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…
FranklinHow AI and ML are used in payment fraud detection (16 use cases)
This article is written by Nomentia Artificial Intelligence (AI) and Machine Learning (ML) are two technologies that have been widely discussed in recent years. They offer a range of tools that are gradually being integrated into our personal and professional lives. These technologies are particularly useful in situations where there are many time-consuming and manual tasks. Or where there is a large amount of data to analyze. One such application is payment fraud detection. Before diving into the use of AI and ML in fraud detection, it is important to address them separately. What is AI exactly? AI systems are designed to integrate vast amounts of data with intelligent algorithms. They mimic or simulate human-like actions and decision-making processes. AI can be utilized for various techniques like problem-solving, natural language processing, image recognition, reasoning, learning, and more. The technology functions in a way that collects data, processes it, and selects an algorithm. It trains a specific model, modifies the model’s parameters, and evaluates the results. This can then potentially be deployed in the real world. As it operates, AI typically uses feedback loops from its users to improve over time. What is machine learning exactly? Machine learning is a form of AI that teaches a system to think in similar ways to humans, as it learns and improves based on previous experiences. Machine learning algorithms typically need little supervision because they are learning by themselves. We usually distinguish between three techniques of machine learning: Supervised learning Supervised ML algorithms are taught to make predictions or decisions primarily based on previous data patterns. Here, the ML learns based on already labeled data. So, input data needs to be categorized beforehand. So that the algorithm will use it as a benchmark to come to conclusions when analyzing new data. Unsupervised learning In unsupervised ML, there is no need for labeled or categorized data. Instead, the algorithm tries to find patterns or relationships in the data without explicit guidance. Typically, the goal of unsupervised ML is to explore data and find clusters or relationships. Reinforcement learning With reinforcement learning, you train the algorithms to make sequential decisions. In an environment with a reward or penalty feedback mechanism that it learns from to improve its subsequent decisions. Usually, no labeled data is available. The algorithm needs to learn from its own experiences and the feedback it receives. The difference between AI and machine learning AI refers to the simulation of human intelligence in machines that are programmed to mimic human-like actions and decision-making processes. AI encompasses as a wide range of techniques, including problem-solving, natural language processing, image recognition, and expert systems, among others. It aims to create systems that can perform tasks that typically require human intelligence. Tasks such as reasoning, learning, perception, and problem-solving. Machine Learning is a subset of AI that focuses on developing algorithms. This enables computers to learn from and make predictions or decisions based on data. ML algorithms allow machines to improve their performance on a task through experience without being explicitly programmed for that task. It does so by using statistical techniques to enable computers to learn patterns and relationships from data and make decisions or predictions. Why are these topics relevant to payment fraud? Recent research by PwC showed that 51% of organizations have experienced fraud in the past two years. A 20-year high compared to previous survey results. Fraud mainly impacted organizations in terms of financial losses. Respondents highlighted that many of them will require new, advanced technologies to tackle the issue. Some respondents also mentioned that fraud had more considerable consequences. Like operational disruptions or damage to the brand or customer loyalty. Ultimately, AI has the potential to assist businesses in maintaining a secure payment environment. Thus safeguarding a company’s customers, revenue, and reputation. RESEARCH BY PWC SHOWED THAT 51% OF ORGANIZATIONS HAVE EXPERIENCED FRAUD IN THE PAST TWO YEARS — A 20-YEAR HIGH COMPARED TO PREVIOUS SURVEY RESULTS PWC’S GLOBAL ECONOMIC CRIME AND FRAUD SURVEY 2022 With the rise in cybercrime and the evolving sophistication of financial threats, we’ve come to an era where humans cannot keep up with processing an abundance of data efficiently and securely. We can by no means compete with the speed and thoroughness of data interrogation that AI and ML can deliver today. As a result, we need to embrace and team up with such technologies. To support this view, a recent study by the Association of Certified Fraud Examiners revealed that 17% of organizations already leverage AI and ML to detect and prevent fraud, and 26% of organizations are actively planning to adopt fraud detection AI or ML in the next two years. On top of