Written by: Victoria Albovias, Executive Director, Corporate Treasury Consulting, Commercial Banking, J.P. Morgan
While growth opportunities abound for corporations today, treasury operations often remain small and lack the infrastructure to support growth. By taking an in-depth assessment of your treasury’s current state, you can define and implement a strategy for treasury transformation.
Treasury organizations today face considerable challenges to support their respective businesses efficiently while retaining appropriate levels of control. In the face of a dynamic market, constant expansion and new technologies, treasurers must continually assess how well their current structures can support the company in the long term. Treasurers should think about critical components that may not be working as efficiently as they could—and what resources are needed to reach effective and scalable treasury operations. There are three main areas that treasurers should assess for opportunities to improve: cash visibility, efficiency and automation, and control and risk management.
Access and Visibility to Your Cash
Central to treasury’s role in an organization is ensuring transparency and access to the company’s available liquidity. A primary challenge for treasury teams is collecting balance information from different sources of data and efficiently deploying cash across the company. A thorough survey of entities, accounts and cash holdings domestically and internationally is the first step in understanding the efficacy of your liquidity management structures. Some questions to consider include:
- Where are your banks located and who holds your cash?
- Who in the company has authority over the accounts?
- How does treasury access the account data and available cash in these accounts?
- How quickly is treasury able to determine a cash position domestically or globally?
- How and where can you deploy excess cash efficiently?
Treasury teams are constantly looking for ways to streamline their accounts and banking partnerships as a first step to improving liquidity controls. Managing many accounts with numerous banking partners can be taxing and time-intensive, so assessing existing account structures upfront can help you manage cash more efficiently in the long run. At the same time, treasury can also look for new technology in the market—through banks and software vendors—that can help facilitate data aggregation and analysis. These efforts can help treasurers centralize their liquidity and realize greater access to real-time data—better positioning them to make smarter decisions for their treasury organization.
Efficiency and Automation
While accounts receivable (A/R) and accounts payable (A/P) are not always within the control of the treasury team, both will be impacted by any strategies the team develops. Efficiency within the order-to-cash and procure-to-pay processes can increase working capital availability, thus driving greater collaboration among the three functions. Treasury’s role as the bank relationship manager provides access to resources that can streamline and even transform how the A/R and A/P teams operate. Some questions to consider internally include:
- Are there collections channels and payment types that drive inconsistent or exception processes?
- Are vendors paid via optimal channels and pay types to reduce manual, paper-based efforts?
- Is the data exchange between the company and banking partners optimized to minimize exceptions?
- Are tools available to our partners to help them improve their working capital metrics?
- How does the company’s technology infrastructure help or hurt these processes?
The opportunities here will typically be uncovered through a deep dive with the A/R and A/P teams, leading to a better understanding of where there are manual processes or delays that impact their day-to-day efforts. It’s also critical to gain insight and support from other partners, such as those in information technology, whose own strategy and capabilities can impact these efforts.
Control and Risk Management
In a connected global economy, treasury must take steps to ensure protection from outside threats while at the same time maintaining control of cash and investments. One area treasury must control is counterparty risk, including credit, default, settlement and country risk. From a control perspective, counterparty risk exists across a number of paradigms:
- Who is holding your cash?
- How quickly can you access your cash when needed?
- In the event of a market shakeup, is there a regular review process in place?
Beyond these concerns, the threat of cyberattacks has been increasing rapidly over the years. Millions of dollars are lost each year due to corporate fraud and cybersecurity breaches and, as the holders of cash, treasurers are key stakeholders in this fight. Treasurers are increasingly partnering with IT and other arms of the organization to build safeguards directly into workflows, update and standardize policies and procedures, and educate employees on risks.
Now, more than ever, it’s incumbent upon treasury to be able to identify its challenges and drive toward a structure that is best suited to support its business. New market solutions and technology have created more opportunities to improve visibility, efficiency and controls, and treasury is primed to take advantage of these. A disciplined and thorough review of your current structure is the first step toward making change happen.
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