17-01-2023 | treasuryXL | LinkedIn | Join Kantox and treasuryXL in this expert-led conversation on the future of currency management as we uncover the key treasury priorities and opportunities for the new year.
17-01-2023 | treasuryXL | TIS | LinkedIn |
Now in its 2nd consecutive year, TIS is excited to release the findings from our 2023 Treasury Priorities & Opportunities Survey. Having run throughout the course of Q3-Q4 2022, our research again captured responses from hundreds of U.S. finance and treasury practitioners operating at companies of all sizes and industries. The goal was to capture their perspectives on a range of items including the ongoing adoption and use of finance and treasury technology, as well as upcoming staffing plans, strategic and operational expectations, and overall trends occurring in the space.
This blog serves as a summary overview of the key results and findings from TIS’ 2023 Treasury Priorities & Opportunities Survey. To access the full results and analysis, you can download the extended whitepaper here.
In total, over 250 practitioners responded to this year’s survey, which consisted of roughly 30 questions. All respondents held roles in either treasury or finance. In addition, all respondents were operating at companies with headquarters in the U.S., but most maintained an active international presence.
In terms of company size, 34% of represented companies had annual revenues of $100M – $1B, and another 34% had $1B – $10B annual revenue. 14% had revenues of over $10 billion, while 18% were under $100mm.
Regarding industry representation, construction and manufacturing firms accounted for over 27% of all respondents. Companies from the software, education, insurance, retail, and automotive sectors collectively accounted for another 40%.
In aggregate, our 2023 research initiatives are representative of an appropriately diverse spread of treasury and finance practitioners from a variety of company sizes and industries.
The findings from our 2023 research highlighted that despite strong economic headwinds and market uncertainty, a significant number of treasury teams are still expecting to add more staff and adopt new technologies in the year ahead. In fact, while 48% of teams expected to add more staff, only 3% planned to reduce their headcount. Similarly, over 50% of respondents plan to invest in new cash management and payments-related technologies.
This should be taken as generally reassuring news for practitioners, especially given the wide-ranging budget and staffing cuts that have occurred within many U.S. companies and institutions in the past few months. However, these new technology and staffing additions are also being coupled with a new set of responsibilities and expectations from business leaders that may place greater strain on practitioners. These heightened expectations were clearly evident in our research, with 77% of practitioners indicating their list of responsibilities would increase in 2023, while just 2% believed their workload would be reduced.
Regarding the nature of these new responsibilities, it appears that many treasury teams are being relied upon to execute and contribute towards more “strategic” internal functions. Based on the data, 57% of practitioners indicated that the strategic role of their treasury group would expand in 2023, while just 4% indicated a decrease. Going a step further, when asked whether treasury was viewed as more “operational” or “strategic” by management, practitioners were evenly split in their perspectives at 48% strategic and 52% operational, respectively.
Looking deeper into the growing influence and responsibility of treasury, another interesting finding was that most treasury teams seemed to exert heavy control over their company’s AP and AR operations, either directly or indirectly. On average, 69% and 67% of treasury groups maintained some level of control over these operations, with little deviation between companies of different sizes and industries.
Although cash management and forecasting operations have long-been standard treasury responsibilities, data shows that practitioners have been placing an even greater focus on these operations over the past year.
Since early 2022, several major U.S. corporate treasury studies including AFP’s 2022 Strategic Role of Treasury Survey and Strategic Treasurer’s 2021 Treasury Perspectives Survey saw cash management, forecasting, and working capital projects ranked as top priorities for treasury teams. Our 2023 research corroborated these results with data showing cash management technology being the top priority for new software investments over the next year. In addition, cash management skillsets were listed as the most emphasized area of professional development focus for treasury teams in 2023.
Turning to cash forecasting, one primary focus of our research was learning more about the various forecasting workflows and strategies leveraged by treasury groups and companies of different sizes and industries. At a high level, we found that nearly half of survey respondents used a TMS to produce cash forecasts, with 20% leveraging an ERP and nearly 30% relying on Excel Spreadsheets. While Excel is still used predominantly by smaller teams, the use of TMS and ERP products was much more popular for companies with $500mm+ in annual revenue.
