Published: September 01, 2014
Today’s corporate treasury is being challenged in unprecedented ways. Complex factors, such as global growth, changing regulations, and advancements in technology are impacting treasury management, putting increased pressure on organizations to ‘do more with less.’ At the same time, the role of the treasurer has expanded to meet the evolving responsibilities of funding and raising liquidity, understanding and managing risks, and supporting business units as successfully as possible. In order to effectively navigate this dynamic landscape, corporate treasurers must leverage meaningful intelligence to improve performance and enhance results.
Benchmarking has become an invaluable means for treasury to gain an objective perspective of the current state of operations relative to similar companies and in absolute terms of liquidity and risk. However, effective benchmarking isn't simply about comparing a handful of functions and companies - it should provide a 360 degree treasury perspective, offering a broad baseline and insights into best practices across all dimensions of treasury management. While benchmarking practices have continually evolved over the years, the ways in which it can create value for a firm have remained constant. Typically, organizations will leverage benchmarking for one or more of the following reasons:
(1) improving productivity;
(2) setting effective goals; and
(3) driving continual improvement.
Citi Treasury Diagnostics (CTD) is a proprietary, award-winning benchmarking tool that takes a broad benchmarking approach, designed to help companies assess treasury and working capital management practices, and identify opportunities for treasury departments to deliver more value to their firms. Through mid year 2014, CTD surveyed nearly 500 CFOs, treasurers, assistant and regional treasurers, and other corporate decision-makers from companies representing a diverse range of sizes, industries, and geographies across the globe. Benchmarking results from CTD provide a clear indication as to what is most important to treasury practitioners, as well as insights into both emerging and existing themes within the treasury management space.
Increased importance of cash visibility and forecasting
CTD reveals that visibility to both cash and short-term investments remains a major priority for companies of all sizes. A lack of visibility can significantly impact how confidently corporate treasuries rely on current cash positions, forecast cash flows, and make investment and borrowing decisions.
Survey results indicate that corporate treasury continues to place an increasing emphasis on daily visibility of cash flows in all currencies and countries, as well as on daily visibility of short-term investments. Most CTD respondents reported daily visibility over 75% to both cash balances and short-term investments [Fig 1].
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Frequency of cash forecast updates are increasing across companies of all sizes, with results indicating a significant shift towards daily updates of cash forecasts, particularly among larger companies, which increased 18% over the last four years and is likely due to the wider adoption of more sophisticated treasury technology in this group.[[[PAGE]]]
Mobilising liquidity via a liquidity management structure
Cash that is centralised in a pool can be used to offset long and short positions in participating accounts, as permitted by local regulations. Pooling balances also help eliminate costly bank borrowing and make it possible to strategically direct excess balances to service debt or to make short-term investments.
Over three-quarters (78%) of CTD respondents reported daily concentration of cash into a central pool, a practice most common to larger companies [Fig 2]. In fact, 83% of companies with annual revenues greater than $25bn reported daily concentration of cash into a central pool, versus 47% of companies with revenues less than $2bn.
The survey results reveal a shift among corporates from a regional to a global account structure. Global mobilisation of cash is most favored by larger companies (40% for larger companies versus 19% for smaller companies); however, this trend is consistent across all revenue buckets.
Fostering a more risk-aware culture
While risk management practices often adapt to meet the requirements of an evolving regulatory framework, CTD data indicates that treasurers have increasingly adopted a more comprehensive approach to risk management as corporate treasuries strive to foster a more risk-aware culture.
Among survey respondents, those employing methodologies to set, monitor and calculate the usage of counterparty risk increased 11% from 2009 (56%) to 2013 (67%) [Fig 3]. In line with the shift towards a risk-centric culture, treasurers are more diligently monitoring and assessing various financial risks. Not surprisingly, the vast majority of CTD participants reported assessing both interest rate risk and liquidity/funding risk, 79% and 80%, respectively.
Counterparty risks can be reduced, for example, by linking an automated cross-border pooling structure with centralised, active investments in money market funds. Likewise, cross-border pooling structures that enable balances to be moved from one market to another can help reduce sovereign risks.
Increase automation, reduce fragmentation
Corporate treasury departments are continuing to leverage technology to automate processes and increase efficiencies. More than three-quarters (77%) of CTD respondents reported either full or complete automation of cash pooling. The scope and automation of pooling structures may vary based on a company’s business profile, enterprise systems and their banking providers. Bank-offered pooling provides the latest possible cut-off times, ensuring the maximum value, i.e. the end-of-day value, is mobilised cross-border with no liquidity left behind. Depending on the size of the bank’s network, more of a company’s cash can be harnessed with the same day value regardless of countries, currencies, and time zones. When evaluating solutions some of the top considerations are the ability to access more cash with the same day’s value and the ability to automate and integrate the solution into existing treasury processes and infrastructure.
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