Areas of overlap

Although treasury and procurement often operate separately, the areas of overlap mentioned by Mehlkopf mean there is much to gain by bringing the two departments closer together.

For one thing, the impact of sourcing challenges and supply chain disruption can reverberate far beyond the procurement function. At the same time, working capital management is an activity in which both treasury and procurement have critical roles to play.

Pathak points out that supply chain disruptions and working capital optimisation “have been the top trends impacting the treasury function in the last few years. With supply chain risks top of mind, treasurers are focusing on optimising supply chain finance, and are working more closely with the procurement team than ever before.”

Nicolas Helmstaetter, a treasury expert in SAP’s Global Treasury, observes that the relationship between treasury and procurement is becoming increasingly important both for efficient and optimised working capital management, and to support cash flow. “At SAP, we are currently undergoing a massive transformation with significant impacts on financials and strategic priorities,” he says. “In order to do so, collaborations between different finance departments have been intensified and efforts have been aligned.”

United front

There are a number of activities which can benefit from closer coordination between treasury and procurement. According to Pathak, “Anything that involves longer payment terms, paying suppliers on time, managing inventory levels to release working capital for business, or managing the increasingly complex sanctions environment, can benefit from shared input by both functions.” He notes that working together on payables issues can not only help supplier relationships on the procurement side, but also help to strengthen bank relationships due to the business presenting a united front.

“Card and payables implementations are generally at their quickest, and adoption has accelerated, when we’ve had procurement and treasury together in the room,” he adds. “As a treasurer, it is critical to have procurement’s buy-in, feedback and cooperation when establishing a SCF programme, particularly with an ESG focus.”

With a focus on working capital optimisation, Pathak says treasury can extract more value out from initiatives if it has buy-in from procurement for managing inventory levels, supplier terms and purchasing, as well as financing strategies. “Integration between TMS and procurement systems can also enhance data sharing and process efficiency for both teams,” he observes.

Procurement focuses on securing supply and managing supplier relationships, while treasury manages financial risks, securing the ‘liquidity supply chain’ and managing banking relationships.

Thomas Mehlkopf, Head of Working Capital Management, Taulia

Helmstaetter, likewise, says working capital management is a cross-team effort that cannot be handled by a single department. “It is important that there needs to be a clear working capital strategy in place,” he says. “For example, treasury might vote for extended payment terms to benefit cash flow from a working capital perspective, but procurement might negotiate discounts, and at the same time accept shorter payment terms, depending on how the teams are steered.” Without alignment between the departments, he points out that single actions may trigger opposing and unwanted effects.

Beyond working capital, Mehlkopf notes the coordination of procurement and treasury strategies is crucial where cost management is concerned. “With procurement’s eyes on supply chains, and treasury’s on FX and interest rates, both bring valuable information to predict and manage risk – protecting their company from financial and supply chain disruption,” he adds. “Collaboration also enhances financial planning, as procurement holds insight into future purchasing needs and potential cost trends, which can support the treasury function in preparing forecasts and budgets.”

Building a closer relationship with procurement

It’s clear treasury teams have much to gain from building a closer relationship with procurement. As Mehlkopf explains, “It is vital that these functions engage in coordinated strategies, such as negotiating payment terms and implementing supply chain finance supported by shared KPIs. This ensures a strong relationship between teams and establishes a communication cadence – both essential for supporting optimal cash flow and helping the company achieve its long-term goals.”

Treasurers are taking note. Pathak observes that more treasury teams are initiating a dialogue and closer collaboration with procurement teams in order to enhance cash flow management, and manage risks or surprises. “Effective cash flow optimisation strategies implemented by corporate treasury can yield substantial savings for the company,” he says.

But for some strategies – such as enhanced cash flow management, ESG initiatives and strategic planning and budgeting – “treasury needs the full support of the procurement team.”

Likewise, procurement also needs help from treasury teams to be innovative and provide efficient financing options to suppliers, “which can ultimately help with the negotiation leverage.”

Achieving this needn’t be a major undertaking: as Pathak points out, “treasurers can support procurement naturally through some of their core competencies. This includes efficient cash management, SCF, and know-how when assessing certain suppliers’ creditworthiness and financial stability.”

Noting that having both functions on the same page can be “a big win” for the organisation as a whole, Pathak says there may be many useful instruments in the treasury toolbox that can help procurement have richer discussions with suppliers and gain a better view of internal spending needs.

“Another tool is the close ties that the treasurer has with the business’s core banking group,” he concludes. “Opening up that element to the procurement team, when appropriate, could be critical.”