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When corporate Treasury emerges as a strategic business Partner… Or the golden Era of balance sheet Health!

How the CFO's evolving role creates a historical opportunity for corporate Treasury to come out of the shadow & partner with the business. More specifically, we look at why a healthy balance sheet is so important & how to achieve Cash excellence!

by Evelyne Legaux on 17-05-2023


Over the past few years, the office of the CFO has been going through a significant evolution from safeguarding & analysing a company’s past performance to strategically advising the CEO & other C-suite executives about the future direction of the business.

Unsurprisingly, what is applicable to the role of the CFO equally applies to the entire Finance organization, down to each individual function. This is particularly true of Business Finance or Operational Finance due to their inherent proximity & essential support mission to the business organization.

Such an evolution though is also increasingly true of the corporate Treasury function, if it is to remain efficient & effective. Beyond its traditional Cash flows & risk management role, Treasury is also emerging as an advisor & strategic partner of its own kind to the business.


Ways corporate Treasury can Partner with the business

A proven approach that corporate Treasury can take is to look for opportunities to serve the business in specific areas, by pushing the boundaries of its traditional role & competencies. Not an obvious exercise though, because corporate Treasury has so far often been perceived as an isolated island within the Finance ocean.

The good news however is that the volatile & fast-changing world we live in, keeps creating such opportunities therefore acting as a springboard for corporate Treasurers to come out of their bubble & engage with the wider business organization in mutually beneficial ways. This is more likely to happen where Treasury professionals – at least some of them - possess business acumen, an open mindset, outside-of-the-box thinking ability & cross-functional communication skills.


  • When the Covid-19 pandemic hit and Cash became King once again, Treasury professionals had a natural yet critical responsibility in further optimizing liquidity & risk mitigation to ensure business survival in the face of unpredictability. This does remain high on every company’s agenda today, due to ongoing macroeconomic challenges & geopolitical risks not seen in decades.

With soaring energy costs & inflation driving short term interest rates upwards, many corporate Treasurers have had to amend their company’s debt structure mix by reducing the short term portion in total debt, thus potentially driving a change in business strategy in favour of organic growth as opposed to external growth for instance, or else to adopt a defensive interest rates hedging strategy in favour of fixed rate instruments.

Agility & prudence are of the essence for corporate Treasury teams if they are to favourably impact & protect the business from excessive exposure to external risks.


  • In industries that sell to an extensive retail customer base, digital savvy Treasury professionals are best placed to identify & pursue economic opportunities that can benefit the business while enhancing customer satisfaction.

For instance, leveraging the capabilities of a billing & payment digital platform can eliminate the need for a lucrative third-party business sitting between the vendor & the retail customer. Such innovative ideas can lead to new sources of revenue generation, cost savings & smarter interactions with customers, and make a lot of economic sense for companies transacting across many countries in multiple currencies.


  • Where companies strategically drive customers & vendors to embrace sustainability and ESG compliance, corporate Treasury has a golden opportunity to act as a key partner supporting the business organization to achieve its goals.

The most obvious business case is where a customer (or indeed a vendor) is willing to progress in this direction however faces resource limitations such as an insufficient budget. Here, a space opens up for corporate Treasury to come up with a bespoke financing solution that will help the customer achieve its business goal whilst preserving Cash Flow, thus creating a win-win situation for both parties.

Going one step further, corporate Treasury can partner with banks to implement credit facilities or other types of financial instruments, whose T&Cs are directly linked to the company’s performance in achieving its (honest) sustainability goals.


Bottom line is where corporate Treasury teams are able to partner with Sales & Operations, they hugely benefit from it in return through a better understanding of the business & where the company is strategically headed, and through a more dynamic ability to prioritise tasks that support its needs.


Going back to their core role now, Treasury professionals understand only too well the importance & benefits of maintaining a liquid balance sheet vs other ways of using Cash. In actual facts, business performance appears highly correlated to balance sheet health.


The key Benefits of a Healthy balance sheet

From a short term viewpoint, the much needed shift from traditional P&L metrics such as revenue, operating margin or EBITDA to Net Working Capital, Cash Conversion Cycle or Liquidity ratio brings company’s strength & resilience in the spotlight, therefore helps business leaders prioritize actions & decisions that will safeguard its survival.

A solid balance sheet structure clearly has the power to protect a business against economic uncertainty, downturn or even crisis, no matter how good or poor the P&L performance might actually be.

