Treasury Practice

Keeping the costs down and the quality up

Published: May 2018
Circuit board digital background

Doing more with less is the often-heard mantra of most business functions. How can a professional treasury be run on a tight budget?

Every organisation is duty bound to find better ways of operating. Quite often the need is to reduce headcount and costs. The phrase ‘doing more with less’ has entered into the common lexicon of professionals but how easy is this to achieve? Indeed, given the strategic value of some functions – notably treasury – is it even wise to operate on a budget?

The truth is that it depends on the size and complexity of the business. The human factor must also be added in to account for the individual treasurer’s background, areas of interest and expertise. Because of these variables, there can only ever be a relative notion of how efficiently a treasury is being run.

All of this suggests that driving efficiency and ‘doing more with less’ is not an easy matter to tackle. For Sebastian di Paola, PwC’s Global Leader of Corporate Treasury, “increasing treasury efficiency depends considerably on the extent to which the department has invested in technology”.

Treasuries that have the technological vision, and that can gain the support of senior management for its deployment, will be at an advantage, he argues. Those that are not in this position are very likely to experience “a proliferation of manual processes” to cope with the expanding remit of today’s strategic treasury.

Same issues, smaller budget

The level of complexity and treasury requirements in a mid-sized or even small but international business are almost on a par with those of a reasonably ‘homogenous’ multinational. The mid-cap treasurer has to deal with the same set of issues but typically on a much smaller budget.

To deliver in an international environment – with FX exposures, cross-border flows, bank accounts in multiple countries et al – it is too big an ask to automate and run on a basic accounting package. And where there is M&A activity, the proper integration of businesses becomes almost untenable because, in treasury terms, without a robust treasury solution in place, there is nothing into which the acquisition can be integrated.

Increasing treasury efficiency depends considerably on the extent to which the department has invested in technology.

Sebastian di Paola, Global Leader of Corporate Treasury, PwC

The argument for having a specialist TMS, or treasury module of an ERP, is therefore rather compelling for the complex organisation. Whilst it seems counterintuitive to spend to make savings, without this investment, treasuries under pressure to operate on reduced headcount will struggle.

Paring back treasury too far could even intensify risk exposure as it becomes increasingly difficult for the organisation to apply an
appropriate level of segregation of duties, for example. Offsetting increasing risks, especially given the current increased corporate
sensitivity to internal controls, may then force the downstream proliferation of manual back office operations and processes.

Indeed, a common method of achieving this, notes di Paola, is to call upon the accounting department to fulfil back office duties such as
confirmation matching. Whilst this creates a separate reporting line, it merely displaces the problem elsewhere, and to a function that is not necessarily well-versed in the treasury specialism. Doing so could introduce yet more inefficiencies and risks.

Building a business case

The desire to make treasury lean rarely starts with the notion that the function is oversized, says Paul Taylor, Global Head of Corporate
Sales, GTS and Head of Sales for GTS EMEA, Bank of America Merrill Lynch. Instead, efficiency is often derived from digitisation, the
removal of manual and paper-based processes and ensuring proper visibility of data.

With the common view that many companies are operating on a “patchwork quilt” of technologies, often thrown together through
mergers, Taylor argues that the main barrier to treasury efficiency often relates to that ‘post-integration’ set-up. But change is afoot. He
believes that “there is so much that can be simplified and refined”. The evolution of treasury is “naturally lending itself to greater
process and cost efficiency”.

Structuring a leaner treasury function is therefore a matter of first mapping every financial process, workflow and touch-point. This
end-to-end view (even if it is fragmented) will inform the plan of action. But it will also call out the “mandatory from the obsolete”,
says Taylor.

Armed with self-knowledge and an action plan for efficiency, treasury now has to develop a convincing business case for the investment
required to rationalise and integrate that fragmented infrastructure.

There are many options. A ‘one system’ approach may, for example, yield greater efficiency through automation of labour-intensive manual process. From document management and KYC, to cash forecasting and reporting, ideas of robotic process automation and the use of artificial intelligence to manage workflows are much in evidence in treasury conversations today (if not yet in treasury practice).

These new ideas may be deemed fanciful. But, advises Taylor, “the more technology can be harnessed to digitise processes, the greater the efficiency will be for treasury, and the bigger the gains for the business”.

