Insights from the Nomentia Treasury Summit 2024: Navigating the dynamics of modern treasury management
This article is written by Nomentia Treasury management – For the future In an engaging opening address, Nomentia’s own Lauri Bergström and Tapani Oksala painted a vivid tableau of the ever-evolving landscape of treasury management and Nomentia’s customer-centric and dynamic approach to its developments. Three key trends emerged as focal points: financial strategy, risk management, and technological advances. Emphasizing the critical role of teamwork and leadership across organizations, the duo set up a robust foundation for the summit’s discussions. Unlocking liquidity management: The story of Caverion and the dynamics after an M&A The event kicked off in full with a deep dive into the complexities of liquidity management, as exemplified by Caverion’s finance operations amidst a strategic merger. In this session, Viljami Vainikka, Head of Group Treasury at Caverion, provided a comprehensive overview of Caverion’s liquidity landscape during a merger with Assemblin, highlighting their approach to optimizing cash visibility and addressing challenges in cash flow forecasting. He outlined Caverion’s liquidity management setup, which includes cash management across multiple currencies, numerous bank accounts, and entities, with a focus on optimizing liquidity and improving forecast accuracy. In conversation with Tapani Oksala, Vainikka shed light on the challenges of optimizing cash visibility and underscored the importance of robust and accurate cash forecasting, leveraging technology and strategic partnerships, and the potential for integrating AI to enhance liquidity planning processes to increase efficiency and accuracy. Key takeaways from “Unlocking liquidity management” How BioNTech dealt with turbulent times In the second presentation of the Nomentia Treasury Summit, Dirk Schreiber, Head of Treasury at BioNTech, shared with the audience insights into BioNTech’s journey amidst the centennially turbulent times leading toward the COVID-19 pandemic and its aftermath. Founded in 2008, BioNTech experienced initial challenges until the onset of the COVID-19 pandemic in early 2020. Recognizing the potential of their mRNA technology for developing a COVID-19 vaccine, BioNTech swiftly pivoted its focus, leading to the rapid development and distribution of a vaccine in collaboration with Pfizer. Schreiber highlighted the unprecedented growth and financial influx that followed the successful vaccine development, presenting BioNTech’s treasury management journey in response to these dynamic circumstances. With a surge in funds, BioNTech urgently required a robust treasury management system to manage its expanding financial operations. Despite facing initial challenges with an untested treasury function, Schreiber and his team swiftly implemented a treasury management system, leveraging Nomentia’s expertise to build BioNTech’s treasury operations. The presentation explored the intricacies of BioNTech’s treasury transformation, emphasizing the rapid expansion of requirements for the treasury and the establishment of essential treasury guidelines and processes for future development. Schreiber emphasized the critical role of the right technology in this transformation, particularly the implementation of Nomentia’s treasury management system to provide real-time visibility into cash positions, automate trading activities, and streamline reporting processes. Key takeaways from “How BioNTech dealt with turbulent times” Panel discussion: Bank as your partner in the fight against financial crime The panel discussion featuring representatives from Nordea, SEB, and OP shed light on the evolving landscape of financial crime prevention and the role of banks as strategic partners. Against the backdrop of increasing cybersecurity threats, the panel emphasized the importance of collaboration between banks and corporate treasuries in combating financial crime. As technology evolves, it brings with it new and exciting opportunities to those companies that are able to manage their risk appetite accordingly. Unfortunately, the development of technology also provides opportunities to the criminal element. The threat landscape in the digitalized business environment is significantly more complex than before. Thanks to technology we’re living in an environment wrought with crime and fraudulent behavior. The ecosystem of crime in the digitalized financial environment is complex and ever more susceptible to human error and poor processes. The panel’s discussions centered on the adoption of innovative technologies and best practices for enhancing security and mitigating risk in treasury operations. This session focused on the crucial role of proactive measures and strategic partnerships in safeguarding financial assets in an increasingly digital world. According to the panel, treasury management and financial professionals would do well not to treat the fight against financial crime as a digital problem only, as the evolving threat landscape requires an adaptive and nimble approach not only to security technology but the organizational culture as well. Fortunately, this is not a fight that businesses have to face on their own. The banking and finance industry has taken proactive steps to improve its resilience and business continuity. On the legislative side, the EU’s DORA (Digital Operations Resilience Act) is a great example of how demands for businesses to secure their operations in the financial threat landscape is not only a digital undertaking but requires a wider scope that encompasses their operations fully. Key takeaways from “Bank as your partner in the fight against financial crime” Digitalizing bank account management with smart workflows at EATON In the 4th presentation of the day, Stefan Müller from Eaton discussed the digitalization of bank account management (BAM) during the Nomentia’s Treasury Summit. Previously, BAM was cumbersome and fragmented, involving manual tasks, email exchanges, and Excel spreadsheets. Eaton recognized the inefficiencies and partnered with Nomentia in 2019 to modernize their BAM processes. The transformation involved leveraging advanced digital technologies to automate tasks like account openings, closures, signatory changes, and transaction monitoring. This shift required comprehensive cleanup of account and signer data, process documentation, and target workflows. By mid-2021, the project was underway, and by March 2022, the new BAM system was live. Today, Eaton manages BAM operations on one centralized platform, gaining efficiency, control, and compliance. Automated reconciliations and streamlined workflows have reduced manual efforts significantly. The treasury function has seen tangible benefits, including the closure of 200 accounts and the removal of over 200 signers and 2,300 permissions. The digitalization of treasury operations has offered opportunities for greater control and efficiency. Real-time data access enables informed decision-making and proactive risk management. Automation of routine tasks frees up time for strategic analysis. However, increased reliance on digital platforms necessitates robust security…
