Excel for the Modern Corporate Treasury
This article is written by Automation Boutique Excel has been a trusted tool for treasury and finance professionals for decades. Most of the treasurers we speak to today still indicate that Excel is a vital tool in their treasury operations. It is widely used for key processes, like cash flow forecasting, cash management, risk management and reporting. While Excel is familiar and extremely flexible, improvements to existing Excel-based processes are urgently needed to also make it a successful tool for the coming years. The good news is that Excel contains many hidden gems that allow you to develop models that are automated, robust, and easily auditable. The popular narrative has been to transition away from Excel in corporate treasury, mainly due to its potential for errors and the complexities of managing large files. At first glance, this is understandable, because most Excel-based processes have significant problems: But here’s the thing: a lot of treasurers (even those who are using a Treasury Management System (TMS)) still use Excel for important tasks. Why do they do this? First, a lot of treasurers have found out that there isn’t a single TMS that does everything they need. So, they still need Excel for some tasks. Second, some companies don’t have the budget or the need to buy a TMS. For them, Excel is the main tool they use for their treasury management. So, getting rid of Excel completely might not be the answer. Maybe there’s a better way to use Excel and still enjoy what it offers? How to Excel like a Pro Contrary to popular belief, we think Excel can remain a valuable tool for corporate treasury when used correctly. To maximize its potential, corporate treasurers should: 1. Use Automation Reduce manual tasks to make your work smoother and minimize errors. Options range from traditional methods like Visual Basic to newer tools like Power Query and Power Pivot. Optionally, RPA (Robotic Process Automation) can be added to automate the data refresh, data fetching, and action-taking based on the Excel outcome. 2. Ensure Traceability Knowing the journey your data has taken is crucial. Let’s break down why this matters: 3. Document the Excel-process It is important to document the purpose of the Excel file, the assumptions, how it was designed and how it should be used. Again, making use of Excel’s hidden tools can save a lot of effort for this often-neglected task. 4. Utilize Built-in Tools Over the years, Microsoft has improved Excel with powerful tools that can upgrade your existing Excel files: Power Query This tool lets you automatically gather and transform data from various sources, such as websites, databases, XML files, CSV files and other Excel sheets. You can perform actions like filtering and merging data with a few clicks. Importantly, Power Query remembers each step you take, which makes your process clear, robust, easy to replicate and to audit. Main advantages of Power Query include: Power Pivot This is another powerful tool within Excel that enhances your data analysis. Essentially, it allows you to manage and analyze large amounts of data, making your reports interactive and comprehensive. Main advantages of Power Pivot include: Looking Ahead with Excel Excel continues to be a key tool for corporate treasurers, but there’s a need to make it work better and more reliably. There are many features in Excel to help with this, but they are often hidden or forgotten. We at Automation Boutique can help you with reconstructing your Excel-based processes, making them automated, robust and easily auditable. Consider kicking things off with our “How to Excel” hands-on workshop. In this interactive and engaging session, we will work together to reconstruct your own Excel models, diving deep into Excel’s best practices and hidden gems. Don’t hesitate to contact us for further details. Happy Excel-ing! 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
Implementing a Global Enterprise-scale Payment Hub: The Challenges and Business Impacts
This article is written by Nomentia With complex global operations, decentralized ways of working across treasury, finance, and accounting, a lack of process automation, and security concerns on the rise, you may be considering a payment hub for your enterprise. When juggling multiple priorities and all the operational tasks already stretching your organization, the implementation project may seem dreadful. It’s not a secret: Setting up a payment hub can be heavy-duty. Depending on the complexity of the case (number of entities enrolled, in which countries you roll it out, how many banks and bank accounts you have, whether you connect multiple ERPs, etc.), it may take anywhere from several days to several years. Nevertheless, if it’s done right, the payment hub can have significant business impacts—not just in improving ways of working but also in realizing cost savings. To explain how to set up a global payment hub on an enterprise scale, we will go through the main challenges, the project team and its setup, ways of working, lessons learned from our customers, and the benefits and business impact after the successful implementation. Before the start: the challenges you’ll face during a payment hub implementation All payment hub projects are different. While we have been working on small projects where we only connect one ERP and a few banks, and it only takes days to a few weeks, we have also been delivering large-scale projects for enterprises that could take even as long as one to two years of commitment. Whenever we undertake a massive project, both parties understand that it’s a long commitment and, therefore, a forward-looking project plan is essential. The challenges of implementing a payment hub are unique for each organization, but in our example, we will focus on the complex, enterprise-scale implementations where clients were dedicated to creating a payment factory within their organization. Keep reading even if you are implementing a less complicated solution, as the article gives some great insights for planning any payment hub implementation. 