Data swamp to data lake: measuring treasury data for success

February 2023

The UN estimates that internet of things data flows across connected devices will create productivity benefits for businesses worth US$3.7trn by 2025. If treasurers are to harness this force, they must move from data silos to a discipline of enriched data that illuminates workflows, automates operations and informs strategy.

The growing availability of data promises to transform businesses. The vision of a ‘data lake,’ powering better decision-making with actionable insights, is a tempting one. But without a robust framework for connecting and clarifying inputs, more data can simply muddy the waters.The sheer quantity of data in most businesses can be overwhelming, creating less of a data lake and more of a swamp – murky and hard to navigate.

Cash flow forecasting is a prime example. Without a sharp awareness of data and workflows that ensure robust underlying processes to “feed the forecast,” the usefulness and reliability of new technology are often hampered.

Without meaningful data insights, customer payment behaviours may go unnoticed and unnecessarily trigger held orders and collection strategy techniques, both of which reduce forecast accuracy.

Swamp-like data also inhibits the understanding and application of advanced data science, like artificial intelligence, that is transforming treasury functions. Gartner consultants estimate that 85% of artificial intelligence projects will produce errors due to improperly managed processes that foster swamp-like data.

The issue of data quality is not just about rectifying bad data but about identifying useful data.The first step in this process is to engage with stakeholders to evaluate which key performance indicators matter most to the business and drive collaborative outcomes.

The critical, and often overlooked, starting point for moving from data distraction to tangible application is creating a common understanding of what specifically adds value. Achieving this with the high volumes of data generated by multinational corporations requires blocking out data noise and refining data sets from source systems outside the organisation.

In cash flow forecasting, a disciplined process reflected in data and technology infrastructure helps to filter the blips caused by limited information, best estimates and general business volatility.

Bank transactional data, for example, can act as a clarifying agent, either refining existing data to improve its application or uncovering process inefficiencies that are outside of the scope of analysis of traditional treasury systems.

A case in point is FX, where the addition of transactional bank data can clarify swamp-like foreign currency payment processes. The FX capabilities of platforms such as Bank of America’s CashPro® can use bank data to automate trades and deliver much greater efficiency.

As the value of data increases, many of these use cases will find their commercial footing. In the near future, as treasurers work to structure and clarify their data, tools and applications, the opportunity for easily available bank transactional data to accelerate the process cannot be overlooked.

Technology’s vital support in the era of deglobalisation

January 2023

The disruption of COVID-19 is being followed by waves of uncertainty including conflict in Europe, rising interest rates and inflation, and problematic supply chains – not to mention the looming threat of recession in many economies. Bank of America argues technology is the best risk mitigator in a challenging world.

The pandemic and its continuous aftershocks have fundamentally changed the way corporations think about their global operations. ‘Deglobalisation’ has become the collective noun for this retreat from globality. Elsewhere, commentators speak of the ‘end of optimisation’ as corporations are no longer willing to accept supply chain fragility to pursue better shareholder returns. Fluctuating supply chains and ensuring cash available to invest in onshored production isn’t the only potential liquidity call.

Other concerns have not gone away; improving corporate performance against environmental, social and governance (ESG) criteria is still a priority.

Most of all, treasurers need to forecast as accurately as possible to help the business anticipate and plan for events. Armed with the right data, they can support predictive and proactive decision-making across the organisation.

Treasurers need the right technology to understand their global position and manage change at speed with:

• A global view of cash, on time and 24/7.
• The ability to manage cash and make payments regardless of location.
• A robust cash forecasting system to anticipate bottlenecks.
• Resilience in combating fraud and cybercrime.
• Data to support decision-making around ESG objectives.

Today’s technology can help deliver insights beyond the traditional treasury benchmarks around working capital, such as DSO, DPO and the cash conversion cycle. With CashPro^® connected seamlessly via APIs to an Enterprise Resource Planning (ERP) system or Treasury Management System.

