2010 in Review: Mounting Challenges for Treasurers

Publication: gtnews.com

This year has seen treasurers face challenges on several fronts. This review of 2010 examines industry trends and reveals the top 10 most read topics on gtnews this year. 

Looking back at 2010, it is fair to say that, thankfully, it has been less tumultuous than the couple of preceding years. This was the year that many economies around the world emerged from recession and, while not exactly sprinting into growth, the widely predicted doubledip recession has failed to materialise. So far, so good? 

Perhaps not - looking beneath the surface, there are clearly still many structural cracks in the global economy that could derail future stability. In Europe, the sovereign debt crisis threatens to catch up with many more countries in 2011, while the euro itself is under the most intense pressure of its short history. How long will German taxpayers be content to lead the bailout of other nations? 

In the US, the Dodd-Frank Act became law, creating huge changes for both banks and corporates in their accounting and reporting processes, while ‘QE2’ showed a marked difference in approach to deficit management compared with most European countries. Even China, seen by many in the west as the saviour of the global economy, has been struggling with a number of economic issues of its own. Under fire from the US and Asian neighbours for manipulating the value of the renminbi (RMB), the spectre of inflation also looms large in China. 

With considerations such as these, the role of the treasurer is not getting any easier. The rise in profile of the treasury department over the course of the credit crisis has been well documented, but in many cases this has not been matched by a similar rise in resources. So in a situation of having to do more with less, what have been the topics that gtnews subscribers have been reading the most this year?

Cash Management Concerns to the Fore 

Perhaps unsurprisingly, cash management issues dominate the ‘most read’ list for 2010. But within this broad umbrella description, a number of issues emerge, including cashflow forecasting, cash management systems and the centralisation of cash management processes. 

Forecasting 

Looking at cashflow forecasting, the gtnews Treasury Insider’s blog on the topic had the rather provocative title “Cash Forecasting: Is It Really Worth It?” In the post, the gtnews Treasury Insider explains that, while they don’t need convincing of the importance of cashflow forecasting, there are a couple of major challenges they face in their organisation: 

1. I need to encourage the subsidiaries to get into the habit of forecasting regularly, by which I mean once per week, with updates when necessary. 
2. I need to improve the accuracy of these forecasts. I am keenly aware that the nature of our business dictates the frequency required for forecasting. 

The Treasury Insider sees the issue for their company as being an internal personnel issue rather than a system issue. And the blog post gained a large response from the gtnews readers. Selected reader comments include: 

• “I can only support the absolute MUST of cashflow forecasting and also the need to have a at least three months outlook especially when you have to plan out your short-term financing needs, like we are having to do in my company.” 
• “We went from a loose two-week forecast model in 2008 to a very rigidly enforced 13 week model in early 2009 in response to the economic crisis. The outcome played a large part in ensuring that our company avoided any breach of financial limits or covenants - its simply that important.” 
• “Regarding your issue no 1, the best way to solve this is from the top down. Your CFO [chief financial officer] needs to be behind you. Anything less than that will get short-term attention.” 
• “Better cash forecasting will not occur until the link between profitability and liquidity is measured more precisely, and those involved are rewarded for meeting their goals.” 
• “... treasury needs to take the lead not only by owning the cashflow forecast process, but by clearly articulating the benefits across the organisation.” 
• “Technology also helps complete the information loop by quickly communicating back forecasting effectiveness at a level of detail that is actually useful to the remote user.” 

Clearly the optimum forecasting rate - daily, weekly or monthly - varies from company to company, and there were different views on this from the readers who commented. Common themes surrounded the importance of getting senior management onboard with the forecasting process, and also educating business units as to the importance of accurate and timely cashflow reports. To get a successful cashflow forecasting project off the ground, treasurers need to be adept at communicating the benefits to all invested parties. 

A centralised approach to cash management 

In their article that looks at centralising the cash management function, Diejana van der Wal and Heijmert Rijken from Rabobank acknowledge the role that cashflow forecasting can play as part of a centralisation programme. Integrated with cash pooling, it can be an important tool for improving cash management as it lets the treasurer have visibility of their company’s cash, no matter which country or currency the account is held in. 

In terms of pooling, one example of this helping to centralise liquidity management that is given is this article is the end-of-day sweep. This process makes it possible to transfer balances from local accounts to one central account or to centrally maintained accounts in the name of the local subsidiaries. It is also possible to automatically move the balances back to local subsidiaries, while profiting from the advantages of a central interest pool. 

