Treasury and Accounting: What is the Difference?
Treasury and accounting are two closely related sectors within an organization. If they are not well understood, they can easily be confused and misinterpreted. While there are some similarities between these two functions, there are distinct differences as well. In this article, we’ll take a closer look at the differences between Treasury and Accounting and the roles they play within an organization. Defining Treasury and Accounting What is Treasury? Before we delve into the differences between these two functions, we need to define what they are. Treasury is a department within an organization that links the company to the financial markets. It is often part of the finance department. The major difference between treasury and accounting is that treasury focuses more on the business’s financial strategy and long-term plans. In contrast, the Treasury team focuses on the short-term management of financial assets. Its responsibilities include evaluating new ventures and determining their impact on the business. It also analyzes the performance of products and services in the market, forecasting cash payments, and anticipating challenges of low cash flow. Typical Projects carried out in Treasury What is Accounting? On the other hand, accounting handles the process of summarizing financial transactions into useful reports to maintain control over transactions. Accounting is about past performance and how it impacts the organization in the present and future. It involves auditing financial records, maintaining transactions in proper order, compiling annual reports that evaluate financial performance, managing accounting systems and processes, and analyzing tax implications. Typical Projects carried out in Accounting What is the Relationship Between Treasury and Accounting? Even though accounting and treasury are different, they both help manage and decide on financial matters. A treasurer can help a company make decisions that may improve its financial well-being, and an accounting department prepares financial reports to enhance management’s operations. However, treasury and accounting have different objectives and goals relative to an organization’s financial reports. A treasurer’s focus can be ensuring the company’s financial reports are positive and meet the goals of an organization. Employees in the accounting field focus on keeping track of an organization’s performance and auditing financial reports to see if the company has met various targets. Key Differences between Accounting and Treasury Definitions The primary difference lies in their definition. While accounting focuses on summarizing financial transactions in useful reports to maintain control over transactions, treasury management focuses more on the business’s financial strategy and long-term plans. Roles Different roles exist in each career path. A career in treasury may involve roles such as treasury manager, treasury analyst, finance manager, chief financial officer, or finance manager. People in accounting may have other positions such as senior accountant, inventory accountant, junior accountant, cost accountant, or forensic accountant. The exact role you hold may depend on the company you work for. Focus Treasury and accounting have different objectives and goals relative to an organization’s financial reports. A treasurer’s focus can be to ensure a company’s financial reports are positive and meet the goals of the organization. Employees in the accounting field focus on keeping track of an organization’s performance and auditing financial reports to see if the company has met various targets. Positions in Accounting vs Treasury There are different roles in each field, with different responsibilities and average base salaries. A career as a Treasury Assistant is an entry-level treasurer role. As a treasury analyst, you may track a company’s financial actions, such as credit income, liquid assets, and cash flow. A financial controller’s position can help oversee a company’s investment and budget and reduce its financial risk. A director of finance oversees many of the financial operations of a company. On the other hand, an accounts payable clerk is responsible for recording, verifying, and maintaining transactions. An accounting officer can forecast future financial performance, track expenses, examine and prepare financial reports, and assess financial operations. The accountant prepares and maintains financial reports, prepares tax returns, evaluates financial operations, recommends best accounting and financial practices, audits and analyzes financial performance, and compiles and presents financial and budget reports. 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.
