its core treasury function in one location (usually the headquarters) or have multiple treasury offices in key financial cities operating the core function in a coordinated fashion. Such an initiative will drive policy and process standardisation, giving the CFO and treasurer greater control. More importantly, centralisation will help achieve a galvanised liquidity management structure for the entire organisation globally, which is the top mandate from CFOs to their treasurers.

Centralisation enables treasurers to gather timely and accurate information on the flow of funds and financial data across the organization, in order to provide useful analytics for strategic planning. A centralised treasury also allows a company to coordinate go-to-market efforts, be it assessing the loan/bond market or dealing with a preferred panel of banks.

Deloitte’s follow-up survey in 2016 focused on how companies are organising their treasuries and managing foreign exchange (FX) risks. As per Figure 2, more than 90% of the 133 global companies surveyed said that they are operating in a centralised model.

Figure 2 

2016 Global FX Survey 

It is encouraging that a vast majority of respondents already have a treasury operating model that is fundamental in helping treasurers become more strategic. Through the centralisation of treasury activities, a platform is created that allows teams to be effective stewards of risk management for their company.

Strategic investment in treasury technology

CFOs are recognising that technology can allow treasurers to spend less time on transaction management and more on “value-adding” activities for CFOs and business units – the same survey showed that about half of the respondents have implemented treasury management systems (TMSs). However, the results indicate that the technology implemented was still very much centred on operational automation and data entry process improvements but less on information gathering and analysis. More than 50% of the companies surveyed have two or more sources of information, which they mine data from and 62% claimed that collating FX exposure forecast information from business units are still being done manually.

Figure 3 

Use of technology to manage FX risks

Investments in treasury technology will continue to be a strategic hot topic and both treasurers and CFOs should train their sights toward investing in exposure gathering and analysis tools. Quick access to clear and succinct treasury information is critical to enable treasurers to be effective risk managers. An example of a tool that is readily available is software, accessible via mobile devices that can facilitate key performance indicators by displaying real-time information on dashboards. These dispense with the traditional manual effort of producing management reports using programmes like Microsoft Excel or PowerPoint that are often error-prone.

Technology advancements will also continue to shape the external global banking landscape. Banks’ investments in financial technology (fintech) will result in new ways for companies to interact and do business going forward. With the right treasury infrastructure and more importantly, a strategic mindset, corporate treasurers can be well positioned to leverage these exciting developments.

Conclusion

Spoken or not, in the continuum of ever changing financial market landscape and technological advancements, it is safe to assume that CFOs expect their corporate treasury function to be more strategic. It is right to prioritise the corporate treasurer’s role as strategic advisors to the business, value-add partners to the CFO and stewards for risk management for the organisation to help companies navigate successfully in this fast-changing environment.

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