September 15, 2008. This is the day when treasury transformed from being important to strategic. What was later called the credit crisis was fuelled by a massive constriction of liquidity like we had never seen. Suddenly, boards were demanding from their chief executive officers (CEOs) the answer to a simple question: how much cash do we have? These CEOs turned to their chief financial officers (CFOs), who then turned to their treasury teams to provide the critical answer.
Organisations have always cared about cash, but the sudden importance of maintaining sufficient working capital to run the business skyrocketed when the possibility of raising more cash through traditional channels appeared to evaporate. We didn’t know what kind of economic downturn was around the corner. What we did know that cash was critical to survival. Therefore, the treasurer became the most interesting person in the organization.
The recently-published ‘2017 AFP Strategic Role of Treasury Survey’, produced by the US Association for Financial Professionals and supported by risk management group Marsh & McLennan, offers tremendous insight into what treasury has done over the past nine years with that opportunity to be in the spotlight.
The AFP reports that 80% of North American treasurers believe that treasury is playing a more strategic role than in 2014. Similarly, 80% also agreed that treasury will continue to be strategic in 2020 (and beyond, we can assume).
It will also come as no surprise that the strategic value of treasury is driven by the expanded responsibilities that treasurers have earned – which all revolve around the management of cash. This is shown in the following report highlights:
• Seventy-nine percent of treasurers lead borrowing (i.e., raising cash)
• Sixty-one percent lead long-term investing (i.e., earning returns on cash, but also ensuring investment principal is kept safe)
• Sixty percent lead payments execution and strategy (i.e., how to disburse cash)
• Fifty-four percent lead working capital management (i.e., managing how much cash is required to run the business)
Along this same theme, the report predicts that over the next three years, cash management and forecasting will be the greatest focus of treasury teams. Even though cash management – and the forecast – have been a top priority for treasurers for the past two decades, efficient and effective management of cash remains the most critical service that the treasurer can offer.
However, while the name of the cash management function may remain the same, the scope of the job has changed. The treasurer is effectively a risk manager, balancing optimal liquidity levels with counterparty, currency and geopolitical risks. In the US, that balancing act has become more prominent in recent months with discussion of tax reform. Treasurers are already being asked to project how to create business value through the repatriation and reallocation of overseas cash once expected tax cuts are implemented.
To outside observers, these may appear to be straightforward responsibilities for any treasury team. But managing cash is an increasingly complex task, which explains why treasurers are demanding improved processes and technology.
The AFP survey identifies that only 53% of treasury teams believe they use technology effectively to increase their contribution to the organisation. For some, this low success rate can be attributed to inefficient use of treasury technology platforms. For most everyone else, the issue is not having the right treasury technology to enable their success.
The survey addresses this point as well, with 42% of respondents citing cost and lack of business case as the barrier to acquiring new, better technology, and an additional 27% saying they have trouble finding the right technology to meet their needs. This is an opportunity for (and frankly, the responsibility of) treasury technology providers to do better.
Even today, there are treasury vendors that market themselves based solely on feature/function or trying to be the lowest cost provider. Yet treasury technology enables treasury teams to create business value – and not simply automate process or reduce costs.
So, if your treasury system provider is more interested in whether you have budget, or how they can win your business on price alone, then perhaps it is time to look further. The right technology partner will not only offer you value, but also align with your strategic vision and be committed to a plan to get you there. Just like treasury sees themselves as a strategic partner to their business, treasury technology should be a strategic partner for treasury to get there.
• This is an edited version of the author’s latest blog on kyriba.com
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