A New Practice Area Emerges for CFOs: Enterprisewide Liquidity Management
This article is written by Kyriba For CFOs, treasurers, and corporate boards, the COVID-19 pandemic represented a moment of clarity. Seemingly overnight, CFOs were faced with a crisis bigger in many ways than the 2008 financial crisis. In the space of days, treasurers had to shift from managing long-term strategic initiatives of the business to ensuring immediate access to cash to fund basic business operations. Corporate finance leaders long burdened by dwindling IT budgets and limited head count were forced to lean heavily on their treasury and cash management tools. Unfortunately, some treasurers were hampered greatly by their legacy software packages, thwarted by a lack of agility and visibility with their legacy software. Yet, as with all major events, CFOs are often the powerful catalyst for change. The role of the CFO was already changing, but now, because of the past year, the CFO’s environment has changed as well. Key Pain Points for Today’s Liquidity Management Teams To better understand these changes, IDC conducted a survey of more than 800 corporate finance leaders and practitioners in August 20211 to explore the emerging importance corporate finance leaders are assigning to liquidity management, both during times of crisis and to leverage opportunities for growth. The results of the survey were compelling in many aspects including findings that strongly indicate urgency for CFOs, treasurers, and other financial leaders to design and deploy strategic initiatives to manage liquidity holistically. Effective and efficient liquidity management is among the top priorities for survey respondents2. Here are a few reasons driving increased urgency for liquidity management for treasurers and other financial leaders: Liquidity Management Emerges as a Practice Area The events of 2020 have forced CFOs to prioritize business resiliency and continuity by optimizing liquidity management. This will mean a greater focus on working capital management3 including sourcing external funding and providing financing for critical suppliers efficiently. Given the current economic uncertainty, cash and liquidity management have been top of mind for financial leaders. The pressure to maintain liquidity is tremendous as companies of all sizes fight to retain market position and, in some cases, simply stay alive. As a result, businesses have found themselves needing to reforecast their liquidity and cash flow more frequently (weekly or even daily). However, this is a difficult proposition for any company considering the following survey data points, according to the IDC survey of more than 800 corporate finance leaders: In addition to being able to forecast and reforecast quickly and efficiently, financial leaders found that they desperately needed the ability to simulate future what-if scenarios and to create plans based on those what-if scenarios4. The benefit of this capability is that business leaders can remain in lockstep around core business objectives even as the business environment changes rapidly. Unfortunately, many financial leaders don’t have the tools to support scenario planning for liquidity, and as such, they must cope with limited visibility for decision making. The most prominent area of impact is in decision making for treasurers and their executive teams. CFOs with limited visibility are slower to make decisions regarding money movement, internal funding of projects, or M&A activity. Furthermore, a lack of visibility can even impact the bottom line, as companies may choose to be less aggressive in moving money into/out of the exchange markets and may opt for expensive external funding sources unnecessarily. Managing Liquidity Enterprisewide Requires Unification More and more, organizations are coming to the realization that liquidity management is not only a critical aspect of functioning in this “new normal” but also a team sport. Organizations must have a unified approach to all data, processes, and human capital related to liquidity management. Here are the key characteristics of an enterprisewide unified liquidity management process: Centralized liquidity and cash data The centralization of liquidity data streamlines financial operation, allowing for better control for financial leaders. Centralization provides financial leaders with the opportunity to standardize cash management across all legal entities, reduce the number of bank accounts in use, and provide a more holistic view of bank or FX exposures. Deep liquidity analytics Having access to deep analytics provides users with the ability to better predict future liquidity. More importantly, it allows them the chance to find patterns or overlooked items that have business significance (e.g., identifying cash as a revenue-generating asset and monitoring bank fees and deposit rates). Partnering environment Financial line-of-business professionals are often left on an island. This is often the case for finance directors, controllers, and heads of accounting. In fact, only 20% of survey respondents have their CEO as their champion who initiates unified liquidity management initiatives. The key to executive participation goes beyond simply getting the CEO involved in liquidity management decisions. The key here is to develop a partnering environment for all operational decision makers and stakeholders. This can be exceedingly difficult without the proper tools to support partnering and collaboration across business leaders. Dedicated tools to quickly expose key liquidity metrics to all stakeholders within the business are essential. Seamless integration Data must flow between all the relevant cash functions, including treasury, accounts payable, accounts receivable, FP&A, order management, and procurement. In addition, the data must flow outside of the finance teams as well including investors and lenders, certain government agencies, credit rating organizations, and evens to certain customers and suppliers7. Only then will financial leaders be able to gain a holistic view of the organization’s current cash/liquidity position. Real-time massive data Finance leaders need real-time information to optimize decision making, but often they must wait till the end of day/period/quarter to get an accurate and holistic view of the current state of enterprise liquidity. Today’s liquidity managers need real-time data to build accurate forecasts and market simulations. Real time is also essential in effective communication of the business cash position between stakeholders. Follow the Leader The process of managing treasury at the corporate level is complex and ever changing. In these cases, it is not unusual for CFOs and their treasury managers to reach out to gather advice from trusted sources. Leader companies,…