1. Global operations make the implementation complex Many Nomentia clients have undertaken massive payment hub projects with operations in over 100 countries. Even just operating in tens of countries has its challenges. If you must implement the payment solution in countries with strict legislation, like China or India, having a good implementation partner with experience is an advantage. Why do global operations make implementation complicated? One reason is integrating ERPs, financial systems, and banks. The other reason is more abstract: people generally don’t like change. It’s not unusual for local entities to have their own operational procedures; the process can also often be highly manual, if not entirely manual. In some cases, an integration between the internal system and the bank, like an ERP, may exist to execute payments automatically. Still, on a group level, you may have very little visibility on this. In addition to having localized operational procedures and local systems, each country and entity may have its own banking partner. Later on, we will discuss how working with many banks can complicate implementation. Moving away from the current ways of working comes as a big shock for many, even though you are trying to implement improvements that can benefit everyone. If you want to implement an immediately successful project, you must involve all necessary stakeholders in managing the change and getting the essential project-planning information. 2. Scattered system landscape Based on our first challenge, you may have already guessed the next one: A scattered system landscape can make the implementation project complex. If you have acquired new units from different regions, it’s possible that instead of running the business on one central ERP system, you have several ones used locally. Payment files may also be generated in other systems. If system consolidation is not currently possible, you should at least connect all source systems to the selected payment hub, allowing the payment files to be automatically forwarded to the correct bank. Having a scattered system landscape naturally poses a few challenges: 3. Preparing guidelines & change management: Communication is as important as the technical setup In an enterprise-scale project where tens of entities are involved, having good change management practices, ways of communication, and clear guidelines will set you up for success. Involve your teams The new payment hub will impact how hundreds of people work daily; at worst, moving from manual processes or local ways of working to a centralized, automated approach could be something people may even fear or be concerned about. Communicating how your operations will change positively when you introduce the new processes will help people perform their jobs well and make them feel involved in the project from day one. Your colleagues can also be great allies when you need to understand how to work with different banks globally. Choose the project team and include people with different backgrounds Choosing your team is the most essential part of the project! You don’t need a big team, but you should include people who understand your financial processes, how they work now, and how they should work when you automate them. Also, involve an excellent project manager to communicate with the payment hub provider, keep the project on track, and hold people accountable for the progress. Having one or two IT resources can also be helpful throughout the project. As you deal with integrations, although the payment hub vendor usually takes care of most of the integration work, your IT team members will still need to help the vendor, participate in the end-to-end testing process, handle master data management, and provide all the necessary technical details. Set up clear ways of working It’s also a good idea to clearly outline the ways of working for your project team. Identify the core team, the communication channels for sending each other instant messages and following the progress, your meeting cadence, and where you will share information with the larger group. 4. Connecting with the banks ‘Not all banks are the ‘same’—this is some of the best advice for when you start a payment hub project. Before you…
Frontiers of Banking: Navigating APIs & PSD2 Protocols
This article is written by Cobase In the modern corporate world, the efficiency of banking operations depends heavily on the communication protocols used to connect with financial institutions. In this extensive comparison, we delve into the nuances of various protocols like SWIFT FIN, SWIFT FileAct, Host-to-Host, EBICS (versions 2.4, 2.5, and 3.0), APIs, and PSD2, examining their strengths and weaknesses. In this blog post, we will focus on APIs & PSD2. APIs APIs, short for Application Programming Interface, play a vital role in today’s interconnected digital ecosystem. They enable different software systems to communicate with each other seamlessly and efficiently. Within the banking context, APIs provide a mechanism for banks to expose their services to corporations, facilitating direct integration with corporate systems. One of the main strengths of APIs lies in their ability to provide real-time or near-real-time access to banking services. Corporates can make API calls to check account balances, initiate payments, or fetch transaction history, receiving immediate responses. This allows corporations to have an accurate, up-to-the-minute view of