Published: January 20, 2022
Treasury best practices have been both forged and accelerated during the pandemic. A recent TMI webinar explored the key themes of the latest Journeys to Treasury report, reflecting on the changing nature of treasury, the digitisation of the function, and how the ecosystem of treasurers, banks and service providers can best work together.
The Journeys to Treasury initiative, powered by a collaboration between BNP Paribas, the European Association of Corporate Treasurers (EACT), PwC and SAP, recently published the sixth edition of its report into treasury practices. The four parties provide perspectives from various angles on the treasury space – bringing in insights from banks and corporates, as well as from the advisory and technology perspectives.
The report also offers practical case studies from corporate treasurers worldwide to demonstrate best-in-class innovation and treasury best practices.
One of the key themes addressed in the 2021-2022 Journeys to Treasury report is global liquidity, which was highlighted as a pressing issue this year by the EACT’s research. Treasurers struggle to keep tabs on their global liquidity and need real-time data to feed into their cash flow forecasting.
Christian Mnich, Vice President, Head of Solution Management Treasury and Working Capital Management, SAP, explains: “Cash is the lifeblood of a company and has been a very significant topic over the years. This past 12 months placed specific importance on the issue, because treasurers were forced to provide immediate answers to senior management about what their current cash balances are, in which currencies, and where the cash is located. At the same time, they’ve needed an understanding of what their cash flows look like, in terms of payables and receivables, in order to have a robust sense of whether there is a potential liquidity gap.”
Looking at the number of systems typically used to deliver an end-to-end perspective on liquidity, the reality is that there is no single platform that can control everything. Therefore, the focus is on obtaining the maximum level of transparency available for the corporate treasurer through the connections between and interoperability of such transactional systems. This presents several challenges.
“Organisations are grappling with a heterogeneous system landscape, in combination with many internal and external stakeholders,” continues Mnich. “Keeping and consolidating all that information into a single system that provides you with answers on a day-to-day basis, but you’re also depending on your banks providing you with information like bank statement reports, as well as information from business units so that you can manage elements such as cash forecasting.”
These challenges will remain, particularly while many treasurers are still using Excel spreadsheets to manage cash flow information.
Having a single channel to the bank, like SWIFT, can be an advantage as it simplifies the level of communication and helps with streamlining, as well as having a scalable solution when, for example, a company wants to add new banks. This level of standardisation is key to improving the onboarding of partners and to having a certain level of communication standard that makes it easier to import bank statements, to keep up with cash balances, and having all payment status in one place. Once that is established, it can be built on, such as linking this information to transactional data for accounts payable (AP) and accounts receivable (AR), for example.
Mnich explains: “When a bank statement comes in, you’re clearing the cash account and trying to match it to an open underlying item. You need to understand who has paid what and what you have to pay. This ends up in a situation where you can unlock some potential in your underlying ERP [enterprise resource planning] system. Once you have a certain level of data, you can add technology on top, such as simulations based on artificial intelligence [AI] for scenario analysis.”
One of the main messages of the latest Journeys to Treasury report is the importance of ecosystems and co-operation between partners, including the role that partnerships with fintechs can play, upon which van Beusekom reflects.
“Digitisation has been a central theme for treasurers for some time, but in recent months we’ve seen an acceleration in digital adoption by treasurers,” he comments. “Initially, the focus was to plug gaps in automation, but now we are seeing that treasurers, together with system vendors and banks, are taking a longer-term, more strategic approach. With these technologies, treasurers are also addressing liquidity challenges around transparency, flexibility and visibility. We see solutions in the pipeline regarding intelligent reconciliation, dynamic hedging, enhanced cash flow forecasting, real-time visibility of liquidity, as well as the use of bots to automate repetitive manual actions such as moving bank balances and cash allocation.”
But treasurers cannot overcome these challenges alone, and the report notes that the role of banks in treasurers’ digital strategies extends further than the point-to-point exchange of transactional data. It is an ecosystem of effort, including banks’ partnerships and integrations with fintechs.
One of the corporate case studies from the Journeys to Treasury 2021-2022 report that featured in the webinar looked at French-headquartered aerospace multinational Thales Group, and the efforts the firm has made to optimise its cash management in China and Asia.
The company employs 2,400 people in Greater China and in North Asia, of which more than 1,500 are located in China. Its primary business in the region includes avionics and ground transportation. While the avionics business has been significantly impacted by the pandemic, investments in ground transportation, such as underground railways, continue to grow.
Jan Dirk van Beusekom, Head of Strategic Marketing for Cash Management and Trade Solutions, BNP Paribas, explains: “Some business units are running cash surpluses while others need cash to fund investments. This is a situation familiar to many companies, but regulatory constraints in China mean that unlocking that cash can be more challenging than in other regions. For example, having invested cash from overseas in China, it can then be difficult for a company to repatriate this cash.”
Thales’ objective was to find the best way to use corporate cash in China in order to finance its activities more both in China and internationally. The first step in this process was to automate but also rationalise its bank account structure and concentrate cash across China and Asia entities through an automatic zero-balancing domestic cash flow.