that, technology providers are now heavily investing in developing practical AI-driven solutions to tackle payment fraud. How can AI and Machine Learning be used in fraud detection? These days, ML and AI can help you with fraud detection in various ways. Let’s focus on some of the main ways how organizations currently leverage the technologies and what the future may bring: For example, AI and ML can streamline payment processes and enable faster risk identification in payables, receivables, and reporting. They can help manage exceptions or spot anomalies in large data sets based on previous patterns it has studied. AI can analyze large datasets much faster than human beings, and it provides good insights and points to pay attention to. Faster analysis will also help speed up decision-making. Especially with more data than ever and little time to analyze, it will become essential to save time while deriving insights by leveraging tools like AI and ML. AI can help automate essential but manual tasks such as data entry, reconciling payments, or generating reports. Minimizing manual processes, in turn, reduces the room for errors and fraud. Reconciliation of payments is essentially comparing two data sets with each other and finding matches, which AI and ML are incredibly good at. Even when anomalies arise, you can train AI to handle them in pre-set ways. Machine learning…
There is No More Ignoring ESG in Treasury
Despite many other burning issues, ESG is a major concern for treasurers. It appears to be moving higher up their agenda every year. But sustainable finance solutions do not always align with fundamental treasury principles. Treasurers’ first, second, and third priorities are, understandably, to secure/protect/optimize cash respectively. And yet green bonds seem to offer less attractive interest conditions than traditional bonds. Moreover, time and cost of developing sustainability frameworks are significant factors. And synchronizing the implementation of ESG projects and raising debt continue to be challenging for a number of corporations. That being said, sustainable finance presents enormous opportunities for growth. and the cost and time of ESG reporting are decreasing, thereby removing a major impediment. Indeed, many treasurers are starting to see the benefits and opportunities arising from ESG investments, such as green deposits. The ESG trend is also increasingly reflected among employees, new talent being recruited, and treasury’s business partners. Asking the right questions Since treasurers sit at the intersection between numerous internal departments and external partners, such as banks, fintechs, and technology vendors, they are well-placed to drive their company’s ESG agenda forward. To assist in this endeavour, treasurers should routinely ask their stakeholders: And when speaking to asset managers, treasurers should also ask: One of the main obstacles here is the lack of visibility around metrics of ESG impact of investments. And I sometimes ask myself whether ESG investment isn’t better suited for longer-term investment because there seems to be a paradox between ESG and the notion of ‘short term’. That being said, I believe that ESG tenets will become increasingly compatible with the needs of Treasury short-term investments because the offering is widening and appetite is growing. Those treasurers who still do not have ESG on their priority lists should familiarise themselves with the ESG success stories of other treasury teams. These case studies illustrate how treasury can be a pioneer in this area, accelerating a company’s ESG agenda and being seen as an example not only to other departments with the company but to other treasury teams. A thorny issue Despite the positivity surrounding ESG in general, there are dark clouds on the horizon. A notable concern is greenwashing. I believe everything hinges on building the right relationship with business partners like banks and fintechs, asking for transparency over ESG metrics, and sharing data. If a treasurer happens to be exposed to greenwashing, they will know the long-term relationship will change—there is significant reputational risk. Due to the fear of greenwashing, investors are taking far more time and care to carry out due diligence. Investors now want to be 100% certain that there will be no reputational damage as a result. As such, greenwashing is not helping ESG investment gain traction, and to protect themselves, treasurers must ask for full transparency from their investment partners. Finally, let’s not forget that not all funds are suitable for ESG. Yet there is a risk that certain funds will be neglected simply because they are not ESG-compliant. Rather than only investing in ESG funds and excluding others, we should apply judgment and common sense when assessing investment opportunities. It’s a matter of enacting the crucial investment risk management rule: diversification is key. Also Read
Benjamin DefaysHow API and ERP Integrations Are Transforming Corporate Treasury