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Navigating Financial Flux: CFOs Perspective on Strategic Treasury Management
This article is written by Kyriba While corporations have enjoyed an unprecedented financial boom for years, the recent volatility in global markets is an indicator of changing times that could bring sharply rising interest rates and the end of cheap money. The recent demise of Silicon Valley Bank is a wake-up call to the purpose of capital and liquidity requirements and the importance of strategic treasury management. In addition to macroeconomic developments, there are other significant changes afoot. Technology is transforming the way we live and work, with ChatGPT passing 100 million users in just two months and becoming a social media phenomenon. To gain maximum agility in this complex environment, CFOs need to transform their finance operations. One of the best places to embark on that transformation is in the area of Treasury Management, which delivers a low-risk, high-yield value proposition for driving automation, improving working capital, and mitigating risk. Strengthening Treasury’s Role as a Business Enabler “At the highest level,” explains Douglas Bettinger, executive vice president and chief financial officer of Lam Research, “treasury’s role is to optimize cash generation in a way that maximizes the value of the company.” In a large enterprise, executive leadership thinks a great deal about the balance sheet, while line-of-business managers focus more on profit and loss (P&L). “I plug my treasury people into areas of the business that need more attention on cash generation.” In this way, treasury can sensibly use the balance sheet in ways that enable new, profitable business activity. There are many ways Bettinger’s treasury team contributes value to the company beyond routine block-and-tackle treasury functions: As a global enterprise, it is important to hedge against currency fluctuations. This not only helps deliver on P&L but also delivers the cash flow that must come from different parts of the business. “We hedge different balance sheet exposures and revenue streams in different currencies,” Bettinger says. “Treasury is in a unique position to manage that.” Nobody else in the company focuses on the currencymanagement piece.” Bettinger’s company creates hedge ladders, where they look out four, three, two and one quarter, with different exposures hedged in each quarter. Another valuable treasury function involves taking advantage of the balance sheet to enable business that might not otherwise occur. For instance, it may be possible to set up a leasing arrangement for a customer that does not have access to capital it needs to purchase equipment. “We use our balance sheet in a prudent way to protect the asset and at the same time accrue new business,” explains Bettinger. “My treasury people are uniquely positioned to make those risk tradeoffs for the corporation.” Managing the cash conversion cycle is another valuable treasury function that includes managing collections so that money comes in as quickly as possible while stretching out payables. Optimizing cash conversion is a balancing act that ties closely to inventory management, which involves setting targets and objectives for cash consuming inventory and making decisions about where to place that inventory. “How you balance the debt-to-equity ratio and optimize the capital structure of the balance sheet affects your ability to fund different activities in the business,” Bettinger says. Treasury is the Value Center of the Enterprise Cash management in an airline business is challenging for many reasons, especially for an international company. Unpredictable weather events, volatile fuel prices and the challenge of operating with many currencies can significantly impact revenue, cash and profitability. Marina Chase, CFO (Ag.) of Caribbean Airlines, says that treasury has experienced big changes in recent years. “It’s still cash management,” she says, “but treasury has moved away from the traditional operational functions. It is no longer back office.” In Chase’s organization, modern treasury-management tools have helped treasury become both a knowledge center and a risk-management center for the business. With treasury serving as a knowledge center, all divisions turn to treasury for real-time information related to operational activities. For example, this can include real-time information that’s needed for payments, and providing information about different laws and restrictions that affect transactions in different countries. Treasury also provides information to support strategic decisions, such as evaluating the cash flow and profitability of current and potential new routes. Because there are so many variables that can seriously impact the business, risk management is a critical treasury function. “We are able to manage risks, especially around currency exchange,” explains Chase. “These are not risks limited just to interest rates. We also have to deal with repatriation risk. The efficiency of cash flow and managing cash have a lot to do with getting your money in real time. Because of laws and restrictions in different countries like Venezuela and Cuba, there are different ways that we have to comply with regulations in order to access our working capital.” Treasury has become a value center in the enterprise. “We track working capital, and not just working capital, but also the value of working capital,” says Chase. “An important part of this is predictive analytics, which is more than transformational. It supercharges treasury’s efforts.” Chase sees several key indicators of treasury’s success, including having adequate cash available for all operations, and preserving capital while maximizing the return on the investment portfolio. But there are other measures. “We must track trends and market dynamics that can impact the business, such as anything that might impact fuel prices, which you need to measure daily because this directly impacts cash flow,” she says. As CFO, Chase appreciates the global perspective and predictive capabilities provided by the treasury management system. “Predictive analysis and forecasting allow better scenario planning,” she says. “That’s critical because you can plan your cash-flow scenario based on changes in the price of oil, or on revenue going up or down in a particular region because of holidays, or fluctuations due to political situations that would impact revenues.” Chase sees the possibility of leveraging treasury even further by linking to ERP systems, adding business intelligence tools, and linking the treasury system to the corporate reporting system. Expand Your View of Treasury…
