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The future of treasury: first it’s the questions, stupid. Here are the questions

I once had the privilege of 10 minutes alone with Peter Drucker, probably one of the clearest thinkers about business ever. Taking the opportunity in both hands, I asked him about a particular business problem I was struggling with. He kept on asking, but what is the question? He patiently got me to refine the question again and again, until it was clear and sensible. Then he said, “Now you’ll be able to see the solution.” And, of course, he was right - the answer was obvious. 

First come the questions, particularly when looking at the future of any industry, and then the key actions. This is what latest PwC Global Treasury Survey covers: the key questions and actions in the future of treasury.

PwC Global Treasury Survey 

PwC’s 2014 survey ‘Treasury shown in a new light’ interviewed 110 corporate treasury departments across the world in the June to September 2014 period. This year’s survey highlights how the treasury function is changing, and the pressing questions that this raises for organisational structure, treasury reporting and systems, oversight and control. In each of the areas they listed ‘What you need to think about’. (N.B. All the questions and lists below are Source & Copyright©2014 - PwC.)

How treasury is evolving

PwC, “Senior executives are asking more and more of their treasurers: treasurers can meet the challenge, but not without the financial support that gives them the resources they need. Treasurers must clearly articulate – and quantify – the business case for change.” Here PwC suggest that what you need to think about is:

  • CFOs must decide on the treasury structure. Who is in overall control of treasury processes throughout the organisation? How the treasury function should interact with the wider finance function and the business.
  • What is the appropriate target operating model for your treasury and how does it deviate from today’s?
  • How to manage the treasury transformation:
  • Is treasury adequately staffed to meet the growing responsibility and demand?
  • Is the treasury professional’s tool box kept up-to-date? Do they receive appropriate training?
  • Is there central oversight of treasury processes?
  • Are processes consistently applied?
  • Is treasury reporting consistent across the organisation?
  • Is treasury supported by adequate treasury technology?
  • Is the treasury budget sufficient?

Cash remains king

The main development in managing cash were summarised, then the ‘What you need to think about’ list included:

  • Do Treasury and Tax understand and assess the impact of BEPS on treasury operations, including existing cash management and funding structures?
  • What’s the true benefit of getting the cashflow forecasting right?
  • Who owns the cashflow forecasting process?
  • If the answer is treasury, does it have the resources it needs?
  • Is the organisation making the best use of technology in cashflow forecasting and cash management?
  • Could you benefit from innovations such as in-house banks and payment factories?

Funding: beyond banks

PwC highlighted the change in funding options and the funding gap that many corporates are encountering. The issues that PwC suggest corporate treasury departments need to think about are:

  • Talk to the credit ratings agencies to better understand your position and their modelling assumptions for your oganisation (when applicable)
  • Discuss with banks the options available to you
  • Explore alternative sources and methods of funding, such as supply chain funding, private placements and crowd funding
  • Focus on unlocking trapped cash from operations (working capital management), working closely with tax and legal
  • Don’t neglect operational issues triggered by alternative funding. For example, supply chain finance and securitisation will place additional requirements on your systems, processing and data quality.

Focus on reporting

PwC write that “The increased focus on liquidity and risk by senior executives and external stakeholders that began during the financial crisis has resulted in a far stronger demand for treasury reporting.” and end this section with this ’What you need to think about’ list:

  • Clarify who’s responsible for what in treasury processes – reporting flows from that decision
  • Focus on the quality of reporting and establish a framework to monitor operational risk
  • Make full use of SMART KPIs
  • Use measures that reflect the transaction – benchmarking is essential now banks are pricing on transaction; less so when relationships were important
  • Broaden your reporting framework to provide focus to operational risks arising from your treasury activities.

Treasury automation becomes the norm

“Effective treasury operation depends on comprehensive, accurate and timely information – and that means excellent systems.” in the section where they focus on a key issue the move to integrating technology to enable straight through processing. PwC’s ‘what to think about’ list was:

  • Treasury can also benefit from investments made in IT across the organisation – are investment strategies aligned to exploit the maximum advantage?
  • Can you make TMS part of your IT ecosystem?
  • Have you got internal audit systems (data protection, key controls, change management)?

Future regulations

PwC are concerned about the corporate treasurers fear of the impact of new regulations and how this will affect them, and whether they will be able to cope. What you need to think about includes:

  • Look ahead at your likely future compliance needs
  • Start looking at your systems options early
  • Talk to your treasury system vendor about your needs and their development program, as early as possible.

This report is essential reading as it contains so much more than the ‘What to think about’ lists. Download a copy of the PwC Global Treasury Survey 2014 here.

CTMfile take: This annual survey report is the most useful we have seen. It provides clear insight into the future of corporate treasury, and lists the vital questions and actions. Corporate treasurers here is your ‘to do’ list for 2015. Bas, Nick and the team at PwC are to be congratulated.

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This item appears in the following sections:
Cash & Liquidity Management
Global Cash & Liquidity Management
Best Practices & Benchmarking
Treasury Technology
General Treasury Systems
Working Capital Management
Inventory Cycle in WCM
Order-to-Cash Cycle in WCM
Procure-to-Pay Cycle in WCM
Total Working Capital