their financial position and to execute transactions without delay. APIs also provide a high level of flexibility and customization. They can support a wide range of services and functionality, depending on the banks’ chosen level of exposure. Moreover, APIs can be designed to handle complex banking operations, like bulk payments or multi-step approval workflows, offering corporations the flexibility to tailor banking interactions to their specific needs. Another significant benefit of APIs is their potential for improving operational efficiency. By integrating directly with corporate systems, they can help automate banking processes, reducing manual intervention and associated errors. However, the use of APIs also brings certain challenges. A key concern is the technical complexity associated with their implementation. Each interface has its own specific requirements in terms of the request format, response handling, error handling, etc. Corporates need to ensure their systems are compatible with these requirements, which often demand significant IT effort and expertise. Security is another critical consideration. APIs essentially provide a gateway into the bank’s system, and improper implementation can lead to significant security vulnerabilities. Corporates need to ensure robust security measures, such as encryption, authentication, and access controls, are in place when using them. Moreover, the availability and functionality of APIs are entirely dependent on the bank. Not all banks may offer APIs, and even among those that do, the range of services exposed via APIs can vary widely. In conclusion, APIs offer a powerful and flexible mechanism for corporations to interact directly with their banks, providing real-time access to banking services and the potential for improved operational efficiency. However, corporations need to navigate the challenges of technical complexity, security, and variability in bank API offerings to harness the full potential of APIs for banking communication. Strengths: Weaknesses: PSD2 The Second Payment Services Directive (PSD2) is a transformative regulation implemented by the European Union to foster innovation and competition within the financial sector. PSD2 mandates that banks provide third-party providers (TPPs) with access to their customers’ accounts through APIs, provided the customer has given explicit consent. This is often referred to as ‘open banking’. This directive effectively shifts the control of financial data from banks to consumers, empowering them to use third-party services for managing their finances. For corporations, PSD2 presents an exciting opportunity to directly access banking services and improve financial operations. One of the main strengths of PSD2 is that it paves the way for real-time access to banking services. Corporates can utilize APIs to fetch account information, initiate payments, and access other banking services in real-time. This not only enhances visibility into their financial standing but also speeds up transactions and decision-making processes. Another significant advantage of PSD2 is its potential for innovation. By opening up banking data, PSD2 has spurred the development of new financial services and solutions. This can lead to more efficient banking processes, cost savings, and better financial management. PSD2 also lays down stringent security measures for financial transactions. It introduces strong customer authentication (SCA) requirements, which mandate two-factor authentication for most electronic payments, thereby reducing the risk of fraudulent transactions. Despite its potential benefits, there are also associated challenges. One of the major concerns is data privacy and security. While the regulation has strict guidelines for customer authentication and data protection, sharing financial data with third parties inevitably increases the risk of data breaches. Furthermore, the technical implementation of PSD2 APIs can be complex. Corporates need to ensure that their systems are compatible with the APIs of different banks, each of which might have unique requirements. Also, PSD2 is applicable only to banks operating within the European Economic Area (EEA). Corporates with banking relationships outside of the EEA might not be able to leverage the benefits of PSD2 with those banks. PSD2 is a ground-breaking regulation that has the potential to significantly improve the way corporates interact with their banks. The benefits of real-time access to banking services and the potential for innovative financial solutions must be weighed against the challenges of data security, technical complexity, and geographical limitations. Strengths: Weaknesses: Unique challenges While all these protocols offer diverse strengths, they also come with their unique challenges. Corporates must carefully assess their specific requirements, technical capabilities, security needs, and the geographical scope of their banking relationships before choosing the most suitable protocol. Consulting with financial and IT experts can help inform this crucial decision. Navigating the labyrinth of banking protocols can be daunting, but there’s a solution that simplifies it all – Cobase. With the ability to connect via all the protocols mentioned above, Cobase is a one-stop platform for corporates looking to streamline their banking communications. One of the key strengths of Cobase is its deep, in-house knowledge across all banking protocols. Whether it’s SWIFT FIN, FileAct, Host-to-Host, EBICS (2.4, 2.5, and 3.0), APIs, or PSD2, the technical experts at Cobase are well-versed in all. They take the burden off corporates to learn and implement these technical standards, allowing them to focus on their core business. What’s more,…
DOES YOUR TREASURY HAVE A DIGITAL MINDSET?
