Centralised Treasury Explained
This article is written by Kantox In turbulent times, it is more difficult to achieve higher risk mitigation, control, and visibility over cash. This has been a driver for centralisation in recent years and, as CFOs and treasurers seek to gain an accurate view of the cash held by their organisations, we have seen the topic of centralised treasury picking up interest. In this blog post, we’ll dive into what centralised treasury entails, explore its benefits, shed light on the importance of centralised foreign exchange (FX), and discuss why businesses need centralised FX along with its implementation. Understanding the main goal of Treasury The primary objective of treasury management is to plan, organise, and control cash to meet the future financial goals of the organisation. Treasurers manage risk by applying risk transfer and hedging techniques that comply with the company’s internal policies – in many cases supported by a treasury management system (TMS) and other tools, such as spreadsheets and other treasury technology. The popularity of in-house banks has been on the rise during the last decade. Pioneering treasurers have been using an in-house bank for years to centralise payments, collections, and loans as well as optimise liquidity and risk management. As the in-house bank is a proven concept that can be adopted at the own pace of an organisation, group treasurers are starting to show increasing interest in in-house bank software solutions. What is Centralised Treasury? Centralised treasury is a financial management approach where a company consolidates its treasury functions into a single, strategic hub. This central hub manages various financial aspects, including cash management, risk management, and liquidity, bringing together disparate treasury activities under one umbrella. A centralised Treasury model offers the advantage of consolidated control, standardised processes, and enhanced efficiency across borders. Benefits of Treasury Centralisation 1. Ease of Use Centralising treasury functions simplifies daily operations. Companies reduce redundancies and streamline their financial workflows by consolidating tasks like cash management and payment processing. This simplicity translates to improved efficiency and reduced operational costs. 2. Centralised Control With treasury activities housed in a centralised system, businesses gain better control over their financial operations. This centralised control ensures adherence to policies and enhances risk management by enforcing standardized processes across the organization. 3. Better Forecasting Accurate forecasting is crucial for effective financial planning. Centralised treasury provides a consolidated view of financial data, facilitating more accurate predictions of cash flows, liquidity needs, and potential risks. This foresight empowers businesses to make informed decisions and adapt proactively to market changes. 4. Full Visibility of Exposure Centralised treasury offers a comprehensive view of a company’s financial exposure. This visibility allows businesses to identify and mitigate risks associated with currency fluctuations, interest rates, and other market variables. A clear understanding of exposure positions a company to make strategic decisions that protect its financial health. Why Do You Need Centralised FX? When organisations are looking for a way to improve cash flow processes, cash visibility, and reduce bank fees, the in-house bank can be a great alternative compared to their subsidiaries working with countless banks internationally. Let’s understand why: 1. Mitigating Risks Centralising foreign exchange (FX) activities is paramount for risk mitigation. Fluctuations in currency values can significantly impact a company’s financial health. By centralising FX operations, businesses can implement hedging strategies more effectively, shielding themselves from currency risk. 2. Efficiency in Execution A centralised FX approach streamlines the execution of currency transactions. Through a unified platform, companies can achieve better rates, reduce transaction costs, and improve overall efficiency in managing international payments and receipts. 3. Enhanced Decision-Making Centralised FX provides decision-makers with real-time insights into currency positions and market trends. This enables proactive decision-making, allowing businesses to shield themselves from unexpected adverse economic events and minimise the impact of unfavourable forward points. Implementing Centralised FX With the understanding of why centralised FX is essential, the next step is implementing it seamlessly into your financial strategy. Here are key considerations: In Conclusion Large multinational companies that move towards centralisation of decision-making will reduce the risk in the system because it pools resources and allows for the coordination of actions. When it comes to foreign exchange, centralisation can become a strategic move to optimise visibility, efficiency, and 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 to get more information. Notice: JavaScript is required for this content.
