LIVE SESSION | My Treasury Career Development & How the Register Treasurer education contributed

29-09-2022  treasuryXL | Treasurer SearchLinkedIn

 

Are you thinking about how you can shape your treasury career and in need for inspiration? There are plenty of education opportunities, but in what education will you invest?

 

 

You are invited to join our next Live Session. Registration is Now Open for:

𝐌𝐲 𝐭𝐫𝐞𝐚𝐬𝐮𝐫𝐲 𝐜𝐚𝐫𝐞𝐞𝐫 𝐝𝐞𝐯𝐞𝐥𝐨𝐩𝐦𝐞𝐧𝐭 & 𝐇𝐨𝐰 𝐭𝐡𝐞 𝐑𝐞𝐠𝐢𝐬𝐭𝐞𝐫 𝐓𝐫𝐞𝐚𝐬𝐮𝐫𝐞𝐫 𝐄𝐝𝐮𝐜𝐚𝐭𝐢𝐨𝐧 𝐂𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐞𝐝

There is no standard career path for treasurers but one can learn from the choices and developments of the successful ones.


In this webinar two graduated Register Treasurers will share their stories:

  • 🌟 Jurgen Wessel RT is interim Head of Treasury of SHV and has experience in a variety of international companies at HQ and treasury hub level.
  • 🌟 Frank van der Hoeven RT van der Hoeven used to be a banker, moved to the corporate side and currently is Treasury Manager at IMCD, well-known for many successful acquisition and integration processes.

They will tell you about how they moved between various stations and will pay special attention to the added value of their post academic degree: The Treasury Management and Corporate Finance programme (RT Programme) at the Vrije Universiteit Amsterdam (VU Amsterdam).

 

 

Everyone is welcome to this webinar. This webinar is extra relevant for those who consider joining the RT programme.

🌟Moderator: Pieter de Kiewit of Treasurer Search

🌟Duration: 45 minutes

 


We can’t wait to welcome you next week!

Best regards,

 

 

Kendra Keydeniers

Director, Community & Partners

 

 

 

 

Where did the treasury applicants go? | By Pieter de Kiewit

19-09-2022  treasuryXL | Pieter de Kiewit | Treasurer Search  LinkedIn

As treasury recruiters, we should know enough about corporate treasury to do intakes and screen candidates. Also, we should know the latest about what’s happening in the field of recruitment and so we read the publications of Geert-Jan Waasdorp of The Intelligence Group. I would like to share his latest, very interesting article and build the treasury connection.

By Pieter de Kiewit

Labour market pressures are not equally distributed among all employers.

I left a link if you want to read the full article but this is roughly what he says. There is a huge growth in people working since before covid. In parallel, there is a huge decline in active applicants. This pressure in the labour market is not evenly distributed among all employers. The ones that can find new employees can do so because of a strong employer brand and increased investments in own or external recruitment. Also, they are willing to decide quick and offer a better package.

So what does this mean if we project these findings on the corporate treasury labour market? My personal observation is that treasury staff is, on average, less driven by the company brand and more by the job content than candidates from other job types. We learned this working for clients like Tesla and Nike. Employer branding specifically towards treasurers would also be hard, I cannot envision a corporate recruiter promoting his manufacturing company at Eurofinance.

How to adapt?

The obvious low-hanging fruit is that the hiring manager, already at the start of the process, has to organise and choose a mindset in the following: being able to decide quickly, from fewer candidates than before, and offering more than the old standard. Even highly skilled recruiters sometimes underestimate these aspects over time.

The judgement if the internal recruitment team is equipped to tackle the search or whether an external one should do the job – we, Treasurer Search – I will not elaborate on here. What I do want to mention is another obvious source that can be opened. For some of us that are considered a paradigm shift: bringing treasury talent in from abroad, from within the EU or even sponsoring a work permit. I am aware that some of us consider this topic highly political. What I can tell, both from our own organisation, as well as from successful placements with our clients, that this can be a very successful solution. In the Dutch labour market already the majority of candidates placed by us is non-Dutch. This is not a plea to open the borders and not be critical. Regretfully we have examples where this solution did not lead to success as coming to The Netherlands can be hard for the new employee. But also locally found candidates can fail in their new job.

My conclusion is that indeed, the world is different, as is the labour market. And given current demographic developments I do not expect a shift back. Luckily there are solutions but we will have to accept the consequences and cannot lean back. Those that do will shrink and go extinct.

