Corporate TreasuryFinancial Supply ChainObservations on EuroFinance 2013

Observations on EuroFinance 2013

Corporate treasurers and their use of treasury management systems

Corporate treasurers fully agree they can (and must) count
more in their company. The financial crisis – now turned into economic crisis in
many European countries – has elevated the corporate treasurer to the status of
information steward of the chief finance officer (CFO), when not of the chief executive (CEO)
directly. The corporate treasurer is accountable for the quality and validity
of answers to questions related to the company’s financial stability, cash flow
projections, availability of liquidity, quality of bank relationships, actions
to take to improve working capital requirements, just to name a few. It is even
more frequent that corporate treasurers are expected to take direct decisions
that can affect corporate financial outcomes, such as deciding on accounting
structures, allocation of surplus cash, identify sources of liquidity, and assign
threshold targets to payables and receivables.

To do so, corporate treasurers need information rather than
raw data for better decision making. Often times, they must ‘sell’ options and
solutions to their CFO/CEO. Effective communication and proper ‘packaging’ of
data are strongly demanded skills. Software solutions for treasurers should therefore
be capable of ‘educating’
treasurers on how to use best practices to be
effective in building the internal business case (i.e. to sell solutions and
decisions internally). The ability to package practitioners’ workflows and data
modelling into reusable applications may represent the software solution
corporate treasurers are expecting.

These conversations have validated Aite Group’s prediction
that treasury management systems (TMSs) will morph into treasury intelligence
management systems (TiMSs). These are platforms that will integrate and extend
the operations-driven functionalities of a traditional treasury workstation
with features that provide better information in order to generate intelligent

Of the topics discussed with event participants I am
reporting on a few that I believe further validate these concepts:

  • TMSs are evolving into decision support platforms for the treasurer, who
    can now control all the company’s sources and destinations of cash from a
    single point of observation.
  • Simplicity and
    standardisation are key to treasurers’ decision-making today.
  • Treasurers require a
    technology capable of retrieving pertinent information from various and
    independent data sources, regardless of underlying technology foundations.
    Expanding the reach of a basic TMS by turning
    information into intelligent decision support keeps the treasurer
    informed, empowered, and engaged.
  • Regulatory compliance is
    still high in the treasurer’s agenda, and technology should be capable to
    offer a document compliance repository for auditing controls.
  • The TMS must be flexible and
    adaptable to accommodate any new regulatory requirements. The technology
    should compile and consolidate data silos, and allow the user to format
    the resulting data so that it can be presented in a more direct and effective
    way to decision makers.
  • A TMS should support the
    treasurer in identifying issues, running scenarios to test various
    options, and then support with data aggregation and analysis to proceed
    with recommendations.

The continuously evolving landscape of supply chain finance

Although supply chain finance (SCF) is a well-renowned and
debated topic, still many treasurers are focused on more ‘operational” tasks
such as cash pooling, liquidity management, risk avoidance and bank account
management. It was quite apparent in my conversations however that corporate
treasurers are well aware of SCF and expect clear solutions from their
bank partners.

While the conversations focused on various aspects of SCF, I
have summarised below the items I think are of most interest to explain how SCF
is continuously evolving:

  • Banks involved in SCF programmes are challenged with the task of translating
    the potentially intangible concept of corporate value into a series of
    action plans that practically build value to the corporate client. It is
    therefore important for a bank deeply involved in SCF programmes to identify
    areas of attention to its corporate counterparty and offer the appropriate
  • SCF still lacks a clear
    business model. Banks consider it essential to have business requirements for
    SCF before even offering SCF products. A significant critical area for
    both banks and corporate clients is represented by the difficulty of
    creating a business case that proves the value and return on investment
    (ROI) of a SCF programme.
  • One practical answer to
    closing the gap between corporate demand and bank supply goes through
    breaking down silos in the corporate-to-bank relationship. The visibility
    of supply chain processes is a key factor that banks recognise as an
    important step that will take them closer to ‘speaking the same language’ as
    their corporate counterparts and addressing the solutions truly needed to
    fulfill expectations. The inhibiting factor, though, that emerged almost
    constantly in my conversations is the perception of risk among banks.
  • It is well-known that banks are not lending to small companies because the risk perceived
    is too high. However, the way that banks assess risk is mainly based on
    financial data and on some basic overview of operational performance. If
    banks were instead capable of having statistics on a company’s performance
    throughout the end-to-end supply (i.e. value) chain, then the risk
    profile would be more accurate and banks could decide what portion of risk
    they want to take and how to price it accordingly. One topic extensively
    discussed during meetings regarding the ability to risk-profile steps of
    the supply chain process was the concept of ‘actuarial tables’ for supply
    chain management (SCM).
  • Just as the lifecycle of a
    vehicle or of a person are mapped to then identify specific ‘trigger
    points’ that are statistically measured to determine the likelihood of
    certain events to happen – and therefore calculate correspondent actuarial
    values to properly price the insurance premium – the same should be possible
    for supply chain processes (e.g. procurement, manufacturing, shipping,
    distribution). My assumption is that an insurance company is already capable
    of slicing and dicing the lifecycle of a vehicle’s value chain
    thanks to the actuarial table values of that value chain. Insurance
    premiums are then calculated and offered to clients. Why should the same
    not be possible for a supply chain?
  • Some banks are creating
    advisory roles that use data and quantitative market research to explain
    clients the reasons to change and consider SCF solutions. Benchmark data
    appear the best approach to help clients understand the gaps from best
    practices and quantify the cost of the gaps.
  • Fact-based discussions
    with clients are the best source for a bank to gather information and to
    prove its capability to understand the needs of that company. A SCF
    programme begins with exchanging ideas and knowledge, not with selling

SEPA and what will happen after the February 2014 deadline

Many of the conversations and session titles on the single euro payments area (SEPA) were pointing
to the operational aspects of ‘what still must be done to meet the deadline’.
My interest, though, was in understanding what it will happen after the 1 February
2014 deadline. Most likely the vast majority of corporations will use
workarounds and patches to ‘keep the lights on’; a scenario not so different
from the ‘Y2K syndrome’ that turned out to deflate all feared catastrophic
consequences of (supposed) poorly planned changes. While corporations will not
want to overspend until they understand the real benefits from doing so, my
recommendation to corporate treasurers is to select the bank partner that will
offer the best SEPA solution in line with the company’s planned pace of change.

Related Articles

Brexit could push payment terms over the edge for thousands of small businesses

Accounts Payable Brexit could push payment terms over the edge for thousands of small businesses

1m Paul Christensen
The methods and tactics behind risk and control self assessment

Operational Risk The methods and tactics behind risk and control self assessment

2m Nash Riggins
Improve working capital – but not at the cost of your suppliers

Supply Chain Finance Improve working capital – but not at the cost of your suppliers

4m Daniel Windaus and Paul Christensen
Game-change: how unlocking working capital can drive growth

Supply Chain Finance Game-change: how unlocking working capital can drive growth

5m The Global Treasurer
A lifeline for business: Supply Chain Finance in the spotlight

Supply Chain Finance A lifeline for business: Supply Chain Finance in the spotlight

6m The Global Treasurer
Creating strategic value in the B2B supply chain through digital transformation

Financial Supply Chain Creating strategic value in the B2B supply chain through digital transformation

10m Patrick Bermingham
How spend analytics helps procurement cut costs

Financial Supply Chain How spend analytics helps procurement cut costs

11m Brian Alster
Procurement grapples with tech and talent gap: SAP Ariba Live - Day 2

Financial Supply Chain Procurement grapples with tech and talent gap: SAP Ariba Live - Day 2

11m Victoria Beckett