Benchmarking Your Treasury Department: A Strategic Approach
In the complex world of corporate finance, maintaining an efficient and effective treasury department is crucial. Benchmarking your treasury operations against industry standards and best practices can provide valuable insights into improving efficiency, reducing costs, and enhancing overall performance. Here’s a comprehensive guide on how to benchmark your treasury department effectively. 1. Identify Benchmarking Objectives To begin, clearly define the purpose of your benchmarking initiative. Are you aiming to improve operational efficiency, reduce costs, enhance risk management, or achieve another goal? Defining the scope is equally important—identify the specific areas of your treasury operations you want to benchmark, such as cash management, risk management, or liquidity management. 2. Select Key Performance Indicators (KPIs) Choosing the right KPIs is critical for meaningful benchmarking. Consider the following: 3. Gather Data Internally Start with a thorough internal audit to collect accurate data on your current performance. Review historical data to understand trends and assess how your treasury operations have evolved over time. 4. Identify Benchmarking Partners Select appropriate benchmarking partners for meaningful comparisons: 5. Collect External Data To get a comprehensive view, gather external data through various means: 6. Analyze and Compare Data Conduct a thorough analysis to identify performance gaps between your treasury operations and those of benchmarked organizations. Use root cause analysis to understand the underlying reasons for these gaps. 7. Develop and Implement Improvement Strategies Create actionable plans to address identified gaps. Consider adopting best practices observed in top-performing organizations and invest in technology and tools that can enhance your treasury operations. 8. Monitor and Review Benchmarking is not a one-time effort but an ongoing process. Regularly review your performance against benchmarks to ensure continuous improvement. Establish feedback loops for constant adjustments and enhancements. 9. Utilize Benchmarking Services and Tools For a more structured approach, consider leveraging benchmarking services and tools: Example Resources for Benchmarking Several resources can aid in your benchmarking efforts: By systematically following these steps, you can benchmark your treasury operations, identify areas for improvement, and adopt best practices to enhance your department’s performance. Benchmarking not only provides a clear picture of where you stand but also paves the way for strategic improvements that can lead to significant operational gains Recommended Reading Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
Franklin
BEC: A Cybersecurity Challenge for Businesses
This article is written by Trustpair In 2023, it was revealed that an investment firm in Boston lost $1.25 million in a business email compromise (BEC) cybersecurity scam. Using a spoofed domain name, fraudsters impersonated directors and instructed a financial company to misdirect funds from the victim company’s account to a bank account controlled by the scammers. BEC in cybersecurity: what is it? BEC is also known as business email compromise. In the cybersecurity world, it is a method of fraud that involves getting access to an email address or spoofing an email address to bypass security and either gain information or defraud business of funds. How does BEC work? BEC scams work in different ways. Generally, a fraudster can hack into an email or use malware to navigate company networks and infiltrate email threads. Once the fraudster has access to the email threads using malware, an attack may not occur until much later. They may spend some time observing email chains to see which employees are in charge of money, invoices, transactions, and more. Additionally, they may pick up on words or trends that employees use in emails. This is so that later down the line if they are to send an email on behalf of an employee, they can make it seem genuine. Once they have gathered the information they need, the fraudster may ask for payments to be made to accounts which they control. Alternatively, fraudsters may use a spoofed email address of a fake company that is very similar to the email address of a senior figure in the company. From there, they may make demands to those in charge of payroll to redirect funds to a different account. Reported BEC scam losses have increased by 58% since 2020. What are the types of BEC? What are BEC examples? Facebook and Google The most renowned example of a BEC cybersecurity scam was in the form of a vendor email compromise (VEC) attack on Facebook and Google between 2013 and 2015. The organizations lost around $121 million between them. Fraudsters impersonated Quanta Computer which both giants have done business with. The scammers used the fake company under the same name as Quanta Computer, false invoices, fake contracts, and letters to confuse the organizations and dupe them into paying out tens of millions to accounts run by the scammers. One Treasure Island The nonprofit based in San Francisco fell victim to a business email compromise attack in 2021. Hackers