FranklinBiopharmaceutical Giant Breaks out of the Cash Forecasting Mold
This article is written by TIS Payments Note: This article was originally published by Treasury & Risk Editor in Chief Meg Waters, based on her interview with the treasury team at Bristol Meyers Squibb. You can view her original article here: Biopharmaceutical Giant Breaks out of the Cash Forecasting Mold (treasuryandrisk.com). Interview Participants The corporate treasury team at global biopharmaceutical company Bristol Myers Squibb manages cash and cash equivalents in the billions of dollars (US$11.5 billion as of December 31, 2023) across more than 200 legal entities around the world. Efficient cash forecasting in this environment requires clear visibility into global accounts and as much automation as possible. Until recently, the forecasting process provided treasury with visibility into 99 percent of the company’s accounts—but it was manual and cumbersome. “We take two approaches to cash forecasting,” explains Amy Szuting Chen, director of international treasury. “Treasury prepares a top-down, P&L [profit and loss]–driven multiyear forecast and a bottom-up forecast based on receipts and disbursements for the current year. For the bottom-up forecast, in each budget cycle—so, four times per year—treasury would collect data from our business partners, line by line. We would gather gross sales projections, as well as spending and payments, such as operating expenses and capex [capital expenditures] at the legal-entity level. “The information for a standard bottom-up cash forecast was submitted by different teams, and not in a standard format,” Chen continues. “Each business views their forecast differently, and there are variations in their methodologies. So the treasury team would have to consolidate all this data in Excel, which created a lot of manual work and took a month or more each quarter.” International business units added another layer of complexity because different geographic regions handled forecasting differently. “Internationally, we had three different forecasts that were not 100 percent in sync with each other,” Chen says. “Occasionally, one forecast might show a cash surplus, while another forecast for the same region might show a net outflow using a different set of assumptions.” The forecast timelines also varied. Whereas corporate treasury generated daily forecasts for the U.S. market, the international team worked with business units to predict monthly cash receipts and disbursements. “We are operating in a dynamic environment as a company right now, and we are required to make a lot of business decisions quickly,” says Abhishek Jhunjhunwala, director of capital markets. “On the capital markets side, we work on many scenarios around different capital allocation strategies, and cash is a critical component. When we had a manual process to pull together forecasting information, it certainly created a decision-making hurdle. We would all have to wait for the top-down and bottom-up forecasts to be generated and then reconciled, which slowed down our decision-making. “Bristol Myers Squibb has engaged in a lot of M&A [merger and acquisition] activity recently, and every transaction requires cash,” he adds. “A couple of years ago, we were considering whether we had the capital to complete a certain acquisition, what our cash flows would look like, and whether we needed more support from a liquidity perspective. We had the P&L forecast, but the final cash flow forecast was not immediately available.” Bristol Myers Squibb treasury needed to standardize and accelerate global cash forecasting, shifting toward automation wherever possible. With the help of a third-party consultant, the team identified their requirements for a cash forecasting solution, including cybersecurity and access control needs. The treasury team assessed four systems, selected one (TIS CashOptix), and negotiated a contract with the help of internal procurement teams. As they neared the end of this process, the IT budget allocated to cash forecast upgrades ended up being committed to a different finance initiative, so the forecasting project lost its funding. The treasury leadership team decided that the project was so necessary that they would fund it out of treasury’s internal budget, with the expectation that the additional interest income generated by investments would offset the costs. In deploying the system, the project team established four driving principles: First, they vowed not to customize the system to fit their current processes, but instead to use the system to standardize processes across all teams. Second, they wanted to minimize manual workflows. Third, they committed to think outside the box and challenge the existing mindset. And fourth, they agreed to continuously reprioritize the different aspects of the project. The project team worked with IT to build interfaces between TIS CashOptix and key source systems—including Bristol Myers Squibb’s enterprise resource planning (ERP) system, treasury management system, and planning system—with the goal of automating data feeds. They established logic for converting information from different systems so that all the data in the forecasting system would be standardized. The team stepped outside their comfort zone and redesigned their processes to fully leverage system capabilities and minimize manual efforts. The resulting cash forecasting system uses historical, market, and other data inputs to automatically generate forecasts of daily cash flows. The forecasts can span custom time periods, in days, weeks, months, or even years. And the system offers scenario modeling based on the forecast data, so treasury staff can create events and combine them into forecast scenarios to project potential business impacts of all kinds of external and internal events. Treasury teams agreed to use one forecasting cycle and work off the same version of the forecast. “Now the entire treasury team—U.S. cash managers, international cash managers, the European treasury center, everyone—all look at the same numbers,” Chen says. “That means we can make better decisions based on an updated and thorough cash forecast, rather than just cash position. Plus, our investment and financial risk management teams can use these forecasts to decide how much further out to invest our cash or issue commercial paper. The system provides a view of global liquidity, which helps facilitate these investment decisions, and we continue to discover new uses of the system. It’s a journey, rather than a destination.” “This solution supports quicker, easier decision-making,” Jhunjhunwala says. “This is partly about technology and partly about the processes we…
Fiat Currency Management Crypto Challenges
