Driving Towards an Effective Treasury

Treasurers in the Asia-Pacific region, as well as their bankers, are keenly interested in what will help them drive towards more effective treasury management. At Reval’s forum in Singapore in July, the company’s Asia-Pacific managing director, Tony Singleton, used a combination of global and regional survey results, as well as polls of the treasurers attending the session, to identify key drivers of an effective treasury.

According to Singleton, Asia-wide surveys show that liquidity management is the most significant contributor to an effective treasury, followed by risk management, exposure management and compliance. With many companies in Asia as well as other regions having significant excess cash, Singleton noted that managing investment well is also critical and cash pooling is a key process.

In looking at risk management, regional and local treasurers attending the session said that liquidity risk was their highest priority, crisis risk was second and then foreign exchange (FX) risk tied with counterparty risk for third place.

In considering strategies to improve treasury management, Singleton said research in Asia on self-directed treasury operations has shown that effective treasurers already have superior cash management practices in place and they’re addressing liquidity management next. There are still a large number of less effective treasury operations around, however, and these treasurers are focused on figuring out where the cash is and getting cash management in place.

One key issue that he mentioned, only partly in jest, is that STP (straight-through processing) in an Asian context often instead refers to straight-to-paper. The new breed of treasurer, Singleton said, is looking at how to be involved in far more strategic activities than in the past and how to move towards automation so that there’s more time to focus on those strategic initiatives.

Coming from a technology company, Singleton not surprisingly said that many treasuries are not getting full value out of their current technology due to vendor or product issues. The difficulties stem from a combination of under deployment of functionalities, limited vendor support, limited expertise, budgetary constraints and user unfriendliness. Perhaps more surprisingly, he mentioned that most companies actually increase the number of spreadsheets they use when they install a treasury management system (TMS).

Singleton identified key obstacles to a better treasury: some companies in Asia still view treasury as operational rather than strategic; staff lack expertise; treasury has inadequate visibility; and there are currency as well as regulatory restrictions. Treasurers need more effective operations and liquidity management, as well as to adopt genuine STP in order to move ahead.

What treasury needs to do, Singleton said, is move to Treasury 3.0. Leveraging research by Treasury Strategies, he said that Treasury 1.0 is the first iteration and revolves around data and capturing transactions with no integration and no STP. Treasury 2.0 is better, as centralised treasury operations have segregation of duties, some integration and reporting. However, it still focuses on transaction processing, rather than more strategic opportunities. In the next iteration, Treasury 3.0, treasury becomes a strategic advisor aligned with the business and focuses on efficiency, better business integration, dashboards, alerts, integrated risk management and information. In Treasury 3.0, he explained, treasury staff can spend 80% of their time on business-benefitting activities and just 20% on transactions.

Central to a superior treasury at the 3.0 level is having the talent to implement changes. Even though the demand for staff may be below the peaks of the past year or two, it’s still at high levels. While recruitment firm Robert Walters’ survey in July found that 90% of chief financial officers (CFOs) said their top priorities this year include maintaining current revenue and profit margins, 62% said that recruiting and retaining the best finance talent was also in the top three. Staffing thus remains high on the priority list.

Asia-Pacific treasurers clearly have opportunities to drive towards the strategic levels of Treasury 3.0. Having the talent to enable moving up to the next level, as well as putting superior processes in place, are key parts of making that upward shift possible.



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