Navigating Financial Flux: CFOs Perspective on Strategic Treasury Management
This article is written by Kyriba While corporations have enjoyed an unprecedented financial boom for years, the recent volatility in global markets is an indicator of changing times that could bring sharply rising interest rates and the end of cheap money. The recent demise of Silicon Valley Bank is a wake-up call to the purpose of capital and liquidity requirements and the importance of strategic treasury management. In addition to macroeconomic developments, there are other significant changes afoot. Technology is transforming the way we live and work, with ChatGPT passing 100 million users in just two months and becoming a social media phenomenon. To gain maximum agility in this complex environment, CFOs need to transform their finance operations. One of the best places to embark on that transformation is in the area of Treasury Management, which delivers a low-risk, high-yield value proposition for driving automation, improving working capital, and mitigating risk. Strengthening Treasury’s Role as a Business Enabler “At the highest level,” explains Douglas Bettinger, executive vice president and chief financial officer of Lam Research, “treasury’s role is to optimize cash generation in a way that maximizes the value of the company.” In a large enterprise, executive leadership thinks a great deal about the balance sheet, while line-of-business managers focus more on profit and loss (P&L). “I plug my treasury people into areas of the business that need more attention on cash generation.” In this way, treasury can sensibly use the balance sheet in ways that enable new, profitable business activity. There are many ways Bettinger’s treasury team contributes value to the company beyond routine block-and-tackle treasury functions: As a global enterprise, it is important to hedge against currency fluctuations. This not only helps deliver on P&L but also delivers the cash flow that must come from different parts of the business. “We hedge different balance sheet exposures and revenue streams in different currencies,” Bettinger says. “Treasury is in a unique position to manage that.” Nobody else in the company focuses on the currencymanagement piece.” Bettinger’s company creates hedge ladders, where they look out four, three, two and one quarter, with different exposures hedged in each quarter. Another valuable treasury function involves taking advantage of the balance sheet to enable business that might not otherwise occur. For instance, it may be possible to set up a leasing arrangement for a customer that does not have access to capital it needs to purchase equipment. “We use our balance sheet in a prudent way to protect the asset and at the same time accrue new business,” explains Bettinger. “My treasury people are uniquely positioned to make those risk tradeoffs for the corporation.” Managing the cash conversion cycle is another valuable treasury function that includes managing collections so that money comes in as quickly as possible while stretching out payables. Optimizing cash conversion is a balancing act that ties closely to inventory management, which involves setting targets and objectives for cash consuming inventory and making decisions about where to place that inventory. “How you balance the debt-to-equity ratio and optimize the capital structure of the balance sheet affects your ability to fund different activities in the business,” Bettinger says. Treasury is the Value Center of the Enterprise Cash management in an airline business is challenging for many reasons, especially for an international company. Unpredictable weather events, volatile fuel prices and the challenge of operating with many currencies can significantly impact revenue, cash and profitability. Marina Chase, CFO (Ag.) of Caribbean Airlines, says that treasury has experienced big changes in recent years. “It’s still cash management,” she says, “but treasury has moved away from the traditional operational functions. It is no longer back office.” In Chase’s organization, modern treasury-management tools have helped treasury become both a knowledge center and a risk-management center for the business. With treasury serving as a knowledge center, all divisions turn to treasury for real-time information related to operational activities. For example, this can include real-time information that’s needed for payments, and providing information about different laws and restrictions that affect transactions in different countries. Treasury also provides information to support strategic decisions, such as evaluating the cash flow and profitability of current and potential new routes. Because there are so many variables that can seriously impact the business, risk management is a critical treasury function. “We are able to manage risks, especially around currency exchange,” explains Chase. “These are not risks limited just to interest rates. We also have to deal with repatriation risk. The efficiency of cash flow and managing cash have a lot to do with getting your money in real time. Because of laws and restrictions in different countries like Venezuela and Cuba, there are different ways that we have to comply with regulations in order to access our working capital.” Treasury has become a value center in the enterprise. “We track working capital, and not just working capital, but also the value of working capital,” says Chase. “An important part of this is predictive analytics, which is more than transformational. It supercharges treasury’s efforts.” Chase sees several key indicators of treasury’s success, including having adequate cash available for all operations, and preserving capital while maximizing the return on the investment portfolio. But there are other measures. “We must track trends and market dynamics that can impact the business, such as anything that might impact fuel prices, which you need to measure daily because this directly impacts cash flow,” she says. As CFO, Chase appreciates the global perspective and predictive capabilities provided by the treasury management system. “Predictive analysis and forecasting allow better scenario planning,” she says. “That’s critical because you can plan your cash-flow scenario based on changes in the price of oil, or on revenue going up or down in a particular region because of holidays, or fluctuations due to political situations that would impact revenues.” Chase sees the possibility of leveraging treasury even further by linking to ERP systems, adding business intelligence tools, and linking the treasury system to the corporate reporting system. Expand Your View of Treasury…
