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Treasury Specialist @ ABB

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The Blank Sheet Treasury – a Guideline answering the “How”, “When” and “Why”

07-12-2021 | Jesper Nielsen-Terp | treasuryXL  | LinkedIn

During times of crisis, like the financial crisis in 2009, or the Covid-19 pandemic which still hits us, we often hear the old phrase “Cash is King”. The Treasurer and the Treasury Department are once again back in the middle of the fire by the end of the day. Influenced by the CEO or the CFO, the board of directors is overall responsible for the financial strategic target settings. The tasks and responsibilities flow however from the top management and will end up at the Treasurers’ desk. Therefore, A treasurer has to structure the initial thoughts when building or re-shaping the treasury setup.

To be prepared for the fireplace, I believe that it is crucial for the Treasurer or the Finance Department employees carrying out treasury activities, that a clear strategy is implemented and outlined. Not only a strategy for how the policies and guidelines are carried out, but a strong mandate from Top management and maybe all the way from the Board of Directors. A mandate carved in stone, so no one can be in doubt when something hits the fan.

“Do not ask what the company can do for you, but ask…”

There are a couple of questions that all back-office functions need to ask themselves on a regular basis. The answer to the questions should dictate the activities that are undertaken on any given day. First, they should ask, “Is this activity going to increase the company’s revenue?”.  If the answer is no, they should move on to question number two, “Is this activity going to reduce the company’s cost base?”. Once again, if the answer is no, then they should move on to question number three, “Will this activity delight the customer?”.  If the answers to all three of these questions are no, then we need to examine the activity to understand why we are conducting it.

The Blank Sheet Treasury

In order to understand why the recommendations that follow are applicable, we must decide what it is that we as a Treasury Department are trying to accomplish and why.  There are certain practices in Treasury across the world that should drive our behavior. In examining these practices, one potential structure emerges; the Blank Sheet Treasury. This way we are starting with our objectives and future state in mind instead of our current state.

In my opinion, the future state should equal the Treasurer to be prepared and know how to handle future potential crises, whether it is a business-related financial crisis or a worldwide pandemic.

Coming back to the phrase “Cash is King”, when in the middle of a crisis, everything else than access to cash or cash visibility should be a next day issue for the Treasurer. Stating this should give an idea why I believe the Blank Sheet Treasury always should start within the area of Cash/Liquidity Management, which of course can come in many different flavours.

The initial process

Coming back to the statements about having a focus on future state and the mandates to get there, the initial process visualized below is a tool that the Treasurer needs in his/her toolbox. Maybe not the most innovative tool, but most likely one of the most important tools, if not the most important, when shaping, re-shaping and driving treasury.

The process map works like a Lego building instruction, where there actually is a possibility to skip or change the order, but when doing it, the result will not be what we were aiming for, or even worse than what our surroundings (stakeholders) thought we were aiming for. So if the order somehow is changed or some parts are skipped, it will be similar to an “un-finished” Lego construction. It will in some cases be functional, but there will always be some spare and important “bricks” left on the table. In the Lego context, some left bricks might not make a difference or at least not a huge difference, but in a corporate context the repairment will have a critical impact on time, costs and lost confidence from stakeholders.

The foundation for everything else

Before moving to the discussion on the Leadership mandate and afterwards on daily-life guidelines for the Treasury Department, let’s first make sure that a part of the objectives and future state is the idea that everything is to be accomplished (now or in a few years). Not only will it be a guide for the “how, when and why”, but also because top management, which gives access to the budget, want visibility and take decisions based on valid information.

As the majority of Treasurers and their departments have Cash/Liquidity Management as one of their key deliveries and as the Cash/Liquidity Management highly impacts other workflows in the Treasury Department, it is somehow the foundation for everything else and therefore a good place to start.

This figure is of course not a golden rulebook, and for some Treasury Departments priorities can come in another order. But when talking to Treasurers about their priorities and building or re-shaping their setup, the figure outlines to a great extent how they see the structures and how they want to manage the process of reaching the end line.

Best Practise and Future Workflows

Each of the circles has some underlying characteristics and is decomposed into a number of workflows. Here, the objectives for the future state and best practise will come into play.

In this recommendation, Cash Management is identified as the foundation for other workflows. Next to that, when looking into job descriptions and talking to Treasurers about their key objectives,  FX Risk Management is identified to be high on the agenda. Therefore, the following graphs will assist the visualizing and guidance of Cash and FX Risk Management.

