An exploration of what Treasurers can do to stay ahead of the curve and underlying success factors
by Evelyne Legaux on 17-10-2023
This article looks at some of the latest developments in the world of corporate Treasury. More specifically, we dive into what those professionals can do in the face of macro-economic volatility, geopolitical tensions & fast-paced change, to stay ahead of the curve.
For many businesses, being able to navigate the current global trading environment is actually nothing less than the difference between success & failure. So, let’s have a look at how corporate Treasury can play a key role in weathering those headwinds.
Global inflation, a trigger of heightened financial risks & more…
Over the past two years, inflation has been and is still affecting businesses in various ways: revenues, costs, rising interest rates or volatile FX rates therefore profitability & exposure to risks.
Central banks & governments around the world are currently walking a fine line between:
In such a macro-economic environment, to protect the running of their (global) operations, it is critical for companies to focus on optimizing operational efficiency & risk mitigation. As a consequence, businesses are forced to look at how effective & sustainable their Working Capital management strategy actually is.
And the more proactive their approach is in this regard, the better…
To respond to ongoing inflationary pressures however, cross-functional collaboration within the business organisation is a MUST, as it is a condition to ensuring that every opportunity to improve Working Capital is genuinely understood & leveraged.
So, the closer they are to the business organisation & operations across the entire Cash Conversion Cycle, the better understanding Treasury professionals gain and the more likely they become to uncover risk areas & find creative ways to mitigate same.
The importance of Cash forecasting
The current levels of economic unpredictability also create a compelling driver for companies to thoroughly look at their short term financial stability, hence a widespread renewed focus on Cash forecasting.
The combination of direct & indirect Cash forecasting methodologies enables companies to have a clearer view of both their future Cash flows & positions. Being proactive in this exercise & increasing the frequency of Cash forecasting on the backdrop of high inflation once again, come strongly recommended.
Doing so naturally leads companies to leverage scenario planning as a critical tool that enables them to assess the impact of various inflation rates on their operations, Working Capital performance & ultimately liquidity position. The ability to forecast Cash Flow several months in advance is essential as it allows companies to minimise the risk of business disruption, obtain the financing needed to support their growth/expansion or else gain clarity over any investment opportunities, therefore make informed business decisions.
But for this to happen, here again the importance of cross-functional collaboration & communication should not be understated.
It is indeed paramount that the wider business organisation understands the impact of their daily decisions on the company’s Working Capital & Cash flows, along with that of potentially varying inflation rates. Corporate Treasury therefore has a key educational role to play here, and must clearly communicate their expectations in relation to Cash impact.
Navigating inflation is a complex process that requires agility, forward-thinking & innovative problem-solving skills by Treasury teams. Developing a sustainable Work Capital management plan is of the essence here, while tactical measures such as playing with vendor or customer terms, that could have a damaging disruptive effect on the entire supply chain, are to be avoided at all costs…
This is where the importance of embracing new technology comes in…
Technology, a key enabler for Treasurers to think strategically
Truth is Treasury teams increasingly need the support of smart technology to enhance Cash forecasting accuracy & Cash positions visibility, improve process efficiency by automating transactions such as journal entry bookings, or else help identify FX & interest rate exposures & opportunities. Beyond basic productivity gains & the elimination of errors though, technology is key for teams to come up with smart hedging strategies that will boost Cash Flow &/or save costs, while freeing up time for business value-add activities.
The benefits of new technology are actually tremendous for globally operating companies where Treasury professionals must typically deal with exposures in an array of foreign currencies, across a multitude of countries & legal entities.
Technological capabilities such as cross-ledger aggregation, automated transaction processing & smart communication with banks or other financial institutions, are a key enabler for Treasury teams to elevate their mastery of risk mitigation techniques, and favourably impact the P&L and support business growth, as a result.
Let alone, that new technology allows the sharing of data & insights, therefore precisely supports the much-needed collaboration across the various functional teams involved throughout the entire Cash Conversion Cycle.
But wait, there is more to it!
Where new technology adoption, merely digitalization, is engrained in the overall business strategy of a company, not just the CFO’s organization, Treasury teams actually have a fantastic opportunity to step out of their comfort zone, shine & influence the business.
An example of this would be where a company’s operating model heavily relies on online purchases & payments by customers. Here Treasury has a key role to play in delivering the right solution, thus supporting the business while enhancing customer satisfaction.
Technology though cannot do it all alone…
The founding values of Treasury management success
As technology keeps evolving, so do customer needs. With AI, ML & data analytics being increasingly integrated into Treasury management solutions, teams need to be curious, agile, adaptable & innovative.
For those Treasury teams to genuinely flourish & unleash their potential, it is essential that leaders demonstrate strong support by fostering a growth mindset, a culture of innovation, progressive values & continuous learning opportunities within their organization.
Such a work environment is paramount nowadays to keeping employees engaged & motivated.
Ultimately, success comes from a team’s ability to not just navigate a challenging environment while keeping abreast of ever-changing regulatory & compliancy requirements, but most importantly to turn it into new possibilities that create business value.
Today’s world continues to provide innovative & forward-thinking Treasury teams with unprecedented opportunities to come out of the shadows, and become strategic partners to the business organization, in the best interest of growth & success.
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