The State of Treasury

Treasurers, vendors and bankers from across the world descended on the city of Vienna in Austria last week for the 16th International Cash and Treasury Management conference hosted by EuroFinance. At a time when the treasury function is evolving at such a rapid pace, it was apt that the central theme of the conference was the state of treasury in terms of how it operates today, how it will do so in the future and the status of its internal and external relationships. Based around how treasury can add value to the business, the eight conference streams covered a variety of subjects including building the treasury brand, liquidity and supply chain, and opportunities in regulated markets.

In one of the main plenary sessions, Sebastian di Paola, partner, corporate treasury solutions group at PricewaterHouseCoopers (PwC) in Belgium, presented the results of the EuroFinance 2007 Treasury Survey.1 While it is true to say the results did not reveal many unexpected facts, it did confirm key trends within treasury today and also provided some food for thought about what we might expect to see within this dynamic industry in the future.

For instance, the survey underlined the fact that treasury continues to battle with the pressures of adding value to the business, reducing costs, improving control as well as the increasingly stringent regulatory environment. According to di Paola, treasurers need to be more highly controlled than ever before, as well as focus more closely on how they can add value to the business. This was supported by the survey results, which highlighted the transition of treasury from a profit centre towards becoming a value-added centre. Sixty per cent of the corporate survey respondents said they now run their treasury as a value-added centre compared to just 7% as a profit centre and 34% as a cost centre.

When corporates in the audience at the plenary session were asked where they thought treasury added most value, the response was as follows:

  • Cash management – 37%
  • Treasury risk – 21%
  • Working capital management – 18%
  • Long-term funding – 11%
  • Bank relationship management – 8%

The varied response reflects the expanding role of treasury and it is evident that treasury’s involvement in working capital and enterprise risk has significantly expanded over the past few years. Not surprisingly, the survey also reveals that the areas where treasurers believe they can increase their role in the future are ones where there is the most synergy in applying their skills to the broader finance function, such as commercial credit risk, commodity risk and pensions.

Treasury’s Internal and External Relationships

As treasury considers how it can add more value to the core business, one priority is developing solid internal relationships across the organisation. Traditionally, treasury has been considered as an isolated function within the enterprise but this is changing. One driving factor is the current climate of compliance in which PwC’s di Paola explains treasurers need an enterprise-wide view, and therefore stronger relationships, in order to perform their job efficiently and meet compliance requirements.

Eighty-five per cent of the EuroFinance survey’s corporate respondents believe that their CFO understands treasury while only 9% of treasurers have trouble communicating with their shared service centres (SSCs) – two positive signs that the standard of treasury’s internal relationships are improving. Treasurers believe that their CFOs still need to improve their understanding of financial risk management, cash and liquidity management, and bank relationship management though. Interestingly, treasurers in the UK and Nordic countries are least satisfied in their relationships with their CFOs – 45% of UK treasurers believe their CFO has ‘no time for them’ and 20% of Nordic treasurers feel that their CFO has no understanding of the treasury function.

The survey does show that treasury believes there are other communication gaps with internal departments. Relationships with both sales and procurement need some attention, particularly as these departments are becoming more and more important as treasurers focus on optimising the financial supply chain.

Another significant relationship for all corporate treasurers is with their banking partners. The survey shows that treasurers still opt for the traditional mix of global, regional and local bank solutions over banking clubs and partnership arrangements.

Corporates in the audience at the plenary session were asked what was the most important factor in determining their bank relationship, the highest responses were getting the best solution (26%) and quality of service (22%). This correlated closely with the survey results where quality of service and having a long-standing relationship were the top two requirements. This supports the trend that, going forward, as the payments and cash management business commoditises, banks must differentiate themselves on service level and the ‘value-add’ they can provide customers rather than price.

External Influences Over Treasury

One of the biggest external influences that has affected treasury in recent years is the rise of regulation and compliance. While this has traditionally been seen as a burden by many corporates, the EuroFinance survey indicates that attitudes towards regulation are changing and perhaps not as negative as they used to be. According to PwC’s di Paola, this is due to the fact that the advantages of regulation, such as Sarbanes-Oxley (SOX), have now been digested and therefore understood better. For example, 87% of EU corporates said they had not considered de-listing in order to avoid having to comply with SOX requirements.


