The Growing Importance of the Treasury Function

by Richard Martin, Head of Payments and Cash Management, Barclays Commercial

The Treasury function in any corporate has always been important in making sure that the business has sufficient liquidity to meet its obligations, whilst managing payments, receipts and financial risks effectively.

With the ever increasing pace of change to regulation, compliance and technology in the financial sector, Treasury has increasingly become a strategic business partner across all areas of the business, adding value to the operating divisions of the company: for example, working with the sales department to establish good financial contract terms so that any trade discounts offered and the payment method agreed are beneficial to the business. Current market conditions also reinforce the need for corporates to ensure that their financial position is managed as efficiently as possible, with no excess working capital tied up in the business - the old adage ‘cash is king’ is certainly as relevant today as it has always been.

Treasury departments need to cover the complete financial environment; from capital structure and long term investments to liquidity and working capital management. If Treasury can drive improvements in the Purchase-To-Pay and Order-To Cash cycles, there can be a direct effect on the overall debt and investment requirements and thus on the capital structure required in the business.

The question then is: if the Treasury function is becoming more of a business partner, how can the department manage its time to ensure that day to day administration, processing and transaction execution is completed using the minimum of resource?

The answer is that most larger companies automate the majority of their daily financial processing and administration tasks, supported by policy standards, control and monitoring processes, embedding financial best practices across the whole business. Integrating corporate systems with those of their banks can achieve significant levels of automation, reducing the amount of time that needs to be spent on tasks such as calculating the daily cash position.

At the same time, the efficient use of secure systems can minimise operational risk, increase operational security and maximise straight through processing. Add to this automatic reconciliation of bank account data and Treasury can then manage exceptions rather than every item, giving them the time to devote to delivering value-added services across the company.

As all treasurers are well aware, there are currently a significant number of developments in the financial markets, particularly in Europe, which affect most companies and their banks. Europe is becoming more integrated, aided by the introduction of SEPA. This will help companies to do business more easily, although at the same time this will increase competition between banks. Then there is the effect of increasing globalisation, opening up new markets in different regulatory regimes, all of which need to be understood and managed to ensure financial propriety.

European banking infrastructure and regulation is currently going through its largest re-organisation for many years - how will SEPA develop, which new payment providers will flourish, what clearing and settlement mechanisms will be available? These all have the potential to change the optimal bank account structure across Europe and need to be considered by Treasury for the benefit of the whole business.

Technology development is continually providing new and enhanced ways for corporates to manage their financial position. An example of this is the development of SWIFT Corporate Access, enabling corporates to use SWIFT channels to communicate directly with their banks. This, together with the development of more standardised file formats, for example XML, has the potential to change radically the systems and processes used in the business where the benefits outweigh the cost of introduction. For more information on the benefits of using SWIFT please see “The Quest for Differentiation through Common Standards”, TMI 158.

Cash and liquidity management has always been a key task in every company to ensure debtor, creditor and stock levels are managed as efficiently and effectively as possible. When the business environment is more challenging, corporates can gain a competitive advantage through optimal management of every aspect of their financial position. As one treasurer of a multinational corporate commented at a recent cash management conference “During times of difficulty, treasurers demonstrate their true worth to the business”.

At Barclays, we aim to help treasurers demonstrate and expand their value to the organisation. Our objective is to help every business manage its working capital position in the best way possible, by providing services and systems to assist every company achieve their optimal cash management model.