There is plenty of evidence to show that the role of corporate treasury is gradually evolving towards becoming a significantly more value-added and strategic function. In fact, 57% of participants in a recent treasury workshop conducted by Standard Chartered confirmed that they now spend up to a quarter of their time participating in strategic decision-making for the business. And the expectation is for the level of strategic engagement to increase.
The unfortunate reality for many treasurers is that despite the heightened expectation, and perhaps having a clear ambition, to become to become more strategic, significant limitations often exist to achieving such a goal. The primary constraint is one of bandwidth where the issue becomes one of the chief financial officer (CFO) demanding more of the treasury unit but without a commensurate commitment to increase treasury headcount to support the additional demands.
Faced with such limitations, it is important to delve deeper into the key enablers for corporate treasury to embrace this elevated requirement to become more strategic, in consideration of the range of operational challenges and tasks it already has to manage.
Efficiency creates capacity for strategy
The question of how to become more strategic actually starts with the question how can I do more with less? As such, the focus for treasury should be to ensure as many as possible of the transactional and operational tasks have been centralised, standardised and automated. The following areas highlighted in Diagram 1 should be key focal points for corporate treasurers searching for improved operational efficiency.
A common theme across many of these areas is the need to leverage technology, in particular banking technology. There are three specific areas which offer great opportunities for treasurers to improve and enhance their operational efficiency.
The first area is focused on cash mobilisation. This relates to the treasurer’s key requirement to ensure that cash is available; in the right place, at the right time, in the right currency and at the right price. Releasing trapped liquidity, improving cash flow forecasting and ensuring interest yields on all funds are optimised are all critical components.
Many banks have deployed highly sophisticated liquidity management platforms and solution capabilities in recent years. So what does that mean for treasury? Simply put, it means that treasurers can do a lot more, with greater levels of automation, to optimise liquidity across the organisation. This technology allows treasury to manage liquidity on a regional or even global basis and provides the option to include new geographies like China and Africa in such liquidity structures (where local country regulation permits).
Payments optimisation is also in the picture, with technology solutions to common problems like local cash payment demands and the management of in-country regulatory payments. Payment solutions like mobile wallet are being established in many developing markets providing greater efficiency, while also delivering the benefits of control and visibility into a previously opaque and consequently risky process.
We are also increasingly seeing the adoption of payment factory models which typically involve at a minimum, integrated payment workflow between accounts payable (AP) and treasury, but increasingly also extends to payment-on-behalf-of (POBO) solutions. These structures are again leveraging technology enhancements that provide an almost “off-the-shelf” product suite that supports these models.
The third area of focus is receivables management. Many global banks have been rolling out advanced accounts receivable (AR) solutions. By leveraging these new capabilities treasury can further enhance operational efficiency including:
- Rationalisation of bank accounts across the organisation.
- Standardised, streamlined and optimised cash management processes.
- Enhanced auto-reconciliation including invoice level matching and cash application.
Third-party systems vendors – treasury management systems (TMS) and enterprise resource planning (ERP) – are also now incorporating enhanced functionality allowing for additional sophistication levels in treasury. Such technology should be viewed as a “process enhancer”, as it provides the opportunity to establish efficient and automated end-to-end processes with less risk and increased control. The resulting straight-through-processing (STP) capability means that less head count is needed to support treasury processes, and is therefore further fulfilling the requirement for treasury to do more with less.
Taking a step back, and looking at how this drive for efficiency is playing out in the broader corporate treasury operating environment, a clear trend is evident towards even greater levels of treasury centralisation. Regionalisation is however the more dominant theme in Asia, where the priority is to increase treasury’s capability and expand treasury’s areas of responsibility, with a view to providing a greater level of support to the company’s local business units. These initiatives include the development and adoption of sophisticated treasury structures like the in-house bank (IHB) treasury model incorporating POBO and receive-on-behalf-of (ROBO) solutions.
It will come as no surprise to hear that many companies that are focused on treasury becoming more strategic and value-adding are also advocating a holistic approach to generate efficiencies across the entire finance organisation. This can include treasury seeking opportunities to consolidate transactional treasury activities within an operationally mature and highly functioning shared service centre (SSC) environment.
A key enabler that supports these initiatives is a harmonised operational and governance framework that incorporates; One Policy, One Process, One Platform and One Organisation that also assists to drive simplification and a high level of standardisation across the business. This is not to say that country exceptions will not exist. The point is that they are exactly that, “specifically documented exceptions to an otherwise standard process”
By focusing on each of these areas, treasurers will hopefully now find themselves with a highly efficient, optimised, and indeed “best fit” treasury operating model. The treasury team is now ready to deploy freed up resources to move beyond the largely transactional function of years gone by, and to deliver tangible value to the organisation and operate as a strategic partner to the business.