Standard Chartered’s Tarek El-Yafi explains why good governance with internal stakeholders/businesses, clean and tagged datasets, and near real-time to real-time insights with your bank partners are the foundation for competitive functions in treasury.
It has been some months now since financial professionals have flipped their calendars from 2023 to 2024, and corporate treasurers continue to be confronted with an economic landscape reverberating from years of turbulence.
But for the strategic and forward-thinking, change presents an opportunity for reinvention and radical transformation, not a threat. This year brings fresh challenges demanding proactive measures and agile adaptation from those tasked with safeguarding their organizations’ financial wellbeing.
The fiscal pendulum is poised to swing, heralding a new era of financial stewardship underpinned by data-driven insights, cutting-edge technology, and unwavering resilience. Treasurers are expected to take the lead in navigating market shifts, mitigating counterparty risk, and harnessing innovation as catalysts for organizational growth.
The continued geopolitical and economic uncertainty, compounded by bank country exits, has heightened the risk of bank failures and consolidations.
The recent events surrounding Silicon Valley Bank and Credit Suisse serve as stark reminders of the paramount importance of robust due diligence in all banking relationships.
Treasurers must proactively assess the financial stability and risk profiles of their banking partners, considering the potential ramifications of operational disruptions or insolvencies.
“Consider a backup banking structure,” says Tarek El-Yafi, managing director and regional head of Cash Management Sales at Standard Chartered Americas.
“We’ve seen many banks make surprise exits of markets forcing corporates to create urgent projects to find a new bank in those markets or we’ve seen a huge scramble with searching for bank providers post the SVB issues we saw in 2023.”
Treasurers are seeking to leverage banking relationships to expand supply chain programs involving buyers and suppliers. Certain large corporations are implementing secondary banks in major geographies to complement their core banking relationships, thereby enhancing risk diversification, and ensuring business continuity in the face of unforeseen events.
“While it can be expensive to do this, consider having a secondary bank in your high-volume markets to mitigate this risk,” says El-Yafi.
The acceleration toward greater digitalization has paved the way for deriving data-based insights that drive informed decision-making.
Treasury teams should assess the potential of robotic process automation (RPA) and machine learning (ML) solutions within the realms of efficiency optimization and risk analysis.
“If you have complicated bank set up or business lines/reporting AI + Data can offer a lot of insight. If you have a simplified banking structure and reporting business lines with clean data– maybe not,” says El-Yafi.
“Before discussing AI/Models it is more important to discuss clean data that is enriched. That is where ISO 2022 is so important – simplified data sets that are enriched which gives basis for Generative and predictive AI.”
While AI remains a proof of concept for some treasuries, others have already implemented it, leveraging predictive AI models to streamline cash flow data lakes and recognize trends and patterns.
This approach helps treasuries refine their operating models and gain insights into end-to-end cash flow cycles, highlighting peaks, valleys, and previously undetected exposures. AI provides quantitative and qualitative granularity, unveiling best/worst-case scenarios for market/price risks and associated financial risks (currency, interest, equity).
This enhanced data certainty equips treasurers with the confidence to determine appropriate financial needs, spanning hedging program refinements, investments, revolving credit drawdowns, debt issuance, and cash conversion cycle optimization, says El-Yafi.
The successful adoption of AI and automation also hinges on upskilling teams on technology utilization.
Continuous training and development initiatives should be implemented to ensure that treasury professionals possess the requisite skills to leverage these cutting-edge tools effectively, fostering a culture of innovation and adaptability within the organization.
The deadline for migrating to SAP S/4HANA has been extended to December 2027, providing treasurers with additional time to navigate the complexities of this critical implementation.
“Meticulous planning and execution are crucial for a successful SAP S/4HANA migration,” says El-Yafi. “Invest ample time in assessing your organization’s needs versus desires, and measure the value each system component brings to your operations. A migration of this magnitude may not occur again for another decade.”
The new SAP platform represents a significant shift, enhancing automation capabilities, leveraging AI, machine learning, and the Internet of Things (IoT) to unlock unprecedented operational efficiencies.
However, El-Yafi notes businesses should not be blinded by all the SAP has to offer. “While SAP offers a comprehensive solution, certain third-party modules may be cheaper to implement and outperform their counterparts in specific areas,” he notes.
“Conduct a thorough evaluation of your critical business functions and consider the best-in-breed options, as integrating external capabilities via APIs is more accessible and cost-effective than ever before.”
Treasurers must seize this opportunity to assess their current technology landscape, identifying areas for optimization and integration. By aligning their technology strategy with organizational objectives, they can streamline processes, enhance data-driven decision-making, and position their organizations at the forefront of digital transformation.
In parallel, corporations are actively seeking to rationalize their banking relationships, focusing on deepening partnerships with a select few institutions. “Prioritize banks that are already integrated with SAP’s ecosystem, as they can offer additional benefits to your treasury operations,” says El-Yafi.
Key drivers for this strategic shift include cost management, increased control over banking operations, and the ability to leverage banks with consistent and scalable technology across multiple markets.
By consolidating their banking relationships, treasurers can foster closer collaboration, enabling seamless integration of banking services and technologies with their internal systems, and ultimately enhancing operational efficiency and risk management capabilities.
Corporate treasuries must also go beyond traditional financial data and collaborate closely with various business lines and internal stakeholders to gather comprehensive insights
By fostering active communication and data sharing with departments such as Human Resources (HR), treasuries can gain a holistic understanding of factors that may impact cash flows, liquidity, and financial risk exposures, says El-Yafi.
While it is crucial to monitor customer payment patterns and forecast potential late payments, treasuries must also stay informed about strategic business decisions and operational changes that could significantly influence cash flows.
For instance, if the HR department plans to hire three new executives at a 20% premium to current costs with a three-year guarantee to maintain those costs, this information is invaluable for the treasury team, El-Yafi says.
Such insights enable treasuries to anticipate and quantify the impact of these hiring decisions on future cash outflows, ensuring accurate cash flow forecasting and liquidity management. Additionally, this information can influence strategic decisions related to short-term investments, debt financing, or working capital management initiatives.
By fostering collaborative relationships with internal stakeholders, treasuries can proactively identify and mitigate potential risks, capitalize on opportunities, and optimize cash management strategies. This cross-functional approach aligns treasury operations with the organization’s broader strategic objectives, enabling treasuries to contribute more effectively to the company’s overall financial well-being.
Furthermore, by leveraging data from various business lines, treasuries can enhance their predictive capabilities, enabling them to anticipate and prepare for potential disruptions or changes in the business landscape.
As treasurers navigate the challenges and opportunities that 2024 presents, a well-defined roadmap is essential to ensure strategic alignment and execution excellence. Over the next few quarters, treasurers should prioritize the following:
By proactively addressing these areas, corporate treasurers can position themselves as catalysts for transformation, anchoring their organizations in stability while embracing the innovations that will shape the future of financial stewardship.