This article is written by Pecunia Treasury & Finance B.V. In an previous article I have talked about the IT changes that make life easier for a treasurer in the future (or now already). In this article I want to talk about the digital mindset of the person using the IT – the treasurer. Treasury is a numbers game. We treasurers use these numbers to optimize the cash or risk of the company. We make money with money. These numbers have to come from somewhere in the organization and it is usually never treasury itself. BIG data Big data is a hot topic in treasury but for treasury it was around longer. The treasurer needs to get their input information for all over the company. Cash inflow from sales, cash outflow from procurement and investment teams, HR etc. All this data needs to be gathered. The digital minded treasurer thinks about optimal ways of gathering this data: automatically. The treasurer starts its day with the actual cash balances and then looks forward. They basically need to predict the future. How great would it be if all this data would be available with the push on a button. An ideal world ? Maybe, but it is possible. Bank statements can be automated to be loaded collectively or in a Treasury Management System. The treasurer starts the day with up to date cash balances, and he has not started working yet as this was automated. He then updates the cash forecast. How? By pushing update in his cash forecasting system. Sounds too easy? True, it took weeks to find out where to find the needed input information and to automate getting this data grouped together and in a structured way. But a digital minded treasurer knows that the data is somewhere in the organisation; it only needs to found and linked to the treasurers information recourses so it is always available. The treasurer only has to check the validity and the quality of the data and see if it needs improvement. In this way the digital minded treasurer can automatically create a cash forecast and continually improve it. A cash forecast should be ready before the second morning coffee. In an ideal world it would be ready with a push on a button. Artificial intelligence makes it possible. The digital minded treasurer is steering it. Process improvements The digital treasurer looks at ways to improve its document flows and payments. Not only looking at costs but also looking at how many (manual) interventions are needed. FX deals can be setup to straight through processed (STP) while blockchain would make it possible to improve the speed of payments or document flows globally. Everything is connected, as payments go from a process to straight through and instant it has an immedicate effect on the cash availability and forecasting. While now the bank is the place to go for bank accounts and payments this might not be the case in 10 years. The digital treasury might be able to setup his own bank in the future. By using technology. The future The treasurer makes sure that he is on the steering wheel while technology makes it possible for him/her to check his surroundings so he does not crash. A bigger front window makes for a better view forward (forecasting), a higher max speed makes for quicker travel (updating changes in forecasting), adaptive cruise control saves effort on speeds control (automatic updating and AI, STP). The treasurer knows he needs to keep the engine running to keep moving. He also realizes that he does not need to be a mechanic to do this; however he needs to be able to tell the mechanics quickly why the car is not moving as the treasurer wants it to be so the mechanic can fix this. Or maybe the digital treasurer might change the car for a plane in the future, or even a rocket? It is clear that technology and treasury are interconnected. Already now and even more in the future. A treasurer therefore needs a digital mindset to survive and keep up with the information needs of his department and the company as a whole. And it’s not rocket science (yet). 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.