This article is written by Kyriba While there are many benefits, businesses are yet to grasp the full potential of API connectivity, especially for ERP integration, and even more importantly, how non-technical teams such as treasury can take full advantage of API solutions. During KyribaLive 2023, Kyriba’s Félix Grévy, VP of Connectivity and Open API, and John Brandt, VP of Product Connectivity, explored the transformative potential of APIs. Providing updates on Kyriba’s Connectivity-as-a-Service solutions, Félix and John also shed light on how a technology partner like Kyriba assists treasurers on their API journey. APIs Empower Financial Professionals Simply put, an API is a program that allows multiple pieces of software to “talk” to each other. APIs are like “bridges,” enabling two separate applications to work together and share data. They allow developers to access certain features or functionalities of software applications without having to understand the underlying code or architecture. In the world of finance, APIs are enabling real-time treasury management and empowering finance professionals like never before. They connect internal and external systems, facilitating real-time data retrieval for use cases such as bank balance and transaction reporting, cash flow forecasting and FX exposure management, integration of trading portals, market data providers and AI tools. Building on this point, Félix and John elaborated on the three pillars of Kyriba’s API connectivity solution as an example to demonstrate how APIs can be used in finance and treasury: Looking towards the future of API adoption, John explored the untapped possibilities of APIs. John emphasized how Kyriba envisions exciting developments in how to integrate ERP with TMS, including expanding ERP integrations, incorporating third-party data sources, enabling event-driven orchestration through webhooks and even AI-generated integrations. Expanding on the topic of artificial intelligence (AI), John and Félix remarked how AI presents real opportunities for ERP integrations. Although there is still a lot of maturing to do, developments such as Open AI ChatGPT and Microsoft Copilot Artificial Intelligence show the potential for AI to assist treasurers with complex tasks. By leveraging these powerful AI tools, finance professionals can transform their daily work, ask questions on reports, uncover valuable insights and receive intelligent suggestions. APIs play a pivotal role in enabling these tools to interact seamlessly among the systems, allowing technology vendors to harness the growing power of external AI technologies and natively integrate them to their own solutions. How Kyriba Enables Embedded Treasury for Clients Recently there has been a growing interest in embedded finance and embedded treasury. John delved into Kyriba’s APIs for ERP integration, spotlighting how Kyriba already offers a set of packaged integrations that extend and embed the treasury core workflows into other business systems: Despite the high interest level for embedded treasury, clients are often lacking the expertise or IT resources to implement such integrations. Kyriba’s Connectivity-as-a-Service is designed exactly for such client needs. John overviewed the options Kyriba makes available to our clients, prospects and partners. With a versatile array of ERP integration scenarios, Kyriba guarantees the freedom and flexibility to accommodate enterprise IT complexity and sophisticated business needs. INTEGRATION SCENARIO DESCRIPTION SUITABLE FOR Bring Your Own Data (BYOD) Client handles data extraction, transformation and transmission to Kyriba. Customers with legacy applications or broad existing SFTP landscape Kyriba Packaged ERP Integrations End-to-end solution. Kyriba handles data extraction, mapping transformation and transmission via API to Kyriba. Clients with new integrations or with minimal workflow customizations À La Carte Hybrid custom integration. Allows use of individual Kyriba integration components. Clients can mix and match integration methods. Clients with complex landscapes, including middleware or legacy platforms Custom Direct API Connect Custom-built extract and mapping. Clients can use open APIs from the Kyriba Developer Portal to build workflows to meet their specific processes. Companies with complex workflows or those who desire full control of their API orchestration Transforming Treasury with API-Driven Connectivity Connectivity is key to successful treasury management and APIs are the catalysts for treasury transformation. With real-time data exchange contributing to a more connected and efficient financial ecosystem, API connectivity empowers treasurers with the latest financial information and the flexibility to meet evolving business needs. The benefits are many and the untapped potential of API connectivity, especially for ERP integration, remains a growth opportunity for treasury. With embedded ERP workflows to support core treasury needs, treasury can streamline processes and make more informed decisions. To stay ahead, it is time for treasurers to take advantage of exciting possibilities in API adoption, including AI integration opportunities. With its Connectivity-as-a-Service solutions, Kyriba offers flexible, game-changing solutions for the office of CFO to build a truly connected and comprehensive financial ecosystem. Also Read