Van der Wal and Rijken explain that this allows the treasurer to have better control over their cash, while they can also view it as a corporate asset within the organisation. 

System choices 

The most read piece of content on gtnews in 2010 was an article from Joergen Jensen at Nasarius, who provided a guide to cash management systems in Europe. In the article, Jensen examines a variety of areas related to cash management systems, such as the type of vendors (banks, enterprise resource planning (ERP) providers and specialist vendors), what you should look for in a system to suit your organisation, and how to approach the selection process. Jensen also takes a look at some of the specific offerings from the different types of vendors that are available, and offers some advice as to which types of systems may better suit which types of organisations. 

This year, gtnews also published a buyers guide to treasury management systems (TMS), providing a comprehensive report on the various issues that treasurers face when selecting and operating a TMS, featuring interviews and case studies from a variety of treasury professionals and a TMS matrix comparing the functionality of a large range of systems. You can download the TMS buyer's guide free of charge. 

SWIFT Success? 

Articles related to SWIFT take up two of the top four places in the most read chart on gtnews this year, demonstrating the demand for information that exists when it comes to the role that SWIFT can play in making corporate bank communication more efficient and secure. The content with most relevance to corporates in this list is Debunking the SWIFT Myth, written by Joy Macknight and published in July this year. In this feature, Macknight asked the question why, despite the benefits that SWIFTNet offered corporates by providing a single, standardised and secure channel, had not a greater number signed up to use the service? It certainly seems that preconceptions about the accessibility of the SWIFT network had played a role in the slow take-up, with many corporates questioning whether they have the volume of payment information necessary to justify the cost of gaining SWIFT connectivity. 

To combat this perception, SWIFT has launched a variety of different connection methods for corporates - from plugging in a USB stick to gain off-the-shelf connectivity through Alliance Lite, through to outsourcing connectivity to a SWIFT service bureau (SSB). The additional services that SWIFT is now looking to offer as part of an overall package is also helping to gain traction, through innovations such as: 

• Exceptions and investigations. 
• Trade finance. 
• Secure e-mail. 
• SWIFT Secure Signature Key (3SKey). 
• Electronic bank account management (eBAM). 
• Electronic invoicing (e-invoicing). 

As Marilyn Spearing, global head of trade finance and cash management corporates, Deutsche Bank, and chair of SWIFT’s Corporate Access Group, says in the feature: “Everybody is talking about electronic bank account management and e-invoicing - in other words really expanding what can be done through the same channel.” While SWIFT connectivity is still not going to be high on the agenda for some corporates, these value-added offerings look likely to give a welcome boost to SWIFT’s corporate numbers. 

To compare and contrast a selection of the SSBs available for corporates, download the buyer’s guide to SWIFT service bureaus that gtnews published this year. 

Evolution of corporate payments 

But there was a lot more going on in the world of corporate payments during 2010 than just debate over SWIFT. An article from Nigel McCook of Edgar Dunn & Company discusses the possibilities for future trends in payment systems. Analysing survey results, the article focusses on understanding the importance, both today and in the future, of individual payment products, as well as the key industry events that are expected to shape the payments markets over the coming five years. Some of the key findings discussed include: 

• Credit cards were the payment product given the highest rating in terms of current importance, followed by domestic debit cards. 
• Respondents from Asia gave comparatively higher ratings of importance to cash, mobile SMS, remote payments and remittance. 
• The top four payment products, in terms of their expected growth in importance over the next five years, are: 

1. Contactless cards. 
2. Mobile SMS/remote payments. 
3. Prepaid cards. 
4. Mobile NFC. 

These were among the payment topics under discussion at this year’s Sibos conference in Amsterdam. Following the past couple of years of battering this conference has taken - both from the Lehman Brothers’ collapse in 2008 and typhoon Koppu in 2009 - this year saw delegates and exhibitors alike emerge from their emergency shelters and hit the conference ready to do business and network. You can find full gtnews coverage of the conference here, including both the Corporate Blog and Banking Blog and a wealth of video interviews with perspectives from a number of industry experts. 

Risk Management Issues Rise 

One of the more blatant legacies of the credit crisis has been the rise of risk management and mitigation that treasurers are responsible for. A glaring example of this is the fact that corporates now actively need to carry out counterparty risk analysis of their banking partners - something completely at odds with the ‘one global bank’ policy that many corporates were actively pursuing when credit was both plentiful and affordable. 