This article is written by Kyriba Finance leaders have reason to avoid the volatility of alt coins but their lack of visibility into currency exposure could be leaving them vulnerable to a similar risk with some fiat currencies. Bitcoin’s skyrocketing and subsequent free fall in value should be a wakeup call to CFOs, corporate risk managers and others focused on currency management. But not for the reason you think. Corporate CFOs are largely staying away from privately issued alt coins such as Bitcoin, Ethereum, Tether, and others because of their price volatility. While Fundera reports that over 2,000 businesses – including AT&T and WeWork – in the United States accept Bitcoin, none of these organizations are holding cryptocurrencies on their balance sheets. They are converting to fiat currencies daily (or intra-day in some cases) to avoid being caught holding a devalued digital currency. The remainder of organizations that wish to attract crypto-centric customers use intermediary fiat to crypto payments processors such as BitPay who will translate crypto-currency to fiat currencies or gift cards in real-time for shoppers to purchase goods and services. These businesses have similar interests: they are not in the business of digital currencies and don’t want to be risking their hard-earned revenue and cash flow to uncontrolled price movements in the currencies they transact in. This argument will sound very familiar to any CFO or Treasurer. Their mandate is to minimize the impact of financial risks so investors can be exposed to the business risk and not increases or decreases in earnings due to currencies (digital or otherwise). Digital currencies are hard to protect against because the derivatives market is not fully developed, the utility of cryptocurrencies is limited which reduces the opportunity to construct natural hedges, and the process of converting into fiat currencies is frictional lacking the automation or liquidity that treasury teams have come to expect for standard currencies. And yet, while all these liquidity and hedging levers exist for finance teams to protect their balance sheets from (fiat) currency volatility, most CFOs aren’t very good at that either. A quarterly study recently reported organizations lost over $9.5 Billion in earnings due to currency headwinds in Q1 of 2021. In the trailing six months, this totals over $16B in lost value. How is this possible? The problem is not the inability to protect cash flows and assets from price volatility. Unlike with digital currencies, those structures work well for fiat currencies. The issue is visibility. CFOs do not have sufficient transparency into their cash flows and balance sheets to be able to hedge effectively, whether constructing natural hedges and/or going to the derivatives markets. As a result, forecasted cash flows are left unprotected and balance sheet accounts, captured within the depths of their ERP software, are vulnerable to every currency movement. Fortunately, there are relatively easy solutions to perfect visibility so better data-driven risk management programs can be implemented: There is certainly similarity in the underlying reasons why the majority of CFOs do not want cryptocurrencies on their balance sheets: they want to be able to remove the uncertainty of price movements. It is ironic that the same CFOs have much work to do to protect the same balance sheets from fiat currencies as well Note: This blog first appeared in CFO Dive: https://www.cfodive.com/news/crypto-challenges-shine-light-on-cfos-fiat-currency-management/605177/. 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.
Reviewing Best Practices for Treasury’s Cash Flow Forecasts
This article is written by TIS Why is Cash Forecasting so Important for Treasury? For as long as corporate Treasury has existed, cash and liquidity management have been two of the primary responsibilities entrusted to practitioners. Today, the cash management function often includes forecasting and working capital analysis tasks as well, and in recent years, the emphasis placed by organizations on improving these functions has skyrocketed in importance. Why is this? By accurately predicting their company’s future cash flows, Treasury departments can make informed decisions regarding investments, borrowing, and overall liquidity management. Today, cash forecasting allows businesses to assess their ability to meet financial obligations, optimize cash balances, and plan for future capital expenditures. It also provides visibility into short-term and long-term cash requirements, enabling proactive measures to be taken to avoid cash deficits or excessive cash holdings. Moreover, cash forecasting serves as a fundamental tool for risk management, allowing treasury professionals to identify potential liquidity gaps, currency exposures, and interest rate risks. With an accurate understanding of cash flow patterns, corporate treasurers can ensure that sufficient funds are available to support daily operations, manage working capital effectively, and seize growth opportunities. In 2023, industry data has clearly highlighted the extent to which cash forecasting is being prioritized by corporate practitioners. In fact, a recent panel survey of over 250 practitioners recently highlighted that cash forecasting remains a critical priority not only for treasury, but for the CFO as well. In addition, this survey evaluated the investment plans of treasury groups over the next year and found that cash forecasting technology is top of the agenda for new spend over other areas such as payments and security. While there are many reasons for this, a pronounced spike in volatility that has been impacting the corporate environment since 2019-20 is one major factor. – Cash Forecasting is Critical During Periods of Heightened Volatility Heading into 2019-2020, numerous corporate treasury studies from Strategic Treasurer and the Association for Financial Professionals (AFP) had already shown that the importance of cash forecasting was increasing in the minds of practitioners. Following the aftermath of the 2007-08 financial crises, many treasury teams had reprioritized the forecasting function as a means of better identifying liquidity risk and preparing for adverse events. However, the 2020 pandemic and the subsequent geopolitical and supply chain crises have clearly put these priorities into overdrive for many teams. As it stands today, a myriad of disruptions continue to exasperate the global economy and are amplifying the need for accurate and timely cash projections, as well as improved risk management and liquidity optimization. With revenue streams fluctuating, demand patterns shifting, and supply chains experiencing severe disruptions, businesses have little choice but to develop a comprehensive understanding of their cash positions to mitigate risks, ensure financial stability, and make strategic adjustments. Going by the data, 62% of enterprise-level treasury practitioners in 2019 indicated that cash forecasting was the function they spent most of their daily time on. This was higher than any other listed function including payments, security, and compliance management. These numbers increased even more during 2020, and in 2022, 61-68% of practitioners across small, mid-market, and enterprise companies indicated that developing skills for more effective cash forecasting were more important than any other skillset. In large part, this added emphasis on cash forecasting in recent years is due to the following reasons: 1. More Unpredictable Cash Flows: Economic volatility often leads to fluctuations in customer demand, supplier performance, and market conditions. As a result, cash inflows and outflows can become more unpredictable. Cash flow forecasting allows treasury to gain visibility into potential cash flow disruptions (i.e. late vendor payments, reduced sales revenue, etc.) and adapt their liquidity management strategies accordingly. 