Navigating the Future: Harnessing Artificial Intelligence in Treasury for Efficient Cash Forecasting and Fraud Detection
In the dynamic landscape of corporate finance, treasurers and finance professionals are increasingly turning to artificial intelligence (AI). In order to enhance their capabilities in cash forecasting and fraud detection. While AI presents unprecedented opportunities, it is essential to recognize its role as a facilitator rather than a replacement for human expertise. This article goes into the strategic use of AI in Treasury functions. It specifically focuses on cash forecasting and fraud detection. While emphasizing the importance of a comprehensive data strategy and the key role of human oversight. 1. The Foundation: Building a Robust Data Strategy Before diving into the realm of AI, treasurers must establish a strong foundation through a well-thought-out data strategy. This involves seamlessly mapping data points from various internal systems to create a unified and comprehensive dataset. The availability of high-quality, reliable data is crucial for the success of AI applications in treasury. 2. Cash Forecasting: Unleashing the Power of “Artificial Imagination” Cash forecasting has traditionally relied on historical transactions and predictive analytics. AI brings a paradigm shift, introducing the concept of “Artificial Imagination”. Unlike mere automation, this term emphasizes the creative and decision-making capabilities of AI. Machine learning algorithms analyse historical data to identify patterns, enabling treasurers to make more accurate predictions about future cash flows. While AI significantly improves forecasting accuracy, it is essential to underscore that it should be viewed as a tool to assist and increase human decision-making rather than a standalone solution. Treasurers should remain vigilant and continue to implement upfront controls, including rigorous validation processes. 3. Fraud Detection: Strengthening Defenses with AI The battle against fraud requires constant vigilance, and AI emerges as a powerful ally in this endeavour. Machine learning algorithms can analyse vast datasets in real-time, identifying anomalies and patterns indicative of fraudulent activities. However, it is crucial to recognize that AI complements existing fraud detection measures and should not replace fundamental controls. Treasurers must continue to implement robust internal training programs to keep their teams abreast of the latest fraud tactics and ensure that AI systems are aligned with the organization’s risk tolerance. Moreover, AI can empower finance professionals to focus their attention on strategic aspects of fraud prevention, such as developing proactive strategies and refining controls. 4. A Strategic Approach: Walking Before Running While the value-add of AI is undeniable, treasurers are advised to adopt a strategic approach, ensuring that foundational processes and workflows are fine-tuned before integrating new technologies. This involves critical self-assessment, aligning with organizational goals, and fostering a culture of continuous improvement. People remain at the heart of this transformation. AI is not a replacement for treasurers but a catalyst for shifting their focus to more value-added, strategic tasks. By automating routine and time-consuming activities, AI allows finance professionals to elevate their roles as business partners, contributing meaningfully to the organization’s success. In conclusion, the integration of AI into Treasury functions is a journey that requires careful consideration and strategic planning. Embracing artificial intelligence (or, as you know now, artificial imagination!) in cash forecasting and fraud detection empowers finance professionals to be more efficient, proactive, and strategic in their roles. However, success hinges on recognizing AI as an augmentation tool and preserving the invaluable human touch in financial decision-making. ALSO READ
ChatGPT for Treasury: The Good, the Bad, and the Scary
This article is written by Kyriba ChatGPT, the experimental chatbot dominating the headlines, has some interesting—and, in some cases, dangerous—implications for Treasury management. This blog discusses the good, the bad, and the scary about ChatGPT for Treasury. What is ChatGPT? ChatGPT is a generative artificial intelligence (AI) natural language processing tool created by the San Francisco-based research lab OpenAI. In January 2023—just two months after its launch—the chatbot reached 100 million monthly active users. OpenAI and ChatGPT gained further notoriety by recently partnering with Microsoft for a multi-year alliance valued at $10 billion. At its heart, ChatGPT is very simple. It writes natural language (e.g., paragraphs and articles) using data it was trained on, including various books, articles, and websites. ChatGPT is capable of crafting rather impressive, conversational prose. It can cover everything from blog posts to essays to poetry. These often appear as if they were written by a real person. It’s so efficient that it