Good luck in your search,

Pieter

 

 

 

 

 

 

 

Thanks for reading!

Pieter de Kiewit

Meet our partners at the EuroFinance next week!

14-09-2022 | treasuryXL | EuroFinanceLinkedIn

 

The EuroFinance will finally open their doors in exactly one week. After two years everyone can meet in person again at the largest and most senior gathering of corporate treasurers worldwide.

For over 30 years, EuroFinance is where best-in-class treasury teams come together with the most innovative fintechs and renowned financial institutions to share experiences, discuss best practices and collaborate to solve the challenges of the day.

Schedule your EuroFinance program in advance

 

Benefit from the extensive expertise of 150 world-class speakers across 3 days of thought-provoking keynotes, lively debates, in-depth case studies and technical discovery labs providing practical insights and key skills to advance your treasury.

With such a great number of high quality sessions it’s wise to schedule your session program in advance.

Click here for the full agenda

Click here for the speakers overview

The line-up of 150 world speakers includes:

  • Kristina Moller, Treasury director, Spotify
  • Wendy Venema, Assistant treasurer, Tata Steel
  • Elise le Clerc Director global treasury Willis Tower Watson
  • Jean-Baptiste Disdet, Treasury technology director, Japan Tobacco International
  • Kristina Moller, Treasury director, Spotify
  • Mack Makode, VP, treasurer, Under Armour
  • Mandana Sadigh, SVP, corporate treasurer, Mattel
  • Victor Pausin, Treasurer – Americas, Nissan Motors
  • Clive Bailey, Treasurer, FCE Bank

Connect with our highly valued partners for a chat and a coffee

 

We are happy to announce that the partners that are highlighted below will host a booth at the expo. Together with them we build the treasuryXL community by delivering daily treasury news, blogs, events and vacancies.

They would love to welcome you at the expo and invite you for a quick chat. You can also book your appointment in advance to secure some extra time. Contact me directly and I will introduce you personally.

Technology sponsors plus

Kyriba

Technology sponsors

TIS

Gold exhibitors

Nomentia

GTreasury

Silver exhibitors

CashAnalytics

Refinitiv

Bronze exhibitors

Kantox

Innovation alley

Cobase

 


 

 

I wish you a great time at the EuroFinance. Safe travels and enjoy!

Kendra Keydeniers

 

 

 

 

 

Could Stablecoins Drive Payment Innovation?

12-09-2022 | treasuryXL | Kyriba | LinkedIn |

Despite the current market volatility, cryptocurrencies(1) are slowly seeping into everyday transactions,(2) driven largely by small businesses. There are an estimated tens of thousands of businesses that are accepting cryptocurrencies as payments roughly representing about 0.01% of businesses worldwide.

By Rishi Munjal, Vice President Product Strategy, Payments, Kyriba

Source

Could Stablecoins Drive Payment Innovation?

Large corporations have stayed away from cryptocurrencies with a few exceptions(3) where the use is limited to holding cryptocurrencies in treasury. The treatment of cryptocurrencies as an “indefinite-lived intangible asset”(4) poses an accounting risk, forcing companies to write down(5) the value of these assets when their value plummets.

Global Cryptocurrency Acceptance Chart

The level of adoption is by no means impressive. Meanwhile, challenges with high-fees, scalability and volatility will continue to limit broad adoption of cryptocurrencies as a form of payment. Such limitations pose an important question for CFOs and treasurers: Are cryptocurrencies worth paying attention to?

Stablecoins and the Future of Payments

The answer is yes, given the potential for innovations that can shape the future of payments for corporates and merchants alike. This is especially true for Stablecoins(6), as they present an opportunity to lower fees, reduce barriers and drive better services like instant cross-border payments. The promise hinges on a stablecoin’s ability to maintain its peg to a specified asset (typically U.S. dollars), or a pool or basket of assets, and provide perceived stability when compared to the high volatility of unbacked crypto-assets.

Since the launch of BitUSD in 2014 on the BitShare(7) blockchain, stablecoins have evolved into public and private stablecoins. Public stablecoins exist in two forms. Reserve-backed or custodial stablecoins are backed by cash-equivalent reserves such as deposits, Treasury bills and commercial paper. These are issued by intermediaries who serve as the custodians of the cash equivalent assets and offer a 1-for-1 redemption of their stablecoin liabilities for the asset it is pegged against.