With TMS and other internal and external data sources, treasury can see a comprehensive dashboard of operations that, only a few years ago, might have required significant investment in time, money and technology resources to achieve.

For treasurers already battered by two years of pandemic pain, it might be tempting to return to ‘business as usual’ and to old ways of doing business. However, the new world that is emerging has challenges to rival even those of COVID-19, and no treasury can afford to slip back into a pre-digital ‘comfort zone.’ The businesses that thrive in the coming decade will be those that best adapt to the era of deglobalisation, and that means being ready for anything, anywhere.

It may be difficult to predict what will happen next to global economies, but with Bank of America as a banking partner and CashPro® at the heart of the tech stack, corporate treasurers can have the right tools and advice for whatever the future brings.

Keep an eye out for next month’s Thought for the Month.

On the road again: planning for a return to travel and expense management

December 2022

As companies restart their travel programmes, their priority will be making business travel a safe and positive experience for employees. So, what should they do?

Business travel is firmly back on the corporate agenda.

In fact, there’s so much enthusiasm for travel that a survey of travel managers by Deloitte projects that corporate spend on travel will increase to 55% of 2019 levels by the end of 2022. Furthermore, research by Mastercard has found that an estimated 1.5 billion more passengers globally will fly in 2022, compared with last year, with people travelling for both business and leisure.

As more employees hit the road, or take to trains or the skies, companies will naturally want to make their travel experience as safe, comfortable and convenient as possible. So, what should they prioritise?

Review travel policies. Factors that should be considered include acceptable travel frequency and distance, budgets and cost-effectiveness, restrictions to specific countries or regions, approval processes, requirements for how travel is booked, health and hygiene, and overall employee satisfaction.

Communication to employees. Once policies have been reviewed, companies should communicate them clearly and promptly to employees, highlighting any significant changes. A good way to do this is through a corporate travel page on the company’s website.

Agility. While it makes business sense for many companies to encourage corporate travel again, the COVID-19 health crisis is not completely over. So, companies should be mindful of the risk that a dangerous variant of the virus may suddenly emerge in another region and have a plan for rapidly bringing about the safe return of any employees who may have travelled to that destination.

Travel partners. Reliable, trusted travel partners are key to an effective and safe travel programme that meets the expectations of both the company and its employees.

Corporate card providers. In addition to partners that can assist with booking transport and accommodation, companies are likely to need the support of corporate card providers.

This may require employees to:

• Update the card information that is stored in their mobile wallets.
• Set up automatic fraud alert notifications.
• Use the lock and unlock feature of the mobile app so they can lock their corporate card while they’re not using it.
• Use the PIN check tool on the mobile app so that if they forget their PIN while traveling, they can go into the app and either request or change their PIN.

Employee preferences. Companies should take their employees’ concerns, preferences and health circumstances into account when asking them to travel, as well as thinking about how they should travel.

A mixed picture

While we’re certainly seeing the return of corporate travel, it’s not expected to reach pre-pandemic levels before the end of 2023, according to Deloitte.

Other factors – including the economic climate and concerns around sustainability – are also likely to have an impact on companies’ investment in corporate travel in the near future. For example, Deloitte’s research found that travel managers expect sustainability to cause an 11% – 25% reduction in travel budgets by 2025.

Keep an eye out for next month’s Thought for the Month.

From E-commerce to A-commerce and I-Commerce: what AI means for treasury

November 2022

Technological advances like AI, APIs, automation and robotics are transforming how businesses transact with their customers. Bank of America explores Treasury’s role in unlocking the potential of real-time data to support the businesses.

We are in the midst of a new digital revolution. Companies are increasingly transitioning from E-commerce – aka selling goods and services online - to ‘A-commerce,’ an online sales process that is augmented by AI to ensure a seamless user experience for customers.

This transition is particularly evident in sectors that interface directly with consumers, such as retail, healthcare and insurance, but it is also relevant to the business-to-business environment. For example, manufacturing companies might use A-commerce to manage their inventories.

