The treasurer’s job is – in principle – rather simple: to manage cash flow (and its attendant risks) effectively and ensure cash availability. Then a litany of complications creep in:
Complex business models driven by customer demands and internal history and politics.
Regulations from a plethora of authorities who do not seem to talk with each other.
Multi country jurisdictions and business behaviours.
Rapidly evolving financial markets.
Roiling fiscal landscapes.
It is easy to drown in conflicting demands.
At the risk of pushing the metaphor too far, treasurers tend to be swimming head down in the details, just trying to keep their heads above water. Without the luxury of a helicopter view (or even better satellite view), it is very hard to make confident decisions.
One place to start is with clear priorities. With clarity about overall direction, it is easier to plot a course through the rocks.
For example, cash availability aka liquidity must be a top priority for any treasurer. Difficulty will vary between cash rich businesses and those that are struggling, and the line between the two can be fleeting. Further, there is the aspect of having cash where, when and how it is needed – missing a payroll is not a good reflection on a treasurer’s competence.
Cash availability comes at a cost, and how to balance the two forces has to be a business level decision – because the survival of the business depends on it – normally expressed in terms of capital structure. If the board does not clarify this, treasurers are navigating without a clear heading.
Making sure that the business has cash in the right place, at the right time, and in the right currency, also requires balancing cost and risk against availability. It is easy to leave cash floating like jetsam around the planet in disparate and unconnected banks. But that is not efficient. It will probably please local finance managers, but is it the right thing for the group as a whole?
Without clear priorities, balancing such tensions can quickly become arbitrary and ultimately destructive.
The Pareto Principle
Much corporate complexity comes from outlier or thin tail cases. It sometimes seems that half the effort is expended on exceptions. While the business world can be complex, and things can go wrong, it is wise to focus effort on keeping the most important things on track – if only to retain dry powder for the most important exceptions.
Rigorously applying the 80:20 rule can be very helpful in focussing efforts. For example, achieving real time visibility over cash seems like a good idea. But is it really a wise use of resources to require full connectivity from a non-core bank supporting a small and remote subsidiary? Probably a weekly manual input from the local finance manager would be more appropriate.
Cash flow forecasting is a critical process for treasury – without cash flow forecasts, treasury cannot operate. Again, this is an area where the 80:20 rule is precious. The focus has to be on the parts of the business which have both large values and large volatility. In other words, put effort where it will produce the maximum actionable information.
The role of technology
Technology is often touted as a solution and a time saver – and indeed it is. Sometimes implementation can be a daunting task, especially for already overloaded treasurers. The first rule should be that implementations are not weekend jobs.
One tension in system implementations is between adopting the system’s native way of working versus customisation. Since customisation introduces complexity and sets up future complexity when upgrades require further customisation, it behoves the treasurer to be very clear about their needs. Does the new system really have to mimic existing reports, or might the underlying objective be met more easily (and cheaply) by adopting the ways of working embedded in the system? Does the system really need to be customised for the obscure tax requirement of a small and obscure market? And if the system in question does not cater for the instruments being traded, is it the right system?
APIs and middleware
Another tension is between the intuitive simplicity of a single solution vs connecting specialised tools. APIs and middleware are increasingly changing the pros and cons of this equation. Often trying to squeeze everything into a solution into which it does not fit well creates much more complexity than it is worth.
The attraction of a single vendor is seductive from a simplicity perspective, but knitting together specialised tools may be more effective. In any case, connectivity is increasingly important, so it is incumbent on treasurers to develop or buy expertise in this area. In system procurement decision making, open interfacing must be a key criteria.
An example of mistaken simplification can be choosing to use the TMS dashboard to report to colleagues outside of treasury. It is generally much better for colleagues to feed them information in whatever system they are used to consuming data from the whole business. Most businesses have some kind of business intelligence (BI) solution, and treasury data should fit into that rather than force colleagues to learn and use the TMS.
Another example is in the area of bank connectivity, which despite decades of progress with ISO 20022 messaging and standardisation, can still be akin to navigating between Scylla and Charybdis. Even basic SFTP, which is a decades old bedrock of connectivity, can be tricky, since banks are endlessly creative in their security protocols. Treasurers would be wise to opt for minimum viable connectivity, rather than to tweak each connection or build specific host-to-host connections. Even better to outsource the problems to a bank connectivity as a service provider.
Just as middleware can smooth connections with non-treasury colleagues and banks, it can also help with the many connection points with which treasury typically needs to interface. Multiple ERPs make a strong use case for middleware, as do other internal and external systems.
Reporting is often a challenge, and in this area direct API or middleware mediated solutions can be a good solution where other reporting tools like BI systems may be a better fit. But it is important to resist the flexibility and attractions of treasury by Excel in this regard, because Excel inevitably becomes a dangerous shoal in itself.
Whatever solution is chosen, the future will undoubtedly bring surprises, and open systems – along with the capability to use them – are the best prophylactic.
Complexity is ineluctable, just as reefs and currents are part of navigation. Treasurers need a clear sense of direction, personal adaptability, and the right tools to weather the storms that enliven their lives.