2. Greater Need for Risk Mitigation: Heightened volatility brings increased risk, including potential credit defaults, market volatility, and liquidity challenges. By accurately forecasting cash flows, treasury teams can better identify and mitigate risks associated with cash flow shortfalls. This includes proactively planning for contingencies, arranging alternative funding sources, or renegotiating supplier payment terms to ensure the organization’s ongoing financial stability. 3. Data Requirements for Decision Making: During periods of volatility, making well-informed financial decisions becomes even more critical. Cash flow forecasting provides treasury (and the CFO) with valuable insights and data regarding the organization’s liquidity position, which enables them to better evaluate investment opportunities, assess the feasibility of expansion plans, and make strategic decisions about financing. Accurate forecasts also help minimize the risks associated with capital allocation decisions. 4. Stakeholder Communication Requirements: Sudden, unexpected, or prolonged volatility often triggers increased scrutiny from stakeholders such as investors, lenders, and regulatory bodies. An accurate and timely forecast process can quickly provide up-to-date information for these stakeholders, demonstrating the organization’s ability to manage cash flows effectively even in uncertain market conditions. This ultimately enhances transparency and builds confidence among various stakeholders, partners, vendors, and customers. 5. Focus on Cash Preservation & Optimization: When cash flows are uncertain, preserving cash becomes crucial to ensure the organization’s survival and resilience. Cash flow forecasting helps treasury identify potential cash conservation measures such as cost optimization, inventory management, or negotiating favorable payment terms with suppliers. It also allows practitioners to take proactive steps to manage cash outflows and maintain an adequate cash cushion. Given the above factors, it’s easy to see why cash forecasting has become so important during the past few years. But as companies increasingly prioritize the cash forecasting function, there is less and less room for error – especially since numerous other stakeholders are relying on treasury for accurate data and information. For this reason, it is critical that practitioners adopt an automated, streamlined, and comprehensive forecasting workflow that addresses financial performance across the entire company. Let’s explore further. A Standardized 7-Step Approach to Cash Forecasting Having analyzed treasury’s cash forecasting functions across thousands of companies over the past few years, the below workflow represents seven of the most common (and important) steps that a cash forecast should consist of. In addition, the following infographic highlights key steps that TIS experts have identified as helping refine the forecast process even further…
FXBEACON: FOSTERING DEVELOPMENTAL RELATIONSHIPS IN BUSINESS: A HOLISTIC APPROACH
This article is written by GPS Capital Markets My wife loves to explore the world. Anyone who has gone on an adventure with us knows that my wife’s trips are always outstanding. My trips, on the other hand, are usually all about business and developing relationships with people around the world. A few years ago, we visited Notre Dame in Paris. We took a behind-the-scenes tour of the restoration work being done on this magnificent cathedral. The emotion and feelings evoked from seeing this masterpiece cannot be replicated. Only a few weeks later, it caught fire and burned down. My feelings of heartbreak from this personal interaction would not have been the same. If I had not visited and experienced it in person. Working at GPS Capital Markets is for me all about creating true Developmental Relationships in business. It requires being meaningfully connected to current and prospective clients. Even if that means traveling hundreds or thousands of miles to see them. For instance, a few years ago, I was visiting a client in their office. And they had a mountain bike propped up against the wall. As an avid mountain biker myself we were able to develop a close relationship based on mutual interests. This client then took me on a tour of their building. And showed me a map of where they do business around the world. Noticing they did business in China, I asked about the challenges they had doing business there. He had incorrectly assumed they didn’t have options for dealing with CNY currency risk. We were able to customize a very effective plan to help them reduce their risk by millions a year. None of this would have happened without having been there in person. In the ever-evolving business landscape, the importance of Developmental Relationships cannot be overstated. Repeatedly, I have experienced a very fractional relationship approach to sales. They had multiple handoffs from the initial call to implementation and ongoing support. This is especially true in the technology space where a lot of knowledge is required. In order to advise a client on their best course of action. But how does this relate to foreign exchange and our ability to provide a great service to our clients? Let me relate three examples of how and why this works for me. What Is Right for the Client? Okay, I know this sounds trite and everybody says something similar, but here are ways I practice and train our employees with this skill. All of this happens before we start “selling” someone on our tools and services. If you have never met your provider and all they do is sell you more and more risky products, it is not very likely you will have a true partner. Find The Right Partners When choosing a football club to sponsor, it was important to understand who we were doing business with. Partnering with prominent organizations, such as Burnley FC, opens doors to a vast network of professionals and enthusiasts alike. But not all relationships are the same. We met with the owners of the club on multiple occasions to ensure that our end goals and cultures were a good fit. At the end of the day, the people in the organization, and their willingness to help us as a company were deciding factors. These partnerships extend beyond traditional networking events, offering unique opportunities for interaction, and fostering relationships not only within the business community but also among passionate sports fans. Such as the one we co-sponsored to bring together top women leaders in Northern England to hear the inspiring journey of Lola Ogunbote, Head of Women’s Football at Burnley’s Football Club. This also applies to our clients, we don’t just do business with anyone, we are selective about who we do business with. Foster a Culture of Success In the pursuit of organizational growth and success, fostering partnerships with like-minded entities is essential. One such collaboration is a