As well as AI, A-commerce is enabled by other technological advances including APIs, automation, data mining and robotics. A-commerce removes human effort and, in many cases, human error from business processes, it potentially eradicates the need for specific processes such as batch processing.

Significantly, the rise of A-commerce is driving opportunity and innovation within the fintech community as companies outsource. For example, companies are outsourcing their accounts payable and accounts receivable processes to third parties, along with certain treasury processes such as netting.

Treasury opportunity

In the past, treasury had to rely on historical data to perform cash forecasting. Now, with the rise of innovations including real-time payments and digital wallets, they can base their forecasting on what is happening at a precise moment in time.

Data

Data from internal and bank systems is not the only data of value to treasuries. External data is also crucial. Different types of external data can enhance the company’s understanding of market trends and identify potential challenges that might hinder its ability to deliver its business strategy. This data might be related to raw material prices, for example, or sales figures for certain products in certain markets.

With so much data in existence, the onus is on treasury to identify and extract the most meaningful information for the company. This is information that can enable the company to plan for the future, navigate opportunity and risk and differentiate itself from competitors.

Real-time information on transactions, combined with external data, will enable treasuries to partner with other functions even more effectively within their companies. They could make strategic recommendations for managing payments made by customers or vendors.

While the shift from E-commerce to A-commerce is a transformative development, the journey doesn’t end there. The next destination is I-commerce or intelligent commerce.

I-commerce is where cognitive intelligence is applied to the automation process so that technology effectively mirrors human thought processes. While I-commerce already exists today, in the form of virtual assistants, for example, it will become more prevalent in future. Technology will increasingly interact with customers in ever more sophisticated ways, removing unnecessary friction from the sales process.

Keep an eye out for next month’s Thought for the Month.

Sustainability across the supply chain

October 2022

Sustainability has become a business imperative. Bank of America believes that treasuries can help the world move toward a better future by supporting companies to embed sustainability throughout their supply chains.

As businesses are closely connected with both the environment and the communities where they operate, they can help policymakers to address the major environmental and social challenges we face as a planet.

Alongside the moral imperative to act on ESG issues, businesses recognize their own dependencies on the environment and society. They also understand that ignoring these dependencies exposes them to significant economic and reputational risks. Both the pandemic and the current geopolitical unrest have highlighted the vulnerability of global supply chains and emphasized the need for companies to prioritize sustainability as a means of building greater supply chain resilience. Furthermore, consumers are increasingly refusing to buy from businesses that neglect diversity and inclusion or are prepared to compromise the future of the planet in the sole pursuit of short-term profits.

Pressure around sustainability is also coming from institutional investors, who want to invest responsibly and believe that sustainable businesses will outperform their peers. This helps to explain why the total value of ESG assets is on track to exceed $50 trillion by 2025, representing more than a third of the projected $140.5 trillion in global assets under management, according to research by Bloomberg Intelligence.

Companies know that if they want to meet the ESG expectations of their customers, investors and other stakeholders, they need to have sustainable supply chains. This can be a major challenge, however, since it’s not unusual for large businesses to have thousands of first- and second-tier suppliers, including SMEs. What’s more, these suppliers may be distributed in numerous markets around the world, including in markets where ESG is not well supported by legislative and regulatory frameworks.

When companies look to diversify their supply chains, they may onboard small, young suppliers that have a limited track record. It is harder to assess the sustainability of these startups compared with larger, more established suppliers. Furthermore, lower-tier suppliers often lack environmental management systems and have high staff turnover rates, making it difficult to implement viable environmental programs.

How can treasuries support their companies to build more sustainable supply chains going forward?

