Seeking Strategic Advantage in a New Era of Treasury Management The recent crisis has been remarkable not only in the depth of financial turmoil, but also the speed with which it struck. Eric Seifert examines the fundamental changes in the way that corporate treasurers manage the liquidity and risk management needs of the business.

Seeking Strategic Advantage in a New Era of Treasury Management

by Erik Seifert, Global Head of Cash Management, and David Teare, Global Head of Client Relationship Management, SEB

The recent crisis has been remarkable not only in the depth of financial turmoil, but also the speed with which it struck. Treasurers had little time to shore up financing and liquidity management structures, and therefore became more reliant on their key banking partners. Many discovered the hard way the banks they could rely on and those they could not. As a result, the way that corporate treasurers manage the liquidity and risk management needs of the business have changed fundamentally.

As the capital markets dried up, and banks reviewed their lending strategy, liquidity optimisation became a major board-level consideration. Firms that had previously maintained a decentralised approach to cash management, funding and hedging sought to centralise these activities to improve control over cash flow, reduce the cost of funding and manage credit, interest rate and FX risk more effectively.

Every treasurer looked around the business to find out where the cash was and how it could be put to use. This increasingly led to an oversight role across the financial supply chain, including both order-to-cash and purchase-to-pay processes. Working capital management became a strategic rather than operational responsibility, as treasurers sought to optimise and align financial processes. Cash flow forecasting, which has been on treasurers’ ‘to do’ list for so many years has became a ‘must do’ to facilitate financial decision-making.

The relationship between corporate treasurers and their banking partners was shaken by the crisis. No bank could rely on size or heritage as a guarantee of future stability and some corporates were left without access to capital or only at a prohibitive cost. The differences between banks became more apparent too. Before the crisis, cash management products grew in sophistication and flexibility, and ultimately have become largely commoditised. Consequently, treasurers are now seeking banking partners that offer outstanding advisory services, delivery capability and client support in order to meet liquidity and working capital objectives, and obtain these services in the most convenient, efficient and cost-effective way possible. 

The provision of secure, robust technology is an essential element of every competitive cash management offering, but there are differences in banks’ approach. Banks that are committed to providing the best tools to their clients will partner third-party technology firms to leverage the right skills and expertise, as well as developing proprietary tools. For example, many of SEB’s Nordic clients are pioneers in the use of innovative technology to drive efficiency and competitive advantage. Consequently, we have worked with many of the world’s most respected organisations to develop, partner and deliver the tools to facilitate world-class business processes. 

With myriad  cash management products available, these need to be structured into client-specific solutions that successfully align bank capabilities with client challenges. This requires a clear understanding of clients’ needs, aspirations and constraints to design solutions that satisfy current and future objectives. This should include a clear business case, budget, implementation strategy and resource plan. At SEB, for example, we have built a dedicated advisory function, and a structured methodology for identifying, designing and implementing solutions, which we refer to as the Corporate Financial Value Chain™. 

However well a solution is designed, it will not satisfy the company’s objectives unless employees are well trained in the use of the technology used to deliver it, and know how to use the information that is produced. Furthermore, while a solution will be implemented to meet the company’s current and anticipated needs, these can change over time, as a result of changing internal or market conditions, mergers and acquisitions etc. Constant communication between corporate treasurers and their banking partners is essential to ensure that in-house skills are maintained and that both parties have a clear appreciation of the other’s strategy.

As most banking products and services are delivered using technology, it no longer matters where a bank is located in relation to its clients to deliver the vast majority of the transactional requirements of multinational corporations. Furthermore, with harmonisation of payment products now in progress through the Single Euro Payments Area (SEPA) and legal harmonisation with the implementation of the Payment Services Directive (PSD), companies now have the opportunity to select their banking partners for payments and cash management irrespective of location. Treasurers can take advantage of innovative, convenient technology that is easy to use, together with expert advisory services, to leverage solutions that satisfy today’s and tomorrow’s business challenges.         

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