A Closer Look At The Evolving Role Of Corporate Treasury

Corporate treasury has evolved from being transactional to a strategic one.

Corporate treasury is gaining more attention like never before as its ability to control business operations has gone up including its data that bring greater insight into the financial risks facing the organisation.

The unprecedented financial crisis has frequented the economy in short periods forcing the treasuries to rethink their strategies and plans to remain unaffected and prolong the cash liquidity.

Technology provided the right impetus and has been a great facilitator in streamlining the processes for the treasury saving time and creating transparency.

Uncertain Times

Treasury practices are continuously being monitored, bringing in more complexity in an increasingly volatile, uncertain and globalised external environment.

Typically, business strategy is focused on customers, production, market expansion and operations, several factors, outside these focus areas can disrupt the approach and even bring an organisation to its knees. With the surge in the interconnectedness of markets, speed of information flow and stakeholder expectations which is measured every quarter, the miscalculation in business strategy execution is ever diminishing.

What Are The Treasury And Financing Risks

Many markets have become more expensive and difficult to operate since the 2008 global financial crisis.

It’s essential for management and boards to understand that treasury and financing transactions are always subject to many risks and consequences. Businesses will opt for long-term views in planning business development if the risk awareness within organisations is greater.

Previously, the success of the corporate treasurer was defined by metrics like hedging loss/gain or cost of funding. Still, today’s treasury is judged by the ability to handle internal and external stakeholder expectations.

A Great Choice For Corporate Treasuries To Deploy Surplus Funds

How Can Corporate Treasuries Ensure Efficiency

One of the most strategic roles that treasury increasingly participates in is working capital management.

For treasuries to participate and operate in such an extensive role, a high level of collaboration among business units is required, and alignment of KPIs and various objectives across functions is vital. Centralisation through technology has helped treasury’s ability to lead a consolidated approach to working capital and generate significant benefits for the organisation.

Eventually, the roles of the treasury have diversified with the likes of a Risk Manager, managing, assessing and mitigating financial risks inherent with working capital transactions while being a Financial Arranger by developing customised structures to aid sales teams; or an Investor, investing surplus cash in buyer and supplier transactions, thereby increasing returns for the company.

An Initiative Worth Implementing

Transforming treasury from a transactional to a strategic function will involve the implementation of new operating models, rethinking of processes. But given the current unexpected economic situations coupled with an increasingly complex environment and liquidity crisis businesses face, treasuries need to be proactive, judgemental, and experimental.

By positioning the treasury to mitigate risks will enable the companies to capture opportunities that will take their businesses forward and safeguard the growth.

How To Become A Strategic Corporate Treasurer

Designing a strategic corporate treasury is not restricted to just doubling the scope of treasury activities. A sustained focus on designing, implementing and maintaining the right policies, infrastructure, decision support tools and systems to deliver on organisational goals is much appreciated.

The biggest challenge that a treasury has, in establishing its strategic importance to an organization is the ability to define objective performance metrics that go beyond measuring transactional successes.

Linking corporate treasury metrics to financial metrics that matter to the organisation is critical to creating a successful corporate treasury for an organisation.

Rerouting the Surplus Funds

Corporate treasuries often look to park surplus funds in schemes like mutual funds instead of low-yield bank deposits.

Future cash flows allow companies to use internal funds more judiciously and efficiently while reducing the over-dependence on external borrowing. A novel way of adopting an investment option that serves the purpose of improving the visibility of cash within the organisation and fund availability should top the priority list in today’s economic scenario.

The truth is the return on treasury surpluses is often overlooked from a liquidity management stand-point which tends to hold true for both cash-rich organisations as well as those that extensively utilise facilities and have temporary or limited surpluses due to liquidity mismatches. For organisations that hold excess liquidity to support growth and expansion, a period of surplus liquidity holding can adversely impact the return on equity. Given the extensive focus on the security of surpluses, the ability to improve profits through optimisation of instrument choice and investment tenure is significantly understated.