TechnologyGreen Treasury: The Trigger for a Better Treasury

Green Treasury: The Trigger for a Better Treasury

Modern concepts of corporate responsibility and sustainability have extended to reach the corporate treasury area. It is just five years since JP Morgan Treasury Services launched its Go Green campaign, which focused the attention of corporate treasuries to climate change and the corporate environmental footprint. Most companies face constant pressure to change their operations, as the causes and long-term consequences of global climate change are recognised. They are encouraged to make their treasury green, which also plays a significant role in improving efficiencies and reducing costs. So not surprisingly, companies and their treasury departments have become much more conscious of their actions and are working hard to reduce their environmental carbon footprints. A greener treasury has become both an ecological and economic necessity.

In the early days the concept of going electronic offered quick wins, and is still the main focus of many initiatives. Treasury continues to rely heavily on paper documents, or processes involving paper, yet many can easily be shifted to electronic alternatives. Some regions in the world rely more heavily on paper processes than others; for example cheque payments in the US compared with wire transfers in Europe. While companies often claim that the shift reflect s a green initiative, more often the real incentive is cost saving. Companies that have adopted this new style of conducting operations have seen drastic improvements, becoming more productive and financially efficient. Their transaction fees have reduced, indirect business expenses have been lowered and savings achieved in labour costs and time. In the process they have become more efficient, secure and transparent. However, the resulting ecological benefits as the main focus of a green initiative are harder to quantify, and in some cases companies regard them as no more than side effects.

Cash Management

The area of cash management, with its focus on payments, has often served as the starting point for green initiatives. With a high degree of electronically-facilitated transactions, current cash management solutions are environmentally friendly by design in providing automated processes and making the use of paper obsolete. While much has already been achieved there is still much unrealised potential for making corporate treasuries even greener. A number of everyday operations are still performed fully or partially on paper and these can usually be grouped into three areas:

  • Reports, statements and confirmations.
  • Payments.
  • Receivables.

The following represent opportunities under these categories for greening your treasury department:

Account statement
An account statement is a detailed summary in paper form of transactions carried out either by the company or by a customer, or any payment either sent or received from the account. These statements are usually lengthy and consume quantities of paper. Banks should therefore develop the option of providing online statements to clients, which are equally acceptable to tax and regulatory authorities as they are to auditors. While electronic statements are already in use and can often be loaded directly into enterprise resource planning (ERP) or treasury systems, many companies are reluctant to lose the habit of receiving official bank statements on paper. Yet with an electronically stamped/certified version, much paper can be saved as well as the cost of printing, postage stamps and stationery. In addition, transportation costs are eliminated and account statements are more secure.

Invoice and remittance information
Along with making payments electronically, it is also important to change supporting invoices and remittance information linked with each payment into electronic form. Companies produce a high number of invoices, which often results in heavy paper usage. One reason for using paper is that not all organisations use electronic media, although to do business both parties need to use same medium. Electronic invoicing (e-invoicing) is the key, and regions such as Scandinavia and the Baltics have already established a good standard and high volume of e-invoices. Companies can play an important role by encouraging both parties that use banks for their transactions to start using e- invoicing, which usually not only involves the reduction of paper but also provides the payment details to allow straight-through processing (STP) of payments.

Bank connectivity
Business customers can also play a role in reducing the carbon footprint by better co-ordination with banks, such as connecting their internal systems with the bank’s treasury management system (TMS). Faxes and mailings waste paper in preparing the data that provides payment details or confirmations. By integrating such systems with your bank, this wastage can be reduced. In addition it will also help the bank’s business customers to operate more efficiently, with fewer chances of the errors commonly found in manual documents. Online banking is increasingly used, but there are also systems available for tasks, such as Misys’ confirmation matching electronically, to further reduce paper usage, although their use is still fairly limited.

International transaction payments
Although the cause of green treasury has advanced in the payment area, there remains room for improvement. International transaction payments consume a lot of paper, often for reporting reasons. In addition, printing, transportation and postage further negatively affect the environment. Corporate customers can play a significant role in reducing carbon footprints by pushing for fully electronic international payments and also the possibility of complying with regulatory or central banking requirements electronically. Making payments and reporting online will make them more efficient and secure and make it easy for them to do repetitive payments. This way electronic payments (e-payments) will not only help in lowering the carbon footprints but also bring a notable savings for the businesses as well.

Converting to Green

Despite the benefits and provided examples of making treasury green, it is also important to note that the process of conversion is neither quick nor easy. It usually needs capital, analytical support, various other resources and planning. Despite this, several treasury departments have already managed their resources, planned their strategies and are now in the implementation phase. The US economy should benefit by millions of dollars in the next five years by eliminating paper use and going green by doing business electronically. As an example the US Treasury Department expects a return of more than US$500m over the period when paper cheques are ended in 2013 and, instead, money is deposited online in beneficiaries’ accounts. It costs a dollar to pay by paper cheque, and around 10 cents to pay electronically.

But going electronic is not the ultimate way for a green treasury. Treasurers must consider taking the next step. Electronic means power, so one also has to think of ways to save energy and what kind of energy to use. For example, is there a serious case for nuclear rather than renewable energy sources? So the green initiative, when taken seriously, usually goes much further and involves the whole company. Nevertheless it is important for treasurers to sensitise their staff to green issues.

Outlook for Green Treasury

So what are the future drivers and the outlook for green treasury? Its importance and relevance will continue to grow, being all about efficiencies and the best use of resources. The ultimate goal is a smaller environmental footprint, but the side effects and actual drivers from a business perspective are the convenience from STP, accelerated fraud detection, better operational efficiencies and a reduction in manual errors. So if it’s good for the environment, it’s often also good for the company.

To start your own green treasury initiative, simply ask the question: which transactions still involve a lot of paper or manual processes? It is as easy as that, but does not stop there. The initial goal of becoming more environmentally friendly should never be relegated below pure business aspects and monetary savings. It may often be hard to quantify the environmental benefits, but this does not make them any less important

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