recently passed a Wharton MBA exam. Google has also taken notice. Even though ChatGPT is not a search engine, it is already being viewed as competition for the online search giant. Google’s management has developed a chatbot of its own. Though in a recent demo, it made a mistake that has already cost the company $100 billion in market value. Are you an experienced treasurer or someone looking to enhance their knowledge of financial management? We extend a warm welcome to TreasuryMastermind.com. Join our vibrant community and become a valued member of a network that prioritizes collaboration, expertise, and the pursuit of excellence in corporate treasury. Let’s initiate discussions and together elevate the art and science of treasury management! From a Treasury perspective, here are some interesting applications that Kyriba is monitoring to understand more about ChatGPT for Treasury Management: 1. Payments Fraud Prevention It’s been well documented that AI is being used regularly for both payments fraud and payments fraud prevention. Generative AI has now become the latest tools in fraudsters’ arsenals. Cybersecurity firm Darktrace shared with Fortune’s Eye on AI. Cybercriminals are using natural language AI algorithms to help increase the linguistic complexity of phishing emails. Interestingly, Darktrace reports that the overall volume of phishing schemes it has observed has decreased by 50%. Which in more complex schemes have increased by close to 20%. Unfortunately, this makes sense. Check Point, another cybersecurity firm, noted that using ChatGPT helped it create an end-to-end social engineering campaign. From phishing emails all the way to embedded malware within an email attachment. The result was disturbingly convincing. It is assured to break down the traditional barriers of defense that Treasury and finance leaders have erected to detect fraud. In response, cybersecurity experts all say the same thing: use automated systems to detect and prevent cyberattacks at machine speed. In Treasury terms, this means using AI within our payment processes. This is to ensure payments are compliant with all payment policies and employing AI-driven adversarial networks to detect suspicious payments. The good news is that these tools exist today and can be embedded within your payment software. As well as Treasury and ERP-to-bank connectivity. 2. Treasury Management Systems (TMS) ChatGPT can also be used within a Treasury Management System (TMS), where the user gives instructions to the system using keywords or questions. With a user experience (UX) that has been optimized for natural language processing, the TMS can respond to basic queries such as “Show me global bank balances converted to USD,” or “What is my exposure to the Yen?” to more complex requests, including “What caused the variance in my forecast last week?” or “How many days of liquidity do we have left?”. One example Kyriba is testing is for bank reconciliation, where ChatGPT and similar generative AI tools would identify forecasts based on actual variances and automatically reconcile those transactions that would typically have been manually processed in the cash management module of any TMS. For the daily user, ChatGPT or similar technology could replace mouse-clicking to reach a menu item or open a screen, as well as offer a next level of treasury automation such as robotic process automation (RPA), which is offered by some treasury teams today. For the executive user, the benefits could be even more interesting, as many CFOs and treasurers do not login to TMS or ERP platforms. Yet, they would be more than willing to ask questions of their treasury software. When it comes to ‘workflow’ systems like TMS, ERP and other multi-screen applications that treasury relies on, ChatGPT offers the next level of extreme automation. 3. ChatGPT for Treasury Documentation A challenge for many treasury teams is fully documenting treasury processes and procedures, especially when implementing a treasury transformation inclusive of a TMS. Documentation, how-to manuals, and even “when I’m on vacation” instructions take time and effort to compile. This is typically done manually and is a key reason why treasury system implementations can drag on for months. Formal treasury policies are also particularly challenging. For these policies to be effective, they need to be detailed yet broad enough that they don’t allow employees to find loopholes they can exploit. Regular updates may also be needed as key risks (FX, interest rate, fraud, etc.) continue to evolve. This generally requires a lot of manual work that treasury practitioners would rather avoid. Fortunately, ChatGPT and similar generative AI models can do all the writing for you. Given a minimum amount of information about your policies and the technology platforms that you are using to automate your treasury and payments, the AI model will write your treasury documentation for you. An additional treasury documentation example would be RFPs. “I love writing RFPs” is a phrase that no treasury professional has ever said. Fortunately, ChatGPT can write RFPs for you, from sharing company background and communicating requirements to suggesting questions that vendors can respond to. 4. Use ChatGPT for Treasury Education Services ChatGPT may also prove useful for treasury professionals seeking to expand their knowledge of the profession. Treasury is an ever-evolving field as technology and economic conditions change. And it can often be challenging for…