A key area of risk management this year has been foreign exchange (FX) - from currency volatility in Europe and South America to concerns over ‘currency wars’ in Asia, corporate treasurers have had to be increasingly mindful of their FX exposures. As such, it is no surprise to find the article from SunGard’s Ryan Heaslip in the top 10 content list. Entitled Cost-effective Foreign Exchange Risk Management, the article looks at steps corporates can take to ensure they have an efficient FX risk management strategy in place. Some questions Heaslip suggests treasurers start by asking include: 

• Are you currently able to gather a complete dataset of exposures?
• Is exposure information provided in a timely, detailed and accurate manner? 
• Is there an operational focus on reducing exposure? 
• Are risk factors used to rank exposures? 
• Is there a strategy that prioritises the types of risk to hedge (e.g. balance sheet, short-term forecast, long-term forecast)? 
• What type of derivative strategies will be used to hedge, after operational considerations? 

The topic of FX risk management was also high on the agenda at the inaugural Global Corporate Treasurers Forum Europe that gtnews hosted at the Grosvenor House Hotel in London in June. The event is an annual independent forum bringing together European corporate treasurers to meet face-to-face, listen to leading speakers and network with industry peers in a high level and exclusive environment. 

Discussion at one session of the forum turned specifically to the transaction risk element of FX risk - where the risk of value changes depending on where the transaction is. Some transaction exposure is not shown in the profit and loss (P&L) because it has not yet been recognised, or the contract is anticipated rather than committed to. A couple of the questions raised at the forum referred to a) whether transaction exposure should be hedged; and b) if it was hedged, whose responsibility within the organisational structure was this? 

One group treasurer explained that their company had decided not to hedge its transaction exposure as they would have had to involve all of its investors, which would have added complexity. It has an impact on reporting - the company would have had to have shown like-forlike figures, and they wanted to protect this information. The factors involved in weighing up whether or not to hedge this risk requires a full evaluation by corporates. 

If you are a treasurer or group treasurer, and would like to find out more about the Global Corporate Treasurers Forum Europe and register your interest in attending the 2011 forum at the Ritz Hotel in Paris, click here. 

Growth in Supply Chain Finance 

Another area of interest to corporates that received a ‘boost’ from the credit crisis is supply chain finance (SCF). The contraction of available credit in the market led to an increased need for bank financing. With a dearth of liquidity solutions available, SCF solutions gained a much greater global popularity. Picking up this trend, Alexander Mutter from Deutsche Bank examined what the future may hold for SCF offerings in his article that rounds out our top 10 for 2010. 

Mutter sees the growth of SCF leading to more diversified and bespoke solutions emerging, driven by banks. He uses the example of a supplier portfolio where there are large, mid-sized and smaller enterprises involved. “Today, a similar supply chain finance solution will be offered to all of them. In the future, the offering to the individual supplier will be customised according to their balance sheet objective, based on the need analysis of this portfolio and risk policies, as well as financial needs,” suggests Mutter. By taking this approach, the SCF offering will be more flexible and tailored to suit the individual customer profile. 

Responding to the growth in popularity of SCF as a topic among corporate treasurers, this year gtnews has worked with Enrico Camerinelli, a senior analyst at Aite Group and SCF expert, to publish a monthly blog on key SCF issues. Topics covered in 2010 include the return on investment in SCF, the importance of sustainable supply chains and the need for an industry standard taxonomy in SCF. You can find every blog post on the topic here. 

Looking Ahead 

2010 proved that, while the role of the treasurer has grown in stature, the demands this places on the treasurer are fierce and come in many forms. The economic world can still be paranoid and reactionary in the aftermath of the credit crisis and, as many corporates stockpile cash, perhaps some treasurers could be accused of fuelling the fire in this regard. It seems that this year has answered a number of questions - regarding global recession and the credit crisis - but thrown up several more challenges. 

Despite this, there are excellent examples of corporate treasury departments and individual treasurers demonstrating best practice across the myriad different disciplines mentioned above. We were lucky enough to witness this first-hand at gtnews in 2010 through the quality and quantity of entries we received for our first annual Global Corporate Treasury Awards, which was this year held in Amsterdam alongside the Sibos Corporate Forum. As you can see from the winning projects, teams and treasurers, innovation is alive and well in treasury departments around the world. 

Coming up on 4 January in our first upload of 2011, we’ll be publishing a series of articles offering perspectives and predictions for the year ahead and mulling over the challenges that are likely to come the way of the treasurer. Until then, best wishes for the holidays from everyone here at gtnews.

