The Future Role of the Corporate Treasurer

Globalisation and geopolitical developments over the past 20 years have changed the way business is done. China and India have emerged as powerful economic forces and are set to become more influential in global decision-making. Meanwhile, treasurers are adjusting their operations to accommodate this increase of trade between emerging and ‘developed’ markets.

From the Nordic perspective, it is clear that companies in the region are diversifying the geographical reach of their businesses and there has been huge growth in emerging markets. For example, the top 100 Nordic corporations 20 years ago had 20-25% of their global sales in emerging markets. Today, sales to emerging markets have grown to 50% of total sales for large Nordic companies.

Need for Global Cash Control

So what does this mean for a company’s working capital, treasury management and control of liquidity?

Of course, when you do business further away from home the delivery or shipment times are longer and more capital becomes tied up in the logistical process. Risk in your physical supply chain therefore increases, while payment terms typically expand. The Nordic region probably has the shortest average payment terms in the world, so many companies have had to adapt to the longer credit terms in markets further afield. Business risks – such as credit, political, counterparty and foreign exchange (FX) risks – also increase when a company starts trading with new customers in countries with which they are not familiar.

Stretching the Supply Chain

While many Nordic corporates now have more than half their sales in emerging markets, they retain a big portion of their infrastructure, such as production, logistic centres, research and development (R&D), legal teams and IT, etc in Europe.

This means that the financial supply chain is being ‘stretched’ and, as a result, businesses need to adjust accordingly. So there is more focus on improving the processes that link different countries (comprising the challenges of different languages, currencies, time zones and jurisdictions). These processes include the working capital cycle, liquidity management and risk management – all of which are increasingly at the top of the treasurer’s agenda.

How ‘Crisis Mode’ Shaped Treasury

The financial crisis and recession of the past three years has also forced treasury to change its mode of operating. Market volatility means many treasurers are unsure of whether they will have any liquidity next week, let alone next quarter. This has obliged them to focus on the basics, such as having enough cash for payroll. Treasurers are focused on whether their customers can survive the crisis and whether they will get paid.

Things are returning to a degree of normality, but the crisis highlighted the importance of having a global view of liquidity and being able to monitor and control it. This has emphasised the need to get the global processes in order.

Struggling with Working Capital

Working capital in particular – defined as the operating liquidity available throughout a company’s financial supply chain – is now a priority for treasurers, and their roles are evolving to address all aspects of the cycle. Many are tackling it from the business process angle to establish global end-to-end processes for the order-to-cash (O2C) and procure-to-pay (P2P) cycles in order to get their IT and enterprise resource planning (ERP) infrastructure up and running.

However, the working capital cycle is also an area of concern for many treasurers. Although it is at the core of treasury’s aim of achieving cash flow efficiencies, treasurers rarely feel they have complete responsibility or control over the working capital cycle.

There are signs that this is slowly changing, and treasurers are beginning to exert greater control over the working capital cycle. One indication is that working capital levels depend on the company’s business in general and levels of working capital usually correlate closely to sales. While sales are going well and the company is cash rich, there is less emphasis on optimising working capital.

Surprisingly, during the past three years of recession, working capital as a percentage of sales has not fallen as much as expected. The main reason for this is the acceleration in globalisation that we have seen in the past decade. Not only intercontinental business, but also in intra-regional trade. As previously discussed, as business becomes more global, the physical and financial supply chains become stretched and it becomes more difficult to quickly release capital tied up when a recession hits. Thus, globalisation is pushing treasurers to focus more on working capital and to become more involved in end to end business processes.

Another barrier to efficient working capital management are the vertical departmental ‘silos’ in which companies divide and organise areas of responsibility. Silos are developed so that companies can work more efficiently, but as companies change in scope, shape and size, silos can become an obstacle to working efficiently across the company. Many companies need to develop new matrices that solve the problems currently at hand – including the need for greater global liquidity control and risk management.

Taking Strategic Initiative

Treasurers cannot have global control of liquidity and risk management without implementing end-to-end processes and to achieve this treasury needs to be able to make its voice heard on strategic corporate issues.

