Cash & Liquidity ManagementCash ManagementPracticeSpotlight on Treasurers Planning for the Recovery

Spotlight on Treasurers Planning for the Recovery

Preparing for this growth effectively will require a significant shift in approach for many treasurers, given that up until recently their strategies were focused on conserving cash and managing expenditure in an environment of uncertainty.

The requirements, strategies and products associated with working capital and liquidity management, and regulation are changing in response to the lessons learnt prior to and during the downturn, to help firms realise sustainable expansion in improving but volatile economic conditions.

Working Capital Management in the Recovery

Corporates got leaner during the crisis, which led to a build-up of cash. Now they need to manage that liquidity for it to become a yield-generating asset, rather than a burden in the low interest rate environment. In doing so, treasurers should have visibility around investments that meet their own specific growth criteria and trusted banking partners will be a valuable asset.

Working capital management, however, is perhaps the area in which the nuance shift between the financial crisis and the new growth environment has been most stark; from fighting inefficiencies for short-term gain in the downturn, to finding working capital enhancements that improve the long-term health of the company, and its competitiveness in the recovery.

A holistic assessment of businesses’ working capital cycles – including processes and automation in receivables, the consistency of monitoring and measurement, the efficiency of pooling and sweeping arrangements, and correlations with risk management – can help to address the bottlenecks that could hinder growth. This process of realising marginal gains can deliver competitive benefits, but must be done carefully.

For example, tweaking a company’s days inventories outstanding (DIO) or delaying payment to suppliers to increase days payable outstanding (DPO) can bring capital improvements on the surface, but the impact to suppliers and, in turn, the business’ ability to grow, could be affected. This is where knowing the limits of your cash flow cycle is important.

Considering tailored, alternative forms of funding, such as supplier finance or invoice finance, is also vital in realising working capital benefits – not only for large corporates but, potentially, down through their wider supply chains too.

While this comprehensive approach to assessing and improving working capital might appear a major undertaking, the combined efficiencies realised can make a proportionate impression on the bottom line and put companies in an agile position to capitalise on growth opportunities that arise.

Technological Advancement and Emerging Threats

Traditionally, technology has been a divisive force in corporate treasury, separating the ‘haves’ from the ‘have-nots’. However, it is becoming more accessible than ever through software-as-a-service (SaaS), which is making treasury management systems (TMS) and enterprise resource planning (ERP) solutions more affordable in terms of both implementation and maintenance.

The reach and extent of data sharing in ‘host-to-host’ solutions is also deepening. These SaaS partnerships allow connectivity between a client’s ERP or TMS directly to a bank’s proprietary platform to improve processing and automation, and deliver associated benefits such as optimisation of working capital.

Mobile technology is one to watch. Some companies are struggling to see the value in cash management apps at the moment, but as a new generation of treasurers who were early adopters of smartphone technology enters the market we may see a shift in attitudes.

Technologies that turn smartphones and tablets into card acceptance devices, replacing traditional terminals and providing merchants with flexibility, are gaining popularity in the field of payments across company turnover segments. Banks are developing their own solutions in the space so that customers can benefit from the technology through trusted providers.

With these new technologies and an increasing number of assets and data being stored digitally, come new, more sophisticated cyber threats and, in turn, fresh responsibilities for treasurers.

Attacks are becoming more frequent and more serious according to PwC’s
‘2013 State of Cybercrime Survey’
, which says that preventative measures are now essential in avoiding significant financial and reputational damage to corporates later down the line.

The treasurer’s role is to promote a risk aware culture and encourage regular reviews of existing security architecture and policies. This regularity is essential given the evolutionary nature of treasury technology and the methods used by cybercriminals which threaten it. Engaging an independent third party to analyse a company’s security position – from internal threats, such as employees, as well as external factors – is advisable.

Vigilance in diligencing new accounts is essential and it is important for treasurers to remember that they are only as secure as their weakest suppliers, which can provide a convenient back door for cybercriminals to access large organisations or their data. Any service level agreements treasury departments have in place with third party suppliers should be updated with cyber security expectations, while they should also be encouraged to demonstrate their security credentials.

SEPA Readiness and Wider Regulation

Readiness for the single euro payments area (SEPA) still sits atop of many treasurers’ agenda, with the migration deadline of 1 February 2014 looming large on the horizon. While most corporates have budgeted for it, many still have not begun to address the issues in earnest. A phased approach, even at this late stage, will undoubtedly be smoother than a blanket rollout.

Such an approach should be led by a project team encompassing members of all the departments and third parties, including banking partners, which will in some way be impacted by SEPA migration.

This team should undertake a detailed impact analysis. This is an in-depth look at the business processes and operations that will be affected, as well as an assessment of the benefits that SEPA can create. Areas analysed should include the consolidation of Euro accounts and the potential improvements in payments and reconciliations processes, for example.

Once the required changes, benefits and a phased plan have been established, the business case can be put forward and work can begin on implementation and staff training, with a view to testing and going live before the deadline. When basic SEPA compliance has been achieved, corporates can start to explore its wider-reaching advantages, such as improved cash visibility and control, bank account rationalisation and the potential of initiatives such as e-invoicing.

Separately, widespread regulatory reform impacting banks will also have knock-on effects for treasurers. Professionals in the treasury function are spending more time understanding these reforms, how they will impact their businesses and what will be expected of them in the future.

Looking Ahead…

Armed with the lessons learnt during the downturn, treasurers are able to look to the future with confidence. But the shift from cash preservation to preparing for growth is a significant one, and the associated challenges created by this new environment will remain high on the treasury agenda over the coming months.

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