Introduction: treasury needs scalability
As with all parts of any business, treasury is always under pressure to operate as efficiently as possible. For treasurers, this pressure manifests itself in three key ways. First, there is the general demand from corporate management “to do more, with less”, an ongoing, business-wide pressure to constantly improve operational efficiency. Second, treasury needs to remain flexible enough to support a growing business, especially if that involves expansion into new territories and using new currencies. Third, without improvements in efficiency, treasurers will always be reactive: fighting fires, instead of acting strategically. Standardized, scalable solutions solve all these problems, freeing valuable time for the strategic treasurer.
Standardization provides visibility and control
Standardizing workflows helps treasurers to identify and manage risk. Common processes make it easier for treasurers to obtain visibility and control over activities, however disparate the group. It means time is spent making necessary decisions, not repeating mundane activities.
As much activity as possible should be automated. In some cases, no manual intervention is necessary. As an example, bank data can be fed directly into a treasury management system. In others, manual intervention is only required at specific points, such as to initiate and authorize a series of payments.
Automation eliminates the costly reliance on manual intervention, reducing operational risk. Just as importantly, automated processes can be replicated to support sales growth (and therefore greater volumes of payments) or expansion into new territories without having to significantly increase the size of the treasury department.
Standardization is critical. It helps to ensure people across the business perform the same tasks in the same way, wherever they happen to be. It means, for example, that the same methodology is followed to develop cash flow forecasts for all group entities, generating clarity for the group treasury wanting to view aggregate group positions. It is simply not sustainable to have customized processes for each activity in each location, especially in an expanding organization.
The result is better control
Within each workflow, there is flexibility. For example, while a company may have a single payments workflow, it will recognize that the company processes different types of payment, ranging from vendor payments driven by the accounts payable system to high-value treasury payments arising from financial instruments. The workflow will include thresholds at certain stages so that, for example, payments above a predetermined value or to certain counterparties require additional authorizations. Instead of a haphazard approach to payment authorization, the use of a standardized workflow enables the treasurer to set individual authority limits and embed a segregation of duties, allowing a tighter level of control to be exercised and demonstrated.
Technology as an enabler
Technology provides the mechanism to manage these workflows more efficiently. Oftentimes, treasurers want to follow a particular workflow, but lack the resources to be able to implement it. In small companies, problems arise because there are few people with the technical skill and understanding to be able to make certain decisions, such as whether a proposed hedge transaction is appropriate. In organizations where treasurers are constantly travelling, communication can be a major problem. The prevalence of business email compromise scams (BECS) increases the risk of using email communications to initiate and authorize payments. In both illustrations, technology, especially where delivered as a Software as a Service solution, can provide the answer.
Taking payments as an example, technology enables treasury to capture a lot of data and store it in such a way that it is accessible to those who need it. By embedding access rights into a technology solution, individuals can have access to the data they need. The group treasurer will want visibility over all group activity, but finance officers in the business units only need information about their entities, thereby supporting decision-making at every level within the organization.
Keep in mind that simply implementing new technology will not alter a company’s processes. Every organization works slightly differently, reflecting differences in cash flow patterns, corporate and treasury structure and employee skills sets, both individually and collectively. Workflows adopted by companies need to reflect the environment within the organization adopting them, so treasurers need to think carefully about the workflows they want to follow and the controls and limits they want to adopt, before implementation begins.
Standardized workflows reduce risk
Any divergence from a standard process makes it more difficult for central treasury to understand what is happening across the business. Exposure to risk, both financial and operational, can be masked and therefore difficult to manage. Standardization helps to reduce these risks, simply because it eliminates the problems associated with customized processes.
As long as the underlying processes are well-considered, adopting standardized workflows means having a consistent approach to data collection, collation and storage and allowing access to this information in an appropriate way. This consistency towards information management results in better visibility of positions, making it easier to identify and manage risk exposures.
In many ways, operational risk is a hidden risk: it is only quantifiable when something goes wrong. While failure to meet an AP payment on time may cause procurement problems, failure to maintain payments on certain financial instruments will typically represent a breach of covenant. This can have major consequences, ranging from a credit downgrade (increasing borrowing costs) to a more serious cancellation of core credit facilities. For the treasurer, such an event would be career-limiting, if not career-ending.
Implementing a set of workflows can reduce key operational risks, such as the need to meet core financial obligations. Workflow management includes the adoption of audit trails and requires a segregation of duties, both protecting against error and fraud. When people change positions, individual limits can be altered to match each person’s particular skills and level of experience, rather than kept in place to reflect the previous office-holder’s expertise. The use of limits also provides a methodology to identify training needs, both for each individual’s career progression and to ensure sufficient expertise across the organization as a whole.
In today’s environment, taking steps to protect against cyberrisk is growing in importance. Again, controlling individual access to the technology and to data will help to reduce the threat of BECS and other scams, as will the use of additional approval and authorization controls. Keep in mind that individual limits can be lowered temporarily as a further protection against the risk of fraud, as it may capture any ongoing low value frauds.
Engaging with the business units
If the use of standardized workflows is new, group entities may be skeptical of change, especially because it is initiated from the center. As well as training group entities on any new requirements, the central treasury team will need to spend some time explaining the rationale to group entities to help them understand the benefits of the change. Showing how following a standardized process will support each group entity can be a powerful motivator when it comes to getting buy-in from group participants.
Standardization brings flexibility
Finally, once implemented, a set of standardized workflows can improve decision-making for companies going into the future. Data generated via a standardized process is comparable over time and across business units, providing valuable insights into the performance of the business. As patterns are identified, management is able to make better informed strategic business and risk management decisions.
The workflows can be amended if additional potential efficiencies are identified or if it is necessary to achieve compliance with a new regulation. From the perspective of achieving regulatory compliance, it is much easier to change a single standardized workflow than multiple customized processes.
Standardizing treasury processes and embedding them as workflows via a technology solution provides multiple benefits to corporate treasurers. It makes it easier for central treasury to calculate cash positions and risk exposures, simply because entities are providing data in the same way. A centralized view then makes it easier to identify and manage any financial risk exposures. From an execution standpoint too, the use of standardized workflows means everyone should follow the same procedures, avoiding confusion and minimizing operational risk. Finally, a standardized, automated solution is scalable, making it easier for treasury to support wider business objectives as the organization seeks to expand and grow.
Given these benefits, can a treasurer afford to not focus on workflow?
About GTreasury/Visual Risk
GTreasury is the leading innovator of integrated SaaS treasury and risk management solutions for the digital treasurer. Developed using the latest technology, GTreasury helps empower organizations on their path to strategic treasury, by enabling total visibility into their cash, liquidity, payments and financial risk management. With enterprise clients spanning North America, EMEA and APAC, GTreasury is headquartered in Chicago with offices in London, Sydney and Manila. GTreasury acquired and merged with Visual Risk in 2018.