Algorithmic stablecoins (e.g.,UST) rely on mechanisms other than cash-equivalent reserves to stabilize their price. The peg to a specified asset is achieved by overcollateralized crypto and/or smart contracts that defend the peg by automatically buying or selling the stablecoin. These public stablecoins provide liquidity across the thousands of cryptocurrencies currently in the market. The private institutional stablecoins use tokenized deposits held by the bank for efficiently providing internal liquidity or liquidity for the bank’s wholesale clients between accounts held at the same bank. These coins (e.g., JP Coin) form a closed loop payment network similar to the ones offered by wallet providers like PayPal.

Stablecoin Guidance

Stablecoins have had their share of troubles(8) and collapses(9) in their short history. These risks were well understood by regulatory agencies. However, the explosive growth in cryptocurrencies has made it difficult if not impossible for regulators(10) to keep up. Outside of the ad-hoc enforcement actions against crypto firms by the SEC(11), the industry continues to operate largely outside of regulations. Given the complexity of the crypto ecosystem, it is pragmatic for regulators to start with Stablecoins as they are relatively simpler and have real applications. It is therefore not a surprise, that despite the market turmoil, New York became the first U.S. state to issue guidance for Stablecoin issuers.

The Virtual Currency Guidance(12) provided by the New York Department of Financial Services (DFS) outlines redeemability, reserve and attestation requirements for entities issuing U.S. dollar-backed stablecoins. The industry has been waiting for long-overdue commonsense regulations for reducing systemic risk and providing a fertile ground for stablecoin issuers and other fintechs to drive broad innovation in financial services and payments.

Table 1: Key points from The Virtual Currency Guidance provided by the New York DFS

Backing and Redeemability
  • Fully backed by safe reserve assets like T-Bills, Notes and Bonds
  • Market value of the reserve is at least equal to the nominal value of all outstanding units of the stablecoin as of the end of each business day
Reserve
  • Segregation of reserves from the proprietary assets of the issuing entity
  • Must be held in custody with U.S. state or federally chartered depository institutions and/or asset custodians.
Attestation
  • American Institute of Certified Public Accountants (“AICPA”) standard
  • Examination of management’s assertions at least once per month by an independent Certified Public Accountant (“CPA”) licensed in the US

Kyriba has taken a forward looking posture in this space, for example via partnership with Copper to offer corporate treasury direct access to Copper’s award winning digital asset investment platform, and the ability to manage liquidity across fiat, crypto and money market funds.

While the specific time-horizon on when a trend would become meaningful is not easy to predict, CFOs and treasurers can preserve optionality by partnering with providers that stay at the forefront of payment market trends.

More to Read:

  1. API: Copper Integration
  2. Blog: The Top 5 Trends for CFOs in 2022
  3. Blog: Digital Currencies: Not Ready for Corporate Treasury

References

(1) FSB defines all private sector digital assets that depend primarily on cryptography and distributed ledger or similar technology as crypto-assets and not currencies; for this article the two terms are being used interchangeably.
(2) Map of Cryptocurrency ATMs and Merchants, Coinmap.org
(3) Public companies holding bitcoin, Coingecko.com
(4) Accounting for and auditing of digital assets
(5) MicroStrategy Posts a Loss After Taking Bitcoin Impairment, Bloomberg 2/22
(6) Financial Stability Board, Crypto-assets and Global “Stablecoins”
(7) Whitepaper: BitShares – A peer-to-peer polymorphic Digital Asset Exchange
(8) Terra Luna timeline; TerraLuna UST collapse – What Happened?
(9) CFTC fines Tether and Bitfinex for misleading claims; Panics and Death Spirals: A history of- failed stablecoins
(10) Stablecoin risks and potential regulations, BIS Working Paper 11/2020
(11) Crypto Assets and Cyber Enforcement Actions, notes seven enforcement action for the period Jan – April 2022
(12) Guidance on issuance of US Dollar backed stablecoins, New York Department of Financial Services, Jun 2022



Quickly refresh your treasury knowledge? Download our eBook: What is Treasury?

08-09-2022 | treasuryXL | LinkedIn |

Hello Treasurers, CFO’s, Cash Managers, Controllers and other Finance addicts, how do you quickly refresh your treasury knowledge? Or how do you explain ‘What Treasury is’ to family and friends? Well, there is a simple solution for it. Download our eBook: What is Treasury? 

