A guide accompanying the ACT International Treasury Peer Review
The evolution of treasury departments has been occurring for years and has become more critical than ever with the ongoing challenges presented to them. The need for real-time access to cash flow information is integral to making key capital, liquidity and funding decisions to support the development of their business operations, yet there are other factors, such as regulatory, policy and governmental, that also play a role.
Below are some key highlights from the first Association of Corporate Treasurers (ACT) International Treasury Peer Review, which pulled survey responses from more than 200 corporations globally.
Recommendations on how to build a “world-class” treasury department:
- Visibility and Connectivity: Treasurers should utilize their technology to the utmost capability to provide key information throughout the entire organization in a timely and efficient manner while empowering partnerships.
- Shared Service Centre Space: Duplication of efforts would be eliminated, providing the organization with a centralized way to execute key information, policy and technology to support treasury activities expeditiously. In addition, departments can streamline bank relationships, monitor fees and consolidate payments more effectively.
- Interconnection: Treasury needs to have open lines of communication with both internal and external stakeholders to help meet operational requirements and focus on key performance indicators (KPIs). According to the guide, aligning goals, systems and processes with internal departments leads to high performing operations across the enterprise.
Considerations in selecting the ideal Treasury Management System (TMS) solution:
- Software as a Service (SaaS) or an on-premises solution: SaaS offers more flexibility and reliability with remote and hybrid working environments along with lowering capital expenditures by the reduction of resource and maintenance costs. In addition, SaaS has the ability to upgrade systems seamlessly. On the other hand, compliance issues, software integration, and data security may be some of the downfalls for this platform. The on-premises systems may offer an easier integration with ERPs, but they may not be flexible for dynamic working environments.
- TMS modules can address businesses’ current process challenges below according to ACT to assist in treasury/TMS decisions:
- Multiple bank relationships or accounts
- Lack of cash visibility
- Multiple ERP systems and different versions with a need to standardize
- Trading platforms without proper integrations
- International growth
- Outdated treasury technology or no existing system
- Decentralized and non-standard payment workflows and controls
- Debt and investments tracked manually in Excel
- Lack of visibility of FX exposures
- New regulation and compliance requirements
- Need for a risk management program
- Corporate Engagement Program: Creating a system structure design to provide a clear roadmap for the entire company. With this design, treasurers can identify any third-party dependencies along with the scope and functions of the TMS. By carrying out a documented implementation process, the enterprise will be able to recognize changes and run the departments more efficiently.
The relationship between technology and treasury:
- Technology support: TMSs support treasurers in managing large volumes of transactions and data. In addition, integration with other applications and systems (such as SWIFT and ERPs) has been critical for their success. The systems have provided treasurers with more time to focus on business strategies and ways to mitigate risks, as technology supports in daily operating functions.
- Data communication with external clients: According to the ACT guide, “Technology further allows control of execution to monitor and stop algorithmic trading (Algos) in progress and provide transparency to the pricing achieved on each tranche, which allows for the granular analysis of the execution cost.”
- Back-office operations improved: The ability for electronic payments to be made directly from TMS or ERP systems, providing a secure and timely settlement and reducing risk of errors and manual interventions.
- Intraday Statements: Treasurers are able to review balances during the day to maximize revenues, drawdown on loans, enhance interest outcomes by having access to key end-of-day, intraday statements and forecasted data.
- In-house bank: The integration between TMS and ERP systems enables the frequent settlement of high-volume intercompany invoices (both cashless and physical netting). This ultimately assists in the daily management of FX exposures. In addition, treasurers can have the ability to manage future forecast FX and interest rate risk by pulling forecast data into their TMS. Treasury will be able to make valuations and assessments to meet accounting standards while minimizing the P&L and cashflow risk to a company.
- Treasury team and IT: As technology continues to evolve (e.g., APIs, SWIFT gpi tracking), it is critical for treasury units to stay connected with information technology partners.
In this digital world, it has not been an easy task for treasurers to unlock leading practices with the enormous amount of data presented. It is key for treasurers to obtain real-time cash information across the entire value chain to be able to manage KPIs and minimize any disruptions in operations. In addition, the treasury, finance, and procurements departments need to collaborate and share pertinent information with other parts of the business to assist in forecasts and plans. It is also critical that the quality of data is effective and reliable to all parts of the treasury function.
The ACT guide provided the following key questions corporates should consider in analysing their data operations:
- As an organization, are we working in a transparent, collaborative way to ensure all data is available for the treasury function?
- Are my treasury processes and technologies up to speed with the new real-time world?
- Is my data of sufficient quality to provide effective, reliable insights?
- Am I able to aggregate and visualize unstructured data to improve my analysis?
As 2021 begins to wind down from a variety of obstacles faced (high inflation, high interest rates, supply chain backlogs, increasing oil and energy prices, evolution of tax policies, ongoing threat of economic shutdowns), treasurers must look ahead to the outlook of 2022:
- Treasury departments need access and visibility to data and information flows to make capital, liquidity and funding decisions to support operations and business development.
- Treasury must also develop long-term financing plans that address the underlying factors of economic and market volatility that may affect a company's health exclusively or collectively.
- The use of technology to develop strategic financing plans, such as advanced forecasting capabilities.
- Create an analytical framework for identifying opportunities. For example, a finance person can use a functional analysis process using the right technology to generate a business intelligence base of possible market scenarios, which in turn can be used to inform strategic business decisions.
- The use of technology for sustainable processes. Assessing today's balance sheets and how they evolve over time requires a comprehensive modelling process that generates profit and loss cash flows based on realistic business assumptions (scenario analysis to inform business leaders of opportunities and risks posed by market volatility).
- Technology controls. According to ACT, data should be automatically validated, and all assumptions and scenarios must be consistently evaluated and recalibrated to match the current profile of the company and market conditions.
Treasurers are the central focal point to manage funding and investing in business transactions utilizing key technology and data in the most efficient way.
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