strategic alliance we have with the women’s business community in the UK. They are passionate about creating environments for senior female professionals to connect, meet, collaborate, and create long-lasting professional friendships. This harmonizes nicely with the GPS Capital Markets ‘Women in Business’ Employee Resource Group (ERG) that we established last year. These partnerships align with principles of diversity and inclusion and provide a mutually beneficial relationship. GPS is an organization that specializes in creating bespoke FX solutions for clients, an opportunity to further understand the unique needs of female CFOs and provide tailored FX solutions that aid in the professional success of women in finance. This all works toward a better relationship with our clients. Incorporating partnerships with organizations like Burnley FC into developmental relationships adds a unique dimension to our business growth. In addition to learning how to grow a beautiful turf field and understand the specific needs of women CFOs, these collaborations offer a diverse range of opportunities, from expanding professional networks and enhancing leadership training, to fostering global perspectives. By integrating the strengths of these partnerships, businesses can create a holistic developmental environment that propels them toward sustained success in the competitive business landscape. To return to my initial anecdote, I got to visit Notre Dame this week between meetings and see the progress they have made in restoring it. Feelings of gratitude washed over me, as I appreciated all the opportunities life has given me. Not just to see beautiful things, but the experiences and opportunities to help others achieve their goals in a meaningful, solid, and present way. 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 the form below to get more information. Notice: JavaScript is required for this content.
Intercompany Transactions Guide: Meaning, Management & Strategies
This article is written by Nomentia Intercompany (IC) transactions (or intra-group transactions) are heavily used in the operations of multinational corporations, where financial exchanges between entities within the same corporate group occur frequently. While these transactions offer operational flexibility and efficiency, they also present unique challenges in terms of efficient accounting processes, compliance, and financial reporting. In this blog post, we’ll dig into the intricacies of intercompany transactions and explore strategies for effectively managing them. There will also be a bonus case study on what optimized intra-group payment setups can look like. But first, let’s have a closer look at what IC transactions actually mean and how they work. The meaning of intercompany transactions Despite there being various types of intercompany/intra-group transactions, they can generally be defined as transactions that occur between different entities within the same parent company or corporate group. These transactions can involve the transfer of goods, services, or financial assets between subsidiaries, divisions, or other affiliated entities within the organization. Types of intra-group transactions Intercompany transactions can be categorized into three main types based on the direction of the transaction and the relationship between the entities involved: The categorizations help to understand the directional flow of transactions and the dynamics within the corporate group. Each type of transaction serves specific business objectives and requires careful consideration of factors such as pricing, documentation, and compliance with local regulatory requirements. Examples of intercompany transactions When it comes to the actual transactions themselves, various examples are relevant for finance, accounting, and treasury teams. They illustrate how diverse the nature of intercompany transactions is and how crucial they are for multinationals to function properly. The most common examples of intercompany transactions include: Each intra-group transaction requires a slightly different approach, varying stakeholders, documentation, or compliance. It can be very challenging for companies to manage them efficiently and transparently. How does the intercompany transaction process work? To provide more clarity about the actual work that goes into each example of IC transaction, you can look at the related processes that consist of several steps involving various stakeholders within the organization along the way. How these tasks are divided highly varies in each organization. Yet, you can usually see that the process looks similar to the one below: 1. Identification of intercompany transactions Companies need to identify transactions that occur between different entities within the same corporate group. These transactions may include sales of goods, provision of services, loans, transfers of assets, royalties, or other types of financial exchanges. 2. Recording transactions Once identified, intercompany transactions are recorded in the accounting records of the participating entities. Each transaction is recorded at fair market value, which is the price that would be agreed upon by unrelated parties in an arm’s length transaction. 3. Elimination process The transactions need to be eliminated from the consolidated financial statements to avoid double-counting. When the parent company prepares its consolidated financial statements, it combines the financial results of all its subsidiaries into a single set of financial statements. To ensure accuracy, intercompany revenues, expenses, assets, and liabilities are eliminated during the consolidation process. 4. Intercompany pricing One of the critical aspects of intercompany transactions is determining the transfer price, which is the price at which goods or services are transferred between related entities. Transfer pricing is crucial for tax purposes and to ensure that each entity within the corporate group is fairly compensated for its contributions. 5. Documentation and compliance Companies must maintain proper documentation of intercompany transactions to comply with accounting standards, tax regulations, and transfer pricing rules. This documentation typically includes intercompany agreements, invoices, pricing policies, and other relevant records. 6. Tax implications IC transactions can have significant tax implications, especially when they involve entities in different tax jurisdictions. Tax authorities scrutinize the transactions to ensure they are conducted at arm’s length and that transfer prices are set in accordance with regulations to prevent tax evasion and profit shifting. 