The introduction of the single euro payments area (SEPA) has certainly been one of the most significant regulatory initiatives this year. In terms of progress, the survey results confirm the fact that many corporates have not yet firmly established their plans – 72% of the respondents said they are currently not prepared for SEPA, largely due to a lack of clear regulatory information with many adopting a ‘wait and see’ approach. When banks in the audience at the plenary session were asked whether they were ready for SEPA, 52% said yes, 7% said no and 41% confirmed that they were still working on it.

Undoubtedly, more clarity is needed – among both banks and corporates – in order to prepare for SEPA and this is becoming more critical, as the first deadline draws closer on 1 January 2008. For example, while the SEPA credit transfer will go live in January 2008, the implementation date of the SEPA direct debit is still unknown. These issues were explored in the two SEPA conference sessions: Are Your Banks in for a Rude Awakening? and Corporate Cost or Opportunity?

Wouter de Ploey, senior partner at McKinsey & Company, underlined the fact that SEPA would heavily affect the banking industry with an estimated total investment cost that could exceed €10bn within the EU. “Banks are dealing with issues such as price convergence, migration instruments and the restructuring of the industry’s value chain,” he said. “At the same time, they face increased competition from payment processors, technology specialists and telecom players.”

He believes it is regional banks, rather than global or local banks, who will be the biggest winners post-SEPA. And which corporates stand to gain the most from SEPA? According to the majority of banks at the SEPA session (62%), companies with revenues over €1bn will be the biggest beneficiaries. Indeed, it is widely accepted that it is larger multinationals with cross-border activities and multiple banking relationships that are likely to benefit the most from the introduction of SEPA.

Marilyn Spearing, head of trade finance and cash management corporates at Deutsche Bank, outlined the key benefits and opportunities of SEPA for corporates at the session and why they should be excited about the initiative. “The benefits include transformation of many different domestic payment environments into a single standardised and harmonised regional environment for direct debit, and automated as well as harmonised formats and standards for all euro transactions,” she said. “SEPA also provides new business and expansion opportunities because of the uniform euro payments area.”

For Andreas Drabert, treasury controller at European Aeronautic Defence and Space (EADS), SEPA has certainly been a driver in removing complexity from the company’s cash management structures. “We have moved from disparate clearing cycles by country to a harmonised standard across the region and from a large number of local formats to a standard European solution, i.e. XML,” he explained in the conference session. “We have also moved from different country-based payments detail and reference field structures and exception codes to a harmonised environment.”

The benefits that SEPA presents for corporates are unequivocal and 78% of the audience at the conference session agreed that SEPA was an opportunity to drive efficiencies in cash management structures with only 22% saying it was a compliance topic with additional cost and little or no added value. Alongside the benefits, however, we must also acknowledge the uncertainties and concerns that still exist, such as central bank reporting and the potential conflicts between national law and SEPA, e.g. the use of domestic accounts for social security payments and VAT, as well as the challenge of migration. In order to get a better idea of the outstanding work that remains, Marilyn Spearing at Deutsche Bank asked the audience what their biggest challenge was in migrating to SEPA and the response was as follows:

  • Dealing with new IT formats – 45%
  • Managing legacy direct debit mandates – 28%
  • Obtaining management buy-in – 18%
  • Implementing BICs and IBANs – 10%

Banks will play an important role in helping corporates overcome these challenges, and being able to handle these issues efficiently for corporate customers will be a key differentiator. “[SEPA] banks have to be prepared to receive and process payments in the new XML format or in the existing global payments formats, e.g. Edifact and IDOC, for the start of SEPA in January 2008, as well as further invest in comprehensive value-added service post-SEPA,” affirmed Spearing. “It’s also important to offer solutions industry-wide to drive volume, develop several base models capable of customisation according to individual client needs and also, importantly, cover both national and SEPA schemes during the transition phase.”

