Centralisation is a longstanding trend in treasury, driven by digitisation, globalisation and a greater focus on transparency, performance and control. Increasingly, corporate treasurers want to improve oversight of their global cash and liquidity positions, while also boosting efficiency, tightening internal controls and cutting costs.
Treasurers looking to consolidate various operational treasury processes have often set up shared services centres (SSCs). Activities include, for example, bank account management, accounts payable (AP) and accounts receivables (AR) processing, and financial reporting.
“SSCs are entities designed to streamline operations by pooling resources,” says Tesy Mathew, Group Head of Cash Product Management, Global Transaction Services at DBS. “Large organisations with operations across multiple jurisdictions can enhance efficiency and reduce costs by centralising certain functions common across regions into a single location.”
Through centralisation, corporates can enforce greater financial discipline, such as standardising credit terms with suppliers, maintaining disciplined payment cycles, and leveraging shared expertise from a centralised team, according to Mathew. “This centralised approach not only enhances financial control but also enables centralisation of the funding and liquidity management of the entire organisation,” she adds.
Ray Suvrodeep, Managing Director – Treasury Solutions Group and Liquidity Solutions, Global Payments Solutions (GPS) at HSBC, adds, “As cash and payment flows become more centralised, self-funding can help improve financial performance, while enabling debt to be paid back at group level. Centralised visibility can also allow for improved hedging and investment policy execution at group level.
“Defined centralised policies can also help working capital to be managed more efficiently and increased straight-through processing of AP and AR can allow for tighter and more timely monitoring of days payable outstanding, days sales outstanding and automated reconciliation.”
Making it work
Séverine Le Blévennec, Global Head of Treasury at fluid management solutions provider Aliaxis, which operates in more than 40 countries, is a strong advocate of SSCs for operational treasury processes. “a SSC delivers several benefits including knowledge continuity, harmonisation of processes, controls, policies and systems, and the ability to manage a larger number of entities and/or countries,” she says. “It is also possible to reduce costs, depending on where the SSC is set up. But while reducing costs is the main reason many companies decide to set up a SSC, the real benefits are derived from driving greater efficiency – if done correctly,” she adds.
Le Blévennec believes that having a strong team leader is critical for the success of a SSC – “someone who can act as the glue between various activities”. To ensure the SSC continues to be relevant for the business, such a leader will need to be agile to adapt processes, policies, entitlements, scope of the activities and so on, as the company and environment evolve. “This will also help to motivate SSC staff, which is important to retain a group with a high level of specialised knowledge,” she adds.
“People that work in SSCs shouldn’t be treated like robots; they too need interesting work or the SSC will experience a high turnover in staff,” she advises. “Therefore, treasury should first ensure that technology is optimally deployed – don’t use the SSC to do activities that can be automated, such as manual bank account applications.”
Then it becomes possible for treasury to set stricter delivery times because the SSC staff are less distracted by other priority topics and can perform better in certain activities, such as user management in ebanking systems, according to Le Blévennec.
“If user management is small part of a treasury analyst’s job, each time they need to remember how to set up a new user and perhaps call the bank to refresh their memory. However, in a SSC there are experts that do it more often and, as such, have a set routine and documented process – they don’t need to reinvent the wheel each time,” she says.
The benefits were evident when Aliaxis onboarded new banks in Latin America from its SSC in Costa Rica. “We changed our banks in ten countries at a time and it was important to have this team effort delivering on the treasury project. And at the same time, we had to do a comprehensive overhaul of our master data, which the SSC team was able to do together in record time,” explains Le Blévennec.
“The project would have dragged on if we did it by coordinating ten countries, with each cleaning up a small amount of data, liaising separately with IT, and so on,” she adds. “Such projects can easily get stuck without that team spirit and collective pride in their accomplishment.”
First steps
According to Le Blévennec, the ideal time to consider a SSC is when treasury is embarking on a system or process review, or when the business is growing through an acquisition, for example. “Treasury can reflect whether centralisation could bring added benefits, such as being able to manage certain activities more effectively, rather than reducing head count,” she says.
“If it is done well, treasury staff should see value in having that type of activity moved to a SSC. They should be relieved there are some things they don’t need to do, so they can focus on more strategic activities,” Le Blévennec adds. She believes there needs to be a critical mass of staff in the SSC, for example six to ten people, to attract and retain a high-calibre leader.
Suvrodeep recommends the journey starts with defining the right business case, which requires some bandwidth within typically resource-constrained treasury teams.
