Above and Beyond

Introducing Treasury as a Business (TaaB)

Treasury has already moved from being an isolated back-office function to being a well-respected business partner. Now it’s time for the next level. Bank of America’s Venkat ES, Head of Treasury Products, Asia Pacific, Global Transaction Services, and Aziz Parvez, Head of Corporate Treasury Sales, Asia Pacific, Global Transaction Services, explain how adoption of the TaaB model will see the department become an influential business unit in its own right.

During the pandemic and its aftermath, there were certain commercial functions that rose to the top of the pile out of sheer necessity. Indeed, with many businesses facing a cash crisis, and others on the brink, it often fell to the treasurer to bring cash and liquidity back on track.

Now, propelled by huge pent-up post-pandemic demand, growth may have been relaunched onto the agenda for many companies, but a strong riptide of global economic uncertainty continues to push the unsuspecting off course, not least with the ratings agencies. As a result, treasurers are stepping up once again to help steer their organisations in the right direction. 

Despite (or perhaps because of) the challenges treasurers have had to manage over the past few years, a positive note is emerging. The treasury function has reached a stage in its evolution where the rest of the business knows what it is and does, and has seen first-hand the value it brings in times of need. So now it is time to take matters to the next phase, and for the role to push far beyond its original operational and transactional duties to become an active planning partner across a wider range of commercial activities. In other words, says Aziz, it is time to realise the notion of TaaB.

Managing market volatility and ensuring liquidity has and always will be fundamental to treasury. But having stamped its authority over the most testing of periods, the emergence of usable real-time technologies has created the right environment for TaaB to flourish. It won’t be rapid, and it will require a degree of preparatory work, but the rewards could be manifold.

Revealing benefits

“TaaB is about managing liquidity and mitigating P&L volatility while delivering value-added services to internal business partners and other key stakeholders,” notes Venkat. “It’s how treasury can collaborate with AP/AR, for example, to effectively manage working capital and shorten the cash conversion cycle. With the sales team, it’s managing credit risk while still driving revenue growth. And from a shareholder point of view, it’s how treasury plays a significant role in enhancing return on equity, reducing the cost of capital, managing financial leverage, and controlling hedging activities to ensure optimal value of the available cash.”

In other words, TaaB can be seen as an operating model that reaches beyond traditional transactional and operating functionality, into the domain of the strategic and value-driven, explains Aziz. “With treasury more closely aligned with broader company objectives around profitability and growth, TaaB encourages a more proactive and strategic stance in managing various financial activities. And whether that be growth, acquisition, optimisation of cash and working capital, mitigating risk, or identifying any opportunity within these processes, the key to successful adoption of TaaB is the deployment of appropriate technology to help with the financial modelling that supports data-driven decision-making.”

Of course, being truly data-driven affords both sharper and on-time insights, continues Aziz. Treasury with access to all the relevant data sources can figure out from a liquidity perspective which of its entities are long or short on cash. It’s easier to manage the liquidity structure from a position of knowledge and, for example, ensure that no entity needs to draw down on a bank facility if another is long on cash; with rising interest rates, this is a major consideration.

It follows that a truly data-driven business can leverage better forecasting tools to improve its cash flow management. Furthermore, a data-driven model that also leverages analytics tools helps businesses better identify, assess, and manage financial risks such as credit, FX, interest rate or liquidity. “And better processes and technology, especially automation, can also reduce costs across all of these processes,” adds Aziz.

New ways of thinking

For Venkat, TaaB draws treasury into the core part of a business strategy. “When considering elements of that strategy, treasury now becomes an integral part of the conversation, and that represents a fundamental shift in thinking about the view of treasury and how it can play a role in executing strategy,” he says. “Treasury now has a direct role in providing direction to the business units, with scope to incentivise or discourage particular business activities through finance.”

As an example, it may be beneficial when looking to increase or decrease the supply of capital to a particular subsidiary, to deploy a fund transfer pricing (FTP) mechanism. Using profitability analysis, it can help the business make informed decisions on transferring liquidity or funding costs to each entity, to promote or dissuade certain behaviours in alignment with the business strategy.

“Rather than leaving it for someone else to manage, treasury can play a proactive role when business units are considering how best to meet corporate financial objectives,” comments Venkat. Whether it concerns the percentage return on capital, or how policy is set and implemented, he believes TaaB sets up treasury “to become a trusted adviser to the CEO on how to execute on strategy”.

To be able to take a proactive stance demands strong data-driven capabilities, and that requires access to certain technologies, states Venkat. Conversations on the working capital cycle in particular have evolved from real-time information, to real-time payments, to real-time liquidity. The next step, he predicts, is the emergence of real-time data analytics and business decision-making.

