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Treasury is enjoying a higher profile in many businesses. Here’s how to take it to the next level.
At its core, the treasury department is responsible for protecting the organization against financial risk to ensure continued operations. It’s not just about having enough cash on hand now but also forecasting how much you’ll need in three months, all while accounting for potential disruptions.
Let’s be honest: The last few years have felt like nothing but disruption. Through the pandemic, supply chain breakdowns, natural disasters, soaring inflation and more, treasury not only has helped provide the necessary funding but also has delivered critical insights into the nature of the risks that companies face. Going back to the credit crisis, the smartest organizations have made sure that Treasury has a louder voice in strategic discussions.
As powerful as treasury can be, here are three ways to amplify its impact on your company.
Cash flow forecasting was rated the No. 1 priority in a recent survey conducted by the European Association of Corporate Treasurers. In fact, it was the second year in a row to top treasurers’ list of concerns. In today’s economic environment, knowing what your cash position will be in the future has never been more important or more challenging.
Part of the problem is how that forecasting is produced. According to PYMNTS.com, about 72% of treasurers manually gather and organize the information. Though newer software is able to automate much of that process, making almost real-time data available, some treasury teams have been slow to adopt those tools.
Once adopted, though, software can make it possible to produce more types of forecasts faster.
For example, at many corporations, cash flow forecasting has been a “bottom-up” process where treasury collates reports from smaller teams across the enterprise, but more companies are starting to experiment with a top-down forecasting process — where Treasury already has access to data for the entire organization, thanks to updated software — according to the most recent Journeys to Treasury report from BNP Paribas, the European Association of Corporate Treasurers, PwC and SAP.
This top-down approach can be useful for quickly testing the potential impact of multiple financial strategies on the entire organization.
Digital transformation — adopting an end-to-end digital process for handling a department’s workflow — is essential for treasury for two reasons.
First, digitization can reduce time-consuming manual processes, which allows the treasury team to concentrate on more important questions and problems.
And second, because performance data is automatically being collected in almost real-time, digital transformation can give treasury access to more useful analytics faster. Having almost immediate access to that information can enable more effective decision-making around cash flow forecasting, risk identification and other critical questions.
But there’s a reason why so many corporate treasurers use Excel almost exclusively as their go-to tool. Digital transformation can be challenging for treasury departments because they coordinate with so many other partners, both internally (accounting, tax, legal and others) and externally (banks, primarily). Setting up new digital procedures requires communication with the other stakeholders and integration with those stakeholders’ systems so, for example, treasury can keep a constant watch on how much money is in the accounts it oversees.
Fortunately, PwC notes, there are a growing number of tools that could help streamline those integrations, whether that’s software that can track interdependencies across systems or new, secure tools for sharing data with banking systems.
The best treasury teams have open lines of communication with other departments, especially procurement and sustainability, because of the influence they have on each other. Getting a deeper understanding of other parts of the organization can help uncover insights into potential financial risks that treasury can then offset.
For example, part of the procurement team’s mission is to develop a network of strong, stable suppliers. Supply chain finance — which treasury oversees in many cases — is one of the most effective tools for ensuring that a corporation’s suppliers can access working capital during financially tough times. Treasury can also deploy resources (such as lines of credit or cash on balance sheet) that procurement can use to support suppliers, benefiting all parties.
Treasury should also have close working relationships with the teams leading ESG (environmental, social and governance) initiatives.
While it’s important to set goals for ESG programs, treasury is the team with the power to offer financial incentives, such as preferred terms on loans or early payment of invoices, to suppliers that comply with those standards. Plus, many suppliers need financial assistance in order to transition to renewable energy in their operations. With treasury’s support, many corporations start to make real and measurable progress toward sustainability goals.
Treasury can make a massive difference in financially empowering your organization’s growth, especially if the team is equipped with the digital tools and processes that give them a greater ability to forecast cash flow and make other key decisions. The best treasury teams also have a commitment to collaborating with other departments because it ultimately makes treasury and all the departments it partners with — to say nothing of the overall company — more effective and efficient.
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