7. Risk management Managing risks associated with intercompany transactions is crucial. Companies need to ensure compliance with regulations, mitigate transfer pricing risks, and maintain transparency in their financial reporting to avoid legal and financial repercussions. It is clear that IC transactions play a vital role in the operations of multinational corporations, facilitating the efficient allocation of resources, sharing of expertise, and coordination among different entities within the corporate group. Simultaneously, it’s a time-consuming process that requires many steps, stakeholder management, and documentation. Let’s zoom in on the documentation aspect further, since that’s where companies can optimize processes in particular. Documentation is a critical part of managing IC transactions Traditionally, intercompany transactions are documented through various means to ensure proper record-keeping, compliance, and transparency within the corporate group. Some common documentation methods include: Intercompany agreements: formal agreements that are drafted to outline the terms and conditions of intercompany transactions. These agreements specify the nature of the transaction, pricing mechanisms, payment terms, and any other relevant provisions. Invoices and billing statements: invoices are issued for goods sold, services rendered, or other transactions conducted between entities within the corporate group. These invoices detail the quantity, description, price, and total amount due for the transaction. Transfer pricing documentation: transfer pricing documentation is prepared to support the pricing of intercompany transactions in accordance with applicable tax regulations. This documentation typically includes a transfer pricing study, analysis of comparable transactions, and documentation of the pricing methodology used. Accounting records: each intercompany transaction is recorded in the accounting records of the participating entities. These records include journal entries, ledgers, and other financial documents that capture the details of the transaction for internal and external reporting purposes. Intercompany reconciliation: there need to be regular reconciliation processes in place to ensure that intercompany balances and transactions are accurately recorded and reconciled between the entities involved. This helps identify and resolve any discrepancies or errors in the accounting records. Even if this documentation process sounds labor-intensive, there are ways to make it more efficient, for example, by adopting dedicated tools. Other improvements and strategies we’ll discuss more in detail below. Strategies…
Keys to Achieving Financial Data Integration & Process Automation in Treasury Technology
This article is written by TIS Payments Notice: This blog is based on an interview-style conversation between TIS representative Edgar Goldemer and Julian Fisahn, Specialist in Treasury Management Systems at BayWa r.e. The focus of their discussion centers on best practices for managing a treasury technology project, from gathering requirements and aligning with stakeholders to building an RFP, selecting vendors, and kicking off the implementation process. The ultimate goal? Identifying and instituting a platform to manage global financial data integration and process automation for treasury’s core payments and cash management operations. This article was originally published in the Q1 2024 edition of the TIS magazine. To access the full spread of exclusive magazine articles and industry insights, refer to the above landing page. Read the Full Interview Between TIS & BayWa r.e. below Edgar Goldemer: Julian, can you get us and our readers on board in a few sentences: How did the need for greater financial technology automation arise for your treasury group? What is the backdrop of the RfP which ultimately led to identifying TIS as a vendor? Julian Fisahn: Certainly! Within BayWa r.e.’s Treasury, we currently operate on a rather classic setup involving a treasury management system and a reporting tool. However, we’ve realized that these solutions are not scaling with our current growth. Over the last 10 years, BayWa r.e. as a group has experienced significant increases in terms of revenue, global footprint, and the number of newly onboarded employees – including those related to Treasury. Given that our current treasury solutions are not keeping pace with our current growth, we figured that we have to revamp our Treasury setup. Therefore, we initiated an overall Treasury transformation. Encompassing aspects such as organizational design, Target Operating Model definition, and, subsequently, the system selection process. We use all our Target Operating Model decisions as a basis for determining the requirements of our upcoming or new systems. Edgar: It’s great that BayWa r.e. already had clear objectives and a holistic vision when reaching out to us. The approach they followed is something I would recommend to any company considering a Treasury transformation project. Without a vision or clearly defined goals, sooner or later during the RfP process, companies risk getting lost in individual features and function discussions in the RfP spreadsheet. There are so many details to consider and to evaluate. To avoid losing focus or spending valuable time on something that might actually not be relevant for the operations, having the big picture in front is crucial. It facilitates evaluating features, functions, and strategic conversations. Having defined a vision beforehand can be helpful to zoom out and look at the big picture again. So, scalability and a future-proof solution for your Treasury to keep up with the pace of your company’s growth was the main focus for BayWa r.e.? Julian: Yes, partially. In Treasury, we were indeed searching for scalable solutions that we, as a Treasury team, can effectively maintain and administer to a maximum degree. I’m referring here, for example, to the onboarding of new colleagues, functionalities, or of new countries we need to include in our new system landscape. That’s on the one side, that’s the Treasury perspective on things. And on the other side, we are looking at dozens of legacy systems outside of Treasury that our systems need to communicate with. With a strong growth in new markets unavoidably comes the task to integrate older legacy systems from companies we acquired. Our ERP landscape is still very heterogeneous across the whole globe for the BayWa r.e. Group. Therefore, we were looking for system solutions that are seamlessly interfaceable with these legacy systems, ensuring the smooth flow of data and processes from outside of Treasury into Treasury and back. This aspect was a crucial consideration for us throughout the entire system selection process. Edgar: A dynamically growing business environment is certainly amazing news. However, the challenges it poses on the operations of Treasury departments are remarkable. It’s not just about the numerous legacy systems that you just mentioned. There’s also the international banking landscape, limited IT resources, non-compliant manual processes, a lack of cash visibility, and the people to take into account. The complexity is extraordinary. I believe that each of those factors alone is reason enough for Treasury to seek out and look for a centralized payment hub – a solution that allows for agility and security around the Treasury and payment operations. The more factors come into play, the more entities, or countries, the higher the overall complexity is, the more important it is to have a really robust and dedicated payment hub. How many systems and countries were in scope for the treasury transformation project you aimed to start? Julian: Currently, we operate