This eBook compiled by treasury describers all aspects of the treasury function. This comprehensive book covers relevant topics such as Treasury, Corporate Finance, Cash Management, Risk Management, Working Capital Management.

This eBook was prepared by treasuryXL based on the most useful best practices offered by Treasury professionals throughout the previous years. We compiled the most crucial information for you and wrote clear, concise articles about the key topics in the World of Treasury.

We took a deeper dive into each of the above-mentioned treasury functions and highlight:

  • The purpose of each named Treasury function (What is?)
  • What specialists do
  • Examples of Activities
  • Summary of Frequently Asked Questions and answers
  • Conclusion

How to receive the eBook ‘What is Treasury’ for Free?

We simply giveaway two presents for you! By signing up for our newsletter you will automatically receive the following in your inbox:

  1. On Fridays, our Coffee Break weekly newsletter will land in your inbox. In this weekly newsletter, we will highlight the whole week full of the latest treasury news within our community.
  2. The 41 pages eBook, What is Treasury?

 

Subscribe, Join, Download and Relax.

Welcome to our community and have fun reading!

 

 

Director, Community & Partners at treasuryXL

 

 

 

 

RECAP | Cash and Treasury Management Event Copenhagen | By Pieter de Kiewit

06-09-2022 | cashandtreasury.dk | treasuryXL | Pieter de KiewitLinkedIn

 

Last week, Pieter de Kiewit was Chairman of the Cash & Treasury Management Conference in Copenhagen. Pieter decided to take the effort to share his experience with you.

 

By Pieter de Kiewit, Chairman of the event

Corporate treasury events come in many shapes and sizes. Earlier this year, I reported on my visit to Mannheim, in a few weeks you can expect a blog about Vienna, in this blog more about Copenhagen. I can already tell you that I liked the format and set-up of this event.

Corporate treasury markets will always be very niche. The event organiser, Insight Events, targeted a mainly Danish-Scandinavian audience. The sessions were all in English and the venue was the beautiful Hotel D’Angleterre in the heart of Copenhagen. It was also a conscious choice to keep the audience small, just under 150 and of high calibre: almost all treasurers, most of them quite senior and well informed. The consequence of this choice is also that there were no parallel sessions, all sessions were attended by the entire audience. During the break one could meet the various treasury service and product providers, including treasuryXL partner Nomentia.

Last year, I was asked to present on “how to get hired for your next treasury position” and had some questions during other sessions. Based on the bond we built, I was asked to be moderator/chairman of this year’s event. I thought it was a great gig, if it was appreciated, you just have to ask others.


The programme consisted of presentations and panel discussions led by Nordea. I was impressed by the level of quality offered. There were two macro-economic presentations, one by the Chief Economist of Nordea, a well-known TV personality in Denmark and the other by a senior director of EKF, the Danish export credit agency. Both gentlemen brought very thorough interesting insights but, given the current global developments, also a gloomy and dark future.

Another highlight was the input on ESG financing where treasurers and senior sustainability experts together informed the audience about the reality of this type of funding making in, at least for me, an inspiring way. In a cleverly constructed format, credit rating and Basel IV developments were linked in a session with the most questions from the audience.

In other, more traditional but also essential and informative sessions, building treasury teams, mergers and career development were on the agenda. And the non-treasury topic was brought up in a very entertaining way about a hacked company that does not want to pay a ransom. Relevant not only for treasurers and definitely food for thought.

Looking back, I see a very successful and high quality event. On a personal note, I always enjoy the international in my work. Me as a Dutchman, extrovert, direct and sometimes unintentionally rude, communicating with civilised, reserved Scandinavians who do not ask too many questions hopefully did not result in not being invited for next year. We shall see…..

 

 

 

 

 

 

 

Thanks for reading!

Pieter de Kiewit

What Does Real-time Connectivity Mean for Your Organization?

08-08-2022 | treasuryXL | Kyriba | LinkedIn |

Nowadays if you work in treasury, probably not a day goes by without you seeing a social post or article from your subscribed newsletters on the topic of real-time Bank API. It stands for the future of bank connectivity, and it will change the way data is exchanged between corporates and banks. Trent Ellis, Senior Solution Engineer at Kyriba, spends his time assisting clients to evaluate what works the best for them from a solution point of view, with both their current and future business needs in mind. In his discussions with clients and prospects, bank connectivity has always been a focus area and recently he noticed a growing interest in real-time Bank APIs.