Making the Business Case for a New TMS

Publication: gtnews Buyer's Guide to Treasury Management Systems 2010

‘Expense management’ and ‘corporate streamlining’ are two phrases that have stalked the corridors of treasury departments around the world since the credit crisis hit. Against this backdrop, Ben Poole examines how treasurers can make the business case for a new TMS. 

While the recent financial crisis did much to elevate the role of the treasurer, it also resulted in widespread cost cutting and expense control in the corporate world. The new financial environment has seen treasurers taking on greater responsibility and a larger work portfolio, while finding that their resources – in terms of budget and staff - have been frozen or reduced. Against this environment, all spending will be thoroughly scrutinized and treasurers may find themselves in for a challenging time when trying to justify new purchases, particularly for something as comprehensive and expensive as a treasury management system (TMS). How can treasurers address this challenge, and what are the main business points that can support a treasurer when pitching to senior management and IT purchasing managers?

Where is the Cash?

Cash flow is the main cause of financial risk within a business, so it is vital that treasury has an accurate, timely and transparent view of the company’s cash position. This needs to cover areas such as accounts payable (A/P) and accounts receivable (A/R), between treasury centres in different countries and the various foreign exchange (FX) exposures that these generate, as well as across banking relationships, covering account fees, interest rates, etc. As TMS can seamlessly integrate a variety of areas of treasury activity, from electronic dealing (e-dealing) to reporting, confirmation matching to cash forecasting, they can provide an accurate view of enterprise-wide cash flows to help effectively manage the liquidity and improve investment returns. In addition, the transparency allows treasurers to compare lending rates between different banks and move away from expensive borrowing.

But getting control over cash visibility is not simply a case of plugging in a TMS and finding that all your treasury worries are over. Quite often, the implementation of a new TMS goes hand-in-hand with a restructuring of the treasury function along more centralised lines as treasurers follow an ongoing quest for efficiency. If you want to streamline the way that you process your A/P and A/R, the chances are that a centralised approach to treasury management is the best way to achieve this and then gain the benefits of cash visibility already mentioned. A centralised approach, together with a TMS, helps strip out the ‘dead wood’ from many processes, and instead puts the focus on a treasury management structure that receives automated updates from the various business units and banking relationships, rather than trying to collect disparate data on myriad spreadsheets. In turn, the enhanced quality of data will benefit overall cash and liquidity management, while merger and acquisition (M&A)-related integration will be simplified against this backdrop.

Senior management, including those as high as board level, have been particularly keen on timely and accurate cash and liquidity information since the credit crisis first struck. These parts of the business have since been educating themselves on every nuance of liquidity management, corporate financial compliance issues and banking relationships, and require real-time information on these topics at a moment’s notice. Companies that were operating largely decentralised organisational structures, especially if the majority of treasury work was being conducted manually on spreadsheets, will have been particularly hardpressed to provide the relevant information quickly and accurately. By contrast, a centrally-managed treasury with a TMS is ideally positioned to provide this information.

Rise of Risk Management 

The variety and depth of risks that treasurers have to manage today is far in excess of that which existed before the credit crisis. Large corporates can find that they don’t have an overall view of risk, which can lead to risks being missed or mismanaged. A good TMS will provide a wide range of functionality to help treasures measure and manage financial risk. In addition to providing monitoring capabilities for limits, TMS can also provide scenarios analysis and modelling capabilities to model the effects of cash flows and guide risk management decisions. A treasury that relies on spreadsheets will have no way of finding out its real-time cash positions, and indeed this is also not always an option with enterprise resource planning (ERP) systems.

Take counterparty risk as an example. Before the credit crisis, it is fair to say that, for many companies, the scope of their counterparty risk measurement began and ended with the ups and downs of their derivative portfolio against counterparties. Today, corporates are looking to add their balance position, credit facilities and bank exposure to this mix, highlighting how just one risk has escalated postcredit crisis. In this area, a TMS can assist the treasurer by allowing them easily to set the risk parameters in line with their counterparty risk policy, as well as producing customised reports to that effect.

