Citi’s latest Treasury Diagnostics report finds that digitisation to drive and augment decision making is treasury’s number one priority. Still, many companies need to focus on the basics around infrastructure fundamentals first.

Treasury teams face key challenges in their digitisation challenges, according to Citi’s latest corporate benchmarking survey, Treasury Diagnostic s. Gathering opinion from 475 large and diverse companies, the report finds that despite treasurers’ overwhelming focus on digital solutions to drive efficiency and augment decision making, addressing the building blocks of data-led insights, processes and people to best manage objectives remains a challenge.

Indeed, many companies still need to focus on the digital infrastructure fundamentals. Particularly low levels of automation and connectivity with bank systems, where some companies are struggling to effectively integrate their technology ecosystem. For example, 64% of respondents report that their treasury management system (TMS) is either not integrated or only partially integrated with their enterprise resource planning (ERP), contributing to the ongoing use of manual processes to support cash flow forecasting.

Elsewhere, 79% report that they do not have a fully integrated TMS/ERP platform with their banks, again explaining the need for manual reconciliations. On the plus side, less than half (49%) report multiple e-banking platforms at each location which would indicate a shift to a better use of data provided by banking partners within company infrastructure.

“While treasury objectives remain constant and digital opportunities exist in how those objectives may be delivered, for most treasuries, fundamentals need to be addressed to lay the technology foundation and data layers for realisation of future aspirations,” says Stephen Randall, Global Head of Liquidity Management Solutions at Citi.

Treasury playbook

Two thirds of respondents don’t have the systems in place to fully embrace the digital opportunity. Of these, 32% need to first focus on the treasury fundamentals before they can consider automating through emerging techniques. 42% are of sufficient treasury maturity to now consider process automation and leveraging data to augment decisions, while a quarter of respondents are in a position of treasury digital maturity to support business growth through data-led initiatives. In a playbook for corporates at any stage of their digital journey, Citi’s Digital Treasury Index aims to provide tangible digital guidance tailored to treasury maturity, legacy infrastructure, appetite to automate and aspirations for the role in which treasury will play within a company.

“New digital technologies and the evolution of financial services has prompted corporate treasury to rethink its future. Harvesting and utilising data as a means to optimise and meet company risk management objectives is now a top priority amongst many of our clients,” says Flavio Figueiredo, Global Head, Rates and Currencies Corporate Sales and Solutions at Citi.

That said, while the advent of new digital technologies and the evolution of financial services has prompted corporate treasury to rethink people, technology and processes deployed to manage risk, the fundamentals of treasury best practice remain. The study shows that effective treasury policies, delivered through processes and procedures, managed through key performance indicators is the foundation for achieving financial risk management objectives and a best in class treasury function.

Cash is king

The study found that centralisation of cash and risk remains the mantra with 63% of companies concentrating cash at global or regional levels, with 80% of companies concentrating cash on a daily basis.

Despite the availability of advanced cash forecasting technologies, only 34% of corporate respondents utilise statistical analysis of previous patterns to predict forward and 80% remain reliant on Microsoft Excel as a component of the tech stack supporting the forecasting process.

Three quarters of companies report more than 75% daily visibility of their cash position. Yet despite the availability of auto-matching technologies, less than half of survey participants report greater than 75% auto reconciliation levels. While 62% of companies reported reducing earnings volatility as a key risk management objective, the number of companies that actually directly hedge earnings translation exposures is quite low (12%).

EM currency risk

Companies surveyed continue to follow a rolling, static, layered, or opportunistic approach to hedging forecasted exposures. However, short-dated hedging continues to be the preferred tenor with forecasting error a cause. Most respondents reported having exposures to currencies outside the G-10, two-thirds (66%) report either hedging emerging markets (EM) currency and G10 exposures the same, or essentially not hedging EM at all. Costs, market liquidity and local regulatory considerations were cited as the primary challenges when managing EM currency risk. “Corporates are now conducting comprehensive policy and ERP/TMS technology reviews with the main question being asked by seniors – where, when and how does currency risk emerge?” concludes Jaya Dutt, Global Head of Risk Management Solutions at Citi.