 

By Trent Ellis, Senior Solution Engineer

Source



When it comes to real-time bank connectivity, the first thing I usually tell my clients is that it’s important to delineate between the different data flows such as inbound balance reporting, transaction details, confirmation reporting and outbound payment initiation. When an organization plans to make real-time bank connectivity a reality, the first thing they should do is to look at their data flows from daily operations. Identify and determine what data would benefit from a real-time update? Which items are critical for that real-time treasury decision making? Where are you going to maintain the balance and transaction data once it is received or payment data prior to it being transmitted to the bank?

Next, because many banks have grown their footprint by acquisition, bank accounts held in different regions (even regionally within a country) can be on different platforms with different technology. Therefore, within a single bank, API readiness can have a different status for different subsets of bank accounts based on branch and geographic location.

Now that the bank may have made an API connection available, how are you going to connect to it? Do you look at internal technical expertise and availability? Do you look to a third-party vendor? Consider a specialist that just does API connections or a TMS vendor that has other integrated modules and additional functionality beyond just the bank connection for statements and/or payments?

Real-time Bank Reporting, what does this really mean?

Banks are now offering bank balance API’s as well as transactional statement APIs, but sometimes not (yet) both. It’s more than likely not the same as what you would get from that same bank in the form of a BAI or MT940 standard bank statement as banks are still working on what data becomes available through the API. Bank balance reporting is important for real-time liquidity monitoring but will not always help your treasury or AP team confirm the status of a cleared payment, or the status of an important cash credit.

Yes, an API can deliver data in real-time but is the underlying platform that holds that data providing real-time data? Some banks are providing their “real-time” data on a predefined schedule throughout the day which means it is not what most would consider “real-time”. True real-time reporting requires process changes at the bank. Decreasing update time from day to hours or within the hour is an improvement that is easier to absorb without restructuring the process.

Real-time payments, what does this really mean?

Real-time payments are payments that are cleared and settled nearly instantaneously. Real-time payments are generally facilitated by domestic or regional payment infrastructures on a 24x7x365 basis including weekends and holiday.1

Many may not be aware that globally real-time payment infrastructures have been around for as long as 40+ years, and real-time payments can be enabled via FTP or API based on Bank / FI’s offerings and the connectivity option preferred by the corporate customer. Relatively, it has been a recent development in the US payment ecosystem. In November 2017, The Clearing House launched the first real-time payment infrastructure RTP® network in the US, built on the same Vocalink technology that powers the UK’s Faster Payment System. The RTP® network was built for financial institutions of all sizes and serves as a platform for innovation allowing financial institutions to deliver new products and services to their customers. Financial Institutions can integrate into the RTP® network directly, through Third-Party Service Providers (TPSPs), Bankers’ Banks and Corporate Credit Unions.2 The US Federal Reserve will be launching its real-time payment infrastructure FedNowSM in the 2023 – 2024 timeframe.

Globally real-time payments are growing at a double-digit growth rate across all major markets. Adoption of real-time payments will continue to be use case specific, especially for use cases that are underserved by existing payment infrastructures. In the long-term, we should expect real-time payments to be an important part of corporate’s payments mix alongside other traditional payment systems. Like other real-time payment infrastructures globally, the RTP® network has been increasing its transaction limits, which currently stands at $1million. This makes it more relevant for B2B / Corporate payment use cases – a very good example from our client HUNT Companies being the intracompany transfers for efficient deployment of working capital. However, this also means that if you need to make payments with value greater than $1million, you would need an alternative type or method for the time being. You cannot rely on the RTP® network as your only means to make payments and will still require connections for other payment types such as Wire, ACH and international formats.

Recommendations to clients

The world is certainly migrating towards real-time bank connectivity, but organizations will ultimately require various connectivity strategies to fit different geographical and banking technology. In 2022, most real-time Bank APIs are an incremental addition to existing connection methods and formats for both statements and payments. Currently, Bank APIs are not a replacement for other options, which are still required to get a complete picture of prior day statement activity and/or ability to send all required payments. Therefore, my recommendations to my clients always remain the same:

  • Identify and evaluate your data flows.
  • Where does real-time data make sense?
  • Talk to your banking partners and understand their offerings in detail.
  • Ask the question: Do your internal requirements align with the bank’s offerings?
  • Where are you going to house the data that is received/transmitted via the real-time Bank connectivity?
  • Talk to vendors that have teams of people that do this every day and evaluate their perspectives and subject matter expertise.