How to Explain RPA To Your Granny
This article is written by: Automation Boutique Remember when children used to believe that there was a tiny man inside the radio speaking? Or when they checked the back of the TV looking for the show host? We are back to those days, and again, it is due to a new technology: Robotic Process Automation (RPA). Where is the robot in robotic process automation? The robot is not a physical one. There is no metallic little man walking around and clicking buttons inside the computer. The “robot” is just a set of instructions that the computer follows on its own, without the need for a human to do it. Your granny will surely remember when people used to grind corn into flour by using water mills propelled by a nearby river. That is automation. The movement of the mill (whose energy was supplied by the passing water current) could be called a robot. You see, the robot is not the mill itself, which would be equivalent to the computer (as the water current would be to electricity). The robot is the virtual (not physically existing) “executer” of the automated action, in this case, milling. We could imagine a little man pushing the mill incessantly. In the RPA world, we call this imaginary man a robot. What does this “automation” thing mean? Automation consists of mechanising actions so that they can be executed without the need for a human to be present or to spend time and effort on them. Put simply, automation is making someone or something else do it for you. Remember when previous generations built a scarecrow using straw and their granny’s hat to keep birds and wild boars away from plantations (as grandma can tell you, birds and wild boars love to destroy grain fields)? Imagine having to do that yourself: being out all night posing in the darkness to keep those naughty beasts away from your corn! That is not what the old generations did. Instead, they automated animal scaring. After understanding who the “robot” is and what automation means, we can move on to the only word left: process. What is this mysterious process that is being automated? In the case of a watermill, the process is grinding corn into flour. In the case of a scarecrow, the process is, you guessed it, standing in the field day and night while looking scary. In RPA, the process could be typing (writing on the computer, in case grandma is giving you a funny look) to send an email (a letter sent over the internet), or it could be going to a website (a website is like one of those internet places where your teenage grandson appears on pictures sticking his tongue out) and finding some information in it. All of this, or any other pre-defined, repetitive, and rule-based computer tasks, can be automated, just like previous generations automated grinding and scaring animals away. In automation, rules can be as complex as needed, but must leave no room for ambiguity. If ambiguity cannot be avoided, hyper-automation is required, which is, judging by Granny’s face (see picture above), best left for after naptime (and a whole other article). So here we have it. Robotic Process Automation: We use a robot (imaginary little man or, more seriously, a set of instructions given to a computer) to take a process (some work to do, usually divided into discrete steps) and automate it (do the work for us). 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.
How does physical cash pooling & target balancing work with a TMS?
This article is written by Nomentia Cash pooling is a popular solution for balance netting to provide better access and visibility to the group’s liquidity position through a real-time, cross-border, and multi-currency structure. It can be an integral part of a group’s cash management strategy, together with target balancing to have the ability to mobilize cash across the entire group. What Is Cash Pooling? Cash pooling is a cash management method for optimizing cash balances within a group. There are two different main approaches to pooling: physical cash pooling and notional cash pooling. In this article, we focus on physical pooling. To put it simply, in physical pooling, the HQ (parent/holding) company works as a hub for collecting the excess cash from entities and distributing the cash to entities that are short on cash. Obviously, there are many different aspects that corporations should take into consideration when pooling cash, like taxes and legal obligations, which are left out of this article. In many organizations, the treasury function is in charge of cash pooling processes and agreements. Many banks provide different pooling options, but we will focus on the process where cash pooling is managed within the group. The benefits of having control of the cash pooling in-house are many. Having cash pooling functionality in the Treasury Management System (TMS) will create independence from banks, making the system bank-agnostic while covering any currency. The technical setup for physical cash pooling In the current economic environment, we have recently witnessed a considerable change in interest rates and currency fluctuations. This is one of the reasons why corporations are constantly searching for solutions to manage cross-currency and multibank cash pooling options. Additionally, corporations are interested in calculating the pooling need with intraday information instead