Regarding the preferred forecast horizon, 27% of teams focused on monthly forecasts, while 38% were prioritizing weekly analysis and 25% daily. Generally, smaller companies were only half as likely to conduct daily forecasts compared to larger firms, but 2x more likely to conduct quarterly forecasts. On the other hand, larger firms were more likely to conduct forecasts across numerous time periods including daily, weekly, and monthly. In aggregate, weekly forecasts were the most popular analysis period across all sizes and industries.
As a final point on forecasting and in-line with the broader digitalization shift that has been occurring in treasury for years, the top priority for practitioners when improving their forecast process revolved around either migrating away from legacy Excel-based processes or upgrading their existing software to achieve greater accuracy and automation.
To learn more about this research and for extended results and analysis, download the full whitepaper here. You can also watch our recent results webinar that features commentary on the key survey themes by a panel of industry experts.
16-01-2023 | treasuryXL | Kantox | LinkedIn |
Avoid the cliff and protect your cash flows! When volatility is at an all-time high, the right currency hedging strategy can set you apart. And save your business from an uncertain future. Transform your FX risk with a layered hedging strategy that will help you withstand unexpected changes in FX markets and protect your margins.
When implementing an FX hedging program, finance professionals responsible for risk management must be aware of the ins and outs of their business. This will be the starting point to uncover potential gaps in the hedging strategy and also opportunities to implement the program that fits perfectly.
Let’s understand how a layered hedging program works and how it could fit with your FX strategy.
Layered hedging programs allow CFOs and Treasurers to handle the related problems of FX markets volatility, shifting interest rate differentials, and less-than-stellar cash flow visibility.
The goal of a layered hedging program is to smooth out the hedge rate over time to lower the variability of company cash flows. Additionally, a layered hedging program that is created from scratch can deal with the problem of forecasting accuracy.
Instead of ‘protecting’ an FX rate, layered hedging programs build the hedge rate in advance. And because hedges are applied in layers, in a progressive manner, you do not need a 100% accurate forecast at all.
Not all hedging programs are the same, as they tackle different goals for managing FX risk. Before you implement a layered hedging program and start dedicating time and resources, you need to think about certain conditions. These relate to your current business model -including pricing structure, the FX exposure you want to hedge, cash flows, etc.- and your company’s specific needs when it comes to FX hedging.
This type of hedging program is best suited for firms that need or desire to keep steady prices not only for one individual campaign/budget period, but for a set of campaign/budget periods linked together. In layered hedging:
(a) Prices are usually not FX-driven, meaning that the FX rate plays no role in pricing strategy.
(b) The impact of the ‘cliff’ -a sharp adverse fluctuation in currency rates between periods-, cannot be passed on to customers at the onset of a new period.
(c) The exposure to hedge is a rolling cash flow forecast for a set of periods linked together.
Unlike other cash flow hedging programs, like static hedging where prices are either frequently updated or updated at the onset of a new budget period, pricing does not act as a hedging mechanism in layered hedging programs. And that puts cash flows at risk, so a solution must be found elsewhere.
In comes the star of layered hedging, smoothing the rate.
The secret of achieving a smooth hedge rate over time is to create commonality between trade dates for a given value date. Take, for example, a 12-month layered hedging program. The value date of October is hedged in 12 different months, from October in the previous year down to September.
Next, the value date of November is hedged in the same manner, starting in November of the previous year down to October. And so on and so forth. Note that the two value dates -October and November- share eleven out of twelve trade dates with the same spot rate. That’s the concept of the mechanically created commonality that lies at the heart of layered hedging programs.
However, the process of ‘layering the hedges’ is not as simple as it may seem at first glance. There are some common challenges that Treasurers and CFOs face when manually performing FX risk management activities.
Before crafting the optimal layered hedging program for your business, there are three common challenges that need to be considered. These are crucial to the success of the FX hedging strategy. And they relate to the configuration of the program, the intrinsic constraints of the business, and the level of automation currently available to the team. Let’s take a closer look.
(1) The degree to which the hedge rate is smoothed, for example by adjusting the programs’ length.
(2) The optimisation of forward points. For example, hedge execution can be delayed if forward points are ‘unfavourable’.
(3) The distance between the average hedge rate and the spot rate.
(1) The degree of forecast accuracy.