 

The Best Practise box has to be filled out by the company (the Treasury Department), based on their needs and very much linked to the Objective/Future State. The question asked here is; ‘’Does the Company actually know what is the best practise in each of the workflows or could there actually be multiple solutions for the Best Practise?’’

The answer for both questions will for the majority of companies be that the Treasury Department has some thoughts and ideas for what they see as Best Practise for their setup, but at the same time they will recognize that a solution for the future state and the Best Practise for this, can come in different varieties – it is not a One Size Fits All. When agreed on the Best Practise for the future state, it will then be time to start visualizing the future workflows, which will give some thoughts and ideas for what actually has to be built, changed and implemented.

 

One of the pitfalls to avoid here is to not look too much into what worked in the past and in addition avoid looking at single workflows (in this example Cash and FX Risk Management).
As a normal part of being a human being, there can be a significant probability to start applying what worked well in the past, because the Treasurer might have some experience or preferences from similar projects. Thus, there will be a tendency of implementing the same workflows and systems used in the past, even though they do not fit into the entire puzzle.

 


The entire puzzle

Likewise in our own lives, the CFO wants to see the full picture and understand the full picture, before opening up the purse and increasing capital expenditure. With this in mind and the objective of getting a budget, do not only look into the short-term and easily reachable targets but think big and layout the entire puzzle. Still continue to grab the low hanging fruits though, because they are to be grabbed in order to keep momentum.

What is the entire puzzle and how can it be shown in a simple, but the informative structure, so no one will be in doubt of the individual workflows on the journey of reaching the objectives and creating a best-in-class treasury setup.

To assist in laying out the entire puzzle, all workflows will be identified and structured by their “Value” and “Importance”. Therefore, the below chart can be the guide for where to start as well as be used in the dialogue with the CFO and other stakeholders. Once again it is important to state that the chart is not a golden rule book, but an inspiration for how to make progress on the journey.

 

The red box will obviously be the initial most wins and the focus areas. Even though most wins have been identified, the entire puzzle is still unfinished, because it is actually laying like a puzzle.

The box has been unpacked and the puzzle pieces have been sorted.  The next step for the Treasury Department will be to make the final move and bring their game plan. A game plan is divided into a number of streams showing the how, when and why.

*Policies/Procedures are in the initial phase not a part of the Blank Sheet Treasury, but as stated above in each of the streams as it is something that needs to be in place when start implementing.

 

Using streams and a given timeline for each of the streams as well as combining the different areas and the workflow process identified, the Treasurer now has made a construction manual for how to implement a best practise setup for the future state.

When utilizing some or maybe all of the recommendations and figures in this article, it will be possible for the Treasury Department to start taking the dialogue with the CFO and potentially other stakeholders, who need to be involved in the process. Because when being able to identify the how, when and why, and showing the entire process and the needs, the CFO can see the entire picture. A picture that can be used when moving into the next section, where mandates will be given to the Treasurer and a budget needs to be allocated.

Additional considerations

When using a Blank Sheet Treasury setup, the probability of succeeding is higher if no planning has been made. Moreover, the Treasurer needs to consider whether or not the right resources are in place when moving into the building, crafting or re-shaping the phases. When talking about resources, it will both be human resources and resources in terms of systems.

In terms of human resources, it can be internal resources, such as treasury and/or IT people, or external resources, such as treasury consultants. Speaking about consultants, it might be worth considering. Even though it comes with a cost, advantages are gained in time and knowledge.

On the system side, the Treasurer will have to decide whether or not he/she can bring his/her plan to live with the existing system landscape, and if not, the process will have to be added with a suggestion to make changes to the current system landscape.

Thank you for reading and looking forward to your thoughts.

 

 

Jesper Nielsen-Terp

Treasury & Risk Management Expert

 

 

Treasury & Holding Accountant @ Dept Agency

Amsterdam – Full-time Read more

Treasury (Operations) Manager @ Vodafone Ziggo

Utrecht – Fulltime Read more

How a Treasurer can really add Value

28-06-2021 | treasuryXL | Kyriba |

”The pandemic has boosted automation in treasury departments and led to big increases in productivity. But that is only the start. The big prize is the value that treasury teams can generate with the man-hours that automation frees up”, says Bob Stark, Head of Marketing Strategy at Kyriba.

The Post-Pandemic Treasurer

The post-pandemic world will not be a return to the previous status quo. In treasury we can look at this in three ways – people, process and technology.

In terms of people, a recent survey showed that 61% of CFOs expect their teams to be working out of the office at least a day a week in future (source: fortune.com 2020). In some ways the combination of working from home and in the office will pose its own problems, with different opportunities for fraud and mistakes. At least working from home all the time provided some consistency! Furthermore, many of the changes that treasury teams had to make suddenly last year will now become permanent.

