GovernanceRegulationStrategic Treasury

Strategic Treasury

The financial crisis of 2008 was a time of unprecedented turbulence – but it’s fair to say that the global economy is even more challenging today than it was five years ago. Despite the difficulties that they faced during 2007-2008, many companies continued to accelerate their merger and acquisition (M&A) activity in order to take advantage of strategic opportunities and key regional growth.

Five years later, the global economy continues to slow, affecting regions differently. Greece and Portugal experienced GDP contraction of 6% and 2.2% respectively last year, while the US is experiencing sluggish growth of 1.7%. Conditions are worsening even in countries with much higher growth: China’s gross domestic product (GDP) growth rate, which reached the dizzy heights of 11.9% in Q110, dropped to 8.9% by Q411 and is expected to slow to around 8.5% this year. This deceleration is having a ripple effect across Asia, which is largely powered by the dynamic economies of China and India.

In this difficult economic climate, corporate treasurers face numerous challenges. Getting clear visibility over the company’s cash position is essential, as is the ability to deploy funds effectively. Risk is another important concern, particularly when it comes to managing currency and supplier exposures. At the same time, treasurers are working to understand the impact that upcoming regulatory changes will have on their businesses in the coming years.

As they work to achieve these goals, treasurers are increasingly taking on a more strategic role within their organisations. But what does this mean in practice?

Strategic Function

In the past five years, corporate treasury has become a more strategic function within the organisation. The treasurer’s role has expanded beyond straightforward cash management processes and is now seen as integral to the success of the company. At a recent conference, the keynote speaker explained how treasury had helped fund 50% of a US$3bn acquisition by optimising the company’s working capital, in particular by extending payment terms and accelerating receipt of cash.

However, working on value-adding projects of this nature can be a challenge at a time when many treasurers are expected to achieve greater levels of efficiency with reduced resources. In order to fulfil these competing goals, treasury professionals are typically looking to automate day-to-day tasks such as payments, settlements and cash pooling and are aiming to maintain oversight of such processes without having to manage each one individually.

Such measures can be particularly important for companies that have undertaken multiple acquisitions. Before the economic crisis, companies often delayed integrating new acquisitions into their businesses, which resulted in lower levels of visibility over the organisation’s cash position. Today, treasurers are much more focused on understanding the company’s overall cash position in order to identify how much cash can be invested or used for capital expenditures. As such, it is more important than ever to integrate systems, processes and teams following an acquisition; it is also important that bank accounts are consolidated where possible.

Once day-to-day tasks have been automated as far as possible, the treasurer will be in a better position to concentrate on strategic tasks which support the company’s global business objectives. This could include leveraging the shared service centre (SSC) in order to optimise working capital management (WCM).

Treasurers are also looking to get more value out of their bank relationships. Rather than working to a timetable and issuing a request for proposal (RFP) every five years as stipulated by the treasury policy, strategically minded treasurers are increasingly inviting banks in to assess the company’s treasury processes and make recommendations about specific goals, such as enhancing payments and receipts in different regions. By initiating a more strategic dialogue with their banking providers, treasurers can draw upon their expertise to develop a more robust treasury function.

Counterparty Risk

Risk management is a key part of a treasurer’s responsibility, and counterparty risk is a particular concern in the current economic climate. Where banks are concerned, companies are focusing on placing cash with counterparties appropriately and in compliance with the treasury policy – and are less concerned about getting a return on their deposits than they might have been in the past.

If a treasurer becomes concerned about the stability of a particular counterparty bank, they may wish to migrate to another provider as quickly as possible. One of the benefits offered by corporate access to SWIFT is the ability to change providers smoothly if the need arises. A company’s treasury policy also has a role to play in streamlining this process: as well as stipulating counterparty limits, it can be used as a business continuity plan outlining how the treasury should continue to execute vital transactions, such as payroll runs, if unforeseen circumstances arise.

Counterparty risk concerns are not limited to banking providers. Supplier risk is another important topic, particularly for companies operating internationally, and treasurers are focusing more attention on managing the risks inherent within their supply chains.

In the current challenging economic climate, treasurers are working to prepare their companies for major market events, such as the failure of one or more counterparties, the inability to make and/or receive payments (including payroll) and the issue of cash becoming trapped in the event of a currency redenomination. The past five years have taught us to expect the unexpected – and in light of the continuing eurozone crisis, the scenarios outlined above are a particular concern in Greece.

Regulatory Changes

Regulatory changes are coming thick and fast, and treasurers need to be aware that some regulations aimed at reforming the banking system will have a knock-on effect on corporations. For example, Basel III – one of the most important regulatory changes to have materialised in recent years – will impact banks’ capital reserve requirements, which in turn will increase the cost of capital associated with corporate products such as loans and deposits.

In particular, Basel III will change the treatment of companies’ deposits in terms of banks’ run-off ratios and collateralisation requirements. As a result, previously desirable non-operating investment cash will require more capital, forcing yields down. This in turn will affect the yield offered on deposits for investment cash, which may prompt some treasurers to explore new investment opportunities.

Given the volume of regulatory changes currently in the pipeline, it is more important than ever that treasurers understand the new requirements and the impact these will have on their businesses and banking relationships.


Strategic thinking is becoming business-as-usual for corporate treasurers, who are increasingly asking how they can drive efficiency, reduce costs, increase automation and respond quickly to the changing regulatory environment. Treasurers are also aiming to increase their flexibility, so that when the global economy improves they will be able to add more dollars to the bottom line.

In order to achieve these goals, treasurers need to manage this stage in the economic cycle proactively so that treasury processes are efficient, effective, automated – and driven by accurate and timely information provided by their banking providers. Getting the basics of cash management and risk management right is an important first step, but greater value can be added by optimising visibility over the company’s cash, ensuring that liquidity can be deployed in an agile way – and thinking more strategically about corporate treasury.


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