Treasury departments are being challenged to raise their bar

21 November 2016 8 min. read
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Growing dynamics in financial markets, regulations, technology and banking infrastructure, as well as the demands of the 24/7 economy, are changing the face of the treasury landscape, forcing treasurers to raise the bar, finds a new report. In order to respond to the new challenges, treasurers are expected to add more value to the business, especially in the more strategic fields of their frontiers – a move which requires both an upgrade in operations and a shift in skills and mindset. 

For the third year in a row, consulting firm Enigma Consulting and Rabobank have joined forces to run a study into the state of the Dutch treasury market. About 60 experts were surveyed, of which the majority are active within multinationals, holding roles in treasury, finance and cash management.

The study, titled ‘Treasury Barometer 2016’, finds that treasurers, not surprisingly, spend most of their time on cash management (79%). The area forms the heart of an enterprise's liquidity management, and includes key financing activities such as collections, disbursements, investment and funding activities, as well as, in particular at corporates, trading in bonds, currencies or financial derivatives. Besides keeping all flows running and maximizing returns, optimising the cash position comes out on top as the main objective.

Cash optimization

Cash pooling (69%), working capital optimisation (52%) and cash concentration (47%) are cited by treasurers surveyed as the top three solutions used to optimise their cash. Compared to two years ago, the importance of data quality – leveraging the power of today’s analytical possibilities – and supply chain financing – an approach which has gained popularity – have moved up the ranks. Looking ahead these two areas are forecasted to remain at the forefront of treasury developments.

Big Data and supply chain financing, together with the use of virtual accounts, are regarded as the most important advancements that will have an impact on treasury departments. “Interesting is the ‘repeated’ high expectation of supply chain finance, especially considering the fact that supply chain finance has already been available for many years”, say Robert-Jan Wekking, Managing Partner at Enigma Consulting and author of the report. In the case of big data, Wekking says that the attention garnered mirrors the growing importance data management is receiving across industries and functions, with the value for treasury in particular lying in the ability to unlock value through turning information into intelligence.

After cash management come two other traditional activities of treasury departments: forecasting & planning (36%) and accounting & reporting (34%). These results are consistent with previous result of the studies conducted in 2015 and 2014, highlighting that the core business of treasury departments has remained relatively stable over the years.

Treasury time spending

Treasury time spent

There is however a gap visible between what treasurers would like to focus on and actual time spent. The respondents indicate that they would prefer to spend more time on financial risk management (17% versus 66%) and forecasting & planning (36% versus 60%). At the other side of the spectrum, they would like to cut the time they spend on cash management activities, by up to 50%. According to Wekking, this is in part due to the demand from executives to elevate support from treasury departments to more value added services. “The results show that treasurers continue to spend most of their time on operational treasury activities and therefore have less time for activities that actually deliver additional value to their company on a strategic level. Against a backdrop of growing business demands, this is causing some friction in treasury’s ranks.” 

The growing need to satisfy strategic requirements, both from boardrooms as well as from line management and project management teams, is also visible in the priorities earmarked by treasurers for the coming twelve months. Forecasting and planning (55%) and financial risk management (48%) – both activities serving tactical and strategic levels of decision-making – are cited as the most important focus areas during the upcoming year. Despite still being important, working capital management and (re)financing dropped in priority.

Strategic priorities for next year

Growing pressures and risk mitigation

Whilst attempting to move up the strategic ladder, treasurers are facing a range of growing pressures. Major macro event such as political instability and an increasingly unpredictable and volatile economy, but also financial events such as currency volatility and negative interest are unfolding – all have an impact on the balance sheets of companies. 

Similar to last year, currency risk/FX exposure (64%) and financing risk (48%) are regarded as the major treasury risks for companies to deal with. Although of less importance, the risks of political instability and overnight exposure have grown in importance, according to the polled treasurers. Asked for how they plan to mitigate risks looming around the corner, two thirds indicate that they will define and implement a treasury policy. 40% of the respondents cite creating a risk awareness culture and the establishment /extension of management & compliance programmes as levers to stay ahead of the game. In addition to these organisational and behavioural measures, a substantial part of the respondents also say they will put operational risk mitigating measures in place, applying the likes of credit management, perfect hedging and limit control.

“These developments are raising the expectations for treasury in terms of the insights they should give into cash and risk exposures, as well as the capability to be ‘in control’ to counter changing conditions”, says Wekking. “The dilemma they face turns around ‘more return’ versus ‘a willingness to accept risk’. This can only be done when corporate treasurers have the right risk culture and complete real time, transparency of data.” 

Risk mitigation

Treasury as a strategic advisor

Looking ahead, the treasurers highlight that, across the board, they aim at lifting their strategic value added to their stakeholders. As it stands, only 40% of the respondents (strongly) agrees with the statement that their treasury department acts as a strategic partner within their company. This is, on top of the changes highlighted above, in part spurred by the fact that the large majority of respondents (70%) believe that treasury will become more relevant to their company in the future.

The transition in positioning and towards delivery excellence is however not a straightforward one, says Wekking. Based on his years of experience in the field, the advisor states that the move requires a number of fundaments to be in place. Key is to ensure leadership buy in: “management boards should fully recognise the value of treasury, only then will the necessary attention be given and resources be freed up.” Another aspect lies in the skills and capabilities of talent. “To operate as a true business partner, professionals need to shift their way of working and mindset from inside-out to outside-in. It also demands for another set of skills, such as advisory capacities and a strong communication skills”, Wekking remarks.

Treasury team size - Relevance of treasury within organization

A third element lies in the marketing side of operations. Treasury departments may in fact be delivering “great value”, these however too often remain out of sight of decision-makers. “Treasury commonly struggles with communicating its added value effectively within the organisation.” A shift in thinking and an approach that more often recognises major achievements, including communication to those involved, could benefit external exposure, he adds. Treasurers seem to have noted this point: virtually all participants agree with the statement that strong communication skills are essential for a treasurer to be effective and successful.

Wekking: “The dynamics are challenging the treasurer to provide new and enhanced ways of adding value to the business. Consequently, the role of the treasurer is evolving. Previously, the treasurer was highly involved in manual tasks in order to collect basic data as input for his daily activities. Nowadays, the treasurer has become a strategic advisor, supported by automated and integrated processes.”

This all will have to be delivered against a backdrop of growing challenges and more scrutiny of efficiency. Recent years have shown that treasurers are expected to “do more with less”, says Wekking, with the results of this year’s survey showing that most respondents do not expect to be able to expand the size of their treasury team in the years to come.