(2) Possible limitations imposed by liquidity providers who might not let a firm trade forward contracts that expire, say, more than two years out.
(1) Spreadsheet risk, including data input errors, copy & paste errors, formatting and formula errors.
(2) Key person risk, as only a handful of individuals understand the formulas that underpin the ‘monster’ spreadsheets.
Layered hedging programs are a powerful FX risk management tool to face the trifecta of problems created by a highly volatile scenario. These hurdles include currency risk —including the risk of a cliff, as we saw recently with the GBP-USD exchange rate—, shifting interest rate differentials, and less-than-stellar cash flow visibility.
Now that you know the ins and outs of layered hedging, you can start transforming your FX risk management workflow. And forget about the challenges that may come when facing uncertainty. That’s a pretty powerful advantage in a scenario of pandemics, inflation and war!
If you want to leave behind the challenges of manual work when it comes to currency risk, consider implementing automation software.
Kantox is the only solution that streamlines the currency management process through powerful automation of the entire FX workflow. This enables businesses to reduce currency risk, protect profit margins and price more competitively.
12-01-2023 | treasuryXL | LinkedIn |
A new year, a new edition in which we discuss the latest treasuryXL poll results. It is encouraging that once again many treasurers participated in the vote. We examined the voting patterns of treasurers and gathered the perspectives of experts Jack Gielen and Konstantin Khorev on the topic of APIs in treasury.
It is commonly understood that APIs are prevalent in today’s digital landscape. However, corporate treasurers can also reap benefits from API technology and its advantages. If you are unsure about the importance of APIs in Treasury or need more information, you should definitely watch the recording of the joint webinar together with Cobase on the future of APIs. It is encouraging that once again many treasurers participated in the vote. The current treasuryXL poll remains open and we encourage you to continue to have your voice heard! You can cast your vote on this link.
Question: Who should “give a push” and work on APIs?
That looks quite straightforward: partners should join forces. Do the treasuryXL experts agree, or what is their view on this?
Jack voted for the option that partners should join forces.
“APIs and the benefits are clearly on the map but there is also an understanding that there is still work to be done before those benefits will really be realised”
It is good to see that regarding the results of this poll, the market agrees that the success of corporate APIs and OpenBanking requires cooperation and cannot be dictated by 1 party. This means Treasurers clearly understand the complexity of the playing field. At the moment, although there are many initiatives by individual parties, there is a need to create a good partnership where the whole eco-system works together
The main benefits that APIs could realise if banks and companies were to work together are:
These benefits translate into being able to use the systems the treasurer has chosen more efficiently and better, more up-to-date insight into status, exposures and required actions.
Recently, Cobase set up the webinar “The Future of APIs” in collaboration with treasuryXL to discuss this topic. I was particularly impressed by the level of knowledge Treasurers have gained over the past year which was also reflected in the questions. APIs and the benefits are clearly on the map but there is also an understanding that there is still work to be done before those benefits will really be realised. Ultimately, the priority with the end customer, the treasurer, will determine how quickly other market players act.
Konstantin voted for the option that partners should join forces.
“By working together, we can achieve a more efficient and effective treasury management system.”
I agree with the majority view that the implementation of APIs in the treasury field should be a collaborative effort. Banks will play a key role in implementing these changes, but it is also crucial for corporates and TMS providers to set and specify the requirements. This ensures that the solutions being implemented align with the unique needs and goals of each individual corporate, and TMS providers can develop the tools and services necessary to support these needs. By working together, we can achieve a more efficient and effective treasury management system.
Recently, my latest article on this topic was published on treasuryXL. In it, I try to make it plain that APIs are a nice and easy solution, although they come with some limitations and challenges. At the same time, I believe that the future of bank connectivity lies in API technology. What do you think?
12-01-2023 | treasuryXL | Refinitiv | LinkedIn |
For more data-driven insights in your Inbox, subscribe to the Refinitiv Perspectives weekly newsletter.
The fintech space is highly dynamic and agile, but this industry of innovation and opportunity is substantially impacted by a constantly evolving financial crime landscape.
Emerging technology, quickly adopted by fintech and leveraged to make every facet of our lives easier, is similarly harnessed by financial criminals seeking to engage in illicit activity.
