Results of the EACT Survey

Although the EACT Summit unfortunately could not take place this year, 200 treasury professionals from across Europe shared their thoughts on treasury’s role and priorities as part of the EACT survey. Survey responses were received between 11 March and 15 April 2020, a period that coincided with the start of Covid-19 lockdown in many locations. Although some participants responded before the official lockdown in their countries, many companies had already implemented measures such as stopping business travel and moving to home working. Markets were also experiencing significant volatility at the start of the survey period and supply chains had been disrupted. Consequently, it would seem fair to assume that most people responded to the survey in the context of crisis-related issues.

Identifying priorities

Cash flow forecasting was the highest treasury priority for 55% of respondents. This is not surprising bearing in mind that cash and liquidity profiles, supply chains and customer behaviour were already affected by the pandemic before lockdowns were imposed. However, the focus on cash flow forecasting is not a ‘crisis phenomenon’. The issue has consistently appeared at the top of treasurers’ list of priorities, as reflected in the most recent bi-annual PwC Global Treasury Benchmarking Surveys in 2017 and 20191.

Likewise, technology and treasury digitalisation, and working capital management have remained significant priorities. The value of automation and digitalisation has been emphasised by the pandemic, particularly as people rapidly shifted to home working, with manual, paper-based processes becoming all but impossible. Similarly, optimising working capital has become essential, not simply improving individual metrics, e.g. days payable outstanding (DPO) and days sales outstanding (DSO) but a holistic approach to optimise liquidity and increase supply chain resilience2.

Leveraging technologies

Treasurers have always been motivated and engaged by the opportunities to leverage innovative technologies to solve problems and add value to the business in new ways. Even so, there has been a notable jump in treasurers’ current or planned use of new technology capabilities over the past year, a trend that seems likely to have accelerated since the start of the Covid-19 crisis. A significant 62% of respondents noted that they were already using, or intend to leverage, data analytics to create intelligent insights into liquidity and risk dynamics, compared with 43% in 2019. Analytic tools are becoming more widely available in treasury management systems (TMS) and enterprise resource planning (ERP) platforms, as well as specialist solutions. The need for analytics to understand and respond to fast-changing, exceptional market and economic conditions has also been amplified during the crisis.

Likewise, treasurers are increasingly recognising the potential of robotic process automation (RPA) to replace high-volume manual input, and enrich the data on which analytics can be performed. In 2019, 24% of respondents were using RPA, but in 2020, 46% already do so, or are planning to in the short term.

Use of, or interest in, application programming interfaces (APIs) was not covered in previous EACT surveys, but current or planned use of APIs was highlighted by 35% of survey participants this year. In treasury, APIs are increasingly used to enable the real-time exchange of transactions and data between banks and corporates’ TMS or ERP, and to embed banking and payment services into internal or customer platforms.

Artificial intelligence (AI) is the sector of current or planned use of innovation that shows the biggest increase, with a leap from 6% in 2019 to 22% in 2020. AI capabilities are increasingly part of banks’ and technology vendors’ solutions such as predictive analytics, cash flow forecasting, bank account reconciliation and fraud prevention tools.

Themes and trends

‘Treasury on Demand’ is one of the themes of this year’s Journeys to Treasury report, and the trend towards ‘real time’, including transactions, processes and data exchange, has become more apparent in 2020 than in any previous year. Of the respondents 52% expressed an interest in real-time information, and 47% in both real-time liquidity and real-time payments and collections. These themes, as well as APIs (for real-time integration) and 24/7 availability, are closely related, and will create new demands on banks and technology vendors to offer real-time solutions, such as for liquidity and risk, and the ability to handle real-time data. There are also procedural implications as treasurers need to consider how they will adapt their processes and decision-making to reflect the availability of real-time data.

Working capital management: influence and responsibility

Treasurers’ involvement in working capital management, and the value of treasurers’ contribution in this area, is explored as one of the themes in this year’s Journeys to Treasury report, and was also covered in the recent Covid-19 special edition3. Although identified as a priority by 37% in the first section of the survey, treasurers report varying degrees of influence and responsibility for working capital. For example, 45% note that they are involved in working capital, but do not have direct responsibility. Only 30% are responsible for working capital.

As protecting both physical and financial supply chains has become a higher priority, while market liquidity may be more difficult to access in many cases, treasurers are likely to pay more attention to working capital and potentially take on a greater role.
Centralisation challenges

Although many treasurers have centralised their treasury functions at a regional or global level, centralisation remains a challenge for many, particularly those with a decentralised organisational structure and/or those that are highly acquisitive. Of the respondents in section 1, 28% indicated that centralisation would be a priority over the next one or two years.

The biggest obstacles to centralisation involve challenges posed by fragmentation and lack of standardisation in areas such as processes and controls (43%) bank relationships and account structures (33% and 21% respectively) and technology platforms (28%). Some of these issues are explored more fully in this year’s Journeys to Treasury report.

Lack of resources, budget and organisational support, both at senior management and business unit level, are also obstacles to centralisation. However, ironically, the Covid-19 crisis could boost this support and fast-track the availability of resources. Treasuries that have achieved a high level of centralisation, standardisation and automation have found it easier to adapt quickly to new business practices during the crisis. The importance of managing liquidity and risk at a group level has also been emphasised, particularly as many business units’ liquidity position has changed markedly, making the business case for centralised liquidity and risk management more compelling.

The ESG agenda

While treasurers’ primary responsibilities are around liquidity and risk, many organisations are implementing a group culture in which every employee and department plays a role in the environmental, social and governance (ESG) agenda. Although Covid-19 has diverted some immediate attention from the need to tackle climate change and environmental and social sustainability, it remains a primary strategic focus for most organisations.

The survey responses reveal that most of treasurers’ involvement in ESG is at an operational level, such as shifting from manual, paper-based processes (50%), reducing business travel and encouraging home working (41%). Given that these have become normal business practice during the early phases of the pandemic, it seems highly likely that these efforts will continue and become more firmly embedded into organisations’ working cultures.

Conclusion

The Covid-19 crisis has highlighted the importance of treasury’s role in managing existential issues around liquidity and risk, the value of digitisation to support automated processes and decision-making, and the potential for real-time data and transactions to accelerate supply chains and cash cycles. Real-time and on-demand intelligence also enhances treasurers’ visibility over, and response to, fast-changing conditions. The crisis has also rapidly altered the way that treasury functions operate, perhaps heralding a permanent change in working practices.

Treasurers have been adaptable and responsive to the immediate demands of the crisis. At the same time, their priorities, challenges and areas of interest have remained largely consistent. This suggests that treasurers are motivated by a longer-term, strategic view of the needs of their business, as opposed to reacting impulsively to the day-to-day demands of the crisis. The survey results illustrate, however, the growing role that technology innovation is likely to play in equipping treasurers with the automation and decision-making tools they need to fulfil their responsibilities more effectively, and deliver greater value to the organisation.

Notes