world of the corporate treasurer is evolving.
In order to have in place controls for complex cash flows, methods for managing international operations, fluid forms of funding for growth, and methods for managing financial risks, treasury functions need to evolve how they manage day to day operations, and increase their ability to take a more strategic position within their firms.
The Evolving Role of Treasury thought leadership series, involving 3 x individual chapters released separately in the first instance, will feature a discussion on the following three themes, related to how treasury needs to evolve in order to keep up with the significant changes occurring in the firms they support.
Theme 1: Digitalisation is enabling the centralisation of global treasury operations
Globalisation is driving centralisation of treasury operations as f
irms are increasingly conducting international trade, and establishing overseas operations and subsidiaries.
Even the “smaller” firms are conducting business globally – for instance, 63% of firms with turnover between $0.5bn and $1.0bn operate in 11+ countries.
This creates a challenge for treasury to manage the different banking, tax and regulatory environments across countries.
Furthermore, the associated increase in cross-border payments creates issues for treasury to trace problem payments, predict cost of a transaction, and manage quality of remittance information.
Many treasury functions are therefore evolving to a more centralised operational model, with more standardisation, control and efficiency.
Through the automation of key processes such as the generation of purchase orders and invoices, digitalisation is transforming and streamlining businesses, especially in the area of trade finance. Through digitalisation, treasurers are empowered to improve working capital management and enhance liquidity and ultimately enables centralisation of operations.
Digitalisation facilitates faster document preparation and reduction of errors, shortening bank approval timelines. Digital trade finance effectively reduces FX risk by closing out currency exposures more quickly.
Because of the advent of technology and mobile devices, and a dynamic and growing global digital economy, digitalisation is quickly becoming inevitable for survival. This environment requires bringing the treasurer’s tools up-to-speed. Mobile banking, cash pooling and web platforms have the potential to streamline not just trade, but the whole value chain as they enable treasurers to handle larger volumes of activity across multiple geographies and jurisdictions.
This chapter will explore the practical considerations for treasury departments at different stages of the digitalisation and centralisation process – whether they are at the early stages, or are already highly digitalised and/or centralised and looking to optimise the benefits that digitalisation and centralisation offer; and what treasurers need to do to prepare for their changing role.
Theme 2: Changing attitudes to consumer ownership and behaviour create new payables and receivables approaches
The proliferation of digital solutions and the rise of eCommerce have fundamentally changed the way businesses thrive.
How consumers and businesses buy and consume products and services is changing, along with attitudes of ‘ownership’.
Many products and services traditionally ‘owned’ are now becoming services in various forms.
For example, moving from physical CD and DVD purchases to streaming services (e.g. Spotify and Netflix), from hardware purchases to cloud-based storage services (e.g. Amazon Web Services and Dropbox), from car ownership to personal transport services (e.g. Uber), from outright software licenses to subscription models (e.g. Adobe Creative Cloud, Microsoft 365).
For example, in the technology sector, the move from single payment or fixed-term licensing of software to flexible pay-as-you-go models reduces the long term clarity of consistent, predicable revenue streams, challenging traditional revenue forecasting models.
Subscription-based services often result in firms receiving a large volume of small value micro real-time payments that need to be reconciled and centralised immediately.
A quick, efficient and user-friendly payment method is usually required to complete sales and satisfy customers, increasing the pressure for treasurers to adapt to instant payments and the risks involved with managing this new flurry of activity.
These result in the need for treasury to keep apace with these new ways of selling and consuming products and services.
This chapter will explore how treasurers can develop their capability and capacity to support evolving consumption patterns and resulting business models.
Theme 3: Keeping up with and growing new business models require a joining of forces
The changes faced by treasury functions is resulting a new set of requirements that treasurers need to keep up with. This challenge cannot be dealt with alone.
Progress can be made through strong partnerships with both new and tried-and-tested providers. Through the arrival of PSD 2, there is an unprecedented wealth of opportunity to work with both the wider financial ecosystem.
In particular, the advancement of APIs has provided businesses with far easier access to banking systems and infrastructures. This in turn, enables corporates to create new and exciting propositions for their clients and to provide a better experience for the end user overall.
Collaboration among banks, third parties and businesses is needed to accommodate evolving business models, customer behaviours and expectations.
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This chapter will explore how treasurers can work with traditional and third-party financial and service providers to drive innovation and business growth, as well as increase treasury efficiency.
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