of end-of-day balances. What is then needed for the technical setup of the cash pool? Obviously, some change management and internal communication are necessary before starting to create the technical setup for a new cash pool. Setting up cash pooling should be easy; you should be able to choose the desired balance per bank account. Furthermore, you should be able to define tolerances for the desired balance as well as payment types for the execution and the HQ’s counter account. Particularly when starting with cash pooling, the corporate treasury should have the option to start cash pooling manually, and then when the process is fully in control, they should be able to automate it. There are always different Treasury policies and practices in different corporations. Therefore, executing the actual sweeps or tops should be possible with Straight Through Processing or by using as many approvals as needed. Identifying balance transactions in bank statements should be an easy task. Cash pooling and in-house bank (IHB) Above, we discussed cash pooling and the practical setup for it. Many of you might have noticed that the “intercompany loan” between HQ and entities was not discussed in detail. In this chapter, we focus on handling that part efficiently. Imagine a situation where excess cash is swept from an entity bank account to an HQ bank account. This creates an intercompany loan. There are multiple ways to book the loan, and next, we will focus on utilizing an in-house bank for that purpose. An in-house bank typically contains one or more accounts, which we call member accounts, per participating entity. Every transaction that hits these accounts will be mirrored to the HQ mirror account. Typically, interest is calculated for the accounts, and in advanced systems, withholding tax is included when applicable. When combining in-house cash pooling and in-house banking, the obvious result would be to allocate the sweep and top transactions to an entity’s in-house bank account. This would mean that any cash pooling transactions could be found on a member account and the Treasury could automatically calculate interest for the intercompany loan as desired. One might ask: How do I allocate the pooling transaction to the entity’s member account? The answer is twofold: firstly, the TMS needs to make sure pooling payments have some individual information that the bank is reporting back and secondly, a sophisticated in-house bank system should have a dynamic way of identifying pooling transactions from potentially thousands of transactions. Target balancing for centralizing a single company’s cash in a multi-bank environment There are regions where even the smallest corporations have several bank accounts in several banks operating in just one country. The basic idea here is to have one or two main banks and the others will just provide a vehicle for collecting customer payments. In such a case, it might be interesting to sweep the extra cash from the collecting accounts to an optimized bank account owned by the same entity. This method is similar to cash pooling, but in this case, the counter account is not an HQ account but a different account owned by the same company. The arrangement, of course, also works for cross-border and cross-currencies, as no intercompany balance is created. Target balancing with an in-house bank or a hybrid approach In this blog, we have discussed how in-house cash pooling and even target balancing for a company can be done. Some corporations might even consider combining bank-offered cash pooling and in-house cash pooling in a hybrid structure. In such an arrangement, bank accounts belonging to the same cash pool are balanced by that bank and top accounts are managed by the TMS. Perhaps in the future, we will discuss how target balancing could be used in bilateral in-house bank settlement clearing or how intra-day cash forecasting could be used in physical cash pooling. 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.
The life of an interim treasurer
This article is written by Pecunia Treasury & Finance B.V. We can be “normal” treasurers: Being an interim treasurer is a bit like being a regular treasurer, but with a twist. Instead of settling into a long-term position, you’re the flexible solution, stepping in when needed due to someone leaving or falling ill. These stints typically last anywhere from three to six months, sometimes even stretching to a year. During these assignments, you become an integral part of the organization, taking on the day-to-day responsibilities until a more permanent replacement is found. However, there’s an inherent uncertainty that comes with each new assignment. You never quite know what challenges or dynamics you’ll encounter until you’re knee-deep in the role, and that unpredictability is just part of the life of being an interim manager. Or consultants: There’s another facet to this role: providing treasury support. This involves lending a hand to existing teams or individuals working on treasury-related projects. These projects can range from short-term tasks to more extensive undertakings that demand specialized attention. Often, the existing team lacks the bandwidth to tackle these projects alone, or there’s a pressing deadline looming. For instance, I once assisted a large organization in Rotterdam with delving into