FranklinComparing solutions: payment hubs vs. banking portals
This article is written by Nomentia Every company needs to make payments, either through banking portals or payment technologies. In this article, we’ll compare what it’s like to manage payments through bank portals versus in a payment hub. We’ll also elaborate on the pain points of using traditional corporate e-banking tools and the key benefits and features of using payment hubs. Lastly, we provide some guidance on selecting a solution that suits your company’s needs. What is a payment hub? A payment hub is centralized software that consolidates company-wide payments by gathering data from multiple payment initiating systems, such as ERP, banks, treasury, accounting, or financial systems. It streamlines payment procedures, enabling transactions across various banks and channels from one platform. This centralization enhances efficiency, reduces manual errors, improves visibility and control over financial operations, and ultimately optimizes cash management while reducing costs associated with manual work. How do online banking portals work for payments? Companies pay their bills through banking portals by setting up transfers from within the bank account, similar to wiring money in retail banking. In corporate banking, it usually starts with an invoice, salary payment or other form of credit that someone in the finance or accounting team verifies. Then, a person responsible for payables logs in to the company’s online banking portals and sets up a transaction that corresponds with this data. Typically, companies need to log in to several banks to minimize the risk of having only cash in one account at one bank. Yet, this also means that cash is divided over various bank accounts. Hence, payables need to be made from various banks, each requiring a separate login. This process can become very time-consuming with numerous banks, and it is also more challenging to see how much cash is available for payments since cash is spread over various accounts without central visibility. What is the difference between a payment hub and an online banking tool? A payment hub is offered by a specialized payments provider that has build a technology that can be used by companies for company-wide payments across all banks from a single place. In contrast, online banking portals are offered by banks and are essentially just a way to manage bank accounts, payments, and all other associated administration that comes with corporate accounts. The most common pain points without a payment hub There are several pain points associated with setups that do not include a payment hub, especially when companies start growing in size with an increasing number of payments from various bank accounts. These are some of the most common ones that our customers have faced before implementing a hub: 1. Difficulties having centralized cash insights When cash balances are scattered over various bank accounts, it is incredibly difficult to say what the company’s current cash positions are, although this can be of great strategic importance. On top of that, it is difficult to track in and outflows when this data is distributed. 2. Processing payments is time-consuming Another challenge that finance, treasury, or accounting teams face with online banking portals is that all payments must be made manually and individually in each portal, which is incredibly time-consuming with tens, hundreds, or thousands of daily payments. 3. Dependent on banking credentials As your team expands, managing users will become increasingly complex, as banking portals often require various tokens to log in. Unfortunately, these tokens are usually still physical devices, so you’re highly dependent on always bringing them with you. Suppose you need to access 10 bank accounts you may need 10 different tokens, and when traveling around, or even just between home and the office, that can be quite inconvenient. 4. High risk of fraud and errors Manual payments via banking portals are prone to errors since every transaction requires manual data entries. Erroneous payments have dire consequences for company finances. Fraudulent payments are also much harder to identify since you need to review all payments manually to see if there are any potential anomalies. 5. No security checks or other process controls Whenever you make payments from a banking portal, you miss some critical steps that payment hubs can offer automatically. Or, if done manually, it becomes very time-consuming. These steps include security checks in payment processes to tackle fraud, prevent errors, enhance matching, or screen against sanctions—something that programmed computers can do easily and much more efficiently. 6. Challenges in keeping up with a high number of payments As mentioned before, the more payments you need to execute through different banking portals, the more time you spend on doing so. Sometimes, this means that it’s challenging to keep up with the number of payments. Rather than tackling the issue by hiring more people, it is very common to get automated payment technology that can easily help you streamline processes. 7. Almost no integration possibilities Banks themselves offer very limited integration possibilities with financial, accounting or ERP systems, therefore processes cannot be automated properly. Yet, these same systems contain crucial information for finance, accounting, and treasury teams’ payment operations. Ideally, they are fully integrated with banks to provide a central source of truth. While this is partially possible through building bank connections with banks, this requires a lot of work from your team and several IT specialists. A dedicated technology that handles everything is therefore a lot easier to manage. The benefits of using a payment hub Companies can benefit in multiple ways from using a payment hub, some of the most mentioned benefits include: One of the primary reasons for acquiring a payment hub is its ability to centralize all payment files, irrespective of the banks or source systems that are involved. It connects to all your bank accounts via the most appropriate connectivity protocols, enabling you to execute payments centrally and access all relevant cash flow data from the same system. This gives you better control over your finances and helps you streamline your payment processes. Automating and centralizing payment processes can help you save…