From a long term viewpoint however, the same shift helps outline all of the levers impacting the performance of the capital employed in running the business, thus improve the returns that shareholders, bondholders or other lenders will get. As such, it helps ensure sustainable growth for the business & resources to transform the company’s operating model, should this be required to support its strategic vision.

For decades, most business initiatives were designed to drive favourable P&L impact, such as revenue growth, time to market or cost effectiveness.

Reality though is stubborn & has it that the foundation of a company’s strength resides in its balance sheet… According to Mc Kinsey & Co, improving the balance sheet actually has a stronger impact on a company’s performance & valuation than improving its earnings.

This is where corporate Treasury & Operational Finance together have a major card to play by looking for ways to release Cash trapped in the balance sheet to optimize the Cash Conversion Cycle, driving transformation & positioning itself as a strategic player.

Because Working Capital management (WCM) touches all parts of the business, good WCM drives good P&L… along with plenty more beneficial side-effects:

. lower Net Working Capital means increased capital efficiency (ROCE or ROIC),

. any released Cash immediately improves a company’s market value,

. any released Cash may also be used to clear debt & reduce leverage, which might in turn improve the remaining borrowing cost & interest coverage ratio, thus leading to better Credit ratings by external intelligence providers,

. a stronger Cash position provides more flexibility & acts as a shield that protects a company against adverse macro-economic & trading circumstances.


Best approach to achieving Cash excellence

To achieve a solid & healthy balance sheet structure, companies must look at Working Capital management holistically and develop a sustainable cross-functional strategy. This is no easy job but implies a multi-dimensional approach instead:

  • Build a strong Cash culture across the board

One myth to be killed straightaway here is that Cash performance is a matter for the Finance organization only. Nothing is further from the truth.

The past three years of disruptions & uncertainty have helped convince business executive leaders to invest in & dedicate resources to building a proper internal Cash culture. What this means is, because Working Capital touches all aspects of the business, every single functional group in the business organization must understand the impact of their own role & daily business decisions on the company’s Cash performance.

The essential role that Finance must play here is that of raising awareness, educating & providing meaningful insights into the company’s Cash performance to the rest of the business organization. In this role, Finance must be sponsored by a strong vision & commitment to success from the CEO & other C-Suite members, and supported by an adequate governance structure.


  • Master Change to transform effectively

The journey towards balance sheet health also requires a business organization to be flexible, agile & openminded as change will inevitably invite itself in, with new skills possibly required & business operational roles possibly needing to evolve.

The simple fact that the effort is cross-functional leads to putting down traditional organizational barriers, with various functional groups having to collaborate towards a common goal.

By itself, the joint-ownership of the company’s strategic Cash excellence goal is transformational in nature, therefore implies change to varying levels of depth. It is thus  essential for the company’s leadership to understand what change means on a human level, and develop a strategy that is designed to put people at the centre and effectively address any resistance by bringing them along the transformation journey & making them accountable for the outcome.


  • Identify & address Cash inefficiency drivers

Once the right vision, governance & strategy are in place, then it’s time to move into execution mode which starts by carrying out a health-check review of all business processes in place across the entire Cash Conversion Cycle, to identify any Cash inefficiency drivers.

This exercise then enables the joint-owners of the Cash excellence goal to bundle those inefficiency drivers into meaningful initiatives or projects, that will ultimately deliver sustainable improvements to Working Capital management by unlocking Cash trapped in areas of the balance sheet & optimizing related business processes.

Critical to each project is the ability to measure performance progress through insightful KPIs & a dashboard spanning across the three pillars of Working Capital.

The combination of business process efficiency & real-time reporting requirements may actually add an extra dimension to those Working Capital improvement initiatives, by triggering the need for a better system &/or new technology. This is particularly true of companies operating through multiple selling entities, across various countries & currencies and possibly with data spread across several ERP systems.

Where needed, corporate Treasury should lead the selection of a scalable & comprehensive WCM optimization solution that leverages process automation, AI & ML technologies and seamlessly integrates into ERP systems.


Final takeaways…

Corporate Treasury teams that go above & beyond their traditional areas of expertise, earn the right to become valued advisors & strategic partners to the wider business organization.

The ongoing evolution of the office of the CFO is a compelling driver for companies to elevate sustainable Cash performance to C-suite level topic & instil a strong Cash culture behind which the whole organization can rally.


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