Franklin
Pricing Supply Chain Finance
This article is a contribution from our content partner, PrimeTrade There is quite some debate on best practice when it comes to pricing the discount that suppliers might be offered for early payments on their invoices. We have developed a framework that companies can use to decide how to approach the pricing of early payment options that suppliers are offered. The debate about pricing supplier finance spans all the flavours of program including reverse factoring, supply chain finance (“SCF”) and dynamic discounting. This blog is a bit longer than usual (6 minutes) – but this is a topic that is worth exploring in some detail. For background on supply chain finance, see this article from the UK Association of Corporate Treasurers. At PrimaTrade we provide a platform that gives buyers the maximum flexibility to manage their supply chains however they want. The ethical debate: “supply chain fairness” There are several levers available to companies when they consider how to manage their days payable outstanding (“DPO”). There are some choices to make: Picking an optimal invoice term is for another blog post, itself an interesting topic given existing and incoming constraints on terms, such as prompt payment codes and even binding rules (eg: EU Working Capital Directive). For the purpose of this blog, we are focussing on the pricing question: “what discount should suppliers be offered if they access supplier finance?” Supplier discounts for early payment Most forms of supplier finance involve the supplier accepting a discount on the invoice that they are owed in exchange for an early or instant payment. For example, an invoice of 100 might be due from the buyer in 90 days, and the supplier might have the option to receive 97 now rather than wait. | There can be strong views on right and wrong here. Pricing supply chain finance – framework Our experience talking to CFOs and Corporate Treasurers is that there can be quite strong opinions on the best model and where ethical lines need to be drawn. And, just to emphasise again, PrimaTrade’s platform supports all approaches and we are not here to judge. Our framework is summarised here and described in more detail below. The four pricing models for supply chain finance 1. “Dynamic discounting“: Suppliers are asked to bid for early payments which the buyer organises based on an auction. In this model, the price and availability of early payments depends on suppliers bidding against each other. This approach can maximise the dollar return to the buyer on cash that is paid to suppliers early – typically employed when the buyer uses its own funds and there is a limited amount of funds available. 2. “Lowest possible cost“: Suppliers are offered the cheapest possible cost for early payments, which enables suppliers to access early payments at will and very efficiently – improving their liquidity and financial position. Moreover, some companies can sometimes take an absolute position that they should not “make money out of suppliers” and this option clearly makes sure that is not happening. 3. “Market pricing“: Pricing for early payments is set slightly at or above the expected “typical” cost that a supplier might incur if the supplier were to fund itself in the market and not use the program. For example, if suppliers could fund the period until the invoice due date with their own resources at a cost of 1% per month, then perhaps set the cost of early payment at 1% to 1.25% per month. 4. “Split the difference“: Pricing is set halfway between the expected cost that suppliers might incur externally not using the program, and the buyer’s actual funding cost. Here the arbitrage between the lower cost of finance the buyer might enjoy and the supplier’s typical higher cost of finance is shared between the two parties. Pricing supplier finance – discussion In the example cases below, suppliers are assumed to be providing goods and services and issuing invoices with a credit term. There is a supplier financing program available enabling suppliers to get paid more quickly with a discount. Moreover, supplier financing is assumed to be a choice for suppliers. Ideally, suppliers should have the ability to opt in and out of supplier financing each time they supply the buyer. | What discount should apply to supplier finance? 1. Supplier resilience is not in question: 2. Supplier financing can be relied upon long term: 3. Supplier resilience should be maximised: 4. Supplier financing should, above all else, be ethical: Is there a “goldilocks” option? Most companies organise supplier financing programs in order to maximise the resilience of their supply chain. They can also be very conscious that it might not be healthy if suppliers become dependent on a supplier financing program, which might not always be available. This might lead to a choice between option 3 and option 4 above – “market pricing” and “split the difference“. 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.
Treasury Contrarian View: ESG in Treasury—A Passing Trend or the Future?