Find out more details on Bank APIs from the Kyriba Developer Portal, and watch any time an on-demand webinar on everything you need to know about APIs: Bank Connectivity and Beyond.

1 Real-Time Payments: Everything You Need to Know. Paymentsjournal.com. 2021
2 The RTP® Network: For All Financial Institutions. The Clearing House.



Cash & Treasury Management: Join The World’s Leading Experts in Copenhagen

04-08-2022 | cashandtreasury.dk | treasuryXL | LinkedIn

 

Featuring Chairman of the event, Pieter de Kiewit – Owner of Treasurer Search

 

Be a part of the exclusive Cash & Treasury Management Conference on the 1st of September 2022, which will be held in the extraordinary luxury settings at Hotel d’Angleterre in Copenhagen.

Get updated, expand your network, and get inspiration for optimizing your work within the Cash & Treasury Management community.

 

 

The international program consists of selected and experienced speakers that have proven success within a certain area of Cash & Treasury as e.g., ESG, digitalization and Cash Management. The conference brings together a selected group of high-level senior treasurers from global organizations. Learn from your international peers and join the exclusive network. The event ensures you a full day of new knowledge and inspiration made for high level Treasurers. You get in-depth with the latest trends, valuable content from recognized speakers and extensive networking opportunities.

Among others, these topics have been selected for this year’s conference:

  • Sustainability financing – experiences one year down the road
  • Proprietary data driven cash flow forecasting model
  • How we integrated Nets Group Treasury in to Nexi Group treasury
  • Experiences from a massive hacking attack
  • A career within Novo Nordisk treasury
  • Macroeconomic trends and predictions

 

As part of TreasuryXL’s network we offer treasurers 25 % discount.

Sign up now and join us 1 September – Remember to use the code when signing up: TreasuryXL25

 

 

Read the program and learn more about participation and sponsorship opportunities: cashandtreasury.dk

 

 

 

 

Approaches to FX Volatility

13-07-2022 | treasuryXL | ComplexCountries | LinkedIn |

The latest CompleXCountries report is based on two Treasury Peer Calls in which senior treasurers from Asia, the Americas and Europe discussed the latest bout of increased FX volatility, and the impact it is having on their hedging strategies. As to current volatility, some people are adjusting their strategies, but most prefer to stick with the approach which has already been defined.

Source



FX – one of the biggest and most important challenges we all face. It has a direct impact on the business, and everyone has a view.

The calls (European morning and afternoon to accommodate Asia and the Americas) were to discuss the latest bout of increased FX volatility, and the impact it is having on people’s hedging strategies – if any. Unsurprisingly, it turned into a long discussion of the way different companies approach hedging. The report below is long and very varied – we managed to reduce it to 20 pages, but they are dense. As to current volatility, some people are adjusting their strategies, but most prefer to stick with the approach which has already been defined.

What is that approach? The participants came from a variety of different industries, and covered a broad range of different ways of handling the issue.