If, as it seems, investment is necessary, asking hands outstretched for ‘more’ when less is called for will be a challenge. It helps that
with the ready availability and relative ease of implementation of Software-as-a-Service (or cloud) solutions, running the basic
functionality of a TMS is cheaper than when an installed solution was the only option.

Even in today’s consolidated treasury technology market, the competitive edge amongst vendors is still evident, says di Paola. The
larger players, with a stable of acquisitions, have to differentiate who they are aiming their products at. And that, he says, has a positive
impact on pricing for the customer. “It is still possible to get something that would easily make the business case fly.”

Furthermore, as treasury makes its contribution in areas such as improved cost of capital, more efficient working capital management, and improved FX management, Taylor makes the further point that it starts to become, if not exactly a profit centre, then at least “a generator of value”.

Despite the number of quantitative and qualitative benefits (and improvements to organisational health) potentially derived from lean
treasury, resistance to investment is still found, notes di Paola. Overcoming this depends to an extent on whether the CFO is
treasury-minded or not.

Coming from a treasury background, or at least having had significant exposure to treasury, would usually encourage in the CFO a degree of sympathy and understanding for the value of treasury. Making investments in its delivery of strategic value to the wider business should, in theory, be an easier ‘sell’. Conversely, resistance from a CFO without a treasury background suggests the value of treasury is not being sufficiently well articulated. It is down to the treasurer to do just that.

Case Study

Coding Value

Kirsty Dent
Treasury Analyst

Some enterprising treasury professionals have a very hands-on approach to the ‘more with less’ conundrum. Kirsty Dent, Treasury Analyst at Brisbane Airport Corporation (BAC) sees much value in knowledge of computer coding. She is versed in Visual Basic for Applications (VBA) – the programming language of Microsoft Excel. This has enabled her to save several days effort per month by automating several manual tasks.

Her most recent effort has been the development of a macro for creating, saving and sending payment notices to BAC’s bond holders. “This macro was designed to remove any human intervention from an important but repetitive process,” explains Dent. “Doing so has saved the team up to two full working days per month. It’s a good return on the few hours it took me to write the code.”

Dent always ensures that another person within the treasury team checks process output before going into production with the code. “This four-eyes approach is pivotal to ensuring an additional review level and will increase confidence in the outputs.”

Dent started her career in treasury with “little to no” knowledge of coding. It was only after receiving a ‘Visual Basic: run-time error’ message when working on a crucial Excel spreadsheet, that her journey into coding began.

“I was challenged by my boss at the time (who understood coding) to find the solution to the issue for myself,” she explains. “And it was from here that I started to learn exactly how to use macros, automate and create time-saving efficiencies in many different situations.” She comments that coding is about problem solving and logical thinking. “These two skills that any treasury person should excel at, so we should have a head start in learning to code.”

Automation often brings fear for job security. Dent has a positive take on the application of technology. Instead of ignoring the efficiencies it can create for fear that jobs may become redundant, she says it is important that treasurers focus on automation as an enabler, fully reaping the benefits which arguably make the role more secure.

Indeed, Dent believes coding is just as important today as the more traditional treasury skills. “It allows individuals to challenge the norm and become a more valuable asset to the organisation,” she comments, adding that it will become even more important over time “as treasuries shrink and people are required to do more with less”.

Finding the cash

A treasurer for a small or mid-sized company, without a TMS or access to other appropriate technologies, is most probably struggling to deliver, or at best delivering in spite of a lack of senior level support, comments di Paola. With most of the time spent just keeping the lights on, finding the time to build and present a business case is appreciably difficult.

It is true also that the bulk of the treasurer’s case for investment will be qualitative not quantitative; this is rarely a good indicator when most business leaders run on hard numbers.

If the task seems insurmountable, it is perhaps the reason why so many treasurers soldier on with spreadsheets and manual processes. But solid hard-number based arguments can be found. Even in a mid-sized international company, there is a question about just how ‘domestic’ the banking arrangements often are. These relationships have often grown up locally, sometimes as a result of M&A, without too much control from the centre.

Local bank accounts may be harbouring pools of cash that whilst not necessarily idle, would provide more value if swept centrally or regionally. Bank account structuring too could be made more efficient, using fewer banks and economies of scale to present fee-saving opportunities. If suitably re-engineered, both these quantifiable situations can be used to effectively finance the qualitative and systems side of treasury transformation.