Environmental, Social, and Governance (ESG) considerations have been a growing focus in corporate finance, but is ESG in treasury truly transformative, or just another temporary compliance-driven trend? Many organizations are embedding ESG into their financial strategies, while others remain skeptical about its long-term value. So, is ESG in treasury here to stay, or is it just a passing trend? The Case for ESG as the Future of Treasury ESG factors directly impact financial risk management. Climate change risks, social governance challenges, and regulatory shifts can affect supply chains, investment decisions, and operational costs. The Case Against ESG as a Lasting Priority in Treasury A Pragmatic Approach: ESG as an Evolving Opportunity Rather than viewing ESG as either a short-term trend or a mandatory requirement, treasury teams can take a strategic approach: Let’s Discuss We’ll be sharing insights from our board members and treasury partners on how they view ESG in treasury—join the conversation and let us know your perspective! COMMENTS Jessica A. Oku, Treasury Masterminds board member, comments: It’s neither a passing trend nor a silver bullet, really. I’ve seen companies jump on the ESG financing trend, securing lower interest rates on sustainability-linked loans, only to realize later that the ESG targets tied to those loans were either too vague or too difficult to measure. If there’s no clear way to track progress, ESG financing can quickly become more of a branding tool than a strategic financial move. The real question is: Are these funds truly being used to drive sustainable business practices, or are they just an easy way to access capital? If treasury teams don’t have strong ESG performance indicators in place, they could end up in a tough spot, either failing to meet investor expectations or facing penalties for not hitting sustainability goals/loan covenants. I’ve seen it happen too often, companies rolling out ESG policies just to tick a box for investors and regulators, without actually making meaningful changes. They publish polished sustainability reports, but when you look at their treasury or company-wide operations, it’s business as usual. Short-term financial goals still take priority, and ESG is more of a PR move than a real strategy. The real question is: Are ESG initiatives actually influencing treasury decisions, or are they just another reporting requirement? If ESG isn’t shaping how cash flow is managed, how investments are made, or how financial risks are assessed, then it’s not truly integrated. Another issue is the disconnect between treasury teams and sustainability departments. Treasury might be focused on financial performance, while sustainability teams are pushing ESG goals, but if they’re not working together, ESG remains a separate, surface-level initiative. For ESG to actually mean something in treasury, it needs to be baked into everyday decision-making, like factoring sustainability risks into funding strategies or using green financing to create real financial advantages. At the end of the day, ESG shouldn’t be treated as extra work or just another compliance or marketing “checkbox.” Lack of standardization and metrics is a big roadblock. I’ve spoken with treasury teams who struggle with multiple ESG frameworks, making meaningful financial comparisons difficult. Without clear, standardized ESG metrics, how can we expect treasury functions to make informed decisions? Until the industry consolidates around universal ESG standards, this will remain a challenge. Csongor Máthé, Product Manager/ESG Lead at TreasurySpring, comments: Traditionally, treasury decision-making has focused on security, liquidity, and yield, but ESG is adding a new dimension to consideration. However, a recent downshift in ESG sentiment, driven by macroeconomic factors, increased scrutiny of greenwashing and the politicisation of the topic, may prompt a more cautious approach. While ESG in treasury may often be perceived as driven by regulation and external pressure, our most recently published ESG survey of treasurers (2024) painted a more nuanced picture. Only 5% of respondents identified investor or lender pressure as the primary driver of their ESG strategy, while 53% pointed to corporate social responsibility (CSR). In terms of regulatory changes like the Corporate Sustainability Reporting Directive, only 16% of treasurers have actively adapted their ESG cash investment strategies and practices in response. Treasury teams are integrating ESG principles into decision-making, but its impact varies across financial areas. Our ESG survey found ESG principles are most commonly applied to cash investing (47%) and long-term financing (44%), followed by supply chain management (35%) and short-term financing (28%). When it comes to financing, ESG is already well-established in some areas (and less so in others). The sustainable bond market, for example, benefits from a high level of standardisation, with the vast majority of issuances aligning to the ICMA Principles. This reduces the risk of greenwashing, seemingly making these instruments a more reliable and easier fit within long-term ESG treasury strategies. Eleanor Hill, Freelance Content Creator at Treasury Storyteller, comments: It’s easy to take pot shots at ESG, dismissing it as marketing fluff, regulatory box-ticking, or just another way for companies to look good. Of course, with CSRD and other ESG-related rules and regulations, some companies’ ESG efforts are compliance-driven. But does that make all ESG initiatives meaningless? I’d say not. Many corporations are genuinely trying to drive change. And we must remember that it is still early days for ESG, so there will be missteps. Regulations also still need to evolve. But that doesn’t mean it’s not worth doing. And we only learn through trying – not through criticising from the sidelines, without presenting solutions. While the focus on ESG may be rolling back in some parts of the world, it’s certainly not in Europe. And the global challenges we face – climate risk, resource scarcity, and social inequality – aren’t disappearing just because the narrative is shifting. In terms of the ‘cost’ of ESG, yes, all changes involve some expense. And doing ESG right sometimes means implementing specialist systems or employing experts. But ESG can also be a profit driver. According to Equity Quotient, “Companies that proactively embrace their pursuit of stakeholder diversity and other ESG principles tend to be more successful, outperforming peers on…
Are My Business’s FX Rates and Margins Fair?