Now let’s look at processes. Fully 78% of CFOs have changed inefficient workflows during the pandemic, and 82% intend to keep the changes that they have made in terms of automation and digitisation (source: MasterCard 2020). These changes involve the standardisation, automation and streamlining of multiple processes.

Thirdly, treasurers need to digitise and have an enterprise-wide cloud platform; to leverage analytics to assess and improve decision-making; and then to innovate through Artificial Intelligence and Machine Learning to make treasury a better business partner.

There has also been a change in the role of treasury within companies over the past 15 months. During the pandemic, treasury’s involvement in other areas of the business has increased. A treasurer’s objectives often now include more strategic aims, and the remit is likely to expand still further. In many cases this will involve increased shared responsibilities, for example reverse factoring.

Treasurers are progressing from a simple focus on productivity to making liquidity visible and then participating in strategic decisions that really add value. All of which in turn elevates the value of treasurers within their organisations.

How Treasury can add Value

We can all agree that treasurers have the ability to add value. We regularly see our clients make significant productivity gains in terms of man-hours as they automate residual manual functions. In many cases, automating processes can save over 80% of the man-hours involved (source: Hackett Group).

But that is only part of the story. The real value comes from what the treasury team can do with all those freed-up hours. The extra time gained through improvements in productivity allows them to analyse risks (such as counterparty, liquidity and FX risk) and make better, informed decisions, based on real insight and business intelligence. Or perhaps the extra time that automation has made available can reduce the opportunity for fraud. The common aim is to leverage liquidity to drive business growth and turn treasury into a strategic business partner.

Digitisation plays a big role here, especially in areas like payments, which have remained partially manual, for example in sanctions screening. Smart contracts are also increasing, which makes for other savings.

Measuring the impact

In any such analysis it is essential to be able to measure what you are achieving. That starts with liquidity itself: how much do we have? How far forward can I forecast liquidity? How confident can I be in the accuracy of those forecasts? After all, you can only use the “excess” liquidity within your company when you are confident that you aren’t going to need it!

Digitisation is the way to improve the visibility of your liquidity. You can then test the accuracy of your information and decide how to use that asset. You can do this with a scorecard to measure your company against industry peers and assess your level of maturity, from Ad hoc, through Emerging and Standardising to Strategic. You can then highlight the opportunities for improvement

Many of our clients have done just that. For one client, an 88% improvement in cash management and forecasting – thanks to automation – saved over £1m in net interest by unlocking cash that had been lying idle. It also helped the same client to save over £100K in bank fees.

Another client reduced costs by 85% and used the newly spare man-hours to avoid £1.2m in fraud-related costs. They also accelerated ERP migration by 80%. Other savings might include generating free cashflow or protecting the business against financial loss. But all these achievements start with productivity gains that free up treasury staff to do something more valuable within their organisations.

I will leave you with three thoughts: automation and digitisation are here to stay; productivity is an opportunity, not just a saving; and if you are going to add value as a treasurer, you need to be able to measure that saving.

 

 

treasuryXL announces partnership with EcomStream to strengthen dissemination of the latest trends for payments solutions and checkout flows

16-06-2021 | treasuryXL | EcomStream |

VENLO, The Netherlands, June 16, 2021 – treasuryXL, the community platform for everyone who is professionally active in the world of treasury, and EcomStream in the Netherlands, an independent consultancy that is specialized in optimization of online, omnichannel and marketplace payment solutions, and optimization of checkout flows, today announced the signature of a premium partnership.

As a marketplace, treasuryXL will offer EcomStream market commentary and insight to its audience. Offering a continuous flow of relevant treasury content, making treasury knowledge available, results in treasuryXL being the obvious go-to platform for its’ audience.

This partnership includes:

  • collaboration on messaging, content production, and visibility
  • mutual distribution on select items of interest
  • collaboration on larger themes: event promotion and speaking, and industry expert contributions and publication

treasuryXL and EcomStream strive for a fruitful partnership where its’ audience are top of mind making sure that (potential) clients are always up to date with the latest news and events in their field, benefit from a comprehensive range of innovative solutions, services and expertise.

