When it comes to identifying key treasury trends, it is important not to lose sight of the hardy annuals such as efficient cash management or optimum hedging.
But there is no denying that many of the principles that have underpinned global trade over several decades have been upended over the last 12 months. In this context, priorities have to change and companies must assume that these new challenges will be in place for the foreseeable future.
As we are talking about the evolution of treasury, it is appropriate to refer to Charles Darwin’s quote about intelligence being the ability to adapt to change. Or as JFK once said, ‘change is the law of life and those who look only to the past or present are certain to miss the future’.
So where will treasurers be concentrating their efforts in the year ahead? In a world that has become less predictable from both a financial and geopolitical perspective, risk management is going to be more of a focus according to Christof Nelischer, Group Treasurer, S4 Capital Group.
“An unpredictable US administration means past assumptions regarding economic and international trade policy have been thrown up in the air,” he says. “The knock-on effect is increased volatility in financial markets, which forces corporates to reconsider exposures and risk factors that might not have been reviewed for some time.”
Examples include inter-company arrangements that were made based on previous US policy but may not be sustainable in the current climate.
In this context, reliable information becomes more important than ever. For Nelischer, this translates into increased interaction with the business.
“For a long time, the relationship between corporate and the business was more like ‘you give us the numbers and as long as you meet your targets, we’ll leave you in peace’,” he observes. “That approach doesn’t work anymore. We need to work a lot more closely to understand what they are doing and whether there are any weak points around transfer pricing arrangements, for instance.”
A key area of focus for AFL Global will be reviewing staffing skillsets and determining what skills are needed for the future explains Corporate Treasurer, Holly Olson.
“We are a growing company and technology continues to advance,” she says. “We feel we need to have the right talent in place to take advantage of the new technology that will enable us to streamline efficiencies so that we can scale up as the company grows.”
With geopolitical and economic uncertainty making it harder to plan ahead there is also an increased focus on the sources of information treasurers rely on to inform decisions on topics such as hedging, for example.
The purpose of AFL Global’s hedges is to stabilise the variability of its cash flows from FX volatility rather than game or beat the market.
“But that does not mean we should ignore the markets altogether,” says Olson. “We have been reviewing our FX exposures and taking advantage of opportunities to mitigate our risks whenever possible. I feel this is best approach until there is clarity within the global economy.”
In an ever more uncertain environment, the ability for a treasurer to know precisely how much cash they have and to utilise it to their organisation’s best advantage is critical.
“Utilising liquidity structures and implementing in-house banking processes to manage cash effectively are essential tools to add value from a treasury perspective,” says Justin Callaghan, CEO & Executive Director, FTI Treasury, adding that internal information sources remain the key driver in facilitating corporate treasury activities.
“Decisions around FX hedging, cash planning and other risk management tasks can only be made based on sound core business-based metrics,” he continues. “The better the level and accuracy of internal information available, the better the treasury outcomes.”
“For a long time, the relationship between corporate and the business was more like ‘you give us the numbers and as long as you meet your targets, we’ll leave you in peace’. That approach doesn’t work anymore.”
Christof Nelischer, Group Treasurer, S4 Capital Group
Planning ahead was already hard and now it is even harder. The world can change course in a matter of weeks or even days or weeks so Patrick Kunz from treasury consultancy Pecunia reckons treasury teams need to plan for multiple scenarios.
“In a volatile world (indeed, in any world) you need to consider what happens with cash, FX and credit lines and headroom in an extreme downturn,” he says. “Your CFO needs to know what is happening with cash – you cannot pay salaries with EBITDA.”
Despite being a self-confessed technophile, S4’s Group Treasurer doesn’t believe market uncertainty necessarily increases the importance of treasury technology.
“What I would say though is that while firms go to great lengths to understand the functionality of their TMS and ERP systems and then spend a lot of time negotiating contracts, the real value is in the configuration,” says Nelischer, who suggests companies only get to maybe 80% implementation.
“This extracts the bulk of the functionality from the system but the last 20% requires so much workaround and manual intervention that they do not get anywhere near the value they would like to get from their investment,” he adds.
Olson acknowledges the need to seek technological enhancements with current vendors to ensure technology is optimised.
“More recently, we have been exploring potential use cases for AI,” she says. “Currently, we are using it to assist with more routine tasks, but eventually it will become more robust. There has been a lot of talk about AI replacing workers, but it still requires input and will likely require the corporate treasurer to rethink operational processes, security and talent.”
The key to getting maximum value from technology is an organisation’s ability to integrate treasury systems with other core business systems, suggests Callaghan.
“There has been a lot of talk about AI replacing workers, but it still requires input and will likely require the corporate treasurer to rethink operational processes, security and talent.”
Holly Olson, Corporate Treasurer, AFL Global
“For instance, ERP integration with a forecasting system facilitates visibility of business flows which can then be managed from a treasury perspective,” he says. “Likewise, integration of bank data/statements lets the treasury function undertake valuable cash reporting processes and variance analysis.”
Amol Dhargalkar, Managing Partner and Chairman, Chatham Financial refers to a continued reluctance to hire and invest in treasury as corporates encourage teams to do more with less.
This creates the risk that organisations end up with a concentration of intellectual capital in the hands of a very small number of treasury professionals who will either move or retire over time while the next generation doesn’t acquire the same experience because so many tasks are being performed by AI.
Dhargalkar suggests that there is tendency among C-suite executives to believe that because AI will be this great productivity enabler, there is no need to hire.
“The consequence of this is that one day, the availability of treasury talent could significantly decline, although this will not happen in the next 12 months as there are good people who have been caught up in restructuring or cost-cutting efforts that would be happy to pursue new opportunities,” he says.
Tools such as chatbots are expected to drive productivity higher within finance teams over the next few years and the trend for flattening of organisations has also impacted treasury, which needs to be on the front foot in terms of leveraging AI technology to drive efficiency.
“If you are a member of a treasury team a year from now and not highly proficient in using AI to make your day-to-day work more efficient, I think that will be problematic,” adds Dhargalkar.
AI is also impacting how treasury teams analyse and interpret public data, which has never been more accessible. However, there is much greater potential value in private unstructured data and that is becoming increasingly hard to come by.
“Financing is becoming more fragmented and complex,” says Dhargalkar. “The only parties who have access to data on transactions are the company and the provider they negotiated terms with – even banks don’t have this data now because they are being cut out of the process.”
In an environment where public data has been commoditised, to make the best possible decisions treasury teams need to ask themselves what other data would be useful and how they can get their hands on it.
Nelischer is upbeat about the future of his profession, referring to treasurers as the ‘true aristocracy’ of corporate finance and describing treasury as the most varied, interactive and dynamic way of making a difference to a business.
“I am amazed there are not more people queuing up to join the treasury profession,” he says. “The proof of its appeal is that when people end up in treasury almost by accident, they usually stay.” More generally, Nelischer urges companies to take their treasury function more seriously. “You need to understand the value-add that comes from treasury as a holistic advisor to the business and not just that ‘black box in the corner’ that operates bank accounts,” he adds. “The role of treasury is more prominent and important in these uncertain times.”
Treasurers used to be technical and specialised number crunchers, observes Kunz. “A modern treasurer still has those skills but will also need to be tech savvy and understand basic concepts about bank connectivity, payments formats, API, data formatting and extraction and maybe even a bit of SQL, database and python programming,” he concludes.