1. Identify and encourage sustainable suppliers. A sustainable supply chain requires access to rich data from procurement and, where possible, outside assessments from third-party ESG audit services. Those suppliers that don’t reach the required standard can be encouraged to improve while those that do may be offered more favorable terms.
2. Help sustainable suppliers to access finance, banking and advisory services. Through the relationships they have with their banks, treasurers are well placed to find out how their suppliers can access finance from banks, as well as banking and advisory services. Banks themselves may be able to provide financing to the suppliers or else they may be able to connect the suppliers with investors who can provide capital for investments in sustainability-related projects and infrastructure. As an example, Bank of America has deployed $250 billion in sustainable finance activity for 2021 as part of its $1.5 trillion by 2030 sustainable finance goal.6 Also, as banks are always looking for new clients, they may be able to offer banking and advisory services to a company’s suppliers.
3. Implement a working capital management program, such as supply chain finance (SCF). Fortunately, SCF can be used to support suppliers with strong ESG credentials, by providing them with finance on favorable terms. Suppliers can then use this funding to invest in growing their business sustainably. A SCF program will also encourage suppliers to be more loyal to the company that provides it, helping to underpin the company’s sustainability.

Keep an eye out for next month’s Thought for the Month.

Treasury in transition: real time payments to APIs

September 2022

When it comes to corporate cash management, processes that were fast and efficient a decade ago are too cumbersome to compete effectively in today’s world where speed is a competitive advantage. To truly operate as a digital treasury, major changes must be managed. Switching from batch processes to real-time processing; from office hours to instant processing 24 x 7, from paper-based payments to instant payments.

In the latest example of a technology shift, Application Programming Interfaces (APIs), software intermediaries that allow two applications to ‘talk’ to each other, are moving out of the test lab and into the mainstream. Using APIs, treasury management systems (TMS) can potentially connect to multiple banks and other systems such as Enterprise Resource Planning platforms (ERP), allowing payment instructions, account details, and other data to flow seamlessly between them.

It has, of course, been possible to connect TMS and ERP systems to banks for many years; but whereas setting up a secure file transfer protocol (SFTP) connection could take up to ten business days, an API connection can be switched on rapidly if it is already in the system’s ‘library’ of API connections.

As API connectivity is being developed, it is already part of the solution to a multitude of integration challenges across the industry. In treasury operations, many organisations are seeking to replace batch processing and host-to-host connections with real-time processing, as well as better real-time visibility into account balances, faster negotiation and booking of FX rates, and many other examples of real-time connectivity.

Innovation in payments

It’s been just two years since corporates were able to immediately send and receive payments using the first new clearing system in the US in more than 40 years. Real-Time Payments (RTP) made business easier with anytime availability, sender and receiver notifications, and enhanced messaging, albeit with new challenges around security and audit.

Now ISO 20022 is the international standard for high-value payments. In November 2022, SWIFT will switch from the MT message format derived from the ISO 15022 standard to the MX message, based on ISO 20022 (though the two will coexist for some years to come). The newer format can carry rich data, making it much easier to know what a given payment was for and where it originated.

Treasury teams with a digital mindset will already be looking at systems and processes to see how best to take advantage of this new world of speed and transparency.

Fortunately, Bank of America is ready to share the heavy lifting. The CashPro API partnership network has developed strategic partnerships with industry-leading ERP and TMS systems, making it easy, quick, and efficient to connect to data sources anytime, anywhere, and anyway the treasurer wants. Many TMS and ERP systems are already connected, and more are being added.

If you haven’t yet investigated how APIs can help your treasury team move into the future, now’s the time. For a closer look at two of our applications powered by CashPro Reporting API, please explore the CashPro API Developer Portal.

Keep an eye out for next month’s Thought for the Month

Innovation with a purpose

August 2022

Bank of America’s Breakthrough Lab scales entrepreneurial ideas, enabling talented founders in under-represented communities to build businesses. It’s rolling out in more US cities and eyeing overseas expansion.

Bank of America is expanding Breakthrough Lab, an impact accelerator that provides economic opportunity and advancement to entrepreneurs from under-represented communities. Its goal is to enable talented founders with big ideas to scale their businesses, create jobs and build generational wealth. The 2022-2023 programme will expand within the US and will also go global, with onboarding startups from Asia-Pacific, Europe, the Middle East, Africa and Latin America.

