How to Protect Your Treasury in Uncertain Times

The ongoing Covid-19 pandemic has created a host of unprecedented challenges for almost every aspect of the treasury function. Nevertheless, working in conjunction with their bank(s), treasurers can armour their teams against many of the challenges.

Cash forecasting is becoming increasingly important. Before the pandemic struck, many companies had sufficient cash available, forecasting was often done by Excel and there was no great urgency to perfect it. But it is vitally important that firms now begin to work on improving the visibility of their cash. This will involve digital solutions such as forecasting tools driven by artificial intelligence (AI), which some banks are now offering via their online banking platforms, and vendors are investing in heavily.

Unfortunately, there is no quick way of implementing these types of tools – it can take several months, but the starting point is to make sure that your data is available, as comprehensive as possible, and above all, clean. Work towards this end should start immediately.

Turning receivables into cash and feeding liquidity into the system is an additional ongoing challenge. Your bank can help with tried-and-tested solutions here, and can also introduce you to fintech partners where appropriate. Digitisation will prove vital for confirmations, so that you know when a payment has been received. And technology can also assist in automating reconciliations in order to speed up cash application.

As far as supplier payments are concerned, it is important to look for ways in which your supply chain partners can be paid quickly or perhaps be paid in advance. If you have long-term suppliers with which you have established relationships, and where you know that the industry is sound and that any cash flow problems they are experiencing are just a ‘bump’, then it will often be possible to help finance the supply chain in conjunction with your bank.

Looking at trade finance, the current situation is something of a paradox: while factories in China and other parts of Asia are beginning to restart their production after a couple of months, there is still no overseas demand, resulting in stockpiling of goods. The volume of transactions is down overall, but the situation with guarantees is very different from that of documentary credit.

Where guarantees are concerned, most of the transactions were negotiated before the virus struck so there has not been a significant drop, and digital solutions are in place to ensure that guarantees are sent to the beneficiary. Documentary credit, on the other hand, has been much more severely affected, because of the problems now associated with the transmission of paper.

As such, it is vital that paper activity moves to digital as quickly as possible, and the pandemic is proving a significant driver towards this goal. There are various solutions that can be implemented relatively quickly for treasurers currently finding trade finance challenging, such as amending letters of credit to extend their validity. But it must be emphasised that these actions can’t be taken by corporates unilaterally and neither can a bank impose any changes – dialogue between the company, bank and beneficiary is vital; discussions with the International Chamber of Commerce (ICC), regulators and port authorities can also be useful.

In summary, creative solutions are constantly being found to help treasurers through this crisis period. But digitisation is the key, together with continuous dialogue with banking partners.