For more insights on centralization, be sure to check out the CTC Guide: Centralization of Treasury in a Global Context. DOWNLOAD
To say the treasury landscape is in a state of flux is, at this stage, almost a cliché. With disruption from the fintech industry, new demands and expectations from increasingly digitized customers and the impact of new regulations, treasury is going through a monumental and fast-paced transition. But even with so many opportunities and challenges constantly arising, treasury departments need to remain focused on the fundamentals of the business and fulfilling their increasingly strategic role in the corporate organization.
In Q4 2014, we conducted The Nordea Treasury 2017 Survey with the precise aim of taking the current pulse of the treasury profession. We surveyed 82 large corporate treasuries and interviewed more than 60 CFOs and treasurers, to get a clear picture of where treasury stands today and how treasurers see their role evolving in the near future.
Key findings showed that there has been a decline in trading activity undertaken by the treasury department over the last decade, with only a third of treasuries maintaining a trading mandate. Hedging, however, is on the increase with large corporates now hedging more risks than they were two to three years ago, while most expect they will be hedging even more by 2017. Elsewhere, we noted that many treasurers are finding that a smaller number of core banks give greater oversight of liquidity and exposure, without the counterparty risk of a single global bank model—a trend that has been around since 2008 and recently reinforced in Europe by the SEPA regulation.
A couple of main trends relate back to the digitalization of the industry and the efficiencies brought by new technology. Visibility and control over cash and liquidity remain significant priorities, with centralization still widely recognized as both a current and future trend. In fact, nearly two thirds of respondents use aspects of centralization as a KPI (key performance indicator) because it not only drives efficiencies and ensures compliance; it also promises cost savings and greater visibility of financing to the business.
The centralization success stories have spread across the industry from the first movers in this area and this has incentivized more companies to establish payment and collection factories and to implement payables and receivables on-behalf-of structures. We are also seeing cloud technology and Software-as-a-Service (SaaS) models driving centralization as they can make it less expensive for treasuries and shared service centers (SSCs) to employ increasingly sophisticated and up-to-date technology solutions. In turn, choosing the appropriate modules from technology vendors—and combining this with the outsourcing data housing and business unit support—will enable smaller treasuries to reach the next level of centralization.
New technology-based solutions facilitate increased centralization and this extra efficiency means treasurers have the time and resources to step into a more strategic advisory role at the C-suite level and become an important partner to other business units. This can entail supporting international growth, promoting digital-based efficiency, improving integration with trading partners and the supply chain, and greater sophistication in risk/return optimization.
“We get involved in strategic discussions on the business plan, debt capacity, capital allocation and the group’s communicated financial targets,” said Per Norman, head of treasury and risk management at BillerudKorsnäs, a Swedish corporate that provides renewable packaging material. “We have managed to be close to our senior management team and support them in many areas.”
Norman added that while the key to treasury’s success is making sure the company has money when and where it needs it, it can’t hurt to make the process as efficient as possible. “That then gives you the scope to put more resources into qualified strategic support to management,” he said. “That is when you can really start adding value.”
In this environment, treasury has the opportunity to become the source that senior executives and key stakeholders turn to for instant reports on liquidity and risk positions, impact assessment of geo-political and economic events and how new technology and digitalization can be harnessed for efficiency gains across the organization. This should allow treasury to gain an even greater trust and respect from the C-suite, while raising its profile and value internally. However, to assume this position, treasuries need to ensure their core banks are not only capable of providing the correct solutions for their business goals, but also that they become trusted partners, ready to deliver timely best practice sharing and high-level advisory.
Erik Zingmark, is head of transaction products and cash management for Nordea.