“It requires both time and expertise to define the target model along with complete cost-benefit analysis that is expected to demonstrate the return on investment of such transformation journey,” he says. “Centralisation is an end-to-end strategic project, which can only commence with full support from key stakeholders internally, including HR and tax partners.”
Mathew agrees. “This shift introduces a new way of working by centralising the people and processes, impacting both internal and external systems and stakeholders,” she says.
One of the biggest challenges to centralising treasury operations, according to Leo Gil, Vice President of Product, Bottomline Technologies, is aligning the underlying technology. “Unfortunately, many technology providers offer a ‘big bang’ solution, which also means big dollars and a long time to get value from that solution. The conversation can quickly shift from needing a SSC to connect a corporate’s finance teams to trying to boil the ocean and do everything at once, which will take years to implement,” he warns. “Instead, treasury should look at finding the right technology pieces that will deliver as value incrementally along the centralisation journey,” Gil advises.
Other challenges that need to be addressed include complex regulatory requirements in multiple regions, particularly around data, and compliance considerations around outsourcing, as well as risks associated with operating out of a single location, says Mathew. “It is crucial to carefully evaluate the costs of these changes against the potential benefits that centralisation can offer,” she advises. Furthermore, finding the right team skillsets can also be a challenge depending on the location, according to Suvrodeep.
Prime location
There are many criteria to factor in when considering where to set up a SSC, but Suvrodeep emphasises that selecting the location should be informed by the main objectives around having the SSC in the first place.
“Government incentives, including favourable regulatory provisions, tax schemes and policies around investment in education and human resource development can play a role,” he says. “In addition, good quality infrastructure, such as physical and digital connectivity, political and economic stability, country credit ratings, and so on are important factors too.”
Mathew adds geographical proximity to key markets is important, to enhance communication and collaboration. In Asia, for example, India, China, Malaysia and the Philippines are prime locations for SSCs, she reports.
For Le Blévennec, country risk is very important, as is whether the country has a high standard in education. “Having people who can speak English, for example, will typically help when communicating with the rest of the organisation,” she says.
Other things to consider are salary costs and whether the company has in-country operations so the SSC is connected to an existing entity.
Suvrodeep adds: “Often the existence of other SSCs in similar industries is taken as an indication of availability of talent pool. If there is already a SSC present performing functions such as accounting, procurement and so on, the treasury team often decides to co-locate treasury and payment operations teams there.”
Le Blévennec returns to her point about creating a sizeable team to ensure continuity. “Having a critical mass in the SSC is also important in a country where talent competition is high and there is much staff turnover as people move from job to job for better pay,” she says.
Gil, on the other hand, is not convinced that location remains a big issue for most corporates, except when there are regulatory requirements such as data localisation laws. “Location will depend on what the company needs and regulatory requirements, but I think it is less of an issue today,” he says.
Future-proofing operations
Le Blévennec believes SSCs will help treasury make treasury more resilient. “In operational treasury, a SSC helps to have harmonised controls, processes and systems,” she says. “When setting up new systems, processes and policies, if there are people sitting in 50 different countries in charge of applying them, it’s difficult to have oversight of new joiners to ensure that everyone is properly trained.”
Gil agrees SSCs are the right way forward for many large corporates. “We call it connected finance – which brings together all the teams that touch treasury, similar to scrums in tech development,” he says. “These teams are connected in their activities, but still have disparate processes and technology. Therefore, connecting finance in a SSC is the way to future-proof treasury.”
SSCs are also evolving. For example, data analytics is a key area of innovation within the SSCs, according to Suvrodeep. “Treasuries can benefit in their decision-making process from SSCs providing data analytics support such as risk modelling, cash flow analysis and forecasting, and so on,” he says.
He believes new technologies – artificial intelligence, machine learning and cloud-based services, which can support data centralisation and automation at the SSCs level – will allow treasurers to add a layer of future proofing. “We can expect that treasury technology techniques will drive greater operational and cost efficiency, as well as providing better visibility of cash and risk positions,” he adds.
Mathew argues that future-proofing treasury involves more than just implementing a SSC. “It requires a collaborative effort across the entire organisation to ensure that the treasury function is equipped to manage emerging challenges and opportunities,” she says.
“This calls for the active participation of the treasury team, along with key business functions such as accounting and finance, technology, sales, procurement and collaboration with banking partners,” she adds.