on thirty different ERP instances, involving a lot of different vendors. Additionally, we have master data systems in place, with which we need to exchange data to ensure a full and up-to-date overview on bank accounts, bank partners, and on the relationship to our legal entities. We have hundreds of legal entities, it’s between 600 and 800. The number is pretty fluent in our case. In summary, there are numerous entities that we need to onboard, each with many bank accounts. So, there’s quite a lot of things to do for us with TIS. Edgar: Definitely, and we’re looking forward to it! Is it the first time you are conducting a comparable project at such a scale? Julian: Fortunately, I personally have some experience with Treasury transformation projects and also with system selection and implementation projects. So, this is rather not new to me. And luckily, it’s also not new to our colleagues in Corporate Treasury. We have a very motivated team, which fortunately has a lot of experience with such projects, also from former positions. And, generally speaking, BayWa r.e. is very open to change. I mean, we, as a corporation, have been in a constant change management mode over the last 10 years. So many new countries, legal entities, and systems were onboarded. People here are very used to working in a project context, and excited to…
Identifying the ROI in a Treasury Transformation Project
This article is written by Kyriba How do you truly identify the total value of the Treasury Transformation Project? While some aspects of a treasury transformation project may seem black and white, other value components are difficult to quantify, and many are often overlooked completely. When evaluating the ROI of a treasury initiative, it is important to ensure that all components of the value proposition are accounted for. This blog, which is part of our Value Engineering series, highlights some of the key attributes that are often forgotten when determining the value of a treasury project. Establishing Treasury as a Strategic Partner As a former treasury practitioner, it sometimes posed a challenge to change the view of treasury held by many in the C-suite. Historically, treasury has been viewed as more of a tactical department, serving as a firefighter when things go wrong. However, the view has since expanded to see the value treasury can provide to an organization. With the correct tools at their disposal, treasury can be elevated to a seat at the CFO’s table by providing valuable information to an organization’s global liquidity profile. Investing in an enterprise liquidity platform enables treasury to provide essential insights to ensure an organization’s sustainability and financial longevity. What would elevating treasury to the role of strategic business partner to the CFO do for your team? With a treasury solution in place, what type of analysis and support would you be able to provide your internal customers? Clearly articulating this value is critical to ensuring an accurate and comprehensive ROI assessment. Business Continuity Risk Many organizations have processes in place that inherently live within team members and help establish existing workflows. Although written workflows provide some controls and guidance, they do not always capture the whole picture of the process, are not regularly updated to include recent changes, and often lack the ability to list out all inevitable exceptions to the rules. Standardizing processes and managing repetitive tasks through treasury software helps protect the organization from employee turnover or reductions in overhead expenditure by eliminating reliance on subject matter expertise. Furthermore, overreliance on team members tends to perpetuate the monotonous following of established procedures, rather than encouraging employees to gain a true understanding of the logic and reasoning behind processes and think outside of the box. The systematic enforcement of processes and procedures allows more time for the evaluation of current processes and offers opportunities to establish best practices rather than staying with the status quo. Think about the current structure of your team and the various responsibilities each member has. What would happen if a key employee left the company? Would you be able to continue operations smoothly? Could remaining members absorb and redistribute the workload, or would there be a steep learning curve? Being able to seamlessly provide continued support at the same level of service, as well as the ability to improve the status quo is a vital component of the ROI calculation. Human Capital Optimization Companies work hard to ensure that their treasury team is composed of intelligent, highly educated individuals, often with years of experience. However, without a TMS in place, team members frequently spend their time on manual tasks like data collection and consolidation. The cost of not optimizing the organization’s greatest asset, its human capital, not only leaves missed opportunities for growth—it can decrease employee morale and increase turnover. Additionally, the labor market in today’s economy is increasingly competitive. The ability to include the usage of a TMS or enterprise liquidity management (ELM) platform in a job description provides a strong competitive advantage. This allows the organization to attract top talent. The ROI of a Treasury project must include the value associated with repurposing time spent on tactical activities. And optimizing human capital by leveraging it for more value-added and strategic initiatives. Think about how team members will be able to better use their time. And what the impact of new strategic initiatives will be on the organization. For example, your team could now have time to work with experts to evaluate, create and implement an FX risk management program to mitigate the impact of currency volatility. There may be an opportunity to launch a dynamic discounting or supply chain finance initiative to optimize working capital management. All potential projects that a Treasury Transformation project would enable need to be evaluated and included as part of the ROI calculation. Increased Controls The final value component that is often neglected is the importance associated with the harmonization and centralization of controls. KPMG studied over 642 organizations in 2022. 83% of those surveyed indicated that they had experienced at least one cyberattack over the past 12 months. In addition, 71% of respondents indicated they have experienced some sort of internal or external fraud. And 55% suffered losses due to regulatory fines or compliance breaches. Payments fraud attacks impact not only the bottom line but also pose a risk to the organization’s reputation. Leveraging a TMS or ELM platform would provide the ability to standardize controls and reporting globally. Ensuring auditable enforcement of internal policies and minimizing the opportunity for successful fraud attempts. Without a treasury solution in place, how effectively can you protect your organization, its assets, and its reputation from fraudsters? How would you quantify the reputational impact of reduced sales, lost customers, potential lawsuits, or loss of future business? The value of mitigating this risk is an essential piece of the ROI calculation. Next Steps Evaluating the return on investment for a Treasury Transformation Project is a complex undertaking. Thus, it goes far beyond evaluating productivity savings versus the cost of the solution. Companies need to ensure that they consider all potential value components of a Treasury project and its impact. This is to ensure that a full value assessment is included in the decision-making process. Many intricacies and value components are often neglected. This makes many Treasury teams look for outside guidance in calculating the potential ROI of such projects. In order to ensure that they are comprehensive in their evaluations. Also Read