The Lab works with early-stage startups focused on ideas in financial technology or digital-enabled ideas that promote financial inclusion. These startups are pre-seed – ie, they have not yet received a round of seed funding. Ideally, the Lab is looking for founder teams between two and five people in size.

“We’re committed to diversity and inclusion,” says Rodney Gardner, Program Sponsor for the Breakthrough Lab, “and excited to help under-represented founders from ideation to product launch and drive economic opportunity in their communities.”

Set up for success

Startups that join the Breakthrough Lab benefit from a comprehensive and customised virtual learning programme that sets them up to succeed in business. The six-month programme provides:

• Assistance, advice, and expertise to develop a business model.
• Access to industry professionals, venture capital firms, and fintech companies.
• Opportunities to connect with a global network of like-minded entrepreneurs.
• Connections to providers of capital – investors, grant providers, CDFIs – that can help startups secure funding following graduation from the programme.
• Generous financial benefits of up to US$11,000 per startup, including a stipend for programme expenses and a brand design package.

To deliver its curriculum, the Lab leverages Bank of America’s expansive internal network of experts, as well as its partners within the startup ecosystem. The initiative also supports startups to make connections beyond their mentors, and beyond the programme, so they can tap the vast ecosystem of expertise that exists. In the future, the Breakthrough Lab could also present opportunities for our clients to collaborate with innovative startups.

So far, startups in the Breakthrough Lab pilot have been extremely positive in their feedback. Founders of the Zone, a digital platform designed to help student-athletes monitor and support their mental health and wellness, described it as “nothing short of amazing”, saying: “The Bank of America team has shown how much they care by going above and beyond for its members, whether it be through guidance, resources, or networking opportunities to help grow the companies involved within the programme.”

Executives at MultiGenerational, a financial technology company that is making investing accessible for black first-time investors, said of the programme: “So many great presenters, with game-changing ideas, and we are already seeing the difference in our pre-sales.”

Bank of America is committed to following the progress of startups that join our Breakthrough Lab. After graduation, the Lab will follow each startup to see the headway they are making as they scale – in terms of product enhancements, infusion of capital and job creation.

Keep an eye out for next month’s Thought for the Month.

Clash of the Titans as supply chain meets CX

July 2022

Expectations around customer experience (CX) means supply chains of the future need to be more flexible and agile, not only to give consumers the optionality they desire but to manage the risks of a changing world. Bank of America’s Bruce Meuli and Preksha Goyal explain.

A string of unprecedented disruptive events have combined with the pull of e-commerce innovation to push fragmented and fragile supply chains into the limelight. With expectations of customer experience (CX) rapidly increasing in this fraught environment, Bank of America believes that an enterprise approach to supply chain systems, addressing all user experiences, can create the agile supply chains of the future.

In an increasingly competitive online marketplace, a consumer experience that creates loyalty has become the difference between success and failure. Developmental approaches to user journeys rely on more and more data to understand customer preferences and refine shopping processes. Consumer expectations of the information available for product selection are also increasing, based on a complex range of factors from provenance to carbon footprint. In essence, consumers now want to see through sourcing channels to basic inputs.

As customer needs become information-heavy, so too are the needs for data flows between businesses in the supply chain, connecting the objectives and systems of CX and supply chain management. Through this connectivity, supply chains of the future need to be more flexible and agile, not only to give consumers the optionality they desire but to manage the risks of a changing world.

The current challenge of quickly adapting to sanctions on Russian trade is an example of the supply chain impacts of Environmental and Social Governance (ESG) that require higher levels of optionality and dynamic business rules embedded into supply chain systems.

Data is transforming everything

Data is the fuel on which customer experience and supply chains are being driven. Advanced data analytics and tools have spurred a revolution in process management because data enables greater visibility into complex processes. With robotic process automation and integrated real-time data from standardised application program interfaces (APIs), treasury, procurement, and finance departments are leveraging data to improve working capital efficiency, cash flow forecasting and risk management.