As is clear from the first two topics in this article, visibility over a corporate’s cash position and the management of financial risk are intrinsically linked. The constantly shifting sands of a corporate’s cash position across the organisation need to tracked accurately and in real time in order for a treasury department to maximise the company’s liquidity and ensure best practice in risk mitigation. Today, TMS offer enhanced functionality in areas such as bank account administration and treasury reporting, in addition to corporate connectivity to SWIFT, as a way successfully managing these two large challenges. This is not something that a treasury operating largely on spreadsheets will be able to get a handle on. While spreadsheets can be a cheap and available short-term solution, these corporates will be potentially missing crucial risk exposures and losing money through poor cash management. The business case for a TMS here is clear.

Maximising Banking Relationships

TMS can help corporates to integrate with financial services providers’ systems, enabling them to have realtime access to data from banks. For example, banks have invested in up-to-the-minute balance reporting capabilities that a TMS can give you access to. In the payment hub space, payments and cash movements can be tracked through the TMS, just as you’d track a package on a courier’s website. It can also help in better managing the fees and aggressively managing compensation.

The possibility of integrating electronic bank account management (eBAM) with a TMS is intriguing at this point. This is surely the next logical step for both of these two products, enabling a treasurer to centrally manage cash flows and risk across the organisation, while simultaneously having the ability to open, move and close bank accounts, for example. TMS vendors will have to keep up to speed with the standardised message types that SWIFT are developing in their eBAM programme, but this is a concern that they should be able to address easily, leaving corporates with a powerful bank relationship tool as part of their integrated TMS.

Information Reporting 

When it comes to information reporting, TMS can offer a number of advantages for corporates. One of the main challenges that treasurers face when using spreadsheets or ERP systems for this function is the lack of real time information available in areas such as payables and receivables. A welldeployed TMS can provide right data to the right people at the right time to improve control, decision making and reducing expenses. Banks have portals that are capable of directly sending the reporting information that corporates need directly to their system in a seamless manner. ERP systems can do this integration, but TMS tend to be more versatile and flexible because of their specific focus on treasury processes.

The benefit of having this real-time view is that the treasurer has greater freedom to make key decisions over whether they should look at investing or borrowing, safe in the knowledge that they have up-to-date and accurate information. In addition, as this process is automated, it reduces the workload on an already-stressed treasury department.

Enhanced Efficiency

As with any system, the automation that a TMS brings can improve efficiency and productivity by removing manual processes and improving accuracy. In a situation where you have multiple users in multiple areas of the company, a TMS can define workflows, meaning that the right people have the right access to the right information. This identity and access management (IAM) role lets the system do the work for the treasurer once the entitlements have been set up and the workflow established.

This also adds a very important level of security to treasury operations. Spreadsheets by their very nature are insecure and open to abuse. With a TMS, access to all data can be set by treasury and access privileges managed depending on whether staff move departments or leave the company. This should drastically reduce the prospect of data theft or manipulation. In addition, the TMS can provide a ‘paper trail’, detailing which user has accessed or input which data at which time, which can be vital for internal auditing purposes.

An end-to-end TMS can replace multiple spreadsheets that rely on the manual keying in of data, and therefore removes the prospect of human error that exists here. In addition, this frees up treasury staff from having to deal with timeconsuming and repetitive data entry, and they can instead focus on the role of treasury analyst and become more productive this way.

Conclusion 

TMS offer clear business benefits over the use of spreadsheets and some ERP modules in a number of areas. They allow visibility over a company’s cash position, leading to more accurate cash forecasting and the liquidity and working capital advantages this permits. In addition, the variety and depth of financial risks that corporates face in the postcredit crisis world are far easier to make sense of and manage through the use of a TMS than other options. When it comes to interacting with banking partners, a TMS can enable corporates to get real-time account information at the click of a button. They are also able to provide a wide array of reporting information when called upon.

And last, but not least, the efficiency that a TMS can bring to a treasury department cuts across several areas - by removing manual input, the system reduces the potential for human error, allows a small treasury team to achieve an exponentially large amount of accurate work, and provides for a security of data that can help treasurers sleep at night. In terms of making the business case to senior management or IT purchasers, these points should help to make a positive impact.

In addition to these points, the treasurer has additional resources available that they can draw on when putting together the business case for a TMS. Get close to the business, understand why business units operate in the way they do, and have a two-way, open conversation about how a TMS can improve financial management across the organisation. Not only will this help build the business case, but it will also be invaluable when it comes to choosing the best fit TMS for your company.

Advice on how to put together the business case can also be sought from your main relationship banks. After all many of the main banks have TMS offerings of their own in some shape or form. By speaking to your main bank, you can hopefully get valuable advice to help in building a solid business case.