Published: January 01, 2000
Resilient and battle scarred, today’s treasurers have much to be proud of. They have come through the financial crisis with stronger teams and greater influence than ever before. As companies shift their focus from survival to growth, what systems and strategies can be used to take advantage of the opportunities ahead?
Companies have been operating in a challenging environment for some time. Around the world, global issues such as low interest rates, stagnant growth and significant risk management concerns have presented a complex mixture of difficulties. In North America, threats such as the fiscal cliff have added to the concerns. But even with all of that, treasurers resisted the urge to stand still and have been working to position their companies to grow. This meant surviving daily distractions while also working to increase efficiencies and improve risk management across the board.
Many lessons have been learned since the crisis started. Companies have come through the experience stronger, more streamlined and more risk-conscious than before.
After the downturn began in 2007, companies became more averse to taking on risk, and understandably so. With the financial crisis in full swing, new challenges and distractions appeared on a daily basis, and for the first time in many years they found themselves dealing with a credit crunch, low interest rates, concerns about counterparty risk and the Eurozone crisis. As a result, they became very focused on liquidity and mitigating risk.
This initially meant taking stock of operations and looking for more efficient ways to enhance business models. Many looked at risk management practices and found that they were over-concentrated with certain providers. Others found they didn’t have the ability to move cash where they wanted it, or lacked the flexibility needed to introduce new controls or to change providers in response to market disruptions.
Having identified these shortfalls, treasurers began to take action. In addition to transforming treasury operations to drive efficiencies, they looked for ways to gain more visibility and control over excess cash to build up liquidity buffers. They also worked to manage counterparty risk more effectively by concentrating funds away from riskier regions or providers. After five years of slow to stagnant growth, there is a sense of optimism. Companies are now entering a more controlled growth environment with fewer disruptions.
Fortunately, the hard work is paying off. They are not the same companies that went into the financial crisis. Businesses are better capitalised and have significantly more liquidity, which can be used to pay down loans or expand business. Many have been through major efficiency exercises, such as establishing common ERP systems, and have taken the time to gain the maximum value out of these projects. Others have put in place treasury management workstations in order to get a better line of sight into transactions and liquidity.
From small and medium-sized enterprises to the largest corporations, many companies have overcome a great deal of adversity during the last five years. They have learned that they can become more successful by pursuing international growth opportunities. They understand how to operate through uncertainty and, as a result, are not as distracted by topics such as the US sequester, which would have caused a lot more disruption even a year ago.
Now, companies are beginning to focus their attention on growth and more strategic ways to get to the next level of efficiency and standardisation. At the same time, treasurers are looking for ways to optimise their working capital management and put the right resources and controls in place to take advantage of the future.
Having built up tremendous liquidity, companies are now looking to put it to work, but the continuing low rate environment offers limited opportunities to get a return on investments. As a result, many are looking at ways to enhance their strategic position by using excess cash for mergers and acquisitions (M&A). The first six weeks of 2013 produced the most robust M&A activity we have seen in quite some time.
That’s why we’ve chosen this supplement to feature articles that address client needs and concerns with topics that are top of mind and solutions that enable success. We know it won’t always be easy – and we still have economic challenges to deal with – however, companies that took the necessary steps to right-size during the downturn are now ready to move forward.
We start this supplement by exploring growth through acquisition. With each acquisition, the acquiring company often goes through a difficult transition period as it integrates the acquired business into the existing group. Dennis Sweeney and Chuck Colliton take a practical look at the integration process and highlight some of the pitfalls companies need to avoid during this difficult time. In the last couple of years, North American companies have begun to focus more on global rather than regional growth – and that trend is expected to continue. While the economy is showing some signs of slight improvement, the persistent low interest rates mean that it is hard for companies to grow without venturing outside of the region. As a result, many are choosing faster growing regions – including Latin America, Asia, and even in some parts of EMEA.[[[PAGE]]]
Of course, entering a new country can also bring challenges. For companies exporting goods into exotic markets, the imminent arrival of the Bank Payment Obligation (BPO) is particularly relevant. Combining the risk management and financing properties of a letter of credit with the automation, standardisation and efficiency offered by ISO 20022 XML, the BPO is an exciting new instrument designed to support open account trading, as addressed by Paul Johnson. Meanwhile, companies expanding outside of the US need to have a full awareness of associated currency risks. Carrie Moore’s article on Foreign Exchange (FX) looks at best practices in the effective management of FX exposure.
Treasurers are now expected to achieve more despite having fewer staff and reduced financial resources. And they are doing so by automating activities, such as transaction execution and reporting, and by creating a treasury function, which makes decisions based on clear visibility over the available information. Whether the goal is to initiate a truly global operating model, or the move from paper-to-electronic applications, companies are less willing to be locked into proprietary bank systems and are looking for the flexibility and convenience offered by multi-bank solutions.
In this climate, more companies are interested in exploring the opportunities offered by SWIFT connectivity. This interest is also being driven by the recent arrival of Alliance Lite2, which is opening SWIFT up to companies which may have previously lacked the volume and budget required to justify such a move. Illustrating the practicalities involved in migrating to SWIFT, eBay’s experience of making the move is outlined in an article by Linda Haddad.
Strategic-minded treasurers continuously look for ways to not only improve existing processes, but also create treasury platforms that will contribute to the company’s overall success. Nellie Lee, Bechtel Group’s Assistant Treasurer, talks to Liz Minick about how Bechtel went about adopting a global operating model and outlines the resulting benefits.
Where efficiency is concerned, the recent and upcoming changes to the US Postal Service will have implications for any company currently collecting cash using checks. Maria Mandler discusses the impact of the changes on receivables processing activities and explains how the situation should be monitored – whether or not a company is currently using a lockbox.
Meanwhile, Kevin Phalen and Ed Simpson discuss the obstacles faced when looking to migrate payments from paper-to-electronic, demonstrating how a card solution can help achieve objectives.
One area that treasurers have addressed since the beginning of the crisis is risk management. Today, treasurers manage a far greater range of risks than in the past, and they increasingly have to be ready for the unexpected. As such, Mark Kirsch discusses the importance of Business Continuity Planning, outlining the framework treasurers can follow to prepare for a range of possible disruptions.
In terms of specific risks, fraud is of particular concern for many companies. Milton Santiago and Stephanie Wolf discuss some of the most common threats facing companies today and show that when it comes to fraud protection, the simplest approach is often the most effective.
Treasurers have emerged from the experiences of the last six years with greater standing in their companies than ever before. During the crisis, they spent significantly more time with their CEO and boards of directors, discussing where the company’s money was and how to make the best use of working capital. As a result, treasury has naturally been elevated to a more strategic role within the organisation.
I hope you enjoy the range of topics covered in this supplement and find the information provided useful. As always, we are deeply focused on your needs and committed to being your trusted bank advisor through every stage of your continued development.
To learn more about Bank of America Merrill Lynch treasury capabilities, please visit our website at BAML.com/treasurymanagement
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