Don’t let financial technology hinder the physical supply chain

Innovative CX has been supported by rapid advancements in financial payment technology over the past few years. Early adopters turned customer challenges into strategic advantages. There are now many supply chain situations where financial technology can either hinder or enable simplicity and immediacy.

From electronic invoice processing to intelligent payment routing and centralised payment collections across multiple technology platforms, a payment provider focused on optionality, interconnectivity, and rich data can support both CX and supply chain management objectives. As recently seen, a lot of the financial strategies deployed are now closely linked to the physical supply chain. Trade banks are in a strong position to play a bigger role in linking physical and financial supply chains by implementing overlapping and complementary supply chain solutions, like supply chain finance and commercial cards. This strategy improves payment timing, ensures delivery, and supports the financial health of different segments of the supply chain.

For treasurers planning for the future, the next generation of supply chain strategies will be based on digital supply networks that connect and centralise information from suppliers, partners, and customers. These will be built on a core of information that ensures dynamic data flow, high network visibility, real-time analytics, and artificial intelligence capabilities to aid and automate real time decision-making.

Keep an eye out for next month’s Thought for the Month.

Tech stack or tech jenga?

Taking a long-view on treasury technology

June 2022

During the pandemic corporations rapidly changed old ways of working in what might be described as an ‘emergency automation.’ Now that the pandemic is receding, those same corporations are taking a longer view and re-evaluating their approach to technology.

ERP or TMS?

The all-embracing treasury management system (TMS) of old is being superseded by a new environment in which solutions from multiple vendors can be connected with banks and enterprise resource planning (ERP) systems to give an all-round view of cash in the company.

For users of ERP systems such as SAP’s S4 HANA, the line between ERP and TMS is becoming blurred as the range of treasury plug-ins and integrations develops its capacity in areas such as reconciliation, cash forecasting, and working capital management. It might seem that the roadmap to the future is easy to follow, but there are other factors to consider like treasury often being at the back of the queue regarding IT department priorities.

In those situations, it might be easier to have a dedicated TMS, perhaps boosted by other ‘best-of-breed’ solutions, all hosted off-site in a Software as a Solution (SaaS) environment. These would typically need little input from the IT department other than in managing connections to other internal systems.

For mid-sized and smaller firms, another option is growing in importance. Banks are increasingly developing portals that can offer some functionality that was once the preserve of a treasury management system. For example, Bank of America’s CashPro® is a complete digital platform for payments, receipts, liquidity, investments, FX, and trade. Often, these capabilities are delivered through partnerships with fintechs, helping close the gap between bank portals and the ‘best of breed’ world.

Larger corporations are also calling on their banks to provide greater levels of connectivity and integration than ever before, as the treasury and banking world moves from one based on batch-processing uploaded files to one that is ever closer to a real-time, always-on flow of payments and receipts.

Fresh thinking

Managing this emerging technology calls for fresh thinking from treasurers, who could increasingly be pulled into a world of IT and data analysis that they may not be either happy with or equipped for. As the landscape evolves, two approaches to treasury are emerging.

One is what we can call the ‘strategic treasury,’ where treasury sets policies, handles controls and risk management, but effectively ‘outsources’ the execution of transactions to a shared service centre (SSC) of which it is a client.

The other is a more hands-on approach where the treasury team plays a bigger role in transaction execution.

Deciding which of these approaches to take will influence the decisions a treasurer makes around technology – but whichever path is chosen, they should be building skills and knowledge of some of the new digital tools around connectivity, data visualisation, and workflow.

As we gain ever greater access to data from these interconnected systems, the importance of data analysis skills - and platforms - will only grow. The forward-thinking treasurer needs to ‘lean in’ to the data and become familiar with the data visualisation tools - such as Microsoft’s Power BI – that help make sense of increasingly complex data to support decision-making.

Into the future

The wave of ‘emergency automation’ that began in response to the pandemic isn’t restricted to treasury. Across the enterprise, functions that remained stubbornly manual are being digitised. Yet treasurers, with their insights into cash flow and liquidity patterns, could benefit most from this new world of rich data shared between platforms as they become the ‘liquidity data interpreters’ for the wider business.