Balancing Innovation with Fundamentals for Lasting Value
In the always-changing world of finance and treasury management, the landscape is constantly changing with new technologies and trends. As a treasurer, you’re inundated with terminology and buzzwords. Yet you may find yourself unsure of how to effectively leverage these tools to drive value for your organization. If you’ve ever felt this way, rest assured, you’re not alone. Are you an experienced treasurer or someone looking to enhance their knowledge of financial management? We extend a warm welcome to TreasuryMastermind.com. Join our vibrant community and become a valued member of a network that prioritizes collaboration, expertise, and the pursuit of excellence in corporate treasury. Let’s initiate discussions and together elevate the art and science of treasury management! “Building a solid foundation is key” It’s essential to acknowledge that building a solid foundation is key before diving headfirst into the latest innovations. AI, automation, and other advancements hold tremendous potential. But they are most effective when built upon a bedrock of fundamental principles. Far too often, treasurers become fixated on adopting the latest technologies without first understanding their business thoroughly. This includes careful documentation operations, identifying inefficiencies, and implementing strategies for improvement. Creative destruction, the process of eliminating outdated practices to make room for innovation, is a powerful tool in this regard. Consider the many reports that consume valuable time and resources without clear utility—a prime target for streamlining efforts. I will always remember a great (and rather simple) piece of advice from a former boss. To whom I asked whether this and this report were really needed. “Stop doing it and see what happens. If nobody comes at you, it means nobody cares.” I followed his advice, which saved me two days of work every week for my team. Of course, I wouldn’t apply it without thinking if I were you. Ask around you before stopping a reporting activity. “Without a solid framework in place, even the most advanced tools may yield limited results” Prioritizing initiatives such as business continuity planning (BCP), staff education and training, and making clear roles and responsibilities within the Treasury function are essential precursors to technological integration. Without a solid framework in place, even the most advanced tools may yield limited results. Once these basic elements are in place, treasurers can begin to optimize their existing processes using a combination of technology and strategic planning. Implementing workflow tools to manage end-user requests, developing key performance indicators (KPIs), and establishing your own BIC for better banking relationships are all steps in the right direction. “Treasurers can unlock significant efficiencies and cost savings” A treasury management system (TMS) serves as the linchpin for many of these optimization efforts, providing greater visibility into cash positions, improving payment management, and facilitating intercompany transactions. Also, by centralizing cash management and leveraging in-house banking capabilities, treasurers can unlock significant efficiencies and cost savings. In the realm of foreign exchange (FX) management, transitioning from direct bank trading to an FX platform offers enhanced pricing, transparency, and security. These platforms seamlessly integrate with TMS systems, further streamlining FX transactions through automation and advanced reporting capabilities. “Treasurers can unlock valuable insights” As treasurers continue to modernize their operations, artificial intelligence (AI) and application programming interfaces (APIs) emerge as powerful tools for enhancing cash forecasting and integration with internal systems. Leveraging machine learning algorithms, treasurers can unlock valuable insights into cash flow patterns and optimize liquidity management strategies. API integration extends the capabilities of TMS systems, enabling seamless communication with other critical systems such as data hubs and ERP platforms. By aligning treasury functions with broader data strategies and automating accounting entries, treasurers can drive operational efficiency and ensure compliance with financial reporting standards. In essence, the journey toward financial transformation requires a strategic approach that balances innovation with basic principles. By prioritizing operational excellence, leveraging technology strategically, and embracing continuous improvement, treasury professionals can navigate the evolving landscape with confidence and drive lasting value for their organizations. To conclude, walk before you can run! Also Read