Corporate connectivity to SWIFT

Corporate connectivity to SWIFT was another hotly discussed topic at the conference following the introduction of the new model, SCORE (Standardised CORporate Environment), last year. According to the EuroFinance survey, 60% of the corporate respondents are planning to investigate it with 23% saying they have already investigated but decided against it mainly because it was not applicable or the costs/benefit did not stack up. Access to the SWIFT network certainly makes more sense for corporates that are multi-banked and this will be a critical factor in the decision to join. Read more about corporate connectivity in the series, The SWIFTNet Revolution and Corporate Connectivity: What Corporates Should Know.

One important development has been the introduction of digital certificates to enable personal digital signatures for SWIFTNet FileAct payment files. For example, BNP Paribas recently joined the IdenTrust network to provide its corporate banking customers with digital signatures. This is a significant milestone as it now allows personal digital signatures for SWIFT transactions instead of a single corporate-level signature for payments files, which ensures enhanced visibility and control over business transactions at a time when accountability and transparency is paramount within any organisation.


In terms of technology, 77% of the corporate respondents in the EuroFinance survey admitted that they still use spreadsheets as a treasury tool and there was an even split between the use of treasury management systems (TMS) and enterprise resource planning (ERP) systems. Other interesting technology trends from the survey results included the fact that Asia uses significantly less technology than the rest of the world and that a higher proportion of corporates (35%) now use FX/e-dealing platforms with greater usage among Nordic countries (perhaps because of the focus on financial risk management in this region).

When asked what the main platform for measuring and managing treasury operations was, the response from the survey respondents was:

  • TMS/ERP with treasury module – 56%
  • Excel – 28%
  • In-house/custom built – 11%
  • Application service provider model (ASP) – 3%
  • Outsourcing – 2%

There are still relatively low levels of usage of the ASP and outsourcing model but we are likely to see an uptake of these strategies, as treasurers consider the ways in which they can manage their increasing responsibilities more efficiently and focus on value-add activities. “One of the main barriers to the adoption of the ASP model has been the issue of security,” explains Joergen Jensen, director of product management at Wall Street Systems. “Companies have been wary about the confidentiality of their data using this model but now, with improving certification capabilities, this is changing and it will be a driver for adoption.” He believes other benefits of the ASP model, such as guaranteed service levels and business continuity standards, will also encourage acceptance.

The survey confirms that the age-old conundrum of choosing between the benefits of integration via an ERP system compared with the functionality of best-of-breed solutions will certainly be an ongoing issue for some time to come. For example, 41% of the audience at the plenary session said that would consider moving from a TMS to ERP treasury model with 38% considering moving from their current ERP system to a TMS. (Read also #gtnFeature(207)#)

In addition, cash flow forecasting remains an area that requires attention with one third of the survey respondents admitting that were dissatisfied with their cash flow forecasting ability. And this has become more of a concern with the current credit crunch. “If companies want to have debt on their balance sheets, they must be able to have effective cash flow forecasting procedures in place,” argues Aliza Knox, SVP of Visa International’s Global Commercial group. “Cash flow forecasting is capturing the attention of corporate treasurers globally and there are a number of reasons behind this.”

She points to the fact that the sophistication of forecasting processes has dramatically increased due to improvements in IT as well as the fact that the environment for corporates is more challenging with increased exports and more debt financing. In addition, a recent report from Visa highlights five key trends that are emerging in the field of cash flow forecasting:

  1. Improved technology – firms are using better information systems to simplify and enhance forecasting process.
  2. Forecast centralisation – forecasts are being produced more often by corporate headquarters than at the business unit level.
  3. Tough regulations and better-informed forecasts – spill over effects of tighter regulatory controls are leading to more informed and data-driven forecasts.
  4. New forecasting techniques – techniques that are based on statistical and economic analysis are increasingly adopted.
  5. Private equity and the drive for accurate forecasts – the drive for better forecasting is strengthening, especially in firms purchased by private equity buyout investors.

Liquidity Management

The number one issue on the treasurer’s agenda over the next 12 months will continue to be liquidity management closely followed by risk management and the implementation of new treasury management structures.