Keep an eye out for next month’s Thought for the Month.

Collaboration in action

May 2022

Bank of America’s new payments portal Recipient Select shows how banks and their corporate clients can work together for transformative results. Traditional top-down relationships are out – and genuine collaboration is in.

When consumers need to pay companies, they are now used to a plethora of options. At the end of a transaction, that payment screen can offer everything from credit cards to digital wallets to direct bank account debit. However, on the other side of the fence, the options have been more limited. When consumers need to get paid by a company – for example, to receive an insurance payout or a healthcare refund – paper checks have historically been the norm. Compared to the choice and transparency they have when making payments, these options to receive payments can be slow and opaque. Cue Bank of America’s Recipient Select, a hosted branded platform which allows customers to choose how they want to be paid (options for US consumers include emerging payment methods such as Zelle^®, real-time payments (RTP) and digital wallets, and more traditional methods such as ACH and cheque). The way Bank of America researched and developed this new product, at speed, highlights a growing and important trend: corporates themselves are pushing the pace and type of innovation, rather than waiting passively for new capabilities.

Working with clients to find a solution

Corporations knew that allowing consumers to choose how they wanted to be paid was long overdue. Traditional larger firms faced nimble new competitors and, if they did not meet consumer expectations of choice, they risked losing market share to those digital disruptors. Understanding the need for choice was more straightforward than providing it. For corporations, gearing up to offer a wider variety of payment options, and linking those to existing systems, could be complex and unwieldy. Bank of America’s product development teams were aware of this issue from conversations with clients. They broke out of traditional silos and began to work with a small group of clients, including one significant player in the e-commerce space, to map out what a solution might look like. The result was Recipient Select.

A new relationship

Delivering products that meet client expectations should be nothing new – it is what successful banks have always done – but the impetus behind the launch of Recipient Select signals a new willingness by corporates to ask their banks to solve problems rather than waiting for innovation to happen. What was once, by necessity, a top-down process has become genuinely collaborative. Banks and their corporate clients will increasingly share experiences and information to help deliver services fine-tuned to specific use cases. Zelle and the Zelle-related marks are wholly owned by Early Warning Services, LLC and are used herein under license. Keep an eye out for next month’s Thought for the Month.

Inflation and rate rises

Implications and responses for corporate treasurers

April 2022

As inflation reaches its highest level for 40 years and interest rates pick up, treasury needs to respond to the risks and opportunities.

Inflation continues to rise at record rates, with a painful spike in consumer prices not seen in 40 years. Consumers, governments, corporations and investors have all been adjusting to new considerations. Nonetheless, the essentials of inflation don’t falter; as always, it hinges on supply and demand. Supply has been severely disrupted as a result of COVID-19, and is now made more complicated by geopolitical conflict, while demand increased significantly due to COVID-19 and supply chain issues. This led to a significant fiscal policy response, especially in the US, which delivered a strong economy that is currently operating above trend.

The Fed’s response

It is challenging for central bank policy to directly affect the supply side of the economy, but it can help cool demand. Tightening financial conditions helps to bring supply-demand equilibrium back into better balance.

Central banks have two tools at their disposal to achieve this. On one hand the Fed can increase the level of overnight interest rates, thereby increasing interest rates broadly. In another approach it can reduce the size of its balance sheet, or quantitative tightening (QT). This will be done slowly and methodically.

Treasury’s considerations

For companies with significant debt, financing costs will increase. But for companies carrying record levels of cash on their balance sheet (thanks to government stimulus and monetary policy in the last two years), increased global interest rates could mean an investment opportunity. This is an option for the cash hoarders that haven’t seen much return or yields on those balances in the last two years.

These conditions are not an isolated event to a particular country. For multinationals often dealing with as many as 30 different currencies, it can be challenging to keep up. Treasury should stay close and connected to banking partners and be prepared for all sorts of different inflationary and market scenarios and be ready to revise forecasts. A forecast done in December is probably already outdated, given all the shifts in the various yield curves and central bank expectations.