  • Everyone has a defined hedging approach, though most contain some degree of flexibility. So, if the approach is to hedge the next 6 months, for example, there may be leeway to go down to 4 months or up to 8.
  • Most people add their hedges via a layering approach, where they build up the hedge over time. This provides an average hedge rate, and avoids the risk of choosing a single point in time.
  • Everyone tries to match their hedges to the needs of the business. This involves co-ordinating with the business units to get their input on the ability to change prices, how long it takes to do so, etc.
  • Most companies have a centralised approach to hedging, but there is variety as to whether central treasury acts as and advisor, or as a decision maker. In most cases, this is decided by the company’s internal measurements and incentive system.
  • Several companies try to insulate the operating units from the effects of currency. This is done by various means: several participants operate re-invoicing centres, which invoice the operating entities in their own currencies, and manage the resulting exposures in the centre. One participant achieves the same result by levying a currency specific working capital charge on the operating units. The income from this charge is then used to pay for hedges – which may, or may not, actually be taken out.
  • In these cases, the centre usually operates as a profit centre – but with strong risk management disciplines to contain the danger of positions getting out of control.
  • One other approach is to fix a budget exchange rate for the coming year, and try to lock that in via hedges. There was a discussion as to whether this suits all businesses.
  • Most participants use forwards for hedging, with the choice of deliverable or NDF varying from one country to another. Several use options, though cost and accounting complexity were obstacles.
  • One participant has an approach which is built entirely around options, including a sophisticated trading strategy to reduce the cost of what they view simply as an insurance policy, like any other. This company is also very opportunistic, and will be active or inactive in the market according to their view of current pricing. This company is also private, and family owned, so they have a higher tolerance for earnings volatility than most – and they are not concerned about quarterly earnings announcements. They also have a relatively high margin business.
  • In this company, as in all others, this strategy is only possible because it has the understanding and buy-in of the management and the operating units. Every participant mentioned this as being key for success.
  • Generally, the percentage of hedging is fixed by policy. However, most participants exercise some judgement, based on the cost of hedging. This is particularly relevant for some emerging market countries, such as Brazil, Argentina and many African countries. The judgement as to what constitutes a hedge which is too expensive was often empirical, but the currencies which were left unhedged usually did not represent a significant exposure for the company.
  • Most participants prioritise balance sheet hedging over cash flow hedging, but some take the opposite approach. In all cases, the accounting treatment is a significant factor in determining the approach.

Bottom line: hedging and managing currency is one of the key competences of the treasurer. For many years to come, it will continue to be one of the areas where there is the biggest variation in approaches – and endless debates. If you have an approach which is well defined and which has been fully discussed with the business, there should not be any need to change it during a period of volatility – though it can be an excellent stress test!

Contributors: 

This report was produced by Monie Lindsey, based on two treasury peer calls chaired by Damian Glendinning.


[The full report can be downloaded FREE by corporate treasury practitioners, please Log in to your account to download (if you receive emails from us – use your email address to retrieve your password), if setting up a new account, please ask for the FX report in the comments and ComplexCountries will send you a copy]

Please contact ComplexCountries to find out about their subscription packages.


Perfecting the Cash Forecast

21-06-2022 | treasuryXL | Kyriba | LinkedIn |

 

By Bob Stark, Global Head of Market Strategy

Source



The number one treasury issue that causes CFOs the most potential concern is unreliable cash visibility and forecasts, according to a Nov. 2018 CFO Publishing survey, “3 Key Areas Where CFOs Say Treasurers Need to be More Strategic.”

Every organization talks about forecasting more effectively, but few allocate sufficient people, time, and technology to build an effective program. Understanding the importance of an accurate cash forecast that can be relied upon for key financial decisions is critical to making the right investments in forecasting. While there are many reasons to forecast, such as protecting against currency volatility, there are a few key areas that should be addressed to help CFOs and treasurers further make the connection between accurate cash forecasting and bottom-line financial performance.

So, what is cash forecasting? Cash forecasting, when performed accurately, enables greater certainty of projected cash balances. Longer term investing, reduced borrowing costs, more effective hedging programs and better mobility of global cash, cash positioning is concerned with today and often the next five business days. The purpose is to manage daily liquidity to ensure shortfalls are covered and surpluses are concentrated to earn some yield on excess cash. 

Cash budgeting is performed by finance teams such as FP&A and is more focused beyond one year – although with increased emphasis on free cash flow guidance, the reconciliation of indirect budget-based forecasts with direct cash flow forecasts is increasingly managed quarterly. 

Cash forecasting typically extends cash positioning with horizons anywhere from one week to one year. Forecasting leverages multiple data sources to increase confidence in the projected cash balances so that better cash decisions can be made. The value of forecasting is based upon the value of those better decisions.

So why forecast? Ineffective cash forecasting costs money and impacts shareholder value. A poorly executed program drives a number of negative consequences so it is critical to understand the link between effective cash forecasting and bottom line financial performance. Excuses such as “we’re cash rich” or “interest rates are too low” no longer satisfy investors who demand that cash be deployed or returned to them. Without adequate visibility of forecast cash and where cash needs to be deployed to meet growth targets, CEOs and CFOs risk looking foolish in front of shareholders and analysts. 

