BCR Publishing
We are the leading provider of news, market intelligence, events and training for the global receivables finance industry.
Working with industry leading organisations, experts, governments and universities, BCR Publications delivers expertise in factoring, receivables and supply chain finance to a global audience.
BCR has long been a beacon of innovation and excellence in the realm of receivables finance, playing an instrumental role in shaping the industryโs international landscape. Through its comprehensive conferences, insightful publications, and thought leadership, BCR has facilitated crucial dialogues and connections among industry professionals, driving forward the development of receivables finance globally.
Follow BCR Publishing
Free passes
For corporate treasurer roles/functions!
Treasury fundamentals in 2023
17-02-2023 | treasuryXL | Kantox | LinkedIn |
Get ready for 2023 with our deep dive into the treasury fundamentals that will take over the currency management scene. All you need to know, from trends to technology, in one article.
Disclaimer: This information is being shared for informational purposes only and was originally published by Kantox (Source)
CFOs and treasurers are getting ready to face the many challenges of 2023. Finding the right approach to currency management will help them protect their companyโs margins and adapt to the new reality.
In this episode of CurrencyCast, we sat down with our special guest,ย Franรงois Masquelier,ย for a complete session on the treasury fundamentals for 2023.
In this article, we will take you through:
Setting the scene for 2023
Letโs analyse what upcoming currency management trends are going to be the main focus for treasurers this year.
Challenges and opportunities in currency management
When we take a look at recent European Treasury surveys, the PwC global annual survey and the last OECD survey or surveys, there is a common theme regarding the main focus for treasurers this year.
FX risk management is aย top priority for corporate treasurers from 2023ย onwards, right behind cash flow forecasting and digital transformation. This means that FX risk remains highly ranked by treasurers, and there are several reasons for this.
CFOs need to protect operating margins as currency movements can affect them, thus, solid and efficient hedging strategies and tools are necessary. Despite this, corporate treasurers focus on manual processes, as automation is lacking.
And this is mainly because they have started to realise that automation and digitization could be a way to reduce that risk or, at the very least, to improve the management of said FX risk.
So finance professionals need to make sure that they have accurate data and accurate forecasts. Otherwise, it would be difficult to manage your FX risk properly.
Large interest rate differentials
Sometimes CFOs do not always understand all the possibilities in terms of what we call optimizing forward points, that is to say,ย interest rate differentials.
The forward points may be a concern when there is a significant differential of interest, especially with exotic currencies. So it could be expensive to hedge certain currency pairs, depending on which side you are in. Sometimes those forward points could be in your favour, and sometimes could not be in your favour.
Treasurers with a favourable interest rate differential can decide not to hedge at all and just monitor the exposure. This is feasible, but as it is a highly manual task, the monitoring process of the open exposure can become quite tedious and inefficient.
However, the good news is that there exist certain solutions that allow them to dynamically manage your FX exposure. This way, finance professionals can reduce or mitigate the impact of the swap points and, ultimately, reduce the impact on costs.
The multicurrency world
The dollar and the euro remain important currencies, but there is a number of currencies from smaller but well-managed economies gaining ground.
As corporate treasurers are taking advantage of the benefits of buying and selling in more currencies, there is a microeconomic and bottom-up phenomenon leading to thatย multi-currency world.
Using the more exotic or smaller currencies, if managed properly, can protect your company against risks. The best approach to currency management this year is to use the most profitable currencies all the time.
Better currency management is possible
You can prepare for these trends if you have a strong currency management system that covers the entire FX workflow and allows you to have clear visibility over your exposure. Take a look at the two main areas that could be affecting your currency management strategy.
Accurate cashflow forecasting, or not?
Sometimes the importance of havingย accurate cashflow forecasts is somewhat overstatedย when it comes to currency management.
Letโs take the example of a micro-hedging program for firm sales or purchase orders. The exposure to hedge is already a contractually binding item, not a forecast at all. So we donโt have really much of an issue.
On the other hand, if you take the case of a layering program or layered hedging program,ย the FX rate would be built in advance, so the forecasted exposure to hedges is also known well in advance.
And finally, thanks to conditional orders that protect a budget rate, the Treasury team can have time to update and finetune their cashflows.
Fewer silos, better treasury
At Kantox, we believe that currency management is more than just currency risk management, and that currency risk management, in turn, is more than just the instant execution of a hedge.
But that requires a holistic approach to currency management, to cover the entire FX workflow. ย This means doing away with a siloed approach that allows the company to grow beyond imagination.
In treasury and finance, there are many silos that impact the optimal management of the department. Having clear communication and flow of information with other departments is vital. It provides better visibility of the exposure and gives the CFOs the ability to react to the volatility in the market faster.
Something key in the challenging context we are facing that impacts the very thin operating margins, and a great way to generate added value to the treasury function.
One clear example of this is the companies with subsidiaries that operate in foreign currencies. By offering the subsidiaries to invoice or be invoiced in the local currencies, you are centralising the FX risk, generating value for them and improving risk management.
Another example of tearing down the silos in treasury management is the relationship between the commercial and finance teams. They donโt always see eye to eye, but providing commercial teams with the FX rate they need in real-time is a good way of eliminating that silo mentality.
As consultants from McKinsey said, the early adopters who drive cross-functional teamwork are going to reap the benefits and see a great increase in annual revenue growth.
Technology to optimize your currency management
Now that you know where to focus on improving your currency management, consider what tools could streamline this. But donโt forget to analyse if the current process is hurting you more before implementing new technology. Consider what areas of your FX workflow need revamping.