Treasury should also leverage technology. The more accurate cash flow forecasting is, the better liquidity levels and ensuing ability to react to central bank moves.

Segmentation and liquidity

Good, prudent treasury management is the best strategy to mitigate the impact of inflation. Most depends on how the balance sheet is constructed and what the composition is.

Treasury should segment the cash portfolio and find the right option for each segment or each bucket: day-to-day operations, medium-term needs, and longer-term strategic requirements.

Maintaining liquidity is also key. Treasury should anticipate rising rates, geopolitical concerns, and broader market volatility that is making clients cautious. Lastly, finance teams should extract the most value of cash by using solutions (for example, the earnings credit rate product in the US) which allows a fully automated way of offsetting bank and treasury fees.

Keep an eye out for next month’s Thought for the Month.

Cash forecasting: art or science?

March 2022

Cash forecasting lies at the heart of the corporate treasury skillset. However, advances in data technology mean it may be time to review how you approach this critical task.

Ask any corporate treasurer what their focus is for the year ahead, and you’re likely to hear cash forecasting mentioned. That should be no surprise: getting the forecast wrong can lead to market and reputational risks.

Yet, cash forecasting is an inherently inaccurate discipline. Where accountants can look back with some certainty at what happened in the past, treasurers need to know what their cash requirements will be in one, two, or six months – and that’s based on constantly-changing information from across the business.

The art of cash forecasting is in reducing the degree of inaccuracy. That means pulling current information from across the organisation, from payables to receivables, and from outside sources such as multiple bank accounts. Then, that information needs to be gathered in one place and one format to be analysed and used as the basis for a solid forecast.

In a typical corporation, that data is spread across multiple departments and systems and often held in different formats. That makes modern cash forecasting an exercise in data collection, scrubbing and normalisation, even before treasury’s expertise is applied to the problem. In the past, this has led some treasurers to simply abandon attempts at accuracy.

If you want to upgrade your approach to cash forecasting, here are some points to consider:

Five steps to better cash forecasting

1. Understand the process

Before turning to technology, make sure you understand your corporation’s existing processes. Unwrap treasury workflows to understand the way cash moves through the organisation. Without a complete understanding of the cash flow process, your forecast will never be as accurate as it could be.

2. Update your systems

Don’t be tied to a ‘one system does it all approach’ – modern, open source and best-of-breed technologies allow treasury to connect multiple systems to pull together and ‘normalise’ data from various sources. Of course, spreadsheets have their place, but are you sure you are applying the best possible technology to this critical treasury task?

3. Treasury is not an island

Treasury might ‘own’ the cash forecast, but if people and teams across the organisation are not cash-focused and delivering the correct information, it will always be hard to get anything near accuracy. Collaboration across the enterprise is essential, and cash-based KPIs and incentives can help focus minds on delivering better data for treasury to use.

4. Examine the data infrastructure

Genuinely useful cash forecasts depend on decent data. Data now flows throughout a successful organisation, and those that best maintain and manage data will generate the best forecasts. This may call for investment in data systems and onboarding the right expertise well beyond treasury to build a true ‘Data House’ in which data from multiple sources is normalised and aggregated to form the basis for business insights.

5. Don’t (just) look back

A large part of cash flow forecasting has traditionally been based on historical information, extrapolating from that to make predictions. Today’s data tools allow for a more forward-looking approach based on a constantly-changing data landscape. It’s time to change the treasury mindset.

Where next?

If your cash forecasting process hasn’t been updated in recent years, it’s probably time to review what you’re doing and how you’re doing it. Cash forecasting may never be an actual science – there are too many variables for that – but by applying the right tools and a forward-looking approach, your forecast can be an ever-more reliable tool for treasury and for the wider business.

For more information on cash forecasting techniques and the CashPro forecasting solution, speak to your Bank of America representative or visit business.bofa.com

Keep an eye out for next month’s Thought for the Month.