“As a result, they now have better visibility and better control over their cash balances, which means they have increased the accuracy on their cash flow forecasting and can better manage their working capital,” says van Beusekom. “They’re managing the short-term deficits in one entity with the surpluses from another entity in an automated way. They’ve also integrated their cash flow with automated yield enhancement solutions. Having centralised their cash, they were then in the position to determine more accurately what cash flow was required within the business in China, and what would be repatriated.”
This was vital visibility to gain as the onset of the pandemic resulted in an increased pressure to concentrate cash at the Thales Group headquarters in Paris, where it could be mobilised as required to meet the needs of the wider business.
“Thales China responded to this challenge by setting up a cross-border pool according to the Chinese scheme,” notes van Beusekom. “This then enabled them to mobilise the cash held in a domestic cash pool more easily and transfer corporate funds to the group treasury in Paris.” In addition, they also streamlined bank connectivity, with payments now processed by implementing SWIFT in a single channel. They’ve also been able to choose a single bank for all their domestic salary payments as a result of this project.”
Another driver in the evolving role of the treasurer has been the increasing adoption in the business-to-business (B2B) space of trends and best practices traditionally associated with business-to-consumer (B2C) companies. This existing trend was supercharged by the pandemic, as firms scrambled to ensure they had an option to sell and deliver their goods and services online, in many cases selling direct to consumer (D2C).
“It’s not simply how customers transact that is changing, it’s the way that sellers engage with them through new business models,” notes van Beusekom. “In the past, many companies sold through distributors, retailers and third-party marketplaces, which made it more difficult to develop direct insights and engage directly with consumers and build that loyalty and trust that you need in doing business. Companies are developing new business models based on e-commerce marketplaces and social media platforms to better understand and respond to customer priorities, to personalise experiences and to build relationships.”
Indeed, in the Journeys to Treasury report, PwC’s Nicolas Vincent notes the following: “Payments play a key role in the convenience, speed and quality of the customer experience. Given treasurers’ roles in facilitating and reconciling efficient, secure payments and collections, they therefore play a core role in business performance and, as such, are no longer a cost centre, but a centre for value creation.”
In some cases, to move to a D2C model represents a transformation of a company’s entire product portfolio. For example, customers may only want to pay for what they use, when they use it. Shifting business models result in a change in incoming payments and customer risk dynamics.
“Replacing larger payments from the distributors with an increasing volume of lower-value payments means that the reliability of incoming payments becomes increasingly important, as companies take on a greater risk to customers – particularly when adopting subscription or contract models,” explains van Beusekom. “Tools such as direct debits may become more important in some markets. These are developments that we have followed closely, and we’ve introduced Direct to Pay and Request to Pay instruments recently. But this also requires new skills such as managing escrow, international tax and customs, which may not have been in the scope of the treasurer before.”
One of the other critical case studies in the sixth Journeys to Treasury report explores how German-headquartered online food ordering firm Delivery Hero has been able to realise the benefits of a digital treasury. The company is based on a digital business platform that enables customers to order food and connects to restaurants and delivery drivers. It is a fully digitalised business model as Delivery Hero does not own the restaurants, it simply provides the platform that connects all parties in the transaction.
“They have seen rapid growth over the past decade, 100% year-over-year,” says Mnich. “In 2020, they joined the German DAX stock market index, listed as one of the biggest and most important 40 companies in Germany. With this fully digitalised business model they also had an increased demand for serving the treasury needs, which is understandable – when they started, it was a very small team and a very limited number of banks, whereas nowadays they are in more than 50 countries and have a very global approach to their bank partners, having onboarded around five bank partners. They communicate via a centralised channel, and the ambition was not to grow the treasury department by adding headcount, but rather to have a scalable platform that helps them to manage the growth and expectations.”
By implementing SAP S4/HANA as its digitally-enabled core platform for treasury, all cash management, risk management, bank connectivity and data analytics requirements are supported by one system, giving Delivery Hero’s treasury all the scalability it needs to support such business growth.
“With that technology platform they are in an excellent position,” Mnich explains. “They can digitise, for example, the entire payment business from an end-to-end perspective. Treasury Director Christian Schmal provides some great insights from the company in the Journeys to Treasury report.”
For treasurers who are yet to explore digitisation fully, the array of different technologies that exist can seem somewhat overwhelming and also out of reach at a time when significant budgetary resources may not be available. For van Beusekom, the advice to those treasurers is not to try to do everything at once, but rather to start small.
“Look to see if you can select a single use case that can improve one area of your treasury you are keen to upgrade,” suggests van Beusekom. “Start small, select the right partner, understand the business case you want to solve or to automate or to digitise, but also consult your peers and become involved with the treasury associations and with other platforms. The human aspect is also important, hire the right people with the right skills and use the available data. Banks and service providers sit on loads of data that can be used, most of which is accessible nowadays through APIs [application programming interfaces]. This is something to do together with partners, don’t try to solve digitisation on your own.”
The latest Journeys to Treasury report offers advice for treasurers, from those just starting out on their digital journey all the way through to digital treasuries examining their next moves to anticipate future trends.
Download the full report at https://www.journeystotreasury.com
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