About treasuryXL

treasuryXL started in 2016 as a community platform for everyone who is active in the world of treasury. Their extensive and highly qualified network consists out of experienced and aspiring treasurers. treasuryXL keeps their network updated with daily news, events and the latest treasury vacancies.

treasuryXL brings the treasury function to a higher level, both for the inner circle: corporate treasurers, bankers & consultants, as well as others that might benefit: CFO’s, business owners, other people from the CFO Team and educators.

treasuryXL offers:

  • professionals the chance to publish their expertise, opinions, success stories, distribute these and stimulate dialogue.
  • a labour market platform by creating an overview of vacancies, events and treasury education.
  • a variety of consultancy services in collaboration with qualified treasurers.
  • a broad network of highly valued partners and experts.

About EcomStream

EcomStream is an independent consultancy and is specialized in optimization of online, omnichannel and marketplace payment solutions, and optimization of checkout flows.

The goal is to achieve much lower costs for you while creating a much better customer experience for your customers.

Thanks to its lean organisational model, EcomStream will help you to reduce the cost of ownership of your payment solution and to improve your ROI, fast.

www.ecomstream.nl

Digital Currencies | Not Ready for Corporate Treasury

15-06-2021 | treasuryXL | Kyriba |

Bitcoin and several cryptocurrencies dropped more than $1 trillion in market value, forcing influencers and investors to walk back their advice on using private digital currencies as a reliable store of value. Kyriba’s Wolfgang Koester discussed what was driving this cryptocurrency volatility with Maria Bartiromo’s “Mornings with Maria” on Fox Business Network on May 24th. “We’re seeing increased rhetoric from the Chinese around a Central Bank Digital Currency and the United States are developing their own digital currency,” said Koester.

Big price swings for Bitcoin, Ethereum, and most recently Dogecoin are nothing new. CFOs and Treasurers have always had little appetite for cryptocurrencies, which is why examples like Tesla investing over $1 Billion USD in Bitcoin made such waves in finance circles. And while Tesla reported a quarterly net income boost of over $100 Million USD on their Bitcoin holdings, their social media savvy CEO has since suggested they will move on from their investment. This reinforces for many why cryptocurrencies are a blip on the radar screen and a bad idea for corporations to be involved with. But…are cryptos really that bad for corporates?

First, it’s more a matter of being “not ready” than bad. Cryptocurrencies such as Bitcoin behave like commodities due to their limited supply; the price volatility is fully explained by the supply/demand imbalance. For example, there is a hard cap of 21 Million Bitcoins and these days there is a lot of demand for Bitcoin! Demand for Bitcoin and other cryptos is driven by everything from social media to a fear of missing out (FOMO) that we are similarly seeing play out in other markets, such as residential real estate or in many tech stocks. Corporates, on the other hand, shy away from volatile assets as they require liquidity for their investments and cryptocurrencies just aren’t there yet. Selling several hundred million (or more) dollars worth of bitcoin or ethereum is a market moving transaction and is difficult to manage through the digital wallets and exchanges that are generally more designed for individuals. So, between the liquidity barriers and the unstable values, corporates still can’t rely on privately issued altcoins like Bitcoin, Ethereum, Litecoin and others until these challenges are overcome.

State-sponsored digital currencies potentially have something to offer, however. As Kyriba’s Wolfgang Koester discussed on Fox Business Network’s “Mornings with Maria”, China has made significant advancements in the rollout of the digital yuan, which has further prompted other nation states to accelerate their own digital currency programs. In theory, government-backed digital currencies are expected to offer a striking advantage over the privately issued cryptocurrencies – and that is utility. To have utility, the digital currency must be widely accessible – and be fast and secure. And this is where the Bitcoins of the world are not ready for mainstream use. They aren’t widely accessible, the blockchain “networks” supporting them remain unproven for high transaction volumes, and the value is uncertain and could easily change between the time a seller accepts a cryptocurrency and when they choose to use or exchange them.

Of course there are solutions to each of these individual problems – e.g. the use of stable coins (that are pegged to the price of a fiat currency) instead of altcoins. But each of the requirements – value, liquidity, utility, transactability – must all be met before corporates can expect to safely use crypto/digital currencies on a daily basis. This doesn’t preclude organizations wading into the cryptocurrency landscape as a means of reaching new markets or differentiating against competitors. In fact, more and more online retailers and marketplaces are accepting cryptocurrencies for payment. You can even buy a Tesla with bitcoins. Yet when it comes to corporate treasury and finance teams, they are converting holdings to fiat currencies as quickly as possible so they can still meet cash forecast projections and free cash flow targets. State-sponsored digital currencies may well offer a lifeline to transform digital currencies for mainstream use – or maybe privately issued cryptocurrencies will still rise to the opportunity – and when that day comes it will be fascinating for daily cash management nevermind cross-border payments, global cash pooling, and multilateral netting. I think all of us in treasury look forward to that!