embedded derivatives to ensure compliance with new regulations. Within a few weeks, we had the project wrapped up, and my findings were integrated into the annual report. Another project involved constructing a RAROC (Risk-Adjusted Return On Capital) model for a client, enabling them to evaluate the profitability and risk associated with different banks and lending practices. Even implementation managers: Moreover, an interim manager in the treasury realm often wears multiple hats, extending beyond traditional financial roles. For instance, they might serve as implementation consultants for Treasury Management Systems (TMS) or payment hubs. This requires not only a deep understanding of treasury operations but also technical proficiency. Interim managers with expertise in these areas can guide organizations through the complex process of selecting, customizing, and integrating these software solutions into their existing infrastructure. By leveraging their technical skills, they ensure seamless transitions and optimal utilization of these systems, ultimately enhancing efficiency and accuracy in treasury operations. Or parttime: But the role doesn’t stop there. Sometimes, especially in smaller firms, a full-time treasurer isn’t feasible. Instead, the CFO or controller might double up on duties, handling Treasury responsibilities on a part-time basis. This is where a part-time treasurer, like myself, can step in. By taking on the treasury tasks, I free up the CFO’s time for their core responsibilities while bringing in expertise tailored to the treasury function. For instance, I once assisted a real estate company with valuing their interest rate derivative portfolio, managing their cash flow, preparing Treasury reports, and handling any ad hoc issues. All this was accomplished within eight hours a week, allowing the company to benefit from specialized expertise without the need for a full-time hire. Or we do a Treasury or FX scan: If you’re unsure whether your company’s treasury practices are optimal, a treasury scan or FX scan could be the answer. This involves conducting a thorough evaluation of the existing Treasury & FX processes and practices, identifying potential areas for improvement. A quick and dirty scan can be completed in just one day if the necessary data is provided in advance. While there’s a cost associated with the scan, it’s often outweighed by the savings generated from implementing the identified improvements. Plus, these savings can be realized either by the company itself or through continued collaboration with a flexible treasurer like myself. For more information about the scan or if you are in need of an interim manager in Treasury, please contact Pecunia. 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.
6 BENEFITS OF INCORPORATING FX HEDGING SOLUTIONS
This article is written by GPS Capital Markets As companies expand and start doing business internationally, they often engage in cross-border transactions, exposing themselves to currency exchange rate fluctuations. Currency exposure risk is an inherent outcome of engaging in the FX market. This uncertainty can impact transactional cash flows, making it imperative for corporations to employ effective risk management strategies. One such crucial strategy is Foreign Exchange (FX) Hedging. It is crucial to understand that the purpose of hedging practices is not profit generation. The primary goal is to safeguard the company and prevent significant financial losses. So, what is FX hedging? FX hedging involves the use of financial instruments to offset or reduce the risk associated with currency exchange rate movements. There are a variety of common instruments corporations use to hedge, such as forward contracts, options, swaps, and netting. We’ll dive in further on these individual instruments later. The Role and Benefits of FX Hedging There are significant benefits that come along with the time and implementation of having GPS Capital Markets come in and advise each of its clients about their FX exposure risk. Let’s discuss why this is such an important aspect of how each multinational corporation does business. Hedging your cash flows is crucial to managing financial risks and ensuring stability and predictability by protecting the company from adverse movements. Hedging can also allow for better budgeting and financial planning, as it provides a degree of certainty for future cash flows. This is particularly important when dealing with international transactions, where you can be subject to significant fluctuations and need to protect your profit margins. Better predictability also leads to greater confidence in management to make strategic decisions related to investments, expansions, and other business initiatives. Something often not considered is the benefit of improved relationships with creditors, which leads to potentially lower borrowing costs. Creditors love the predictability they can see with future cash flows. Lastly, hedging activities are often subject to accounting and regulatory standards. Properly executed cash flow hedging can help the corporation comply with these compliance standards and provide accurate financial reporting. In summary, 6 of the main benefits of incorporating an FX hedging program are: 1. Risk Mitigation 2. Financial Stability 3. Budgeting and Planning 4. Protecting