New findings from Refinitiv and FINTRAIL – based on interviews with experts in different fintech across a range of geographies – reveal the top challenges faced by the fintech and focus on three key challenges currently at play in this dynamic space.
Read the white paper: AML challenges for fintechs: Insights for the future
Fraud continues to grow across the globe and is a key pain point highlighted by the fintech we spoke to.
One of the top fraud-related challenges currently in play is application fraud, where sophisticated financial criminals typically impersonate individuals or make use of synthetic identities.
Illicit actors are leveraging powerful technology to do this – manipulating information, tapping into advanced graphics techniques and exploiting vulnerabilities wherever possible.
In the United Kingdom, where fraud is the most commonly experienced crime, reported losses totalled £2.35 billion in 2021. In the United States, fraud trumps all other proceed-generating crimes and 2.8 million consumers made fraud reports in 2021.
– AML challenges for fintech: Insights for the future
The fintecs we spoke to are responding in a range of ways, from providing better customer education and raising awareness to protect vulnerable customers, to ramping up collaboration initiatives between the private sector, governments and law enforcement agencies.
Crypto continues to grow, and hand-in-hand with this, regulation within the sector is also increasing.
Against a highly dynamic situation, where products and technologies are evolving at speed, virtual asset service providers (VASPs) need to keep pace with a changing regulatory curve, especially when it comes to complying with differences across jurisdictions.
Even fintech that don’t bank digital assets need to stay acutely aware of the crypto-related risk as they may interact with VASPs, and consequently, need to understand potential regulatory obligations.
Sanctions are another key challenge for fintech, and little wonder given the global sanctions landscape that has unfolded throughout most of 2022.
AML teams have been scrambling to keep pace with the exponentially rising volume of sanctions, especially – but not only – those related to the Russian invasion of Ukraine.
Not only has the absolute volume of sanctions been increasing, but individual sanctions have been becoming increasingly complex, leading to rising compliance costs for fintech as well as their traditional financial services industry counterparts.
Non-compliance can have far-reaching consequences – ranging from financial to reputational and more.
The fintech we spoke to are acutely aware of the need to protect against widespread illicit activity and of the requirement to remain compliant at all times.
At the same time, they operate in a lean industry of constant change, exponentially growing customer bases and a breakneck pace of business.
This means that building a best-practice response to financial crime must be carefully considered, efficient and effective.
Leading-edge AML technology, robust data and skilled compliance professionals – whether in-house or outsourced – can offer the solution to help manage and mitigate financial crime risk and the key challenges outlined above.
High on the list of fintech priorities is striking the all-important balance between operational efficiencies, positive customer experiences and regulatory compliance – and with the right data, technology and human insights, this delicate balancing act can be maintained.
03-01-2023 | treasuryXL | Kyriba | LinkedIn |
The treasurer and CFO are today more closely linked to strategic financial objectives for the CEO, ensuring finance teams provide informed guidance on navigating risks and opportunities. This year, a revolutionary practice area and innovative technology is transforming the value of short and long-term cash flow forecasting with more certainty and analytics, empowering finance with a strategic liquidity planning toolset.
By Brian Blihovde
Senior Direct, Product Marketing
The treasurer and CFO are today more closely linked to strategic financial objectives for the CEO, ensuring finance teams provide informed guidance on navigating risks and opportunities. This year, a revolutionary practice area and innovative technology is transforming the value of short and long-term cash flow forecasting with more certainty and analytics, empowering finance with a strategic liquidity planning toolset.
Modern technology solutions are driving value across cash flow forecasting and strategic planning through inclusion of more information from different sources, using artificial intelligence (AI), machine learning and flexible scenario analysis. These user interfaces, reporting and analytics provide finance with better identification of free cash flow targets, improve EBITDA, and deliver views and analysis of total working capital levels.
New technology solutions for liquidity management planning create forecasts and analyses on actuals and planned cash flows to include liquidity instruments from debt to working capital programs. When the combination of cash, planned or committed financial flows (AP, AR, treasury) are used as an integrative planning tool with analytics, decision-making for the CFO is more accurate and based on today’s and tomorrow’s reality. Forecasted transactions originating from purchase requisitions, orders and finally invoices are a much better source of forecasted flows than spreadsheet estimates.