gained access to the bookkeeper’s email. Using spoofed email addresses, they inserted themselves into the email chains and pretended to be figures involved with the nonprofit. They then found and adjusted an invoice from a member organization that had been sent to the executive director of One Treasure Island. The new invoice contained altered wire transfer instructions to a bank in Texas. The organization lost $655,000 in the fraud attack. BEC red flags Here are some of the red flags of business email compromise and ways your business can prevent it… By being aware of these methods and how you can combat them, your business can avoid: Grammatical errors If an email from a senior member of staff is littered with simple grammatical errors that they wouldn’t usually make, this should raise suspicions. If you aren’t sure that it is legitimate, you should ring the employee or go and see them to double-check before making any transfer or payment. Time sensitivity If a member of your team receives an email or a text message from another colleague requesting an urgent transfer this should raise alarm bells. It may be that a sender describes a serious situation such as they need their salary paid early to help with a family medical bill or that a vendor needs to be paid quickly into a new account to secure their business. These are social engineering techniques that are used to complete BEC attacks. Either go and see the member of staff or ring them to check this is genuine. By making the situation urgent the fraudster hopes that you would either overlook usual procedures to help them get it done or forget about the correct process. Employees should be educated about the red flags of fraud such as business email compromise and to always step back from the situation and think logistically about it. Unusual requests An unusual request that a member of staff may be asked to do involve: Suspicious email addresses A type of business email compromise involves phishing emails. By using a deceptively similar email address to what staff members already use or an incomplete email address, fraudsters may try to get staff to redirect funds into an account controlled by them. BEC prevention methods Training For both unusual requests and suspicious email addresses using phishing techniques, ensure that staff are well educated on these methods. They should also be trained on how to spot the fraud and what steps to take if they find themselves in such a situation to ensure security. Additionally, training should also be provided on what to do if employees get caught out by a fraud attempt. Use a fraud prevention platform Another prevention method for BEC cybersecurity attacks is to invest in fraud prevention platform tools. For example, Trustpair’s software blocks the financial implications of business email compromise. The platform can do this thanks to ongoing account validation. The system blocks suspicious transfers and raises red flags when risky data changes are noticed. Also Read Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
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 in 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: Even if this documentation process sounds labor-intensive, there are ways to make it more efficient, by adopting dedicated tools, for example. Other improvements and strategies we’ll discuss more in detail below. Strategies to optimize intercompany transactions Optimizing the documentation and other labour-some tasks related to intercompany transactions involves implementing efficient processes and leveraging the right technologies. Some of the most common strategies to optimize intercompany documentation include: Create efficiency with standardization Establish standardized templates, formats, and procedures for documenting intercompany transactions to ensure consistency and efficiency across the organization. Automation through technology Utilize accounting software and enterprise resource planning (ERP) systems to automate the generation of invoices, recording of transactions, and reconciliation processes. To take it a step further, you can connect these systems to a treasury management system to fully integrate the processes with all entities’ banks. Automation through technology typically reduces manual errors, saves a lot of time, and improves data accuracy and transparency. Establish a centralized repository Maintain a centralized repository or digital database to store all intercompany agreements, invoices, and documentation. This ensures easy access to relevant information and facilitates better compliance monitoring and auditing access. This can also be done with dedicated technology. Implement electronic signatures Implement electronic signature solutions to expedite the approval and execution of intercompany agreements and other documents. Electronic signatures…
The Hidden Costs of Not Having a Treasurer: A Risky Oversight
