Centralisation, Digitisation and Automation - A Story of Treasury Transformation
By Ivo Vesselinov, CFO and Nirpal Bharaj, Treasurer, Inchcape Shipping Services
Treasury has evolved substantially in recent years from effectively being a cash management function that operated in a largely siloed way from the rest of the organisation, to being a strategic and connected business enabler, whether across cash, liquidity, risk or financing. However, to achieve this transition, treasury needs the right tools to provide automation and control of treasury processes, visibility over cash and risk, and analytical tools to navigate the uncertain environment in which we operate.
When I joined ISS, treasury, payment and collection processes were manual and labour-intensive, with an entirely spreadsheet-based operation. The treasury function was largely decentralised, so activities were replicated in different parts of the business, with a lack of consistency in processes and controls. We have around 130 business units, each managing its own bank relationships, which totalled more than 40. With such a large volume of electronic banking systems, formats and security protocols were fragmented and costly to administer.
A catalyst for change
The result was that it was very difficult to create a timely, accurate picture of cash and exposures at a group level, and therefore we could not manage our liquidity or risk effectively. ISS had experienced significant growth, both through organic growth and M&A, and we recognised that we needed a new treasury organisation and infrastructure on which to base it to meet the changing needs of the organisation.
There were also external factors that emphasised the need for change. For example, we recognised that in an environment of risk and uncertainty, we needed to enhance our approach to credit risk management, which was difficult to achieve without either a global view of exposure, or the tools to manage it.
Furthermore, we needed the ability to comply efficiently with regulatory requirements such as KYC, which can differ substantially by bank and by country, but there are many other regulatory obligations too that we need to consider. We often have problems as banks frequently categorise ISS as a shipping company, which is typically considered a high-risk industry under sanctions screening requirements, whereas we simply deliver services to the shipping industry, so our payment processes and the consistency, completeness and accuracy of information we provide on payments is critical to avoid blocked payments.
Embarking on a change project
We went through an extensive feasibility study to determine what skills we had in our treasury organisation, what our current processes were and how these could be improved, and the solutions that were available that would support our treasury and payment needs both now and in the future. As a result of this evaluation, we embarked on a multi-pronged project to optimise treasury organisational strategy, bank relationships, systems infrastructure, and workforce & training.
While creating a convincing business case for centralisation and digitisation of our treasury function to enhance liquidity and risk management for senior management was a key milestone for embarking on this project, bringing together the wider business in support of the project was a more complex and significant task. We held an event in Dubai to communicate to local finance managers what our plans were, what the benefits would be, and the support that we would need from them to enable the process. At this event, we articulated our liquidity and risk management objectives, and the reasons for moving away from a decentralised treasury approach. In addition to gaining their support for the project, it was important to engage with local finance managers to ensure that we would be able to provide services to the organisation in line with local cultural and regulatory requirements.
Designing a treasury infrastructure
Our new systems infrastructure was a crucial element of our new treasury organisation. We needed a solution that would support a new centralised treasury organisation, supplemented by a payment factory and central hub for connectivity with our banks, supported by an in-house bank. Efficient, secure integration of business and banking systems was crucial to achieving this. In addition, we were aware that we had pockets of cash in different parts of the world which were inaccessible to treasury, so by implementing a combination of the right technology, organisation and bank relationships, we would have better visibility and control over group liquidity, and repatriate cash more efficiently. The new treasury organisation and infrastructure would also enable a consistent approach to control, and standardised processes for managing transactions and information. This needed to be supported by appropriate documentation, processes and business continuity planning. Ultimately, the aim was to deliver value by reducing operating costs, enhance control over our treasury transactions and information, and optimise the use of our financial assets globally.