It is essential that treasury operates within a strong environment of process, control and reporting; if you can’t measure it, you can’t manage it.
Funding: treasurers raise capital from debt and equity arkets. Once this capital is drawn down, the treasurer can influence the cost of utilising this capital on a day-to-day basis. There will be fixed costs associated with raising capital but there are variable costs in utilising certain debt capital, especially revolving facilities. Take the case of a USD revolving credit facility: the spread between one-week and three-month USD LIBOR is currently 37bps or US$38,000 on US$10m per annuum. Managing this debt on a more frequent basis is time consuming but you can offset this by implementing an efficient process and utilising your TMS.
Cash flow forecasting: consistent, complete and accurate short-term cash flow forecasting cannot be understated in terms of the savings that can be achieved by treasury managing available cash, utilisation of loan facilities and ability to place cash in fixed term deposits. This includes the ability of treasury to have accurate forecasts by currency so that a long position in one currency can be utilised to fund a short position via the treasury function.
Working capital management: I also call out management of working capital as an area that can generate significant cost savings. The three elements of working capital – receivables, payables and inventory – all have an impact on the group’s cash/capital, and on the cost paid for that capital. It is quite a complex area because it requires interaction and buy-in across business operations, with multiple stakeholders with competing demands.
Cash management/bank accounts: treasury has direct control over its bank account and cash management structures, and can influence how other parts of the business manage their cash. This requires consistent and ongoing reporting, analysis and ownership. Ownership is key to ensure areas identified in reporting are actioned.
Foreign exchange: foreign exchange (FX) trading platforms enable full visibility on ‘best price’ execution which can be linked to the TMS for straight through processing. This also enables reporting and analysis to ensure that treasury has visibility on share of wallet which can be leveraged for pricing on other services with banks.
Treasury needs to ensure that it is only paying for services it requires and is achieving competitive pricing for these services. Treasury is a dynamic function, and requirements will change year-on-year. An annual review of services can identify opportunities for cost saving.
Reporting, communication and technology
The key to achieving cost savings and efficiencies is consistent reporting on activities, communication to those who can action change, and explaining the rationale. Technology should be utilised to support an efficient process and enable identification of costs by developing and continuously enhancing your reporting. The management methodology, ‘Plan-Do-Check-Adjust’, is a great continuous improvement tool that will facilitate cost saving within any treasury function.