This article is a contribution from our content partner, Just “Are my FX rates and margins fair?” As a corporate treasurer, this is an important question to ask. But due to a lack of transparency around market data, obscure bank jargon, and opaque trading processes, it’s not an easy question to answer. Without access to accurate, real-time market data, it’s very difficult to get a clear picture of business FX rates. Banks understand this obscurity and use it to their advantage, meaning that the answer to the question is most likely no, your business FX rates and margins aren’t fair. Rates are driven primarily by market conditions, which puts them outside of businesses’ and banks’ control. However, the margins added on top of rates are within the banks’ control. But you can’t know what a fair margin looks like unless you have the data to understand and benchmark ‘fair’ in the first place. Thankfully, this is now possible. New FX tools are giving businesses visibility into market data, equipping them with the information they need to understand what their banks are really charging—and enabling them to do something about it. What influences rates and margins? First, it’s important to recognise the difference between rates and margins. Rates are the market price at which one currency is exchanged for another: the rate of exchange. These are influenced by a range of external factors out of a business’s control, including: An FX margin, on the other hand, is the amount your bank adds on top of the trade. This is what they charge you for facilitating the trade. But the margins themselves are often hidden or, at least, unclear in how they’ve been calculated. Margins are influenced by factors including: This doesn’t mean, however, that margins are entirely subjective. They needn’t be wildly inconsistent from bank to bank. While rates can change, the margin banks charge is within their control. And that means it’s in your business’ control, too. Why your business’s FX margins probably aren’t fair Trading foreign currencies has inherent risk, which means businesses and banks are looking for ways to reduce it. For banks, charging margins is a way to hedge against risk. The higher the perceived risk, the higher the margin; the lower the perceived risk, the lower the margin. For banks, relatively illiquid currency pairs represent a higher risk, as do forward contracts with long tenors. In these trades, the bank will levy a higher margin to cover themselves. The company’s credit profile is also relevant to the bank. But mitigating against risk is one thing, charging an unfair margin is another. The fairness aspect comes in how big that margin should be. And, at the moment, banks can charge pretty much whatever they want — unless a company challenges those margins. How does this happen? Lack of transparency This is perhaps the biggest issue with unfair business FX rates and margins. When you submit a trade, your bank provides you with a quote, inclusive of all costs. But beyond that, visibility into what they’re charging or why is limited. This makes it impossible to see what the trade would actually cost based on the currency rates alone — and what margin your bank is charging on top of that. It’s complicated FX trading is full of jargon and insider “conventions” — the industry rules that have built up over time. These conventions govern, for example, how currencies are quoted, the complex maths behind those quotes, the rules of trading and when traded currencies can or cannot settle. But many companies and treasurers aren’t familiar with these complex and often opaque practices, putting them at a disadvantage when trying to negotiate lower margins. This is why it’s invaluable to have a tool that navigates these rules and makes margin analysis straightforward for companies and their treasurers. A lack of access to real-time data Businesses typically don’t have access to the data that banks use to generate their quotes, putting them at a significant disadvantage. It’s virtually impossible to negotiate better margins if you don’t know exactly what you are negotiating, let alone understand if what you’re being charged is fair or not. Even if you don’t want to negotiate, access to live data on trade currencies lets you understand what’s going on in the market, helping inform your FX strategies. Other factors that impact margins Flow size Your bank might also be charging you different margins depending on the size of your flow — your annual trade volumes. The bigger your annual trade volumes, the more likely it is that your bank (or banks) will keep a tighter rein on your margins because they are incentivised to keep access to that flow. Companies that trade over 100 million USD, for example, can use the leverage of their flow size to negotiate with their bank and keep margins low. Companies with smaller trade volumes might need to work harder, and negotiate savvier, with their bank in order to bring their margins down. Company credit and service profile If you’re a smaller business with less credit or a bigger business with credit risk, or if you depend heavily on your bank for other key services, you’re likely to have less leverage when it comes to asking for lower margins, even though the SME sector forms 21% of the total international payments market.² Established businesses with good credit, however, will find themselves in a stronger position to negotiate — or might be receiving lower margins in the first place. Get fairer margins and better visibility over rates Unfair margins aren’t inevitable. By understanding how to benchmark your trades using real-time rates from the interbank market, tailored to the tenor of your trade, companies can see the margins their banks are taking. Getting to grips with this gives companies the information they need to start a conversation with their bank. Benchmark your FX trades First, this means using an FX benchmarking tool. Thanks to a new generation of FX tools, treasurers now…
AI in Treasury: Artificial Intelligence or Augmented Intelligence?
