Corporate Treasury: When The Going Gets Tough

Companies are continually being questioned on the need to introduce measures on how to manage their liquidity at times of distress.

Optimised liquidity with centralisation has always been one of the critical pillars of the corporate treasury. With economic downturn and recessions, that long-held premise is being put to the test as treasurers across the globe respond to a sudden increase in demand for funds to manage business activity.

Unforeseen economic recessions like these, have a profound effect on companies, ushering an unprecedented collapse of the supply chain, especially those that operate in more than one region.

The emergence of new markets indeed is always a healthy sign for companies but the need of the hour is to have a secure and stable treasury with enough cash flow, as the market is now subjected to a looming economic crisis.

Being Cautious About Growth

In the past decade, Asia has been the fastest-growing continents.

India has been the forerunner in the overall growth of Asia, and that has undoubtedly made more complex, as far as optimising the treasury function is concerned with a variety of challenges like different offshore/onshore accounts, regulations governing issues such as resident/non-resident accounts, exchange control, withholding taxes and techniques such as zero balancing and cash pools.

As the business grows and opportunities emerge in new markets, the chances are high that companies push for setting up multiple bank accounts and welcome new banking relationships. The result is a growth of idle funds parked in far-flung places. These developments can prove to be an expensive proposition, and it also can shoot-up the costs as cash-deficit subsidiaries tap external sources of finance despite internal funds that may be available.

Maintaining The Business Growth

The treasury function has to be sophisticated enough, to maintain business growth by setting up treasury centres. By concentrating and centralising cash, it is possible to efficiently deploy liquidity wherever required.

With accurate and timely visibility, companies can calculate and assess their daily cash flow. By achieving this, it facilitates organisations to compare with target balance levels, ultimately making necessary adjustments.

When The Cash Flow Is In Limbo

The unpredictability in funds and its availability occurs not based on the previous cash forecasts. In such a crisis, the treasury department may be under immense pressure to release additional cash and even give access to the banking platform to address the situation.

As investments dry up, most companies start to hoard cash than invest in the business. Instead of quantifying the impact of the crisis converting the company’s treasury into an investment opportunity becomes decisive.

Holding Out An Olive Branch

The influence of economic recession has a significant effect on the strategies of companies and their treasury as their impact is felt across every single entity who is a part of the business ecosystem. Citing these as obstacles for growth and insecurity of funds can be averted with a planned and secure investment model. 

Under such an environment, the treasury should emphasise on centralisation of funds to maintain the liquidity and the relationship with investors. The government, for sure, will speed-up measures to mitigate the damage to the economy, but companies must consider introducing tighter measures to manage their liquidity. By doing so, CFOs and treasurer can continue to concentrate on treasury matters while transforming finance operations to become a better strategic business partner for their organisations while delivering a low risk, high-yield value proposition for driving growth, mitigating risk and improving working capital.