The role of the corporate treasury function has evolved since the financial crisis highlighted companies’ need to manage cash, liquidity, and risk.
Treasury teams are collaborating more with other business functions, increasingly taking on strategic roles, and using automation, offshoring, and treasury centres to consolidate and standardise tactical areas, according to research by Deloitte and PwC.
The expanded role poses challenges, Deloitte found whilst polling treasury teams of more than 100 large corporations from around the world. The increased emphasis on data analysis has made technology the backbone of effective treasury management, yet systems remain inadequate, and foreign currency exchange management and visibility into global operations remain difficult.
The five biggest strategic challenges that treasury teams participating in the poll faced were cash repatriation (50% of respondents); foreign currency exchange volatility (50%); inadequate treasury systems infrastructure (40%); poor visibility into global operations, cash, and financial risk exposures (40%); and liquidity (29%).
To address the challenges, “time and thought needs to be dedicated to providing clarity about roles, responsibilities, priorities, and how treasury interacts with the business in today’s more demanding environment,” Sebastian di Paola, PwC’s global corporate treasury leader, wrote in the introduction of the firm’s survey of 110 respondents from companies across the world.
“Equally, treasurers need the support of an adequate budget and need to integrate their own operating model with that of the wider finance function, and ultimately with the business,” di Paola added.
PwC offered five ways treasury teams can address the strategic challenges:
- Cash management strategy. Treasurers must work closely with their colleagues in tax and legal functions to understand and assess the impact of new regulations, such as the Organisation for Economic Co-operation and Development’s base-erosion and profit-shifting initiative. Also, if treasury owns the cash flow forecasting process, the function should have sufficient resources. To determine what needs have not been met, companies should ensure they make the best use of technology and inquire whether they would benefit from innovations such as in-house banks and payment factories.
- Funding strategies. Bank credit lines, companies’ most important funding strategies, may become more expensive once the Basel III international regulatory framework is fully operational and interest rates in developed markets start rising again. Treasurers should talk to credit rating agencies to better understand their modelling assumptions and assess options. Alternative funding sources may include supply-chain funding, private placements, and crowdfunding. But treasury shouldn’t neglect operational issues triggered by some of these options. For example, supply-chain finance and securitisation will place additional requirements on systems, processing, and data quality.
- Liquidity and risk. Treasury, which has increased its reporting responsibilities in past years, should look to improve reporting on non-traditional topics. For example, treasury could establish a framework to monitor operational risks arising from treasury activities and make full use of key performance indicators that are specific, measurable, achievable, relevant, and time-phased. SMART KPIs, as these indicators are called, are derived from and in sync with a company’s treasury policy and control framework and provide early warning signals for risks.
- Treasury automation. Technology investments made across the company can make treasury management and applications more effective. Automation promises straight-through processing and scalability of treasury processes, but it also places greater demands on IT security, validation, key controls, and monitoring and ties the treasury function more to IT support infrastructures.
- New regulations. Treasurers should assess early on how new banking regulations may impact their processes and advanced systems and the costs of financial products and services. Also, treasurers should talk to their treasury system vendors about their needs and their development programmes as early as possible.
Related CGMA Magazine content:
“Corporate Treasurers’ Strategic Role Growing”: Corporate treasurers are taking on increasingly strategic roles as organisations manage high cash reserves in the aftermath of the financial crisis.
“Cash Management Shift Boosts M&A”: Businesses worldwide are accumulating and spending more cash, mostly on mergers and acquisitions. The shift in corporate cash management is also raising new challenges, most of them strategic.
—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.