In the realm of corporate finance, the treasury function is often viewed as a cost center, primarily because the salaries of treasurers and treasury teams represent a direct expense on the company’s financial statements. Unlike profit-generating departments, a treasury does not directly contribute to the company’s bottom line. However, this perspective overlooks a crucial aspect: the hidden costs and risks associated with not having a dedicated treasurer or treasury team. Neglecting these critical financial functions can lead to significant financial instability and missed opportunities, ultimately costing the company far more than the salaries of a competent treasury team. The Role of a Treasurer A treasurer’s role is multifaceted, encompassing cash management, risk management (particularly foreign exchange and interest rate risks), debt capital market activities, and cash flow forecasting. Each of these functions is vital to the financial health and stability of a company. 1. Cash Management: Effective cash management ensures that a company has sufficient liquidity to meet its obligations and capitalize on investment opportunities. Without a dedicated treasurer, companies may face inefficient cash utilization, higher borrowing costs, and even liquidity crises. 2. Risk Management: Managing foreign exchange (FX) and interest rate risks is crucial for companies engaged in international trade or those with significant debt. A treasurer identifies and mitigates these risks, protecting the company from volatile market conditions. Without this expertise, companies are exposed to unpredictable financial swings that can erode profits and destabilize operations. 3. Debt Capital Markets: Accessing and managing debt is a complex task that requires expertise in financial instruments and market conditions. Treasurers negotiate favorable terms, manage interest expenses, and ensure compliance with covenants. Without this, companies might incur higher costs of capital and face difficulties in funding growth initiatives. 4. Cash Flow Forecasting: Accurate cash flow forecasting enables better financial planning and decision-making. A treasurer uses sophisticated models to predict future cash flows, helping the company to anticipate and prepare for financial needs. Without this foresight, companies might experience cash shortages or miss out on investment opportunities due to poor planning. The Costs of Not Having a Treasurer 1. Increased Financial Risks Without a dedicated treasury function, companies are vulnerable to financial risks such as currency fluctuations and interest rate changes. These risks can lead to unexpected losses, impacting profitability and shareholder value. 2. Higher Borrowing Costs Inefficient cash management and lack of expertise in debt markets can result in higher borrowing costs. Companies may face unfavorable loan terms and higher interest rates, increasing their cost of capital and reducing profitability. 3. Liquidity Crises Poor cash management can lead to liquidity shortages, where a company cannot meet its short-term obligations. This can result in missed payments, damaged supplier relationships, and even insolvency in severe cases. 4. Missed Investment Opportunities:** Without accurate cash flow forecasting and effective capital allocation, companies might miss out on strategic investment opportunities. This can hinder growth and competitive positioning in the market. 5. Operational Inefficiencies: A lack of focus on cash management can lead to operational inefficiencies, such as excess cash sitting idle or insufficient funds for critical operations. This misallocation of resources can affect overall business performance. Insights from Treasury Experts We thought it would be valuable to get perspectives from Treasury professional, Patrick Kunz, who is also Treasury masterminds board member Patrick Kunz, CEO and Founder of Pecunia BV Treasury and Finance, Comments Treasury Departments are (should) always be costs centers. That doesn’t mean they can add to the bottom line of a company. Not via extra profit but definitely by costs savings. A great treasurer has minimised bank (transactions) costs, has the FX exposure hedged at minimal costs and optimised his cash (investments). Therefore a treasurer is often a positive business case to a company Even for smaller companies a fractional or part-time treasurer or treasurer-as-a-service can add value at limited costs. In a majority of my assignment I realised at least some costs savings, in several of mine if realised costs savings that could have bought a small treasury team! Conclusion While the cost of maintaining a treasury team is apparent on the surface, the hidden costs of not having one can be far more detrimental. Companies without a dedicated treasurer or treasury function expose themselves to significant financial risks, higher borrowing costs, potential liquidity crises, and missed growth opportunities. Investing in a skilled treasury team is not just about managing costs; it is about safeguarding the company’s financial stability and ensuring long-term success. In the complex and dynamic world of corporate finance, the value of a treasurer is immeasurable, and their role is indispensable. Also Read Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
The Different Types of Treasury Support: Comparing Interim, Fractional, and Consultancy Roles