Written by Patrick Kunz Artificial Intelligence (AI) has become a buzzword across industries, and treasury management is no exception. However, there’s an important distinction to be made when discussing AI in the context of treasury: Is it truly Artificial Intelligence, or is it more about Augmented Intelligence? AI Will Not Replace You – It Will Enhance You One of the most common fears surrounding AI is that it will replace jobs, making human professionals obsolete. In treasury, this concern is understandable. With AI’s rapid advancement, it might seem like machines could eventually take over tasks like cash forecasting, liquidity management, and financial risk assessment. The truth, however, is that AI in treasury is designed not to replace professionals but to augment their capabilities. It’s not about machines replacing humans but about empowering them with faster, more accurate decision-making tools. The Role of AI in Improving Processes Rather than automating treasury functions completely, AI enhances existing processes by increasing efficiency and accuracy. In areas like cash management and financial reporting, AI algorithms can quickly analyze vast amounts of data and offer real-time insights. This allows treasurers to make better, data-driven decisions and free up time to focus on strategy and value-added tasks. For example, AI can significantly improve cash forecasting by identifying trends and patterns that might go unnoticed by human analysis. It can process large datasets in seconds, allowing treasury teams to make faster decisions and act proactively rather than reactively. WEBINAR ALERT: Fighting Fraud in 2025: Are You Ready for the Next Generation of Threats? Over 70% of businesses have experienced fraud attempts, and the financial impact continues to rise. As fraud tactics become more sophisticated, relying on outdated prevention strategies simply isn’t enough. Join Tom A. (Senior Fraud Consultant UK at Trustpair) and our very own Royston Da Costa (Assistant Treasurer at Ferguson PLC) on February 20, 2025, at 11:00 AM for an essential webinar that will equip you with the latest insights and strategies to protect your organization from evolving AI-driven fraud threats. Moderated by Patrick Kunz, FRM QT What you’ll learn: This session is tailored for finance professionals, treasury leaders, and risk managers who want to stay ahead of fraud risks. Real-Life Examples of AI in Treasury Here are a few examples from major corporations that showcase the power of AI in augmenting treasury processes: Speed and Accuracy In treasury, where accuracy is paramount, AI can play a crucial role in reducing human error and streamlining operations. By automating repetitive tasks like transaction categorization, reconciliation, and monitoring of financial exposures, AI can not only reduce errors but also speed up these processes. With faster and more accurate data analysis, treasury professionals can optimize cash management, hedge risks more effectively, and identify opportunities for cost-saving or investment more efficiently. The Bottom Line: AI as a Collaborative Tool Ultimately, AI in treasury is a tool to enhance human expertise. It’s about creating smarter, more efficient teams rather than replacing jobs. Treasury professionals will continue to play a critical role in making strategic decisions, interpreting data, and navigating the complexities of financial markets. AI, however, will allow them to work smarter, not harder. The future of AI in treasury is less about replacing human jobs and more about enabling treasury teams to unlock their full potential. By leveraging AI to automate mundane tasks and improve decision-making, treasury professionals can deliver greater value to their organizations. 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.