Liquidity planning tools and features created as part of an advanced solution gives finance the ability to see exact components of working capital and cash flow forecasts further out to deliver clarity on whether debt or other sources of liquidity will be too expensive. Identification of the mix of liquidity needed and the availability of planned sources or uses further helps the treasurer plan the intersection of borrowing levels, cash flows and confidence parameters for various scenarios and comparisons. The ability to quickly adjust parameters within a planned liquidity model with established, accurate cash management baselines, makes the job easier and faster for not only treasury and FP&A, but gives the CFO quick strike decisioning on the planned mix of cash and debt to fund operations or strategic decisions.
Global economic volatility continues to impact multinationals across a variety of indices and continued strategies by central banks to slow inflation with interest rate increases translates into significantly increased costs of borrowing. For finance organizations that provide liquidity as a net short-term borrower, it is extremely important treasurers can assess the mix of debt and the most advantageous debt instruments, or working capital programs, available. Treasury teams can directly impact greater overall financial performance by optimizing the cost of liquidity and keeping the right levels of available debt and free cash for investments. Modern liquidity planning solutions create better long-range views of available debt vehicles in cadence with cash and other programs to help prescribe the correct mix of long and short-term borrowing. Identifying where short-term debt has carrying costs over other sources of liquidity while also reducing the number of overall debt instruments (facilities or other lines) reduces costs that affect net earnings. Liquidity tools that incorporate the complete set of debt vehicles coupled with cash and forecasted flows create more ability to lessen reliance on borrowing, reducing and optimizing debt levels – all significant contributors to a stronger EBITDA.
In a recent cash forecasting webinar, 90% of attendees stated that they “lose confidence in their forecasts within three months.” Regardless of a static or rolling forecast scenario, lack of confidence in your firm’s future cash and liquidity levels hinders the ability to fund longer-term, accurate strategic decisions without having more of a backup in the form of higher credit limits available to shore up potential liquidity shortfalls.
The new cash forecasting features and capabilities available in new liquidity planning tools are creating better capabilities to manage longer-term liquidity questions:
As the economy continues to spiral, uncertainty will bring down the values of organizations who are incapable of managing the rate at which volatility impacts EBITDA – a consequence of legacy thinking and systems. CFOs and treasurers who are taking a new tact in leveraging liquidity across the enterprise, are finding success in minimizing impacts to their income statement and have an unobstructed vision for how they can unlock near and long-term growth.
02-01-2023 | treasuryXL | LinkedIn | Welcome to 2023! We are excited to present the Top 5 Most Popular Articles of the year on treasuryXL!
29-12-2022 | treasuryXL | TIS | LinkedIn |
As 2023 approaches, many treasury teams are actively evaluating their operations to identify areas in need of improvement during the year ahead. As these analyses are performed, TIS has compiled a short list of projects that treasury should consider undertaking in order to save costs, boost revenue, and drive further efficiency for their companies.
This blog serves as a precursor to TIS’ recent whitepaper, 5 Ways Treasury Can Save Money & Boost Revenue in 2023. You can download the full whitepaper using this link to review the full list of strategies and tips.
Given their position at the helm of global cash, payments, and working capital activity, modern treasury teams play a vital role in controlling the various operational, financial, and technological costs that impact their companies. From monitoring and reducing banking and transaction fees to preventing payments fraud, managing daily liquidity, optimizing working capital, and developing short-term debt or investment strategies, today’s treasury groups are often in the ideal position to analyze their company’s cash flows and make improvements to boost revenue or save costs.
However, because most treasury teams have a relatively small headcount and are tasked with an ever-growing list of responsibilities, it is critical that practitioners maximize their available resources and focus on projects that will have largest impact on their company. This is especially true in today’s volatile economic environment, where cutting costs and maximizing revenue is more important than ever.
Given this context, it is likely that treasury groups will be seeking to undertake a variety of cost-savings or revenue-boosting projects in the months and years ahead. In-line with these expectations, this blog will highlight three strategic ways in which treasury teams can have a positive impact on their company’s bottom line in 2023. For extended analysis, you can also download our full whitepaper for additional strategies and tips.