In the conference session, Back to Basics: The Tools of Liquidity Management – Cash Concentration and Notional Pooling, Yera Hagopian, global product manager for liquidity services at HSBC, put the importance of effective liquidity management into context. “There are unprecedented levels of surplus cash in the world today where over 25% of European companies have liquidity portfolios in excess of €100m,” she said. “And over 70% of these portfolios are held in short-term cash instruments.”

Against this backdrop, corporates must make fundamental decisions about whether to overlay or not, whether to pool and how to concentrate their cash. Liquidity consolidation and centralisation is the ultimate goal but this is not an easy task by any definition. For instance, research2 conducted by gtnews on behalf of ABN AMRO reveals that, although 49% of companies claim to have centralised their liquidity management on a global basis, a much smaller proportion have actually centralised their daily cash balances, leaving a large opportunity for companies to unlock cash across their operations.

Willem van Alphen, head of global cash pooling, transaction banking at ABN AMRO, who presented the results of the liquidity survey at EuroFinance, said: “Today’s automated liquidity management tools, such as sweeping, multi-bank cash concentration and cross-currency notional pooling, are making it possible to move positions across a group of accounts, locations and currencies into a single global cash position. As the regulatory environment evolves, we expect more and more companies to be looking at these capabilities.”

Finding, and then utilising, the right tools to meet their liquidity goals is a priority for many corporates and HSBC’s Hagopian offers the following advice:

  • Know your positions by currency, country and entity.
  • Rationalise your bank account structure if you can.
  • Understand your current pricing and watch out for cross subsidation.
  • Make sure you understand tax impacts of any new structure.
  • Avoid unnecessary operational risk and take on as little extra work as you can.
  • Share the benefit internally.

Looking further ahead, over the next 24 months, the survey results reveal that payment factories are set to rise on the treasurer’s agenda. According to Marie Laurence Faure, head of electronics channels at BNP Paribas, a new generation of payments factories is developing and the reason behind this change is the evolving scope of the treasurer’s role. “When the first payment factories were built, they dealt with payments and treasury but now the treasurer is moving into the area of risk management where they need sophisticated, automated solutions to allow them to focus on value-added tasks,” she explained in a payment factory roundtable held at EuroFinance.

One of the key trends we will see in this area is banks adapting to meet corporate expectations and offering solutions to facilitate the evolution of their customer’s organisations. “Banks will have to develop a range of solutions from a global international e-banking platform to local solutions,” affirms Faure. “We will also have to form closer relationships with vendors in order to provide customers with the best integrated solutions and have a wide knowledge of ERP and TMS tools.”

Key Points

  • Treasurers are still struggling to be recognised by business partners within the organisation and the core business as a whole.
  • The relationship with accounting, tax and shared service centres has improved.
  • The battle between TMS and ERP continues as treasurers attempt to meet the challenge of wider responsibilities, such as commodities and credit risk.
  • From a regional perspective, forecasting remains the priority for US corporates, credit and funding for UK corporates and managing enterprise-wide risk for Asian corporates.
  • Treasurers are spending an increasing amount of time on issues involving emerging markets, which reflects the importance of globalisation to a company’s business.
  • Credit and funding is becoming a priority again.
  • Financial supply chain optimisation is gaining increasing focus.

Source: EuroFinance Survey


One message that clearly comes through from the EuroFinance survey, and discussions at the conference, is the fact that treasury still feels undervalued as a partner in the core business. Seventy-one per cent of the survey respondents said that treasury is still only viewed as a support function rather than a key partner in strategic decisions with over three-quarters of treasurers wanting to be viewed as a partner. Twenty-five per cent of the corporate respondents that have tried to expand treasury influence into areas, such as procurement, credit management and cost of ownership, have failed mainly due to the following three stumbling blocks: territorial dispute, lack of senior management buy-in and resources. Treasurers must prioritise overcoming these barriers if they are to be recognised as a strategic partner within their organisation. And the first step must surely be to raise the status and profile of treasury within the organisation to reflect its undeniable value to the business through its expanding expertise and knowledge.

1The survey was conducted between June and August 2007. There were 312 respondents from 47 countries of whom 57% were group treasurers.

2The research was conducted during June 2007 through an online survey on with 211 finance professionals, of which 190 are corporates based in Asia, Europe and US. The survey was followed up with selected in-depth interviews.


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