TMS lack visibility
One of the main pain points for CFOs is not having access to real-time data and dashboards that reflect the current state of the companyโs financials. This makes it more difficult for them to make the right decisions on time.
There are tools, like the TMS, that are used in the treasury function with the objective of getting summarized information and reports but they are not properly fit for decision making at the C-level.
They lack dashboards fed with real-time data that would make it easier or facilitate the communication between Treasury and the C-suite. TMS have a few other shortcomings when it comes to currency management.
When pricing with an FX rate, using the forward rate instead of the spot rate can help companies in certain situations improve their competitive position without hurting their budgeted profit margins.
But most TMS lack a strong FX rate feeder, meaning the possibility of providing commercial teams with the appropriate rate -a spot, or the two-month or the six-month forward rate, the pricing markups for a client segment-
Another problem with TMS is that the functionalities in the report are standard and not really customerย variables. They are more of like pret-a-porter solution.
When we talk about the reporting and development of specific functionality, treasurers must find a way to fulfil these gaps and find the missing pieces.
This means that in the pre-trade phase of the FX workflow, TMS is not covering the needs of treasurers and CFOs.
AI, the future of treasury?
ChatGPTย is all the rage right now, AI or artificial intelligence is making a comeback. But is it going to be the future in terms of treasury management and cashflow forecasting?
AI could play a role in the future of treasury management. However, we are still in the early days and there are many other ways CFOs and treasurers can start the digitization of the treasury function before resorting to AI.
There are some things that need to change in the way treasury is done and the approach of many finance professionals to the treasury tech stack. Those in charge of managing currencies need to be comfortable with their IT skills to make good use of new technology.
Another hurdle to the implementation of AI in treasury is the lack of access to comprehensive and immediate data. And finally, the inefficiency of highly manual processes when relying on spreadsheets for currency management. All of this takes away from producing accurate cashflow forecasts on foreign currencies.
Moving forward
As we have seen, there are many challenges to currency management that CFOs and treasurers will need to be well prepared for this year.
As interest rate differentials rise and the volatility in FX markets continues, there needs to be a good currency management system to handle the FX risk.
With the help of automation tools, finance professionals will be able to eliminate the silos that hinder the companyโs growth and increase visibility over open exposure.
Download now ourย Currency Management Priorities for 2023ย report to learn more about upcoming focus for treasurers and get your currency management strategy ready.
LIVE SESSION | Unlock the Benefits of Interim Treasury Management
14-02-2023 ย treasuryXLย | Treasurer Search |ย LinkedIn
Join us for a thought-provoking Live Session on Interim Treasury Management, where our experts will delve into the pros and cons of this exciting market.
Unlock the Benefits of Interim Treasury Management: Discover Why it’s a Must-Have for Your Business!
Our panel of seasoned interim treasurers, including Emiel van Maris, Francois De Witte, and treasury recruiter Pieter de Kiewit, will share their valuable insights and experiences.
This webinar is designed for aspiring interim managers, potential clients, and anyone interested in learning more about this market.
Don’t miss this opportunity to gain tips and tricks from the experts in the field and engage in an open discussion.
Register now to secure your spot!
Everyone is welcome to this webinar.
๐Moderator:ย Pieter de Kiewitย ofย Treasurer Search
๐Duration: 45 minutes
๐๐บ ๐ณ๐ฆ๐จ๐ช๐ด๐ต๐ฆ๐ณ๐ช๐ฏ๐จ ๐บ๐ฐ๐ถ ๐ค๐ฐ๐ฏ๐ด๐ฆ๐ฏ๐ต ๐ต๐ฐ ๐ณ๐ฆ๐ค๐ฆ๐ช๐ท๐ช๐ฏ๐จ ๐ค๐ฐ๐ฎ๐ฎ๐ถ๐ฏ๐ช๐ค๐ข๐ต๐ช๐ฐ๐ฏ๐ด ๐ง๐ณ๐ฐ๐ฎ ๐ต๐ณ๐ฆ๐ข๐ด๐ถ๐ณ๐บ๐๐ ๐ณ๐ฆ๐จ๐ข๐ณ๐ฅ๐ช๐ฏ๐จ ๐ต๐ฉ๐ฆ ๐ญ๐ข๐ต๐ฆ๐ด๐ต ๐ต๐ณ๐ฆ๐ข๐ด๐ถ๐ณ๐บ ๐ช๐ฏ๐ด๐ช๐จ๐ฉ๐ต๐ด. ๐ ๐ฐ๐ถ ๐ฎ๐ข๐บ ๐ธ๐ช๐ต๐ฉ๐ฅ๐ณ๐ข๐ธ ๐ข๐ฏ๐บ๐ต๐ช๐ฎ๐ฆ. ๐๐ญ๐ฆ๐ข๐ด๐ฆ ๐ณ๐ฆ๐ง๐ฆ๐ณ ๐ต๐ฐ ๐ฐ๐ถ๐ณ ๐๐ณ๐ช๐ท๐ข๐ค๐บ ๐๐ฐ๐ญ๐ช๐ค๐บ.
We can’t wait to welcome!
Best regards,
Kendra Keydeniers
Director, Community & Partners
How to connect your TMS to your ERP? A Comprehensive Guide by Dinesh Kumar
13-02-2023 | Dinesh Kumar |ย treasuryXLย | LinkedIn | Imagine a setting where your treasury management system (TMS) and enterprise resource planning (ERP) system work together seamlessly, like a well-oiled machine. In this case, your treasury team has real-time visibility into financial transactions and can make informed decisions quickly and efficiently. The process of connecting a TMS to an ERP system may seem daunting, but it’s a crucial step in achieving a more streamlined, efficient and accurate corporate treasury operation.