Today, it is common for global companies to work with numerous banks across different regions and entities. In fact, a 2022 TIS survey of over 250 treasury practitioners found that 40%+ of companies were actively using more than 10 banks globally. But while organizations obviously need a certain number of bank relationships to accommodate their geographical and operational scale, a larger than necessary group can result in higher costs, fragmented visibility, siloed workflows, and obscure points of communication.
For some treasuries, rationalizing bank relationships can be an effective way of reducing costs. By concentrating on a smaller number of relationships with a select group of core institutions, companies may be in a better position to negotiate more favorable pricing for their banking services. A more streamlined relationship structure can also improve operational efficiency by limiting the number of banking systems and connections required, reducing annual maintenance or service costs, and increasing transparency over all the related operations.
In addition to analyzing each bank relationship, it’s also important to consider the number of bank accounts in use. Because the number of accounts can easily become inflated over time through organic growth and M&A activity, many multinational corporations end up with more accounts than they want or technically need. In 2021, a Strategic Treasurer survey showcased that nearly 40% of companies used more than 100 bank accounts. Furthermore, 38% of companies indicated the number of bank accounts they used were increasing, and 20% of practitioners had identified previously unknown bank accounts attached to their company within the past 2 years (2019-21).
In the long run, companies with excess numbers of accounts that have not been closely monitored will be confronted with excess manual labor, inefficient cash management structures, and higher-than-necessary costs. It will also be much more difficult for treasurers to maintain visibility and control over the company’s cash and to detect fraud or compliance exposures.
Given these challenges, a streamlined bank account structure can not only reduce bank account fees, but also help to minimize idle cash balances and support more efficient cash management. As such, treasurers may be able to save money by rationalizing both the number of banks and accounts that they maintain.
Similar to how a company’s banking structure grows more complex over time, so too does the back-office technology structure that treasury groups rely on to manage operations.
While modern-day treasury software is undeniably critical for today’s practitioners to automate and streamline their processes, such solutions are not always implemented or integrated in an efficient manner. Sometimes the configuration is never completed, or various features are inactive and not functioning as intended. In the long run, a common result of company growth is to wind up with a large assortment of spreadsheets, banking portals, ERPs, and TMS solutions that are collectively causing redundant and fragmented workflows, overly manual processes, a lack of integration or interoperability, and unnecessary subscription and maintenance costs.
In recent years, industry data has demonstrated the effect that unnecessary technology complexity can have on companies. In fact, data from Strategic Treasurer found that 3 out of 5 companies that purchased a TMS were using less than 80% of the functionality they implemented. In addition, one of TIS’ recent research initiatives found that 38% of treasury and finance respondents were using more than 15 different treasury, vendor or payment systems – with two thirds using more than five systems. With this amount of diverse technology in place, it’s easy to see how processes can become inefficient and inconsistent, and how data can become siloed and difficult to consolidate.
In order to promote greater automation and transparency and to reduce overall technology costs, treasury teams with an excess number of systems should strongly consider a consolidation project. A simpler and more unified technology structure can result in more efficient processes, greater transparency, and improved decision-making as a result of more accurate information. Simplifying treasury’s technology stack can also result in other benefits such as improved reporting, reduced IT reliance, more secure fraud controls, and more standardized compliance management.
Considering that many companies today operate across multiple countries and regions, it makes sense that treasury teams are managing payments using a broad variety of currencies, channels, and methods. For example, a true multinational company will likely leverage ACH, check, wire, cards, and a variety of other options to send and receive payments. They will also probably use a diverse range of banking channels and financial messaging formats to transmit payments data, along with an equally diverse number of integration and service-level partners to assist with the process.
So how can treasury simplify these payment workflows?
When it comes to cross-border payments, one helpful consideration would be to execute transactions at the local level (i.e. in local currency), rather than relying on traditional correspondent banking or FX conversion services. Because many cross-border payment networks charge exorbitant fees for swapping currencies and delivering funds, companies that regularly transfer money between different countries and regions could save substantially by leveraging a more specialized service.
On the other end of the spectrum, there are also plentiful opportunities to optimize the use of domestic payment methods. In the U.S. for example, switching from physical checks (still a common instrument) to ACH can save time and effort, while other options like virtual cards may offer rebate or cash-back rewards. For companies that have a large network of suppliers and partners in the U.S., joining a rebate program or converting paper-based payments to ACH and virtual cards can provide substantial efficiencies and cost-savings, especially when such projects are executed at scale.