Profit Margins 5. Enhancing Creditworthiness 6. Compliance and Reporting Hedging Instrument Definitions Knowing the overall benefits FX hedging can provide to corporations, let’s define each of the different hedging instruments that are commonly used among GPS clients. Forward Contracts: A forward contract is an agreement between two parties, a buyer and seller, to exchange a specific amount of currency A for currency B at a future maturity date. The exchange rate (forward rate) is determined at the time of entering the contract and reduces exposure to fluctuations in currency rates. Options: An option is a financial derivative that gives the holder the right, but not the obligation, to buy or sell a specified amount of one currency in exchange for another at a predetermined exchange rate (the strike price) within a specified period of time. There are two types of options commonly used, a call option and a put option. Call Option: A call option gives the holder the right to buy a specified amount of the base currency (the currency being bought) at the agreed-upon exchange rate (strike price) before or at the option’s expiration date. The seller (writer) of the call option has the obligation to sell the specified amount of the base currency if the holder chooses to exercise the option. Put Option: A put option gives the holder the right to sell a specified amount of the base currency at the agreed-upon exchange rate (strike price) before or at the option’s expiration date. The seller (writer) of the put option has the obligation to buy the specified amount of the base currency if the holder chooses to exercise the option. FX options have a specific expiration date, after which the option is no longer valid. The holder must decide whether to exercise the option before or on the expiration date. Unlike forward contracts, options provide the holder with the flexibility to choose whether or not to exercise the option. If market conditions are favorable, the holder may choose to exercise the option; otherwise, they can let it expire. So, you wonder, why wouldn’t you always take the more flexible route and always book an option? There is a premium that is paid to the seller for the right to exercise the option. It is the cost of purchasing the option and is determined by the exchange rate, time till expiration, and market volatility at the time. Swaps: FX swaps or currency swaps refer to two different ways of managing forward contracts. The first one is when a company has a forward booking for a future date and needs to change the value date of that contract. In this situation, you can move the value date forward or backward with an FX currency swap. The second example involves changing the amount of a forward contract that a company has on its books. If a company needs to reduce the amount of a contract, they can sell the currency forward to reduce the outstanding amount of their hedge. This can be very beneficial for managing cash flows and financing needs in different currencies. Currency swaps are often used by multinational corporations to obtain a desired currency for a specific period without engaging in a spot foreign exchange transaction. This can be very beneficial for managing cash flows and financing needs in different currencies, without having to incur a transactional cost. Netting: Netting in the context of foreign exchange refers to a process that allows market participants to offset or consolidate multiple transactions or positions involving the same currencies, resulting in a single net amount for settlement. Netting can help reduce credit and liquidity risk by consolidating obligations, as well as reduce administrative complexities and costs for a corporation. Implementing FX Hedging Meeting with an FX advisor from GPS Capital Markets can…
Pitch Perfect: Your Way to Treasury Tech Approval
This article is written by Cobase In the quest to secure approval for Treasury technology investments, the journey from a rough concept to a refined, boardroom-ready proposal is critical. Drawing on the wisdom of industry leaders and management consultants, this article unveils key strategies to craft a Treasury Tech proposal that not only resonates with CFOs and board members but also stands out as a strategic asset. Understanding Boardroom Dynamics Before diving into the specifics of the proposal, it’s crucial to understand the mindset of those who will be evaluating it. Board members and CFOs are primarily focused on strategic alignment, risk management, and ROI. Your proposal should speak to these elements in a language they understand and appreciate. Key Strategies for a Winning Proposal Advanced Communication Strategies Engaging with Emotional Intelligence Leveraging Influencers and Allies Addressing Concerns Proactively Conclusion Crafting a Treasury tech proposal that dazzles in the boardroom is an art that combines strategic alignment, data-driven insights, and a clear understanding of stakeholder priorities. By incorporating these industry-leading strategies, you can refine your proposal from a rough concept into a compelling, strategic asset that is hard to overlook. Remember, the goal is to not just secure approval but also to position the Treasury function as a key contributor to the organization’s strategic vision. 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.