Treasurers have been proactive in optimising liquidity, managing risk and improving treasury efficiency in recent years. During your discussions with treasurers, what do they describe as the major challenges and priorities they are dealing with today?
The value that treasury delivers to their organisations has been accentuated since the global financial crisis, allowing treasurers to expand their sphere of influence into a wider range of issues that impact the financial performance of the company, of which working capital is a major example. One of the biggest hurdles in optimising working capital is that responsibility for the various elements in the working capital cycle, such as purchasing, treasury, sales, accounts payable and accounts receivable are separate functions with different management structures, objectives and key performance indicators (KPIs). This can inherently result in a ‘siloed’ approach, leading to potential complications when trying to implement end-to-end efficiencies and coherent objectives that benefit the organisation as a whole as opposed to individual departments. Furthermore, this issue is not restricted to corporations – banks also can have separate business functions managing different elements of their customers’ working capital cycles. The challenge, therefore, is how to break down these silos, both within corporates and banks, to enable an integrated approach to working capital efficiency and optimisation.
What are the first steps in achieving this more integrated approach?
Centralisation is typically an important step. A centralised business model is far more conducive to standardising and streamlining processes than an organisation where business units are responsible for their own financial activities. Centralised visibility and control makes it easier to align objectives across different business functions, and to encourage better communication. Similarly, working with global banks can provide a consistent approach to payments and receivables processing and cash and liquidity management, making bank relationships more productive. In a decentralised treasury environment, in-country business units are more inclined to work with local banks and systems, resulting in fragmented information flows, reporting and processes.
Treasurers are increasingly recognising the need to manage counterparty risk more proactively, achieve greater visibility and control over cash positions globally and enhance process efficiency. This in turn is driving momentum towards a more centralised treasury and finance organisation. In some cases this will result in a regional treasury organisation as opposed to a single global treasury centre, but with global visibility of liquidity and risk, consistent use of technology and coherent processes.