From Buzzwords to Reality: the Road to a Centralised and Digitalised Treasury

The role of treasury is continuously changing. Treasurers are expected to be business partners within companies and to deliver data that can be used for strategic decision-making. But they also face pressure to work more efficiently and to improve their performance – with fewer resources available. For many treasurers these trends are a clear incentive to (further) centralise treasury operations. But where should they start?

Much has been written about this topic. Type ‘treasury centralisation’ into any browser and in an instant millions of hits pop up. And it’s easy to be overwhelmed by all the buzzwords, like machine learning (ML), robotic process automation (RPA), APIs, payments-on-behalf-of (POBO), and in-house banking (IHB). With all of them promising the holy grail of centralisation benefits.

So, how can treasurers navigate the jargon-filled maze and define tangible steps to become more efficient? To begin with, let’s take a look at the main benefits of treasury centralisation:

• Increased control and visibility over cash, setting up one centralised access and view over (global) cash positions.
• Access to financing and liquidity, enabling corporates to turn inwards to drive growth and value, with strong focus on capital structure (funds can often be more effectively obtained at group level).
• Operational efficiency and risk mitigation, with standardised business processes run from a central location.
• Integrated FX , enabling centrally managed FX providing benefits including offsetting foreign currency positions.

The above is just a small selection of drivers and benefits. Of course, there can be different drivers depending on industry, treasury maturity, geographical spread, and a multitude of other factors.

The first step in this journey is to assess the current level of centralisation and the desired level. Using a simplified model defining five treasury maturity phases (see fig. 1), treasurers can assess their current state. The model is based on the premise that the higher the level of treasury digitalisation, the greater the level of standardisation, control and visibility. Each phase identifies several treasury tools specific to that particular phase.

Figure 1: Stages of treasury maturity

Source: ING

Our experience of supporting ING clients on their transformation journeys shows that centralisation is an organic process, with tools from different phases existing side by side.

An important aspect of developing a centralisation plan is defining a realistic horizon and building a business case. Transitioning from a decentralised to a digitalised treasury (as shown in phase 5 of fig. 1) will most likely take more than two to three years. To keep stakeholders engaged and budgets within reasonable limits, the desired level needs to be realistic and in line with the existing treasury strategy.

Back to the buzzwords. Of course, there is nothing wrong with the solutions behind them. But they often resolve challenges that are not relevant to the desired level of centralisation. Everybody is talking about APIs and becoming API-ready, for example. But should this be the top priority?

Selecting key pain points from treasury’s responsibilities will focus attention on which buzzwords to engage with. To illustrate, let’s take the example of a centralised treasury that manages multiple cross-border cash pools in different currencies. And let’s say its strategy is to set up an IHB. However, their main pain point is the volume of manual work resulting from the number of different cash pools they operate and the foreign currency hedges to optimise cash utilisation. Instead of focusing on the establishment of an IHB, which can be a complicated process that includes establishing a finance company and intercompany loan netting structures, they could start with establishing a notional cash pool or a global overlay.

Each of the centralisation phases can be linked to common tasks, pain points and potential solutions, which will accelerate the centralisation journey and bring tangible benefits to the treasury team.

At ING, we have had many discussions with our clients about the long and complicated centralisation process. There is a high chance the process will be delayed by M&A activity, leadership changes, supply chain hiccups, geopolitical tensions or other unforeseen events. There are many learnings that can be drawn from the experiences of companies that have also embarked on this journey. These include:

• Management focus and a C-level mandate has been referred to as one of the must-haves for success, especially when there are many cultural differences within an organisation. Often these go hand in hand with a resistance to change. Clear management involvement and the project team’s mandate will help to overcome these challenges.
• Essential for success is a clear roadmap, including milestone planning, that is signed off by all stakeholders involved (both internal and external). It is advisable to plan resources ahead of time and make sure departments such as legal, IT and treasury are aligned.

Armed with this best practice approach, there is no need to be overwhelmed by all the buzzwords that come with researching treasury centralisation. Moreover, ING is working with many forward-thinking corporates to help them plan their treasury digitalisation journey and pick the right strategy for the future. So, expert help is always at hand.