Patrick Kunz
How to Automate ‘Cash Pooling’
This article is written by Embat Cash pooling is a highly beneficial tool for companies within their cash management practices. However, it often becomes a significant challenge for treasury departments due to its complex implementation, especially when done manually, which requires considerable human intervention. Fortunately, modern technology provides effective solutions to automate cash pooling, making its management much more efficient and streamlined. What is cash pooling and what is its purpose? Cash pooling is a technique used by companies to optimise their treasury management, particularly in groups with subsidiaries or branches, whether domestically or abroad. Essentially, it involves consolidating the balances of all the bank accounts belonging to the various entities of a company into a single master account. This provides a comprehensive view of cash flow, enabling more informed decisions regarding the use of available funds. This procedure allows companies to maximise treasury efficiency, reduce the costs associated with banking operations, and improve financial risk management. Additionally, by centralising funds into a single account, companies can decrease the need for external financing and better seize investment opportunities. In general, this technique is advantageous for companies that maintain multiple bank accounts across various institutions, and it becomes even more efficient when those branches are located in different countries. JOIN TREASURY MASTERMINDS Cash pooling: a practical example To better understand how cash pooling works, let’s look at a practical example. Imagine a corporate group made up of three different companies, each with distinct business dynamics. Company A, due to its operations, maintains negative balances. As a result, its account shows a debt of €200,000. In contrast, companies B and C have positive balances in their bank accounts of €300,000 and €500,000, respectively. Therefore, the corporate group has a total positive bank balance of €600,000. Thanks to cash pooling, the balances of the three companies are unified into a single bank account, resulting in a consolidated balance of €600,000. In effect, companies B and C have financed company A, allowing it to avoid resorting to external financing to achieve a positive balance. Thus, company A will incur much lower interest rates than it would have if it had turned to external financing (and, of course, lower than what it would pay on the overdraft of its bank account), thanks to the financing provided by companies B and C. Additionally, cash pooling allows companies B and C to obtain higher returns from company A than if they had simply deposited their funds into a bank account. Types of cash pooling Broadly speaking, there are three main types of cash pooling: Advantages and disadvantages of cash pooling The primary benefits of utilising this technique include: On the downside, some of the disadvantages of cash pooling are: How to automate cash pooling? If you are wondering whether it’s possible to automate such a critical treasury process as cash pooling, we have good news. Recent technological advances in enterprise resource planning (ERP) systems, combined with increasingly advanced digital capabilities from financial institutions, have made real-time communication between companies and banks possible, enabling the automation of certain processes. Generally, these systems allow the company’s various branches or subsidiaries’ bank accounts to be linked to a single centralised system, automatically consolidating the balances into one central account. As a result, bank reconciliation becomes much simpler. Additionally, treasury software enables the scheduled sweeping of accounts according to the frequency set by the user. Whether daily, weekly, or monthly, cash pooling can be adjusted to meet the specific needs of each company. Conclusions In summary, automating cash pooling can significantly improve a company’s treasury management, offering greater visibility and control over cash flow, reducing banking costs, and enhancing financial decision-making. Various tools and technological solutions are available to automate cash pooling, tailored to the needs and budgets of each business. Therefore, it is worth considering automating cash pooling as a viable and effective option for improving the financial management of the company, particularly regarding cash management. 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.
4 Ways To Battle Selective Hedging For Strong Corporate Governance
This article is written by Kantox Are narcissistic managers steering your company’s financial ship into treacherous waters? In this article, we delve into the nuanced relationship between corporate governance, narcissistic managers, and the perilous practice of selective hedging. You will learn four key strategies that will help you improve your corporate governance and avoid engaging in selective hedging that may put the future of your company at risk. And if you want to learn more about selective hedging, check out this episode of CurrencyCast where our Senior Financial Writer explains the topic. The Dangers of Weak Corporate Governance Corporate governance is the system by which companies are directed and controlled. It is formed by a Board of directors that are in charge of the governance of the company to help build trust with the investors and the different stakeholders. Their main role is to appoint the directors and auditors, and to ensure that an appropriate governance structure is in place. Strong corporate governance gives investors and stakeholders a clear idea of a company’s direction and business integrity. Moreover, it promotes long-term financial viability, to keep the company afloat even in volatile times. But empirical studies consistently reveal a disturbing trend. Companies with weak corporate governance standards are more likely to indulge in speculative unsystematic hedging, commonly known as selective hedging. This hazardous approach, driven by the whims of managers rather than sound financial principles, poses a significant threat to the future stability of the company. Decoding Selective Hedging Selective hedging takes place when a company hedges its exposure opportunistically, aligning with managers’ views on currency markets. This practice rests on two pillars: attempting to beat the market based on managers’ intuition and adjusting the size and timing of positions, leading to excessive volatility in hedge ratios. This is particularly risky for the company, as we have seen in recent times that unprecedented events can have a great economic impact impossible to predict. The Link Between Governance and Selective Hedging Studies indicate a strong correlation between weak corporate governance structures and the inclination to engage in selective hedging. A key metric for governance quality is the percentage of independent directors within the Board of Directors, acting as a vital check on managerial discretion. Unmasking Reluctance To Hedge Companies with weak governance structures may be hesitant to hedge currency exposure for two primary reasons: optimism about favourable market movements or reluctance in the face of unfavourable interest rate differentials. Such firms afford managers greater discretion over hedging policies, making them less accountable. Narcissism In The Equation Enter the realm of narcissistic managers, individuals more prone to risk-taking and questionable behaviour. Researchers have employed natural language processing to identify narcissistic traits in managers, revealing a strong correlation between narcissism and selective hedging practices. Strengthening Corporate Governance in Forex Hedging To help you avoid the dangerous practice of unsystematic hedging, here are four actionable steps to enhance corporate governance in foreign exchange hedging: Conclusion As financial stewards, CFOs and Treasurers must recognise the critical link between corporate governance, narcissism, and selective hedging. By implementing these four steps, companies can fortify their governance structures, safeguarding against the pitfalls of selective hedging and steering towards a more resilient financial future. 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 to get more information. Notice: JavaScript is required for this content.