The Risks of Not Adopting a Treasury Management System
This article is written by Kyriba When evaluating the implementation of a treasury management system (TMS), there will always be the inevitable question of why? Each company has processes in place that have worked up until now, so why should we fix what isn’t broken today? Although current processes have worked in the past, there are many risks associated with maintaining manual and disparate treasury practices that can impact the company’s reputation and bottom line. In this blog, which is part of our Value Engineering series, we explore some of the top risks that are often overlooked when evaluating the status quo versus the future state of a TMS. Lack of Insights into Global Liquidity CFOs face daily decisions that can impact the financial stability and longevity of their organization. They require access to timely and reliable insights into the company’s global liquidity position to ensure effectiveness and alignment with strategic objectives. Ever-changing economic, political, and social factors create volatile conditions, often resulting in small windows for decision-making. The treasurer must be able to provide updated insights at a moment’s notice and have confidence that the information is complete and accurate. Without a TMS in place, data is often stale, or market conditions may have changed by the time it reaches the CFO. This can result in a strategic business opportunity no longer being available. In addition to the risk of delayed insights, there is also a heightened risk of human error. Keying mistakes, formula errors, and file corruptions are all risks that could halt a treasurer’s ability to operate efficiently without impacting an organization’s bottom line or its reputation. As a former practitioner, I worked at an organization that closely monitored the release of payments to ensure compliance with quarterly debt covenants. Before the adoption of a TMS, this required labor-intensive and manual review, selection, and release of payments each month, end, or quarter. Although policies and procedures were in place to ensure that only approved payments were processed, it came down to the wire with emails requesting the urgent holding or release of payments. In one instance, this practice resulted in a $2.5 million payment being sent without a division CFO’s approval. A TMS with systematic analysis of available liquidity and payment controls would have prevented the release of this payment, saving the company and the treasurer’s career. Business Continuity Businesses with an antiquated treasury process are unable to optimize human capital, often resulting in reduced employee satisfaction, elevated turnover, and an inability to develop and grow talent. The cost associated with ongoing staff training, as well as reduced operational efficiency due to turnover, needs to be evaluated. Additionally, the potential for increased overhead must also be assessed when analyzing how the current structure would be able to support continued growth and expansion. How will the organization manage operations with a 10%, 20% or 30% growth trajectory with the current team structure? Automating processes through treasury software enables a strategic competitive advantage with talent retention and development, reducing the risk of employee turnover, as well as the organizational risk associated with overreliance on subject matter experts. Heavy Reliance on IT for Maintenance & Support IT departments may be stretched thin and often struggle to provide adequate and timely support across the organization for various projects and executive-level initiatives. In addition, the constant threat of the newest cyberattacks means that IT must constantly ensure that its policies, procedures, and safeguards are up-to-date. Unfortunately, competing demands can mean delays in Treasury maintenance to make sure that all bank-to-ERP connections are encrypted, maintained, and supported for change management. Bank connectivity is one of the most complicated and time-consuming demands a Treasury department can ask of IT. When a new relationship or account is formed and an ERP connection needs to be established, internal IT departments can spend up to 1,500 hours developing, testing, and then deploying bank files in coordination with the bank’s implementation teams for just one format. During this transitionary period, Treasury departments are forced to create workarounds, struggling to do so without operational disruptions. Business operation disruptions have a reputational impact on the organization. During my time as a Treasury Manager, our bank-to-ERP connection failed and suddenly, payment files were not being processed. Payment timing was essential to keeping the just-in-time manufacturing lines of our customers going. This file failure put one of our customers at risk of shutting down production due to a lack of payment, which would have caused us to lose preferred supplier status and could have destroyed our reputation in the industry. A TMS with a global support staff that constantly monitors and maintains connections and proactively alerts organizations if there are any issues