This article is written by Pecunia Treasury and Finance. In the evolving landscape of corporate finance, companies often need specialized financial leadership but may not require or cannot afford full-time executives. This is where roles like interim treasurer, fractional treasurer, and treasury consultant come into play. Each brings a unique set of skills and functions tailored to the needs of the organization. Let’s explore the differences between these roles and how they can benefit businesses. Interim Treasurer An interim treasurer is a temporary executive brought in to manage a company’s treasury functions during a transitional period. This role is often critical during times of significant change, such as a leadership gap, restructuring, mergers, or acquisitions. Key Responsibilities of an Interim Treasurer When to Hire an Interim Treasurer for Treasury support Advantages of an Interim Treasurer for Treasury Support Fractional Treasurer A fractional treasurer is a part-time executive who provides ongoing treasury management services to one or multiple companies. This role is ideal for smaller businesses that need expert financial management but do not require a full-time treasurer. Key Responsibilities of a Fractional Treasurer for Treasury Support When to Hire a Fractional Treasurer for Treasury Support Advantages of a Fractional Treasurer for Treasury Support Treasury Consultant A treasury consultant is an external advisor who provides specialized expertise on a project basis. This role focuses on specific challenges or opportunities within the treasury function, offering solutions and strategic insights. Key Responsibilities of a Treasury Consultant for Treasury Support When to Hire a Treasury Consultant for Treasury Support Advantages of a Treasury Consultant for Treasury Support Choosing the Right Solution The choice between an interim treasurer, a fractional treasurer, and a treasury consultant depends on the specific needs and circumstances of the business. Also Read
Should You Ignore FX Forecasts?
In our recent webinar, we delved into the often-debated topic of the accuracy of FX forecasts. The discussion was illuminating, providing a mix of critical analysis and practical advice for businesses navigating the complex world of foreign exchange. Here are the key takeaways from the session. The Reliability of FX Forecasts One of the central themes of the webinar was the inherent limitations of FX forecasts: Harry Mills, Director @ Oku Markets: “Banks spend a lot of money and effort in producing predictions for future FX rates: my argument is that they’re just simply following the spot rate.” Forecast data from banks, economists, and analysts surveyed by Bloomberg show how period-end exchange rate forecasts can change over time; with the main driver on the forecast being the underlying spot price at the measurement time. The following images show how the Q1 and Q2 forecasts for GBPUSD changed over time, mostly following the spot price. And here we can see all available future forecast periods that seem to reflect movements in the spot rate, more than anything else: The Practical Use of FX Forecasts Paul Plewman, Chief Operating Officer @ Currency Transfer: “If it’s titillation and just casual interest in what the bankers are putting out there then of course read it, enjoy it, and have a laugh at them at the end of the quarter…but if you’re trying to price your business based on the future forecasts that the banks are pumping out then a word to the wise.” This advice is crucial for businesses: while FX forecasts can be interesting, they should not be the sole basis for critical financial decisions. An Alternative Approach: Focusing on Volatility A more effective approach to using bank FX forecasts, is to model and price volatility and consider the likely trading range for a given currency pair across a time period. Harry Mills, Director @ Oku Markets: “Model volatility instead: think about volatility instead of a directional move.” By focusing on volatility, businesses can better prepare for a range of potential scenarios, rather than relying on often inaccurate directional forecasts. This proactive approach can help mitigate risks and enhance financial stability. Aligning FX Management with Business Goals A key takeaway from the webinar was the importance of aligning FX management strategies with broader business goals: Paul Plewman, Chief Operating Officer @ Currency Transfer: “What are your goals? It doesn’t matter where the forecast may or may not be. What are your business goals and does the current market condition drive into that and deliver to that?” This perspective emphasises the need for a strategic alignment between FX management and overall business objectives. Understanding and prioritising business goals can help in making informed decisions that support long-term success. The Necessity of a Hedging Policy Harry Mills, Director @ Oku Markets: “Every business should have one, it doesn’t need to be War and Peace, and could very well simply be a single page with: how much, how far, how often, whom, and then why..” A robust hedging policy provides a framework for managing currency risk, ensuring that businesses are prepared for market fluctuations. It doesn’t need to be overly complex, but it should clearly outline the key aspects of the hedging strategy. Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
Harry