Comparing solutions: payment hubs vs. banking portals
This article is written by Nomentia Every company needs to make payments, either through banking portals or payment technologies. In this article, we’ll compare what it’s like to manage payments through bank portals versus in a payment hub. We’ll also elaborate on the pain points of using traditional corporate e-banking tools and the key benefits and features of using payment hubs. Lastly, we provide some guidance on selecting a solution that suits your company’s needs. What is a payment hub? A payment hub is centralized software that consolidates company-wide payments by gathering data from multiple payment initiating systems, such as ERP, banks, treasury, accounting, or financial systems. It streamlines payment procedures, enabling transactions across various banks and channels from one platform. This centralization enhances efficiency, reduces manual errors, improves visibility and control over financial operations, and ultimately optimizes cash management while reducing costs associated with manual work. How do online banking portals work for payments? Companies pay their bills through banking portals by setting up transfers from within the bank account, similar to wiring money in retail banking. In corporate banking, it usually starts with an invoice, salary payment or other form of credit that someone in the finance or accounting team verifies. Then, a person responsible for payables logs in to the company’s online banking portals and sets up a transaction that corresponds with this data. Typically, companies need to log in to several banks to minimize the risk of having only cash in one account at one bank. Yet, this also means that cash is divided over various bank accounts. Hence, payables need to be made from various banks, each requiring a separate login. This process can become very time-consuming with numerous banks, and it is also more challenging to see how much cash is available for payments since cash is spread over various accounts without central visibility. What is the difference between a payment hub and an online banking tool? A payment hub is offered by a specialized payments provider that has build a technology that can be used by companies for company-wide payments across all banks from a single place. In contrast, online banking portals are offered by banks and are essentially just a way to manage bank accounts, payments, and all other associated administration that comes with corporate accounts. The most common pain points without a payment hub There are several pain points associated with setups that do not include a payment hub, especially when companies start growing in size with an increasing number of payments from various bank accounts. These are some of the most common ones that our customers have faced before implementing a hub: 1. Difficulties having centralized cash insights When cash balances are scattered over various bank accounts, it is incredibly difficult to say what the company’s current cash positions are, although this can be of great strategic importance. On top of that, it is difficult to track in and outflows when this data is distributed. 2. Processing payments is time-consuming Another challenge that finance, treasury, or accounting teams face with online banking portals is that all payments must be made manually and individually in each portal, which is incredibly time-consuming with tens, hundreds, or thousands of daily payments. 3. Dependent on banking credentials As your team expands, managing users will become increasingly complex, as banking portals often require various tokens to log in. Unfortunately, these tokens are usually still physical devices, so you’re highly dependent on always bringing them with you. Suppose you need to access 10 bank accounts you may need 10 different tokens, and when traveling around, or even just between home and the office, that can be quite inconvenient. 4. High risk of fraud and errors Manual payments via banking portals are prone to errors since every transaction requires manual data entries. Erroneous payments have dire consequences for company finances. Fraudulent payments are also much harder to identify since you need to review all payments manually to see if there are any potential anomalies. 5. No security checks or other process controls Whenever you make payments from a banking portal, you miss some critical steps that payment hubs can offer automatically. Or, if done manually, it becomes very time-consuming. These steps include security checks in payment processes to tackle fraud, prevent errors, enhance matching, or screen against sanctions—something that programmed computers can do easily and much more efficiently. 6. Challenges in keeping up with a high number of payments As mentioned before, the more payments you need to execute through different banking portals, the more time you spend on doing so. Sometimes, this means that it’s challenging to keep up with the number of payments. Rather than tackling the issue by hiring more people, it is very common to get automated payment technology that can easily help you streamline processes. 7. Almost no integration possibilities Banks themselves offer very limited integration possibilities with financial, accounting or ERP systems, therefore processes cannot be automated properly. Yet, these same systems contain crucial information for finance, accounting, and treasury teams’ payment operations. Ideally, they are fully integrated with banks to provide a central source of truth. While this is partially possible through building bank connections with banks, this requires a lot of work from your team and several IT specialists. A dedicated technology that handles everything is therefore a lot easier to manage. The benefits of using a payment hub Companies can benefit in multiple ways from using a payment hub, some of the most mentioned benefits include: One of the primary reasons for acquiring a payment hub is its ability to centralize all payment files, irrespective of the banks or source systems that are involved. It connects to all your bank accounts via the most appropriate connectivity protocols, enabling you to execute payments centrally and access all relevant cash flow data from the same system. This gives you better control over your finances and helps you streamline your payment processes. Automating and centralizing payment processes can help you save…
Enhanced Corporate Treasury Staffing & Technology Solutions