would have solved these problems. Compliance & Controls Regulatory and compliance requirements continue to evolve, putting considerable pressure on the treasurer to verify that their treasury processes and procedures are up-to-date. Ensuring that all reporting obligations (OFAC, J-SOX, FBAR, KYC, internal/external audit, etc.) are met is a laborious task. If not constantly monitored and maintained, it can have detrimental financial and reputational impacts on the organization. With a TMS in place, all reporting and systematic audit trails are in a centralized location. Payment validation through a TMS ensures that all payments are legitimate and meet the most recent regulatory requirements. This protects the company from the release of any transaction that does not meet policy or regulatory guidelines. Standardizing controls and supporting compliance reporting enable treasurers and CFOs to focus their energy on more strategic concerns. Next Steps Evaluating the risk associated with the status quo can be a painful process. Change is scary and no one wants to acknowledge pitfalls in their current processes. Although certain situations or consequences may not have occurred, with manual and disparate practices, it is a matter of when something will break and how the company can protect itself and recover when it does. Since we are often blinded to the possibility of the potential impact of our current treasury processes, many organizations choose to seek external help in assessing the risks associated with their status…
Key market trends impacting treasurers
Corporate treasurers are facing another complex market environment this year. The pandemic has created significant economic uncertainties, which have been compounded by geopolitical tensions, supply chain disruptions, and changing regulatory regimes, resulting in high inflation. In this article, we will explore some of the key market trends that are likely to impact corporate treasurers in the coming years. In 2022, according to Reuters, major central banks hiked rates at the fastest pace (and by the largest amount) in more than 20 years. The U.S. The Federal Reserve hiked 7 times, totaling 425 bps for the year, while the Bank of England (BoE) hiked 350 bps across 9 hikes and the European Central Bank (ECB) hiked 250 bps across 4 consecutive hikes. 2023 has already seen several hikes, and the year is far from over! All of these in order to fight against inflation. “One might wonder whether the end justifies the means.” However, with recent news, one might wonder whether the end justifies the means… We are all glad that the financial system is much more resilient compared to the 2008 financial crisis, after the numerous reforms banks had to go through, allowing them to have high levels of capital today to pass the ongoing storms with a shaky banking environment and market turmoil. In my view, what is going on is a good (and necessary) refreshing cure that yes, banks can still go bust, and counterparty risk is still all around us. “A good (and necessary) refreshing cure” As cheap/zero-cost money came to a brutal end after more than a decade of free money, corporate treasurers have (again) had to adapt to this new situation. The current environment results in a tighter debt market, with foreign exchange hedging getting more expensive. The recession risk, together with uncertainty, puts higher focus on cash forecasting (like if it weren’t already priority #1) For companies not too leveraged (i.e., not too reliant on debt to fund their activities), this shock can be absorbed, while SMEs struggle with inflation and stricter access to funding combined with higher borrowing costs. “High interest rates are not only a consequence of rate hikes by the central banks to fight inflation.” Treasurers need much more active management of cash, both on the borrowing side and the investment side. As a result, money market fund providers are getting a lot more attention, and requests for short-term deposits are increasing all over the place. The duration of investments has changed as well (impacted by the speed of rate hikes, and the uncertainty). However, there’s no free lunch: high interest rates are not only a consequence of rate hikes by the central banks to fight inflation. On the horizon are also higher counterparty risks and, maybe, a liquidity shortage. Therefore, treasurers will need to find the right balance between a risk-adjusted return on their excess cash and simply benefiting from almost “risk-free” returns. “Expect volatility to persist in the short term.” In conclusion, Corporate treasurers need to consider implementing and updating their hedging strategies to mitigate the impact of currency fluctuations, closely monitor interest rates and counterparty risk to ensure that they are managing their cash and debt portfolios effectively, and in good household manner, so that they can position their companies for success in the coming years. They will need to stay vigilant and adapt to changing market conditions, and expect volatility to persist in the short term. Read more from Benjamin Defays 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.