This will provide the capacity to guide treasury’s focus when managing key topics such as risk, process and cost efficiency, and yield optimisation. “To get there, analytics tools need to move to the next level in order to drive business intelligence that treasury can act upon in real-time. With AI, treasury tools and technologies are already moving in this direction; now we need to be able to factor in global operations and elements, such as multiple currencies and domestic regulations, to be able to offer real-time business decisions to treasurers.”

Overcoming barriers

One of the main barriers slowing – but not preventing – a move in the direction of TaaB is corporate lock-in to legacy ERP systems. If this is the case, systems will need to be updated, says Venkat. It’s likely then that TaaB may have a cost and indeed disruption impact if the back-end requires modernisation. But there must also be a change in mindset to be able to leverage the advantages of TaaB, he adds.

“Treasury needs to be able to acquire and analyse new streams of data, which will often be widely distributed across the enterprise. Only thinking in terms of a centralised model of financial data, with treasury at its heart, will ultimately enable decisions to be acted upon in a timely manner,” explains Venkat.

It’s the case too, he continues, that simplified internal processes, likely derived from the consolidation of banking and technology service providers, will be required to ensure that both internal and external data can successfully juxtapose to provide the best actionable outcomes for treasury.

For Aziz, the proliferation of ERPs, often through M&A activity, is indeed the main impediment to TaaB progress. Integrating these, or preferably reducing them to one provider and one instance, will be a major step forward. Another positive move, he says, will be the implementation of a TMS, which he cites as “a critical central source of data, analytics, and automation for TaaB”. Of course, he cautions that cyber-security and fraud prevention must be appropriately heightened with any push towards greater digitalisation and centralisation.

As an additional step, Aziz suggests that a TaaB project should secure early stakeholder engagement, ensuring all are aligned with treasury’s aims. “TaaB is not something that will be achieved in the short term. Expecting quick results will lead to disengagement, so it is vital to manage their expectations on that journey.”

Taking the first steps

The starting point for treasury is to define the objectives of TaaB, and ensure they are strategically aligned with the broader goals of the company, advises Aziz. Once objectives have been clearly defined, the next step is to assess current treasury activities, systems, and processes to find the gaps and determine what additional work is required to attain the objectives. The outcome may, for example, lead to consolidation of multiple ERPs, the deployment of a TMS, or a realignment of certain processes.

The assessment phase, adds Venkat, may benefit from a scorecard approach. Here, KPIs are useful because early quantification and clear target-setting will ensure the goals are easier to visualise, refine, and explain to other stakeholders.

Indeed, a vital action at this stage is to raise awareness of the concept among internal stakeholders – sales and procurement functions for example – and begin educating them as to what is required of them, and how they will benefit. Engagement should aim for full buy-in, says Aziz, because without it TaaB cannot be optimised.

The stakeholder group must also include external partners such as banks and vendors. These parties will need to fully grasp the ambitions of TaaB if they are to offer the right longer-term solutions. This means leveraging developing technologies, adopting global standards and datasets (notably through APIs & ISO 20022) not just for cost and efficiency gains but also to ensure strategic goals are being served, especially where the TaaB model aims to cast treasury’s influence far and wide across the organisation.

Partnering for success

The move to TaaB may initially sound somewhat daunting. In reality, says Aziz, as a key partner, Bank of America is equipped with a strong and qualified advisory team that can guide treasurers through the necessary stages. “We bring them into these discussions as clients look to transform their treasury,” he says. “They can suggest some of the best practices that they have experienced themselves or seen in practice with other clients.”

A key area of support will be on data analytics, notes Aziz. In Supply Chain Finance (SCF), for example, he says the bank will normally harvest huge payments and receipts data flows from multiple sectors. By analysing this data, the team is able to refer back to the client and discuss the feasibility of SCF as a means of optimising working capital. Clients may also be advised on how best to gain visibility over their liquidity and optimally restructure it as part of treasury’s move towards the TaaB model.

“The time has come for TaaB to be seen as an imperative,” states Venkat. “The benefits are clear. Treasury holds the reins of the chariot, and with TaaB is able to steer it precisely in the direction the business wants because all the tools are available to do just that.” He notes too that partners such as Bank of America are well-placed to provide more innovative solutions, driven by rapidly advancing technology, especially around real-time information.

But Venkat reiterates his view that while TaaB will not be achieved overnight, by combining a number of milestones, a plan to achieve these, and a vision of how key partners can be leveraged, a one- to three-year horizon of success is entirely feasible.

“As banks, we deal with multiple clients across different geographies and industries, so we can distil the best and most appropriate practices and solutions for each client scenario,” he explains. “By calling upon trusted banking advisers such as Bank of America, treasurers will begin to see TaaB not only as an interesting concept but also as a future reality.” And, he concludes, it’s a futurescape that has potential to see treasury operating far above and beyond the call of duty.

In the next article, Bank of America’s experts will consider the notion of ‘on-time’ processing, and how it is helping treasury push further into the realm of TaaB.

For more information, please visit business.bofa.com/international