Treasury Contrarian View: Do We Really Need Treasury Centers in Every Region?
For decades, multinational corporations have established regional treasury centers to manage cash, liquidity, and risk closer to their operations. But with advances in automation, AI, and real-time banking connectivity, is the traditional regional treasury center model still necessary, or is it time for companies to rethink their treasury structures? The Case for Regional Treasury Centers Managing FX exposures and liquidity on a regional level can reduce transaction costs and allow for tailored hedging strategies based on local market conditions. WEBINAR ALERT: Fighting Fraud in 2025: Are You Ready for the Next Generation of Threats? Over 70% of businesses have experienced fraud attempts, and the financial impact continues to rise. As fraud tactics become more sophisticated, relying on outdated prevention strategies simply isn’t enough. Join Tom A. (Senior Fraud Consultant UK at Trustpair) and our very own Royston Da Costa (Assistant Treasurer at Ferguson PLC) on February 20, 2025, at 11:00 AM for an essential webinar that will equip you with the latest insights and strategies to protect your organization from evolving AI-driven fraud threats. Moderated by Patrick Kunz, FRM QT What you’ll learn: This session is tailored for finance professionals, treasury leaders, and risk managers who want to stay ahead of fraud risks. The Case for Centralizing Treasury Functions The Hybrid Model: A Flexible Approach Rather than choosing between full decentralization or complete centralization, some companies are adopting hybrid models: Let’s Discuss We’ll be sharing insights from treasury leaders and industry experts—join the conversation and share your perspective! Ricardo Schuh, Treasury Masterminds board member, comments: The hybrid model is the most effective treasury structure, as it balances regional agility with central oversight. Based on my experience, fully centralized models risk losing critical local expertise, while fully decentralized approaches may lack standardization and control. A hybrid approach ensures that regional treasury teams can respond swiftly to local financial challenges, regulatory shifts, and banking relationships while still adhering to a global strategy set by headquarters. This setup enhances efficiency, supports compliance, and allows for tailored risk management and FX strategies without sacrificing strategic alignment. Additionally, maintaining strong regional teams is crucial for fostering close and effective relationships with banks—there is no substitute for an in-person meeting when it comes to securing trust and ensuring smooth financial operations. Moreover, technological advancements, such as AI and real-time banking connectivity, should complement rather than replace regional treasury hubs. While automation improves visibility and standardization, on-the-ground teams remain essential for navigating local complexities and ensuring quick decision-making in different time zones. A hybrid model optimizes costs by centralizing core functions like policy-setting and liquidity management while enabling regional execution for market-specific needs. This structure maintains strong internal controls while preserving the operational agility necessary for treasury teams to add value in a dynamic global environment. Finally, I would point out that having regional teams also helps in talent development and sourcing. 😉 Lorena Pérez Sandroni, Treasury Masterminds board member, comments: Each approach has its own benefits and challenges. The decision should depend on the current stage of the Treasury departments in different regions. It is crucial to ensure local Treasury operations are maintained, as local knowledge, requirements from central banks, banks, and language barriers are key factors. I am definitely in favor of achieving centralized control of liquidity management as soon as possible. This involves establishing proper minimum cash balances and working closely with Tax and Legal departments to create a structure that allows for the physical centralization of funds. From there, proper FX and risk management will be easier to centralize. Only basic local operations should remain decentralized, and wherever possible, opportunities should be sought to rely on centralized liquidity (e.g., in-house banking). I am also a strong advocate for implementing advanced technology, where standardization and control can significantly improve liquidity management and data accuracy for decision-making. Johann Isturiz Acevedo, Treasury Masterminds board member, comments: Current news and context about USA imposing tariffs to countries (mainly Mexico – Canada and China ) and geopolitical discussions (Panama Channel and immigration) are showing that having a regional treasury center in a specific place is something serious to consider. Hybrid model and well detailed processes are key today. Below some takeaways as a must. – A proper DoA – what can be done by local team and done by regional treasury centers.- Localization, is the regional center located in a country which can be impacted by sanctions or restrictions? Country risk assessment.- Cash management set up with local bank and corporate bank. Cash upstream policy is critical- FX risks, are the local team quick enough to share FX exposures to the risk management team in order to take decisions and mitigate FX risk ? Avoid volatilities. 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.
