Treasury teams across Europe, face an increased pressure to adjust their operations and better adapt to fast-moving social, geopolitical and technological changes. Impacted by the ongoing effects of the pandemic, the adoption of new payment methods and technologies, and the need to encompass ESG throughout their activities, treasurers need to future proof their operations to enable effective decision-making, especially during the challenging times to come.
The pandemic, during the midst of low interest rates, regulatory changes and Brexit, was instrumental in creating a shift in the way that treasurers deal with difficult circumstances. They realigned their cash flows to build cash buffers, factored in working from home practices and adapted to new e-commerce business models and digital approaches.
Now treasurers also face a perfect economic storm characterised by supply limitations, rising input costs and interest expenses, lower client available income and rising working capital costs. The residue of previous challenges faced by treasuries and the onset of an even more volatile economic environment has resulted in higher forecasting error for companies and the need for treasurers to reassess the banking landscape for opportunities to further future proof their operations.
Changes to come
Of the many developments impacting treasurers, notable is the adoption of ISO 20022 XML across market payment infrastructures within the interbank payments messaging space. These changes might ultimately help streamline payment processing and possibly lead to increased data quality and straight-through processing for the industry.
Another consideration is the advancement of open banking and the ensuing use of open APIs within the treasury arena. This has become an enabler to how treasury departments operate. For example, they can now use APIs to aggregate multi-bank cash positions in real time, as well as leverage APIs to initiate payments straight from their ERP or TMS.
Both the adoption of ISO 20022 XML and the growth of open banking won’t move the needle by themselves. There are indeed many triggers, both from within the organisation, and externally – ranging from factors impacting the supply chain to the need for optimising the cash conversion cycle, as well as new business models that a corporate is developing. These changes provide an opportunity for treasurers to review the bigger picture and start to think of ways to future-proof their operations and capitalise on the opportunities that any new development might bring.
What can treasury do?
Future proofing treasury operations requires a focus on treasury transformation and re-alignment that not only involves treasury teams but also wider business functions. This might include accounting and finance, technology, sales, procurement, banking partners, legal, and more.
There are some key fundamentals for treasurers to consider to help make this happen, such as embedding the right software, identifying inefficiencies, outlining the impacts of change and securing buy-in.
Embed the right cash forecasting software
Ensuring the accuracy of cash flow forecasting has never been more important. Frequently adjusting scenarios to take stock of the evolution of a company’s customers’ payment behaviour in response to macroeconomic challenges, is essential.
This can be a significant pain point in treasury teams where forecasting is manual, slow, time-consuming, and often inaccurate.
Therefore, adopting cash flow software that can assist with the automation of the cash flow forecasting process, enables treasurers to work towards their transformation goals with minimum disruption, but with significant efficiency, visibility, and decision-making gains to be had.
Identify areas of inefficiency
Identifying areas of inefficiency across all impacted teams might seem like a mammoth task but it is essential for the understanding of any roadblocks to efficiency, in particular manual tasks that could be automated, and other pain points across treasury’s remit, end-to-end.
Steps that this might entail, involve reviewing internal systems such as the ERP/ TMS and whether they remain fit for purpose, or require an upgrade, or an alternative. Analysing emerging digital solutions, including liquidity platforms and cash flow forecasting systems and the technology necessary for real-time treasury, including RPA and APIs, is also key.
The level of centralisation of the treasury structure can also be reviewed to determine what works best for the organisation, whether that be a decentralised model where efficiencies are built-in, or a more centralised organisation that reduces the number of banking partners and accounts, together with streamlined systems and connectivity solutions. In some instances, a regional hub, shared service centre (SSC), IHB or payment factory could best suit the company’s future needs.
Outline the impact of change
Any transformed treasury function will have impacts – ranging from tax, legal, and regulatory considerations to the need for a local labour force and language skills.
Identifying these eventualities and asking the right questions upfront, is key to any successful treasury transformation project. Additional considerations here include the culture of the company, as this can have a significant impact on the success of future models.
Secure buy-in from internal stakeholders
Future proofing treasury operations through transformation, may require the building of a robust business case that examines the benefits to the entire organisation. It may entail executive sponsorship to help drive the project forward and the implementation a project roadmap, a plan for change management and the appointment of champions in all relevant teams where possible. It is critical to secure the appropriate internal and external counsel to ensure that the target structure is in line with legal, tax, and regulatory requirements.
Having an agile treasury function is essential to ensure that the wider business remains competitive and helps prepare the department, and team, for the challenges ahead – determining the future treasury organisation structure, needs, strategy, technology, and partnerships.
The key to getting a transformation project right, and thus future proofing operations, is to make sure that the goals are appropriate for the corporate organisation and culture. Equally important is phasing the change journey to strike the right balance between maximum benefit and minimum disruption, both internally and externally.
Aside from future proofing operations, the benefits for achieving such a transformation include: greater process efficiencies; reduction in costs; better use of internal resources – with automation helping to free team members up for strategic tasks; and above all, visibility and control over cash.
While the thought of such an involved project can be daunting, engaging in a successful treasury transformation will open up a world of opportunity for treasurers.
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