The volatility in global currencies shows no signs of abating, meaning that the pressure on CFOs to maintain the value of foreign cash inflows and outflows persists. Companies can experience earnings per share losses from unexpected and unhedged currency impacts or have difficulty in maintaining (let alone increasing) return on cash in a post-Basel III environment. 

Forecasting cash will allow segregation of operational and non-operational cash into time buckets as well as deliver the needed accuracy to allocate cash to longer duration investment strategies. This will help preserve previously realised investment returns or help to find an alternative for cash balances that are no longer wanted by your bank!

Certainty in projected cash balances drives the CFO’s ability to anticipate and prepare for corporate actions and strategic investments. For example, without confidence in cash forecasts, the CFO and treasurer are not relied upon to contribute to key M&A decisions such as providing guidance on the components of cash, debt and equity to calculate a total acquisition cost.

When cash is held globally, share buybacks or dividend hikes are a challenge. Often CFOs find it cheaper to borrow cash domestically than repatriate funds – yet this analysis requires certainty into projected cash balances. Confidence in the forecast is critical to optimize business value; CFOs need an effective cash forecast in order to make commitments on how to reinvest cash to meet organic growth targets. Lack of confidence will lead to unnecessary borrowing or equity financing.

Consolidation of data – Finding the right information and determining the most efficient (i.e. automated) way to integrate it into a consolidated forecast system is key. 

While automation is important, data quality is also paramount to success. When building the forecast, each line item may be sourced in different ways. The source of the information will determine the best way to build the forecast for each line item. For example, many treasury teams prefer to import accounts payable data directly from the ERP while for receivables information they may wish to extrapolate historical data and model using a linear regression. For treasury teams to be effective, it is important that all methods be fully automated and secure so that initial setup, maintenance, and daily execution to build the forecast are easy and can be maintained by the user (and not require re-programming).

Collaboration – Making decisions on the best data to build the forecast also requires determining who to collaborate with to smoothly access that key information. In many cases, treasury does not have direct authority over the people that own systems and/or business responsibilities that offer that data Yet, treasury relies upon this outside information to build a comprehensive forecast, so good internal communication skills are critical to receiving quality information in a timely way. Accounts Payable, FP&A, IT, Regional Controllers all forecast projections for decentralized organizations. Many treasury teams plan, with their CFOs, a top-down collaboration model that builds effective cash forecasting into the team’s objectives and compensation. This draws attention to the forecasting objectives and motivates each team to fulfill their roles.

Measurement – The most important – and often overlooked – step is the measurement of forecast accuracy. Implementing a process to measure forecast accuracy at a detailed level to identify the source of variances is critical to improving quality and ultimately reducing forecast variances. Equally important is implementing a feedback loop – to systems and to people – that ensure that forecast data is improved based on variances that were identified. The feedback loop is especially important when non-treasury resources are contributing to the forecast to ensure that the right behaviors and cash forecast numbers are positively reinforced while opportunities for improvement are well communicated. This is especially effective when feedback is aligned to KPIs and quarterly objectives of those outside of the treasury team.

Key to success – A forecast variance analysis should be detailed with multiple ‘snapshots’ taken. If only a summary picture is reviewed (e.g. how effective was forecasting over a 3-month period) then a lot of the variability is hidden within that timeframe. Measuring daily, weekly, or bi-weekly will help uncover the ups and downs between forecast and actuals that might otherwise go unnoticed. Fortunately, the business intelligence features of a TMS such as Kyriba offers the data visualization and analytics required to offer this level of detail. Cash forecasting is especially important if you are “cash rich” with a high percentage of non-operational cash deposits. Multinationals with significant foreign revenues must forecast better, so they can hedge effectively and deliver cash predictability to their stakeholders. The key to forecasting is flexibility so that you have many options to model the different streams of forecast data. The accuracy of your data will determine if importing, regressing, extrapolating, or other methods of calculations are needed to build your forecast effectively. 

Without measuring forecast accuracy, it is impossible to know if you are good at forecasting. Data visualization helps focus on important variances – whether by category, time bucket, or geography – and isolate what data needs to be improved for future forecasting. ROI of cash forecasting is very high.

In summary, the value of forecasting is driven by what your organization can do with additional cash. The value of cash can be measured by investing longer with higher returns on cash, repaying debt, earning yield from early supplier payments, or investing in new organizational projects. Perfecting the cash forecast means freeing up cash from working capital and directing towards these higher value uses.