Treasury ’22: Getting Ready to Reboot for ’23 and Beyond

Six key themes that will keep treasury fully engaged throughout the second half of 2022 and beyond.

Introduction

The past couple of years have been a test of resilience and creativity for most businesses. But now, as a corner is seemingly starting to be turned, many are beginning to look further ahead than tomorrow or next week or next month. The challenges that lie in wait during the rest of in 2022 are still numerous, but they are well understood and, for the well prepared, they are not insurmountable.

Perhaps one of the most immediate, albeit unpredictable, macro-level challenges faced by most businesses today is interest rate risk. We’ve seen demand pressure increase across multiple sectors and industries in recent months, but with supply chain bottlenecks and labour shortages, prices have surged in some regions. This may prove to be an economic blip, but it is nonetheless raising the spectre of above-normal inflation, which is in turn driving certain central banks to opt for interest rate increases to try to contain it.

Turbulent times are obviously forcing corporate treasurers to focus on their fundamentals, with liquidity and short-term cash management topping the list of concerns for many. Cash will remain king for some time to come. More accurate cash flow forecasting will help mitigate interest rate risk, especially where treasury is able to review its investment horizons, adjust its interest rate exposures, and explore investments with shorter duration. Robust cash flow forecasting is also essential for monitoring debt covenants because interest rate rises, for net borrowers, will lead to an increase of the interest expense line in their P&Ls. What’s more, when interest rates rise, they will do so at different rates in different regions. This potentially brings FX rate volatility into play for companies with international operations, impacting from both a commercial and financing perspective.

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