Kobus Venter explains that centralised treasury tech helps CFOs keep a handle on liquidity, cash flow and risk.
The Covid-19 pandemic has brought about unprecedented liquidity challenges for many companies and their CFOs. It’s no wonder, considering all the disruptions they are up against now: lockdowns, breaks in the supply chain, staffing challenges, transport issues, credit constraints, lowered consumer confidence, changing consumer behaviour, foreign exchange and treasury challenges.
It’s been a tough time for CFOs. Before the pandemic – and the rapid digitisation and fintech acceleration it sparked – CFOs and their finance counterparts might have been able to get away with reforecasting their company’s liquidity and cash flow on a weekly or even monthly basis. Now, especially due to the disruptive political events of the past month and other challenges, many industries need more regular, even daily financial oversight of all the parts of their operations.
Challenges and solutions amidst complexity
A recent online poll by Deloitte UK revealed that most finance executives felt that cash flow and liquidity management was now either their top challenge (13.8 percent) or among their top challenges (54 percent). I am seeing this reality playing out in the local business environment as well.
So how do successful finance executives keep a handle on liquidity, cash flow and financial risk in these tumultuous times? I believe one of their best secret weapons is centralised treasury technology. If you’ve ever worked with a good Treasury Management Solution (TMS) you’ll know what a game-changer it is, especially if you oversee the finances of a very complex business with subsidiaries, an international footprint and different cost centres, in a volatile environment that changes every day.
In case you’re wondering, TMS systems use software applications, robots and APIs to perform or control treasury processes such as retrieving cash balances, sending confirmations, performing revaluations, interfacing with banks, interfacing with business systems and more. They take over mundane processes, speed things up, and minimise human error. It’s the way of the future in treasury management, for sure.
I believe all modern organisations that want to guard their competitive edge will be managing their liquidity in real-time, with a complete and unobstructed view of their entire group’s business, to achieve real, accurate and global cash forecasting.
It's just so important to have a truly unobstructed and accurate group-wide overview. If you have a real-time, cloud-based TMS, your entire corporate group can track debt, investment, account balances, credit lines and intercompany activity.
The real-time management imperative
I believe treasury management technology is becoming an imperative for finance managers, because it enables the mitigation of risk across large operations, in-house banking, scalability of operations, cash flow transparency across subsidiaries, real-time integrated liquidity management and better oversight in terms of global payments. Real-time is the name of the game.
Risk
Treasurers need to continuously collect, analyse and act upon data to protect against currency risk, interest rate volatility and other exposures. This requires a deep and in-depth knowledge of the financial transactions within an organisation and across its subsidiaries in the group, and access to the appropriate mathematical models to predict the potential for future issues. It’s also important to have software that is flexible, customisable and tailored for the complexities of the local market.
In-house banking
Technology can help you effectively link the departments within your company, opening up communication lines between divisions and, in essence, creating an in-house bank. It also gives you unrestricted control of corporate cash benefits, from cash pooling to the simplification of account structures, as well as effective hedging and funding. In-house banking also streamlines the entire treasury management process by allowing departments to initiate and capture requests to the central treasury directly within the system and can facilitate intercompany trade management in a way that protects sensitive intercompany trade data.
Scalability
With TMS you can integrate new group companies, and local subsidiaries can easily be routed through the central treasury to limit required bank accounts and forex risk, and to streamline trades. You need to be able to grow your business and its finance oversight functions at the same time.
Integrated cash flow management
All intercompany cash flows ideally need to be integrated into one central platform, assimilating with your in-house bank and debiting or crediting subsidiaries on their respective in-house bank accounts, so that you can fully automate settlement processes. Your goal should really be to create cash flow transparency across all subsidiaries, to implement group-wide, mobile and real-time financial statuses of all members of your corporate group, and to pool your cash and centralise your forex hedges, to limit exposures.
Liquidity management
What you really want to do is reconcile actual account transactions daily with forecasts for the future to pre-empt and manage fluctuations in cash flow – to create a controlled environment that is more easily auditable. You want to be in a position where you have improved transparency and control over corporate liquidity, with group-wide visibility, regardless of the number of bank relationships and subsidiary structures. Real-time financial status reporting across the group is a game-changer for transparency.
Global payments
In today’s increasingly digitised, globally connected world, organisations need to be able to process single and bulk payments in multiple formats, be they domestic, cross-border, multi-bank, multi-country, or multi-currency payments. Communication via SWIFT is therefore also important.
Other important considerations
I also believe any good TMS should allow you to do third party trading platform integrations, for instance with Bloomberg or Reuters news, and offer you up-to-the-minute market data. It should provide next generation payment gateways too, as well as assistance with risk modelling and regulatory compliance. Then of course, in this new post-pandemic world, which is creating a rapidly booming payments ecosystem and all the increased fraud that comes with it, cybersecurity is incredibly important.
Lastly, few people realise that the management of all these functions can be outsourced to a partner with the expertise to handle every aspect of the system. This is another big trend in the world of treasury management. This entire industry is evolving rapidly to make CFOs’ lives easier – it’s already worlds apart from how things were 10 years ago.
Ultimately, advances in this technology – coupled with the rise of more experts who are adept at managing this technology – enables treasurers to spend less time on managing the data and processes and to have more time to focus on better risk management and decision-making. The future of work in treasury management is opening up possibilities and transforming the entire global treasury landscape to protect it against future shocks.
Because Covid-19 won’t be the last major disruption in our lifetime, and CFOs need to embrace technology to be ready for any seismic events in the future.