FXBEACON: 75 HARD, 100% SMART: CURRENCY HEDGING LESSONS FROM MY “75 HARD” JOURNEY
Imagine that at the beginning of July, you decided to join me on a personal journey. To transform physically and mentally by taking on the “75 Hard” fitness and mental wellness challenge (which I started 66 days ago). For those who are not familiar, “75 Hard” consists of 5 daily challenges: A) Two 45-minute workouts (one has to be outside) B) Stick to a diet of your choosing (no alcohol and no cheat meals) C) Drink a gallon of water each day D) Read 10 pages of a non-fiction book, bonus rule E) Take progress pictures If you skip a day, you start over. Throughout the process each day, I wake up knowing that I’ll face grueling workouts. Couple with mental toughness exercises, and strict discipline requirements. Meanwhile, in the business world, many companies are navigating their own set of daily challenges. Like the hurdles I’ve encountered on my journey. Surprisingly, there’s a striking similarity between a commitment to “75 Hard” and a business strategy called Currency hedging. Hedging or protecting against/mitigating risk. Currency exchange uses the same principles of resilience and adaptability you need to complete “75 Hard.” And each is equally vital for businesses seeking success in an unpredictable world. Think about how important your health is to you. That headache that lasted a little too long, that cramp in your calf, the lower back pain that keeps you from sitting in certain positions. People regularly spend hundreds of thousands of dollars on their physical health. If you ask anyone over the age of 70 if they would rather have the health they had in their 20’s or a few million dollars, they will unanimously choose their health. We can all agree that the financial health of a company is just as important to the longevity of that business as physical and mental health are to humanity. By Currency hedging, businesses are able to reduce the effect of adverse market movement. Such as fluctuations in interest rate differentials or currency exchange rates, similar to the way mental and physical exercise combat the adverse effects of aging. By doing so, these companies can safeguard their profitability and long-term viability. So far, I’ve learned that the daily consistency required by “75 Hard” has created both physical and mental predictability in my life. Although challenging, I know what to expect each day. Without that predictability and routine, there is no way I would have been able to make it this far. Almost identically, hedging strategies provide businesses with stable financial footing by minimizing volatility and eliminating a variable from their business. This stability is crucial for effective planning and decision-making. This enables companies to pursue their strategic and FP&A goals with far greater confidence. Although predictability is the ultimate goal, nothing happens exactly as planned. Because of the unpredictability that life has around every corner, “75 Hard” also emphasizes adaptability. By requiring participants to complete their daily tasks, rain or shine (my run in southern California during Hurricane Hillary can attest to that), it forces participants to stay nimble in the face of uncertainty. Similarly, businesses need to have the ability to adapt to shifting market conditions. Hedging allows them to respond to unexpected changes by providing at least one concrete aspect of the business as a safety net that cushions the impact of adverse events. This protection ensures that companies remain agile in a dynamic business environment. Locking into metaphorical sunshine for the foreseeable future. Kiss those rainy runs goodbye. Every day, companies invest significant resources in various projects and operations. Wouldn’t it make sense for these same companies to do everything in their power to protect those investments? Hedging their currency exposure safeguards these investments, ensuring that they yield returns even in unfavorable circumstances. The ever-changing economic markets have become a nonfactor. In the world of business, competition is fierce, and companies that hedge effectively can gain a competitive edge over their rivals by reducing their vulnerability to market fluctuations. This allows them to focus on strategic growth rather than reacting to external crises. Doing the physical part of “75 Hard” In the same way that I’ve committed to diet, exercise, and mental improvement over the past 66 days, businesses need to demonstrate the same discipline if they stand a chance at surviving our current market. It’s crucial to manage risk so that, regardless of the uncertainties that may arise, these companies are protected. Lifting weights, going on hikes and runs, and daily reading have cultivated the necessary mental toughness, teaching me to push through discomfort and setbacks. This has better prepared me for the unpredictable challenges that life throws my way. In a similar sense, companies that hedge are better prepared to withstand economic downturns, emerging stronger on the other side. Both “75 Hard” and foreign currency hedging require a long-term perspective. The short-term sacrifices that I’ve made each day have led to long-term gains in my personal fitness and learning. In the same way, in order to help secure a company’s long-term financial success, they must practice delayed gratification. Make small sacrifices now, and reap huge rewards later. By taking time now to consider and protect against potential risks over time, companies are protected from whatever the market throws at them. Throughout “75 Hard,” I have strived for continuous improvement in the same way that most businesses that work with GPS do. This improvement mindset is such an important piece to the equation in order for companies to refine their hedging strategies and learn from past experiences to be better equipped to protect their assets and investments. The correlation between hedging in the business world and the principles behind the “75 Hard” regimen, although unorthodox, is striking. These similarities emphasize a strong connection rooted in discipline, resilience, adaptability, and a forward-thinking approach. Just as individuals take on the “75 Hard” challenge to cultivate physical and mental fortitude, companies adopt hedging strategies to safeguard their financial stability and mitigate FX risk. Embracing these fundamental principles can empower both individuals…
Oscar Augustine