Business-to-Treasury - Improving Internal Treasury Operations
The role of treasury is typically to manage and mitigate all financial risks and exposures faced by the company and to ensure compliance across all financial operations and stakeholder reporting. In a multinational corporation, the main source of treasury exposures is the company’s business units and subsidiaries, where market-driven operational decisions in various locations and economic surroundings are made. Visibility of operational cash flows, foreign currency sales and purchases, liquidity surpluses and funding needs is crucial in establishing a company-wide assessment of finances. These flows and balances need to be forecast and reported by subsidiaries to treasury in an accurate and timely manner. But does this happen in practice and how can communication between business subsidiaries and treasury be further improved?
In November 2006, gtnews conducted a survey about the efficiency of internal treasury operations, which revealed an overall lack of automation and communication between treasury and subsidiaries (Survey Reveals High Levels of Inefficiency Within Internal Treasury Operations). Only 21% of the survey’s corporate respondents said they had good and timely access to reliable, high quality data and only 9% of corporate respondents said that they were ‘fully automated’. There are a number of factors that contribute to this dissatisfaction and they are mainly related to the visibility of transaction and account balance information between subsidiaries and treasury, and how the business units perceive the role of treasury.
Subsidiaries do not always have access to easy-to-use, intuitive and efficient tools that add value to their own daily work. For instance, 62% of the survey respondents said that while their subsidiaries might provide adequate data, it was held in multiple systems and formats. In addition, e-mailing spreadsheets is still the common method of transmitting data – a process prone to error and also much less accurate compared to automated operations. Furthermore, using spreadsheets and e-mail does not allow corporates to create a tangible audit trail, which is a significant problem in an era of increasingly stringent controls and regulations.
In most cases, employees at subsidiary level who perform the treasury reporting are not treasury professionals but often accountants or financial administrators whose regular roles include various reporting responsibilities (e.g. management and financial accounts reporting and ad-hoc reports for controllers). Treasury-related processes and tasks are often a secondary priority on top of their normal day job. It is also true that manual processes take much more time and effort on the part of subsidiaries compared with automated processes and this does not encourage them to take the time to prepare data thoroughly.
In most organisations, subsidiaries do not have a clear understanding of central treasury’s role and this may lead to a lack of motivation to provide accurate data and to inform central treasury accurately about cash balances and cashflow forecasts, for example.
From the barriers described above, it is clear that the information required for treasury to do its job effectively is difficult to collect from subsidiaries for a variety of reasons. But how can lines of communication and information management between business units and treasury be improved?
Fundamentally, treasury must adjust its way of thinking and adopt a business mentality whereby it considers subsidiaries as internal clients. Good customer service is based on understanding the needs and challenges of the customer by listening and solving their problems. There must be an incentive for subsidiaries to comply with the requirements of treasury rather than doing so out of obligation without understanding the purpose.
Treasury should step into the shoes of the subsidiary business units and consider what needs to be changed in order for them to have a better understanding of treasury’s role. For instance, as described above, subsidiaries don’t always have in-depth knowledge of the terms and processes treasury refers to and this is exacerbated by the fact that they often have little time to fulfill treasury’s requirements. The task of providing high quality data has to be made easy and rewarding, and the tools used must provide added value for the subsidiary as well.
It is important to note, however, that the best tools in the world will not automatically improve the quality of subsidiary reports. There must be a clearly communicated message from treasury explaining why their input is important and how it affects the organisation overall.
Treasury should promote a simple guide about its processes and requirements, as well as practical ‘Why Do I?’ and ‘How Do I?’ guides to business-to-treasury reporting. It is also important for treasury to form a closer relationship with all subsidiaries in order to explain its role within the company and encourage the timely and accurate delivery of data. Individual meetings are the most effective way to achieve buy-in but regional introductions are also useful when launching a new policy. In addition, individual ‘face-to-face’ time can be used to analyse and solve subsidiary-specific problems.
B2T is a new approach to conventional treasury solutions and is built on providing simple tools for subsidiaries to effectively manage and automate their interface to the treasury centre. The underlying principle is to ensure the data that enters the treasury workbench is accurate, up-to-date, reliable and visibly linked to underlying business transactions and is also transparent with complete audit trail features to meet the requirements of Sarbanes-Oxley, IAS 39 and FAS 133. A B2T approach provides the tools for business units to apply corporate risk policies against their business related exposures, and thus reflects a higher quality of top level forecasting and reporting.
As an additional benefit, the automation of B2T processes offers savings by reducing the need for manual processes and specialized knowledge. Treasury resources can be used for more value-added work, such as advising business units on treasury issues or participating in treasury development projects (e.g. hedge accounting or working capital management projects).
Providing subsidiaries with tools designed to meet their needs, and by simplifying and marketing operational policies, treasury can significantly enhance the quality and timeliness of information flows. The business-to-treasury relationship should be a focus for any organization because any improvement in this area will benefit the company as a whole through more accurate cash flow forecasting as well as compliance with audit and other regulatory requirements.