In today’s uncertain and volatile economy, it’s essential that companies take every opportunity to minimize costs and maximize revenue. As we’ve seen with treasury, there are numerous areas where cost-savings and revenue-generation projects can be pursued. Whether it’s through bank and technology rationalizations or improved payments execution and liquidity management strategies, treasury teams have numerous options at their disposal to impact the bottom line. Moreover, the benefits associated with many of these projects often create efficiencies outside of pure costs savings and include enhanced workflow automation, streamlined data management, and the elimination of error-prone, non-compliant, and fraud-exposed processes.
For organizations interested in pursuing any of these strategies or projects further, we strongly encourage you to consider how the TIS solution can help foster the desired outcomes.
At a high level, TIS helps organizations simplify and streamline their global payments and liquidity management operations. Our cloud-based platform empowers businesses to optimize critical functions surrounding cross-border and domestic payments, bank connectivity, cash forecasting, fraud prevention, payment compliance, and more.
Today, corporations, non-profits, and institutions all leverage TIS to transform how they connect with global banks and financial systems, collaborate on payment processes, execute outbound payments, analyze cash flow & compliance data, and promote working capital efficiency. Ultimately, the TIS technology platform enables businesses to improve operational efficiency, lower risk, manage liquidity, gain strategic advantage – and achieve enterprise payment optimization.
For more insight on ways treasury can save money and boost revenue in 2023, download our full whitepaper.
27-12-2022 | treasuryXL | Kantox | LinkedIn |
In this article, we look closely at conditional FX orders, a powerful tool when executing your hedging strategy, and the unique role it plays in currency management — especially when it comes to delaying the execution of hedges.
A conditional FX order is an order to execute a spot or a forward transaction to buy or sell one currency against another—but only when a predetermined limit is reached.
Conditional orders include stop-loss (SL) and take-profit (TP) orders. While SL orders are aimed at avoiding losses beyond a certain limit, PT orders are designed to take advantage of favourable moves in currency markets.
Note two time-related aspects of conditional orders in forward markets:
(a) The tenor of the underlying forward contract is specified (it could be one month, six months, or a year)
(b) The validity of the order is specified too (it can be valid for two weeks, six months, or set on a good-until-cancelled basis).
Conditional orders are usually set on an OCO basis: one-cancels-the-other, automatically to avoid the same exposure being hedged twice in the event of extraordinary market volatility.
Note, too, that in the event of extraordinary market volatility, conditional orders can be executed at less favourable levels than desired. This limitation exists not only in FX but in all financial markets.
The primary purpose of conditional orders is to provide a safety net around an FX rate that the treasury team wishes to defend.
It can be the rate used in setting prices —aka the campaign/budget rate—or a ‘worst case scenario’ FX rate.
Say that you wish to defend the rate of EUR-USD = 1 on a spot basis while the market is trading at 1.08. In this case, it is prudent to set three SL orders, each covering a third of the exposure, at 1.02, 1.00 and 0.98, respectively.
Assuming that the three levels are hit, you are mathematically assured to defend your budget or worst-case scenario FX rate.
In hedging programs designed to protect a budget FX rate, the ‘buffer’ set between the market rate towards the start of the campaign and the rate to be defended with SL orders provides risk managers with a critical resource: time.
As long as the SL orders are not executed, the passing of time means that hedge execution is delayed while FX risk remains fully under control. This brings the following four systematic advantages:
(a) More time to update cash flow forecasts
(b) More savings in terms of the cost of carry when forward points are unfavourable
(c) No cash immediately needed for collateral requirements
(d) More netting opportunities
And it’s not over yet! With luck, your TP conditional orders can be hit as well.
We recently conducted a backtest of a hedging program designed to protect the budget rate of a UK-based exporter selling into emerging markets. Over a four-year period (2017-2020), the firm would have outperformed its budget rate in three of those years while equalling it in the remaining year. In one year alone, overperformance reached 5.8%.
Delaying hedge execution with risk under control allowed the treasury team to hedge on the back of firm commitments, providing a better hedge rate than the stop-loss orders. So there you have it: when managing currency risk, consider using conditional orders. Time will be on your side. And you’ll sleep well at night!