Furthermore, in order to understand strategic processes, treasurers need to be more analytical and ask more questions about the financial supply chain. Asking questions helps you to understand the source of cash flows. Analysing the business in terms of certain areas (such as payment terms, credit-worthiness of key clients and processes for debt recovery) can help treasury to plan and design these processes, with a view to getting extra control over liquidity and reducing and mitigating risk.

The treasury team at one of SEB’s biggest corporate clients currently focuses between 60-80% of its projects on strategic business processes. Whereas before treasury might have managed the financial interfaces of a certain process, such as the O2C process, today treasury is more of an active partner in designing, implementing and using the process. This is a big shift – of course it’s only when treasury learns how the business really works that they can contribute effectively to improving working capital, risk management and liquidity control.

The purpose of treasury is to support the company in its core business, whether it’s selling refrigerators, software or consultancy time. Treasury’s value is in helping the company become more successful in its overall goals. This is an attitude far more common today than 10 years ago when treasury was more solitary in its outlook.

Developing Global Relationships

The increasing globalisation of trade also has implications for how companies recruit and train their staff. These days a large Swedish company with 60% of its sales outside Europe is unlikely to employ only Swedes, and treasurers are likely to be posted abroad and work in an international team.

Doing business globally means you need different skill sets, so you employ people able to work in virtual teams and embrace cultural differences. You also have to learn how to get the most out of a diverse staff base.

This will inevitably affect a company’s choice of banks as well. For many of our core clients, China and India have become key markets accounting for a significant portion of sales and operations. This also means that it becomes increasingly relevant for these companies to include Chinese and Indian banks in their core banking group in order to better reflect their global footprint and to better support their growth.

Counterparty risk has also led companies to consider carefully their core relationship banks. In the aftermath of the crisis, many companies found that some of their relationship banks no longer existed, so we’re seeing changes in the banking industry. Companies have realised they need to keep a better track of their financial and commercial counterparty risks.

Regulations to Galvanise Treasury

There are two regulations on the near horizon that will have a galvanising effect on treasury operations. Many treasurers are making just the bare minimum of adjustments to accommodate the new single euro payments area (SEPA) payment instruments and legal framework. However, SEPA is also a catalyst that is helping some companies achieve the centralisation that has long been talked about in the market. By providing uniform standards for formats and instruments, SEPA is accelerating the centralisation of payment processes.

Chief financial officers (CFOs) and treasurers have wanted to centralise accounts payable (A/P) across Europe but have struggled with fragmented systems and diverse local clearance processes. Now the circumstances are changing so rationalising payments is becoming a lot easier. In this way, SEPA is pushing treasurers towards being much more involved in the end-to-end process because if you want to centralise A/P in Europe, you have to take on more responsibility than just making sure that the bank interface works. Again, as treasurers become more involved in the process, they can contribute much more in terms of improving efficiency in the working capital cycle.

As treasurers become more focused on the business and on working capital, the end-to-end processes and holistic risks, the imminent introduction of Basel III is yet another factor that is pushing treasurers to think and behave more strategically. This is because Basel III is likely to push up the cost of capital. Banks are no longer free to run their business by borrowing short term and lending long term, or at least it will be prohibitively expensive to try to do so. For corporates, having control of your global liquidity will be essential going forward as bank borrowing will no longer be an easy option.


The wider geographical shift and growth of trade across the world and particularly in emerging markets has been one of the biggest forces in shaping and driving the role of the modern corporate treasurer. Long-distance business has brought the working capital cycle into focus and is the impetus behind the need to understand risks across the financial supply chain more fully. As a result, treasurers are more focused on risk and liquidity management. This, coupled with the financial crisis, has set the precedent for the corporate treasurer to become far more involved in forming business processes and influential as a strategic partner to the business.

Forthcoming regulations, such as SEPA and Basel III, are also set to focus the attention of treasury on improving and centralising payments in the eurozone and improving internal financing efficiencies. Overall, the focus of treasury is increasingly on delivering value and efficiency for the company and acting as a strategic support unit to achieve the company’s overall commercial goals.

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