With the right technology, certain activities become possible. Enabling daily visibility of cash, for example, can allow it to be worked harder, even in a low interest rate environment where returns are minimal. Using cash to pay down more debt has a clearly quantifiable benefit.

An additional quantifiable benefit comes on the FX side, where being able to hedge centrally and net positions will reduce spreads. “Even manual treasuries today will be using some form of electronic dealing platform – and if they are not, then they should be,” comments di Paola.

Treasurers should also be examining processes, perhaps by benchmarking, to see where savings can be made on FTEs. For instance, process automation can help re-focus the labour deployed on manually allocating cash or entering accounting data, to more value-adding tasks. In fact, in a world of increased risk, the insight and judgment of the professional treasurer will always be needed, says Taylor: “no algorithm could match that”.

Case study

Build not buy

Randy Ou
Treasury VP

With strong organic and M&A growth, diversified technology giant, Alibaba Group, has been rapidly expanding into additional channels and territories in recent years. This had naturally been increasing complexity across its treasury infrastructure, creating a diverse portfolio of banks in different geographic regions, and cash assets in multiple currencies.

The net result has been that more treasury time and focus was required to meet the needs of the business. But with a management mandate to keep headcount lean, operating in an ever more complex environment meant new technology was the only answer.

The unique demands of this vast tech-focused organisation led Alibaba’s treasury team to conclude that standard systems and off-the-shelf TMSs were not suitable. Instead, it opted to use in-house talent to create an integrated web-based ‘treasury management intelligence’ (TMI) platform.

Driven by a unique insight into the needs of the whole business, Alibaba Group’s platform delivers all the functionality it needs. This covers areas such as multi-banking, automation, real-time analytics and, in the form of a dashboard, management decision-making support.

Having built the single platform in-house also gives treasury access to a strong onsite technical support team that is well-equipped for the ‘agile’ development so necessary in the dynamic technological and commercial environment in which Alibaba Group operates.

“Users in different job levels can easily find or drill down into the relevant information for management decision-making or operational execution purposes,” says Randy Ou, the firm’s Treasury VP. He explains that the system has enhanced productivity and relieved resource constraints to the extent that treasury now has more than 95% cash visibility, and has reduced idle cash by 30%, across a vastly more complex yet leaner organisation.

With recognition for the Alibaba Group, as Overall Winner of the 2016 Adam Smith Awards Asia ‘Harnessing the Power of Technology’ category, treasury has demonstrated the value of the ‘build not buy’ approach.

Telling a balanced story

The use of professionally produced industry benchmarks (considering the relationship between revenue and treasury headcount, for example), can help treasurers tell their story. Whilst sector studies of this nature need to be contextualised, by referencing such data, it can still give treasurers a real directional sense of how good a process can be.

Of course, it is incumbent upon treasurers to use such tools to help make the business case for investment. But it is vital for them to understand how the culture of their own organisation will influence what goes into their story.

Doing so will help decide to what degree the qualitative arguments – such as the risk of error or loss due to manual processing or the lack of visibility of cash or FX exposure across the business – will resonate with the CFO. From here it will be easier to calculate how much emphasis should be placed on quantifiable data such as funding costs, bank fees, spreads on FX, and FTE savings.

Raising the profile

The pressure is on for treasurers to be more efficient, particularly in smaller companies. But we know that doing more with less may remove levels of segregation, bringing about more operational risk.

The big picture needs to be understood and communicated to those applying the pressure. To do this, treasurers need to develop a strong and compelling voice. “The internal marketing of treasury, fully explaining its value, is key,” advises di Paola. “If nobody understands that, with the best will in the world, it is not going to be able to make any of the necessary investments.”

One way of raising the profile that has proven (at least anecdotally) to be effective is by delivering a regular report to the CFO and other senior stakeholders. By quantifying its own value and demonstrating what the company would lose without it, treasury brings its own value into sharp relief for the rest of the business. From here, the case for progress becomes that little bit easier.

If ‘more with less’ is part of your remit, industry conferences, forums, banking partners, consultants, and of course trade publications such as Treasury Today, have the power to connect professionals globally and help share ideas.

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