FranklinReviewing Treasury Best Practices for Bank Account Management in 2023-2024
This article is written by TIS What is Bank Account Management & Why is it Important? Within the context of corporate treasury, bank account management (often referred to as “BAM” or “eBAM” for electronic BAM) is one of the most fundamental responsibilities of modern practitioners. Bank account management refers traditionally to the strategic and operational processes involved in effectively overseeing and controlling a company’s bank accounts. It includes all functions related to opening, maintaining, and optimizing bank accounts to achieve financial efficiency, security, and compliance. It also covers the process of systematically managing the transactions and cash balances that flow through these accounts. As well as any data related to bank addresses, IBAN and routing numbers, the “signers” with approval rights over each account, and so on. Today, a significant portion of these tasks can be performed using a variety of software tools. They range from Excel and e-banking portals to ERPs, TMSs, and other Fintech solutions. We will explore the use of these solutions more in a later section. As it stands in 2023-2024, treasury professionals that oversee their company’s bank account management functions are typically responsible for the following operations: 1. Core Bank Account Management Tasks i. Developing an Account Structure When it comes to BAM, determining the appropriate number and types of accounts needed for different financial functions. Such as operational accounts, payroll accounts, tax accounts, and interest-bearing accounts. Perfecting this structure may also require Treasury to introduce in-house banks, cash pooling, and sweeping structures. ii. Tracking Open & Closed Accounts Managing open and closed bank accounts across the company globally is considered a standard bank account responsibility for the Treasury. In today’s fraud-laden environment, maintaining near-real-time visibility over account opening and closing activity is critical in order for treasury to maintain compliant, risk-free, and transparent bank account operations. iii. Managing Approved Signer Lists Tracking the approved “signers” with authority over each of the company’s bank accounts across each bank, country, entity, etc. is another standard component of BAM. This is another role that is vital for reducing the threat of fraud, especially as it relates to having duplicate signers on accounts (or forgetting to remove signers after they leave the company). Managing a clean signer list is also important for keeping up with various banking regulations that impact corporations, such as FBAR in the US. iv. Maintaining Updated & Accurate Account Data As a part of BAM, treasury will be expected to maintain organized and accurate data related to bank addresses, financial statements, account numbers, relationship managers, and routing information. This includes responsibility for updating these records over time as employee turnover, company growth, and bank relationships dictate. 2. Correlated Bank Account Management Tasks v. Bank Relationship Management One of treasury’s main responsibilities relative to BAM involves establishing and maintaining relationships with each of their company’s banking partners, negotiating the related terms and fees, and evaluating the quality of services provided. vi. Reporting on Bank Account Transactions & Cashflows As a function closely tied to their oversight of company bank accounts, treasury will be relied upon to monitor and report on the various payments, cash balances, fees, and general activity that occurs within each account over time. This includes the process of cash positioning and workflows for bank statement management. vii. Performing Bank Fee Analysis & Account Reconciliation While it can be tedious to undertake, the process of analyzing bank fees and service charges to identify opportunities for cost-savings can become a significant portion of treasury’s BAM responsibilities. Such projects are often necessary for ensuring the company’s accounting structure is as streamlined and optimized as possible. In addition, reconciling bank account statements with internal records to identify discrepancies, ensure accurate accounting, and detect potential fraud is an area of BAM that the Treasury will certainly have a stake in, typically in alignment with accounting. Why are Bank Account Management Roles Usually Entrusted to Treasury Teams? Over the past decade, industry data from the consulting firm Strategic Treasurer has consistently shown that the vast majority of treasury teams hold primary responsibility over bank account management operations at their respective companies. This is, of course, with the help of HR, legal, and other finance groups to perform various related tasks surrounding account compliance, reconciliations, and reporting. In large part, corporate treasurers are the ideal department to manage the company’s banking operations due to their unique blend of financial visibility, operational control, and risk management oversight. As the natural stewards of payments and liquidity and with a deep understanding of company cash flows, treasury professionals are perfectly positioned to analyze and allocate funds across various banks, manage the associated account structures and bank relationships, monitor account activity to identify fraud, maintain compliance, and report on balances and transactions. Because most Treasury teams are already working to foster strong banking relationships, negotiate favorable service terms, and stay abreast of regulatory changes that impact banking activities, their holistic perspective on the organization’s financial landscape enables them to naturally align bank account management with their other existing responsibilities. What Technologies are Typically Used by Treasury to Manage BAM & eBAM? For modern treasury teams, there are five main types of software solutions used to assist with bank account management. Depending on the stage of a company’s maturity, the size of their global footprint, and the complexity of their banking operations, a diverse mix of these different solution types may exist within any specific organization. Usually, it is Excel and banking portals that are used most prominently by small and mid-market companies, while larger and more complex companies use these tools in conjunction with more sophisticated ERPs, TMSs, or specialized BAM solutions. Let’s quickly review each of these five standard BAM software tools in more detail: 1. Microsoft Excel Microsoft Excel has held a prominent position in the corporate finance realm since it was first introduced in the 1980s and remains the go-to tool for many Treasury teams when it comes to tracking and managing bank account data. Despite a myriad of solutions developed…