The role of treasury is rapidly evolving on a global level. Companies are driving towards a single global view of cash and risk and, in order to achieve that, they are looking for a centralised repository and hub for connectivity bringing together all company locations, banks and other trading platforms. In doing this, companies can improve cash forecasting, reduce operational costs, and gain better control over risk and adherence to regulatory compliance.
These challenges and opportunities present themselves globally; however, they can be even bigger for companies that are undergoing rapid growth. For example, in China many companies are growing and expanding internationally. As companies grow and expand overseas, corporate treasury management evolves quickly from an operational role to a more strategic role. For this reason, the treasury function in Chinese companies is transforming, and with that, many treasurers are looking towards technology to help them achieve this next level. Chief financial officers (CFOs) and treasurers are now pressured with increased expectations around what they can offer to their companies in order to realise the full benefits of global expansion.
As in much of the rest of the world, Chinese treasurers have been facing tighter and tighter credit markets which have forced them to look more closely at cash flows in order to create an effective liquidity management strategy.
Increased regulation in China, as well as the constraints of domestic exchange controls and restrictions on the usage of financial instruments, creates challenges not faced by counterparts in the rest of the world. Global allocation and management of funds becomes more of a challenge and short-term liquidity management is impeded by the limited range of tools available. This is compounded by lack of co-ordination between different government agencies, which is a particular issue for state-owned enterprises (SOEs) that may need to meet the requirements of multiple agencies.
Having a holistic view of risk is seen as increasingly important for all companies on a global level. However, achieving this goal is somewhat elusive for most treasurers in China. With increased foreign exchange (FX) and interest rate volatility the need for market risk management has increased and is becoming a hot topic among Chinese treasurers.
Counterparty risk has also gained in importance as Chinese companies venture into new overseas and domestic markets. Add to this the increased complexity brought about by rapidly-expanding organisations and the resulting struggle for internal controls to keep up, it is easy to understand why risk management has become so much of a talking point.
Many Chinese treasuries are also struggling with low levels of efficiency within their own organisations mainly due to a lack of automation and limited use of technology, lack of data transparency and poor connectivity with trading partners and banks.
As many Chinese corporations journey through this transformative time, the ‘go global’ strategy will require them to expand their horizons and the scope of coverage put forward by treasury. It is also essential for these companies to adapt to the varying regulatory requirements of new markets as their business expands. As a result, many Chinese corporations are starting to see the importance of automation within their treasury operations.
Timely, Accurate Tracking of Global Cash Positions
One of the key challenges of any treasury organisation that lacks automation is the ability to produce an overall view of the company’s cash position. Different parts of the business will frequently have different systems and different ways of recording and reporting information. This can result in a significant time lapse between collecting data from disparate systems and constructing a global cash position, as well as running the risk of introducing inaccuracies into the data. As a result, a company’s cash position may only be produced monthly or perhaps even less frequently.
With automation, corporate treasury departments can gain real-time visibility into their global cash position on a daily basis. Automation expedites data collection between bank accounts (domestic and international) enabling information to more easily be piped into a centralised treasury workstation where it becomes actionable. This enables treasury to accurately forecast cash and liquidity requirements and make better investment and borrowing decisions.
Improved Forecast Accuracy
Accurate cash flow forecasting is vital to the growth and success of a business. However, for many companies, cash forecasting is a challenge. Not only is the underlying data frequently unreliable, but it can be extremely difficult to combine it in a coherent and consistent fashion. Furthermore, for those companies with multiple enterprise resource planning (ERP) systems, creating reliable forecasts can be problematic.
Automation provides a means for companies to easily leverage transaction history data across the entire organisation. This in turn, leads to improved decision-making and the ability to more accurately predict cash flow. By automating (and centralising) this function using a treasury workstation to combine information derived from multiple systems, or allowing business users from across the company to input data through a common channel, a more reliable and transparent approach to forecasting can be achieved. Although forecasting is a complex issue, improvements via automation are an important first step in a company’s ability to use forecast information for liquidity and finance planning.
One of the key responsibilities of a corporate treasurer is to ensure that the company has access to sufficient liquidity to meet its financial obligations, as well as ensuring that this liquidity is managed efficiently. Sound treasury management means that the cash that the company generates is invested wisely and is used efficiently to minimise reliance on third-party providers of finance. Risk management plays a crucial part in this; budgets are set on assumptions around market rates and changes in these rates can have a profound effect on the performance of a business. Without the proper risk management techniques in place, even the most profitable company can fall into difficulty. This is why a holistic view of risk across the organisation, including price risk, currency risk and interest rate risk is imperative.
Spreadsheets are rapidly losing their appeal as they lack the transparency and functionality required to support today’s evolving treasury processes. Spreadsheets can also expose treasury operations to significant financial and operational risk via the manual keying of data as the mistyping of information can lead to inaccurate cash positioning and forecasting.
Additionally, ERP systems, while highly efficient for simple business transactions, do not support the more complex functions and requirements of treasury such as managing FX risk and hedging. Some ERP solutions make it difficult to accurately forecast cash and run reports and process certain financial instrument types, further exposing a company to significant financial risk. Treasury automation can help mitigate risk by providing more effective cash visibility, risk management analysis and reporting than that of a spreadsheet or ERP system.
Today’s market and business climates mean that treasury professionals across China will see considerable benefits by implementing automated solutions in order to optimise cash, drive predictable and free cash flow, and improve the bottom line.
Charged with ever-increasing responsibilities and the mounting pressure to do more with less, spreadsheets and ERP systems alone no longer offer a viable option for the corporate treasurer. Automation via a treasury workstation is the next logical step for treasuries seeking to gain greater financial transparency and visibility, improve operational efficiency and cost control, and reduce risk.
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