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4 Key Tips for Treasury as its Role Continues to Expand

  • By Riaan Bartlett
  • Published: 8/18/2015

pushThe global financial crisis had an impact on virtually all corporate treasury functions in terms of increased responsibilities and higher expectations from senior management. Organizations now understand that liquidity ensures business continuity, and with treasury responsible for ensuring liquidity, the role has been elevated. Treasury is now more likely to be consulted on strategic issues, which means that the required skillset has to be broader. The ability to communicate well, work cross-functionally and get buy-in for initiatives is more important, as is the need to have a more commercial mindset.   

The following guidelines are based on experience working in a large international corporate treasury. They may not be relevant to all treasurers, but the basic principles they cover should have some relevance regardless of the size and complexity of your treasury function.

Be forward looking. Being well prepared will ensure opportunities can be taken when they come along, e.g., if treasury has good insight into its bank’s underwrite and final hold levels for an acquisition facility, this increases the chances of successfully raising (with confidence) a large facility in difficult market conditions. Fund when you can—in favorable market conditions— and not when you have to. The old adage of ‘fund long and fund early’ holds.

Have an agreed plan in place (at least in principal support from senior management) to manage a crisis or downside scenario. Treasury must know which costs can be cut quickly or projects deferred and the impact thereof. Input from the business is essential.

A downside case (e.g. low prices, low volumes) presented to rating agencies must always include remedial actions. Credibility with rating agencies is essential especially when funding includes the non-bank market.

Implement a financial strategy that is not contingent on market conditions. This increases the credibility of the company with the banks, rating agencies and investors. The financial targets must be easy to explain and understand. Additionally, financial flexibility and discipline must be maintained even when market conditions are good—be careful not to rely on high prices, high sales volumes or disposals to maintain balance sheet strength. Do not gear up the balance sheet too much when times are good because if market conditions turn, the corporate could be under pressure very quickly.

Keep a close eye on risk. Recognize that black swan events can happen—the challenge is how the treasurer should position the business to deal with such events. Do not over rely on models that do not tell you how much you can really lose.

Never enter into any transaction if you do not fully understand the risks—and don’t assume the banks or the other party will inform you of them.

Ensure that there is a strong risk committee in place whose members really understand risk. They must be provided with forward looking information (12-24 months at least) so that informed decisions can be taken.

Cultivate strong relationships. Good internal and external relationships are critical, especially when the treasurer needs to execute a large transaction quickly or where confidentiality is of the utmost importance. Treasurers often have to be the bearers of bad news—this can make them unpopular, but this is where a firm resolve and good relationships built over the years are necessary. Be sure to get the CFO on treasury’s side, as he or she will have to sell the treasury strategies to other senior management and the board.

Ensure transparency and maintain good communication with the banks, so that you can avoid surprises. A bank relationship manager that has ‘clout’ in the bank can be very valuable. Recognize that Basel III has changed the landscape for banks, and as a result, corporate/bank relationships are also changing.

The treasurer’s role is now not only about protecting value but also about creating value. As a career, a role in treasury is now more appealing than ever. Many new lessons are learned every day, and these lessons should be used to improve the treasury function.

Riaan Bartlett is a treasury and finance executive based in Pretoria, South Africa. A longer version of this article will appear in a future edition of AFP Exchange.

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