Treasury Contrarian View: Inflation Hedging — Should Treasury Even Try?
Inflation is back in the headlines—and so is the pressure on treasury teams to protect company value. But here’s the provocative question: Should corporate treasury even try to hedge inflation? Or is it a costly distraction that’s outside treasury’s control and best left to pricing, procurement, and operations? The Case for Treasury Getting Involved in Inflation Hedging The Case Against Treasury Owning Inflation Hedging A Coordinated Approach Rather than owning inflation hedging outright, treasury teams can: Let’s Discuss We’ll feature perspectives from treasurers and risk experts—join the conversation and share your thoughts! COMMENTS Johann Isturiz Acev, Treasury Masterminds Board Member, comments: A shared model between Treasury and other internal areas look like most convenient. We see treasury sharing historical data and market products and procurement/commercial team finding a common sense to protect margin and avoid P&L swings. So, a case by case and country/market analysis have to be done in each transaction to measure the risk and impacts. Patrick Kunz, Treasury Masterminds Founder and Board Member, comments: The article makes inflation sound like a bad thing. Which it CAN be, rising costs or indirect adverse effects on exchange rates or interest rates. But it can also be good. IF you can increase your prices with inflation the companies revenue will increase, even if costs also increase as revenue should be the higher compared to cost so inflation makes this go up faster. When debt stays the same your relative debt position will decrease, without much effort. So much for a perfect world where you can 1on1 increase your prices with inflation, without unhappy clients. Can treasurers directly hedge inflation ? It is possible with slightly more complex derivatives. Will they be effective ? never 100% as the treasurer will never fully know its exact exposure on inflation. So do nothing? No, we can (and should) hedge the inflation proxies: interest rates and FX. We can much better determine the exposure on IR and FX. We therefore can decide on a risk appetite and how much to hedge (or not to hedge). I also like the inflation protection clauses, both on the procurement and the sales side. These can protect your COGS or your sales by limiting the inflation impact. Limiting, never fully mitigating. As with hedging where one party wins the other loses in these clauses. Fairness rules. But for these clauses treasury would not be in the lead but can act as advisor to the procurement and sales teams, if they are willing to listen. By all means challenge me on this views, would love a discussion on this topic. Also Read Join our Treasury Community Treasury Mastermind is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
Franklin
The Secret Treasurer writes… How we unlocked liquidity through digital tools (and why you should too)
This article is written by ETR Digital Like every corporate treasurer, one of my main jobs is to make sure there’s enough liquidity to keep the business running smoothly, support growth, and give us the financial flexibility we need. But that’s often easier said than done! Lately, I’ve been exploring some different tools for unlocking working capital. And with everything going on in the digital trade space, I figured I’d take a look at Digital Negotiable Instruments (DNIs). Because they can help speed up payments and receivables processes, unlocking significant amounts of liquidity and improving cash flow management. Wait, what are DNIs? Good question! And I only discovered them through a session at an industry conference, so you’re not alone in never having come across them. In a nutshell, DNIs are essentially the digital version of old-school paper trade instruments like bills of exchange and promissory notes. But instead of dealing with stacks of paperwork and slow manual processes, everything’s securely handled on a digital platform. So, it’s nothing totally new and risky, it’s an innovative way to approach an age-old challenge. In practice, DNIs mean faster, clearer transactions – and much less waiting around. Where paper-based instruments might take days or even weeks to settle, DNIs can be wrapped up in a fraction of the time. That’s a big win when you’re trying to unlock liquidity. How DNIs helped us release trapped cash Before using DNIs, we were facing a pretty common issue: too much working capital was tied up in slow trade cycles. We had payables and receivables stuck in the system, delaying access to cash we could’ve been using elsewhere in the business. I’m sure that feels like a familiar frustration. Then we decided to start using DNIs (it wasn’t a tough switch). And the difference was like night and day. Take our cross-border transactions. They used to be really paper-intensive, taking weeks to finalise payments and get funds moving. But with DNIs, we’ve cut down the processing time dramatically. That’s helped us speed up cash inflows and bring down our DSO. We also brought DNIs into our supplier financing programme. Again, easy to do. And it meant that suppliers got paid faster, we improved our own cash conversion cycle, and we could even extend our own payment terms without damaging supplier relationships. A win-win (yes, it might sound a bit clichéd but it’s true). Finding the hidden liquidity Those few switches have made all the difference already. And it was easy to know which working capital ‘levers’ to pull because I used the ICC’s free Cash Conversion Cycle Calculator – and it showed me exactly where our cash was getting stuck. So, I encourage you to check it out https://ic4dti.org/getting-started-ccc/ It’s super easy to use, anything you plug in is private, and it will give you a clear picture of where your working capital could be improved. For us, unsurprisingly, a lot of the inefficiencies were from outdated trade processes. But digitalising them has made a huge difference almost immediately. Seeing is believing If, like me, you’re a corporate treasurer looking to make your cash work harder, I can’t recommend DNIs enough. They’ve helped us streamline operations, reduce delays, and unlock liquidity that was previously gathering dust in slow-moving processes. They’re essentially just a better version of what was there before. Like upgrading from a landline phone (or carrier pigeon in some instances!) to the latest smartphone. And if you’re not sure where to start, give the ICC’s Cash Conversion Cycle Calculator a try. It’s a quick way to spot opportunities to improve your cash flow – and helps put you in control. Also Read Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below. Notice: JavaScript is required for this content.