Trade Digitalization: How to Start?
This article is a contribution from our content partner, PrimeTrade There’s a growing and visible push to get trade digitalized – and trade documents digitized. See more here. Read this short post to understand the “what” and the “who” of trade digitalization – and then crucially, “how” you might start the journey yourself. Below the body of this post (below the line) are some definitions and a framework that we use to make sense of the complicated world of international trade: The “why” of trade digitalization? International trade still uses paper documents that may as well have been invented by Queen Victoria herself. It all works, but there are a lot of costs, delays and frictions. Estimates for the annual cost to all of us for these inefficient processes go into the many US$billions, see for example McKinsey’s analysis of the impact of electronic bills of lading here. But digitalization is not a one-size fits all story. Two digitization approaches The big and immediate wins come from the use of new digitization techniques for documents. There are two types: The “what” of trade digitalization This table shows which type of digitization approach is appropriate and in which context (definitions are below the line later on): So what do we see here? That should not be controversial but we do recognise that not everyone would agree with us on the last point. See here for why manufacturing supply chains can be efficiently financed using non-DNI digitization. The “who” of trade digitalization This table shows who is interested in the digitization discussion and who has the power to initiate change: What do we see here? Putting the what and who together This is how we drive the digitalization agenda forward: So what next with trade digitalization? Trade digitalization: how to start? How you start depends on who you are, the wins available, and which part of the ecosystem you can influence: Background materials – trade digitalization: how to start? Trade digitalization – a framework There are two dimensions to international trade in goods: Moving the goods involves transport documents, customs paperwork and certificates. Moving the cash involves purchase orders, invoices, payments and trade finance. There are two kinds of international trade in goods, and they work differently: To put some numbers on it: There are also different people involved: And they work in different kinds of organisations: For the terms we are using: For more on that discussion, see here. Standardization – digital standards There is a significant value in standardising the data that the documents involved in international trade contain. This allows handshakes across borders and between systems can be improved. We must do this. But this is not the subject matter for this short post. See more about this here. DNIs, for example, are a specific class of documents that are supported by the Electronic Trade Documents Act 2023 in the UK and similar legislation (based on MLETR) that is being passed in jurisdictions around the world. This class of documents typically has special characteristics and requires specialist systems to support them. But DNIs are not the whole story and only need to be used in specific situations. When do I need a DNI? Only very few documents are capable of being created as a “DNI” – a digital negotiable instrument. In the context of digital trade, we are only talking about: Other documents, like certificates, packing lists, invoices, purchase orders, inspection reports etc. are not capable of being DNIs. And it is important to think about the features of a DNI: A DNI, typically, is: An example where a DNI is helpful is where control of a cargo is being transferred by multiple parties (eg: commodity traders and their lenders) who need to be able to pass on easily the digital document (eBL) in which that control is vested. Another example where a DNI might be to organise post-maturity financing of an invoice by settling the invoice on its due date (or earlier) with an electronic bill of exchange or electronic promissory note incorporating a delay in payment that can subsequently be sold and easily transferred to a financier by the receipient (the supplier) for cash. An example where a DNI might be unhelpful is where a corporate wants to control the identity of financiers that it has to pay money to, and so would prefer not to issue debt to financiers in the form of a DNI, since the claim (and all the rights) might be transferred. 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.