P.S. If you’re drafting your upcoming budget, download our Budget Hedging report and find out how to use conditional orders.
22-12-2022 | treasuryXL | GTreasury | LinkedIn |
GTreasury has compiled a market report in conjunction with PNC in order to provide actionable insights for mid-to-large companies with multinational operations and small treasury teams. The report finds that CFOs and Treasurers remain optimistic, and focus on reducing inefficiencies and streamlining operations.
What will be the road ahead for CFOs and Treasurers? treasuryXL wanted to know more and held a Q&A with GTreasury’s VP of Product Management: German Karaivanov. Read below for German’s takeaways and thoughts on the report.
The new Pressure Points, Payments & Plans for Automation: The Road Ahead for CFOs and Treasurers survey report—conducted by Topline Strategy and commissioned by GTreasury and PNC Bank—finds corporate treasurers and CFOs are acutely focusing on three transformation goals right now. The first focus is fueling growth: treasurers and CFOs are eager to reduce costs wherever they can, but still need to be able to spur growth by improving risk management practices and getting more granular (and predictive) with their cash visibility, among other initiatives on this front.
Deploying more modernized treasury technology was also reported as essential to navigating market uncertainty—opening the door to more data-backed opportunities that can directly tie into business goals.
Also among the top-line takeaways: treasurers and CFOs are clearly ready to enter a new phase of automation for treasury functions (and across their organization’s broader financial groups). While early automation efforts had more of an ERP focus, respondents signaled that they are increasingly prepared to adopt more mature automation into their systems and apply it strategically to meet modern treasury and finance needs.
The report surveyed 93 finance executives and corporate treasurers from more than 20 industries. Participants represented large and mid-sized enterprises in both the United States and abroad. We purposely wanted to ensure a cross-section sample that wasn’t over-pinned to any one geography or industry.
CFOs and treasurers are on the same page in that they’re both pressing to make treasury practices more automated, more accurate, and more efficient. But CFOs in the survey show a clear preference for prioritizing cost efficiency. Corporate treasurers, on the other hand, tend to champion improved treasury functions and operational efficiency—and that proved especially so when it comes to achieving real-time insight into cash positions. There was a clear divide here, but I don’t think it was all that surprising. More CFOs need to understand that they can have it both ways. Adding more treasury functionality, integrations, and automation will make treasury operations more efficient, both with treasury technology budgeting and with the bandwidth it frees up for treasury teams to focus on the most urgent and critical business-growth initiatives.
But even for their differences, both CFOs and treasurers do plan to leverage new banking and treasury systems to achieve their goals. Strategic technology implementations that offer process modernization and automation will reduce costs by eliminating inefficiencies and provide treasurers with optimal tooling—checking boxes for CFOs and treasurers alike.
82% of survey respondents reported payment automation as a very or extremely important focus area for their planned software projects. It was clearly the highest automation priority. CFOs and treasurers view payment automation as delivering higher staff productivity, process efficiencies, improved cash visibility, enhanced fraud protection, compliance assurance, and modernized processes aligned with the demands of the digital economy. It seems clear that payment automation will come a long way in 2023. Other high-priority focuses for software modernization projects included accounts receivable, billing, and financial planning and analysis.
I found the results around digital transformation concerning: more than half of survey respondents said they didn’t yet have a formalized digital transformation plan even though there was a clear (and increasing) interest in making technology investments. Organizations either sticking with outdated, legacy systems are increasingly at risk as their competition advances. There’s also the internal experience: it’s easier for CFOs to hire and retain top treasury talent if their organization is using technology that makes treasurers’ jobs smoother and more efficient.
But when it comes to digital transformation, there is good news. Given the current volatile market, organizations that start their digital transformation now will likely be able to realize the benefits of their initiatives particularly quickly.
GTreasury’s partnership with PNC Bank is a strategic alliance, one that enables us to bring a range of cash and FX risk management products to the market as part of PNC’s extensive digital channels and services.
Thank you for reading!
Join treasuryXL as a partner!
The treasuryXL Partner Program is designed for organizations offering products or services in treasury, cash and risk management.
Newsletter & eBook
Subscribe to our free weekly newsletter and receive your 41 pages ‘easy-to-read’ eBook, What is Treasury?