This article was written by TIS Payments in 2023 Despite current economic headwinds, new research by TIS finds that treasury teams are planning to increase their overall headcount and invest in new technology during 2023. While this is generally good news for the industry, practitioners must still be very strategic with how they pursue these staffing and technology initiatives. This is especially the case given added emphasis by business leaders on finding ways to cut costs and reduce operational expenses through years’ end. Economic Uncertainty in 2023 Remains High As we wind our way through the first quarter of 2023, most corporate treasury and finance practitioners would probably agree that the global business environment is in a precarious position. Although overall U.S. and European inflation have fallen from their highs in 2022, business leaders continue to worry about the rising costs of goods, as well as the prospect of a global recession and various geopolitical risks. In fact, a recent research report by The Conference Board found that slow growth and recession are the greatest external concerns for C-suite executives in the year ahead. To make matters worse, a tumultuous market often results in unpredictable staffing scenarios, especially when trying to hire and retain top talent. As we’ve seen recently, staff disruptions — including a recent slew of layoffs that have impacted the tech industry — have roiled corporate recruiting processes. And looking towards the next year, PwC’s Annual Global CEO Survey found that over half of respondents were still planning to reduce their operating costs in 2023, with 39% either already reducing headcount or planning to reduce it in the next 12 months. However, despite the current uncertainty continuing to face organizations in the U.S. and across the globe, it appears that treasury practitioners are, in large part, fairing well amidst the turmoil. This is true both with regards to their staffing and recruiting prospects, as well as with their technology adoption priorities and planned spend. Despite Broader Headwinds, Treasury’s Headcount is Set to Grow in 2023 Of course, most treasury teams are undoubtedly concerned about the challenges prevalent in today’s business environment. As evidence, preliminary results of NeuGroup’s 2023 Finance & Treasury Agenda Survey identified a prolonged economic slowdown as treasurers’ biggest concern heading into 2023, with 59% predicting that negative GDP growth will last through the end of the year. But as new research by TIS has revealed, these challenges are not holding back treasury’s plans to invest in additional staff or acquire new technology. In fact, TIS’ 2023 Treasury Priorities & Operations Survey, which polled the views of over 250 US finance and treasury practitioners over a 2-month span, found that only 3% expect to reduce their headcount in 2023. Instead, 48% plan to add more staff, and 49% will hold their staffing levels steady. While these treasury staffing plans might seem to contradict logic given the current market, they are also evidence of the growing importance of treasury’s role internally. Although treasury teams have traditionally been kept lean, a renewed focus by business leaders is opening the door for more headcount. In large part, data indicates that the rising strategic influence of treasury is helping boost their importance. In our study, 57% of treasury groups saw the strategic value of their department increasing in the months ahead compared with just 4% decreasing. And, 81% anticipated spending more time on strategic activities in 2023 compared to 2022. However, this growing strategic influence and renewed focus is also being accompanied by added expectations and responsibilities. In our survey, 77% of treasury teams expected their responsibilities list to grow or grow significantly in the coming year. But while adding headcount may be a sign of an added emphasis on treasury by business leaders, data also indicates that a large component of the department’s strategic value is being derived through the application of enhanced technology. This includes the use of modern ERPs and TMSs, AI and machine learning (ML) tools, real-time payment solutions, and other types of improved data exchange protocols such as APIs. Let’s take a closer look at this planned tech investment. Investments in Treasury Technology Expected to Stay Elevated in 2023 Going off a combination of prominent industry studies and thousands of recent conversations with practitioners and consultants, it’s clear that technology adoption continues to be a major focus for treasury. Regardless of company size or industry, it seems that practitioners are collectively focused on either upgrading legacy TMS and ERP systems that have become obsolete, or moving beyond their manual excel and e-banking portal setup to achieve a more unified and streamlined structure. Although cloud and SaaS platforms continue to be a major focus of these investments, other more “disruptive” capabilities involving AI, ML, and APIs are also being prioritized. Based on TIS’ 2023 study, adopting solutions to improve cash forecasting and cash management functions are of critical importance, as are payments, bank connectivity, and working capital tools. In total, over 2/3rds of treasury teams indicated that forecasting and positioning were their top priority in Q1, and over half (55%) planned to invest in new cash management solutions within the year. In addition: However, not all types of technology attracted high levels of interest from treasury teams. Notably, only one in five of all respondents – and just 13% of enterprise companies – expected treasury to use cryptocurrency by the end of the year. Given subdued market enthusiasm for crypto since 2022, coupled with several high-profile crypto bankruptcies and scandals like FTX, this hesitation is not entirely unwarranted. So then, given the clear inclination by treasury to continue investing significantly in new staff and technology during the next year, what is the best way for practitioners to ensure their investments reap the desired levels of productivity, efficiency, automation, and control? Three Strategic Considerations for Treasury as They Hire More Staff & Invest in New Technology Given the 2023 economic climate, organizations are becoming much more conscientious of their spend, and there is a heightened expectation from business leaders that treasury’s technology investments reap the desired benefits. In order to manage these high expectations, the following tips can help…
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…
Biopharmaceutical 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.