RegionsNorth AmericaChanging Challenges for Today’s Treasurer

Changing Challenges for Today's Treasurer

As the role of treasury departments continues to change, some of the traditional challenges have become less critical, while new challenges have emerged. These new dynamics are leading some financial executives to make changes to processes and relationships that have been in place for more than two decades.

Human Resources – Help Wanted

Treasury lies at the financial heart of any organisation due to the strategic decision-making these specialised financial professionals take part in. For many years, a portion of that process was driven by manual tasks. Treasury workstations and advanced software offering straight-through processing via installed solutions or bank software changed the percentage of manually driven tasks for firms utilising them. Other companies continue to rely on spreadsheets to manage the basics of treasury: cash management, cash forecasting, debt/investment, risk management even limited foreign exchange.

Large and small organisations share the need for increased human resources. The more staff a treasury department maintains, the more time can be devoted to specific aspects of treasury, including strategic decision-making, and the less time is taken up by each specialist handling manual tasks.

The drawback is that companies of all sizes are being asked to expand the scope of their responsibilities, often without increasing staff size. According to a survey of Canada’s treasury community, conducted by Treasury Strategies for TMAC, treasury staffing levels in Canada remain lower than staffing levels in both the US and western Europe, and that number is trending down.

Keith Briggeman, treasurer for BP Canada Energy Company, ranks limited staff as the company’s top challenge in Calgary from a list that included limited human resources, cash forecasting, and risk management, which he says is now handled out of London, as is BP Canada Energy Company’s hedging programme.

Technology Leading the Way

Those firms with smaller treasury staff that would most benefit from the technology available, are less likely to adopt a treasury workstation or bank software than larger firms with specialists who are able to develop a more defined role within the organisation.

More than 90% of Canadian firms conduct some form of regular cash forecasting using treasury workstations, bank software or Excel spreadsheets. While more than half of the firms with sales of more than US$1bn a year have adopted treasury workstations, only 15% of their colleagues at companies with sales of less than US$1bn a year have made the leap from spreadsheets.

“Large multinationals, already better positioned to retain treasury specialists dedicated to cash forecasting, foreign exchange, hedging, or some other specialisation, overwhelmingly are also the organisations most likely to opt for an in-house or application service provider (ASP) solution,” says George Klar, a financial consultant who also teaches corporate finance at Schulich School of Business at York University, Canada’s top-ranked business school.

“Smaller companies, with fewer staff members who are already taking on multiple areas of responsibility, often try to manage this complex environment with spreadsheets rather than the array of sophisticated tools available today,” Klar says.

The price is high. Inaccurate cash forecasting, along with unpredicted late-day transactions have a significant impact on the debt and investment policies of some organisations, which can ultimately affect share price.

“Cash forecasting is particularly challenging with spreadsheets. With such a high percentage of Canadian sales coming from exports, if a company using a spreadsheet forecasts a 5% but ends up with a 2%, that can substantially affect their risk management positions,” Klar says. “Today, technology exists to let CFOs and treasurers view their positions in real-time as well as accurately forecast what is going to happen to tomorrow.”

Changing Banking Relationships

Like many Canadian companies who structured their forecasting around sufficient daylight overdraft facilities for transacting business, BP Canada Energy Company relied on intra-day float to balance same-day deposit and charge transactions. “Changing same-day credit policies with Canadian banks has become a challenge over the past year,” says Briggeman. “We changed banks after 22 years when our former bank chose not to provide the intraday float necessary to accommodate overdraft protection for our EDI practices,” he says, “It was an expensive and inconvenient decision to make, but ultimately we had to make the decision that was best for our shareholders.”

Perhaps to balance the inconvenience of changing policies, banks are rolling out treasury services to give firms without a treasury workstation some of the functionality options available with an installed solution, including: reconciliation, cash management, forecasting and netting, without the upfront investment.

Regulatory Requirements Changing the Landscape

In recent years, the regulatory burden resulting from expanding requirements has created a need for increased technology to maintain compliance. Many Canadian treasurers who once reported a preference for spreadsheets may change their minds when Bill 198, which includes clauses that provide equivalent legislation to the US Sarbanes-Oxley Act, takes effect. “Spreadsheets that may have once been considered adequate for cash forecasting cannot cope with the needs of regulatory compliance,” says Klar.

As with SOX in the US, the internal control instrument required by Bill 198 will be phased in over a period of time. Companies with a market capitalisation over US$250m Canadian have already met those deadlines.

“As the deadlines for firms with a smaller market cap come due, companies will need to consider adopting sophisticated treasury solutions that support regulatory compliance as well as basic treasury functions like cash management, cash forecasting, interest rates, banking relationship management and, of course, global treasury management and foreign exchange,” Klar says.

Conclusion

The landscape is changing for treasurers. The immergence of new banking policies and regulatory requirements are putting pressure on treasury departments that have traditionally relied on spreadsheets and niche solutions to address their most important treasury-related activities. As treasury departments are asked to do more, with the same number or in some cases fewer staff members, technology is becoming more important.

The percentage of Canadian firms that rely on exporting makes hedging interest rates and foreign exchange a priority. Without reliable information, corporations may not have the cash they need in place to continue with business as usual, especially when that business includes the use of intraday float for same-day transactions. For some, this means investigating external funding and liquidity management. For others, it means changing banking relationships that have been in place for many years.

As Canadian treasuries continue to adopt advanced technology and software solutions to automate and streamline their departments, they better position themselves to reduce the risk of manual tasks, increase the accuracy of their forecasting and hedging strategies, and comply with increased regulatory mandates, in effect solving today’s challenges as they move toward the challenges that await them tomorrow.

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