Treasurers debate centralisation strategies as liquidity pressure mounts

As companies look to secure their liquidity, treasurers face increased pressure to support organisations in maintaining optimum cash levels as well as tackling the existing hurdles to centralisation – but the road to centralisation shouldn’t be a forced process.

Whilst centralisation can enable the optimisation of cash levels, it should not be forced within a business that is de-centralised by nature, according to Sankar Krishnan, executive vice president, industry head of banking and capital markets at Capgemini.

“Centralisation strategies for treasuries are dependent on the business and how the business operates today. We shouldn’t try to force it if it’s not going to work. I like the hybrid model because it give treasurers the flexibility to centralise when they can and let’s not forget that there are certain stakeholders that operate in a certain way and the company has joint ventures, so centralise where you can and if the business is de-centralised let it be de-centralised,” said Krishnan during a webinar on September 2.

Jukka Sallinen, head of cash management business at OpusCapita, agreed.

“There is no one size fits all. We usually recommend for companies to understand where they are on the road to centralisation. Try to find yourself on the map and then try to understand what you actually need. If your organisation is very de-centralised by nature, than having no system at all is going to be fine, you shouldn’t try to reach the highest level of centralisation if that doesn’t really add any value to your business,” he said during the webinar.

According to Sallinen, attitudes towards cash management have changed over the past months and businesses have more significantly embraced the centralisation of payments processes.

“It’s been hard some years ago and expensive. Nowadays, when you look at centralising cash management, it’s not a multi-million process you must put yourself into,” he said.

“In a big corporate especially you need to look for your banking landscape. It has become possible for masses of companies. It’s also something that is making more sense because of the standardisation and because of the mechanisms available.”

Krishnan believes the hybrid model offers the best solution for centralisation.

“Centralisation of information is a good thing, but I would recommend the hybrid model when it comes to the centralisation of funds. Especially in these times, outflows and inflows – you don’t want to have any currency conversion or FX conversion costs and therefore it’s better to leave the money in the local currency if you have payments in those currencies,” he said.

In a recent study conducted by The Global Treasurer and OpusCapita, more than 25 percent of treasurers said they use more than one bank for cash management requirements.

“It’s always good to have more than one bank because you can make two banks compete. And it’s also a question of if one goes down and there is this contingency plan, you can have one as your major and the other as your minor,” said Krishnan.

However, hurdles to centralisation still exist.

In the report, time and resources were quoted as the biggest roadblock to centralisation, followed by the difficulty of prioritising functions.

“Fundamentally, treasury teams are very small in most of the corporates. One could almost say that some of the teams are so small that it is impossible to make the changes happen. They might not be enough room to take it to the next level, whether the next level is harmonising the banking landscape or introducing a new cash management solution,” explained Sallinen.

To access the full on-demand version of the webinar, click here.