Recent global macroeconomic headwinds combined with growing internal corporate demand to drive growth have created a challenging cycle for corporate treasurers. At a macro glance these trends include volatile interest rates, supply chain disruptions, increasing competition and geopolitical tensions. Mounting internal pressures are driven by growing operational complexity within the treasury function and are exacerbated by a high pace of technological change.
In the face of current trends, and with many businesses experiencing rapid growth, often through acquisitions or shifts in business model- treasurers are being called upon to become increasingly nimble. These changes often require a review of treasury processes to optimize cash flows, use of capital and liquidity. Unique operational challenges are emerging. Treasurers are feeling the pressure on balance sheets and are called upon to reinvent processes, do more with less, and create value from cash flow, all while data remains fragmented and siloed.
As corporate treasurers navigate these difficult waters, common goals are emerging. Treasurers must identify and implement the advanced technology and processes to improve cash flow forecasting, streamline payment activity, and maximize yield in difficult rate environments. The treasury function is now being asked to move beyond its role as a cost center and drive real value to the bottom line. In short, the corporate treasury is an engine for value creation and monetization like never before.
The highest value creation opportunities are often those that carry the biggest burden of legacy processes and systems. The main challenges span these four areas:
Liquidity is often trapped in siloed account structures across numerous bank accounts. When your business grows via an acquisition or significant restructuring, it can be daunting to determine the right path to a simple account structure. Growth in your business does not always require a significant increase in the number of bank accounts held. External bank accounts drive cost and complexity. A more centralized structure using virtual accounts can be highly beneficial as your company grows.
Treasurers are seeking a structure that enables the movement of cash where it is needed and at the exact moment the need arises. Manual processes will hinder your efforts here and macroeconomic disruptions like supply chain delays only add to the complexity. It is critical to use the best technology to support automation of processes rather than relying on human intervention to stay ahead of this challenge.
An integrated account structure is critical to optimizing reconciliation. You would not drive a high-powered race car without a view of the dashboard and the road ahead. Virtual accounts facilitate the insights and visibility required for nimble decision making while automating aspects of reconciliation through a well-designed account structure. This optimized view of your receivables is critical for an accurate view of your cash position. It will provide you better controls and reduce reliance on intraday funding solutions that are not ideal. All of this requires timely, accurate and normalized data to drive the right decisions. Intelligent workflows are key and must be supported by advanced technology solutions.
Treasurers are increasingly asked to envision a borderless world for money movement. Cross-border transactions need to be executed with the same ease regardless of currency to maximize operational efficiency. Regional treasury centers need to be well connected to global oversight for maximum efficiency. Cross-border book to book transfers may not be as seamless as domestic book transfers when banks leverage outdated technology.
In addition, the high level of innovation in payments flows now requires treasurers to build the flexibility to choose the ideal execution method for their payments. Execution methods must serve speed, finality and cost goals. Not all payments stand on the same footing so dynamic choice of payment rail is key to maximize both revenue and the client experience. These global readiness and payments challenges will require the right group of banking partners and technical infrastructure to enable success.
The world is moving “beyond batch” for transaction and payment processing. Legacy batch processing drives inefficient use of liquidity, can lead to past due payments, and is a drag on working capital. For payments in particular, real-time views of payment status are becoming a reality. To unlock the value of capital and manage cash flow most effectively, treasurers now seek to understand the status of payments without delay or hindered by batch processes. Businesses seek a 24/7 agile infrastructure that supports real-time requirements. API integration and bank connectivity are starting to enable these capabilities with the latest cloud-based technology.
While companies in the past have considered building treasury systems in house, the pace of evolution in technology, investment needed, and forces of change within the business more often require practitioners to find a technology partner with a modern tech stack. Setting yourself up with an advanced, flexible system that can meet diverse business needs for many years to come can be challenging. Therefore, it is critical to ask the right questions as you set out requirements and assess the best technology provider. Likewise, it is imperative to identify banking partners that can support and align to the best use of the modern technology.
Here are some of the most important questions to ask prospective technology and banking partners.
Technology and banking providers must support your goals for interoperability of systems allowing you to have the knowledge at your fingertips to automate the flow of money and the freedom to re-direct those flows with minimal effort.
An ideal provider should be ready to develop a bank agnostic system that will enable you to stay nimble and grow across your diverse business needs. Modern API-native technology providers will support easy integration of new bank partners and let you stay flexible and close to business needs. This empowers you to have a multi-bank approach enabling contingency and allowing you to choose the best bank set up for those business needs.
The best technology providers will have the capabilities to accommodate real-time processing and webhooks or other modern tools to provide payment status to your systems.
Here you should be looking for the capabilities to seamlessly execute payments with high visibility into payment statuses and FX rates.
Data readiness and access to fully integrated reporting is a key enabler in helping you make quick decisions on cash flows. Automation and machine learning need to be fed by the right data. The best technology providers will support immediate and flexible access to data without delays. Your banking partners will have the APIs ready to feed this integrated system.
Smart reconciliation processes require the control and precision that only virtual accounts can provide. You should plan to take full advantage of the power of fully integrated virtual accounts to support reconciliation. A well-integrated virtual account will give you a consolidated view of liquidity and eliminate the need for physical sweeps.
Armed with an awareness of the challenges at hand in bringing your treasury function closer to the business, you will be well positioned to assess bank and technology partners that are right for your long-term success.
Your future technology stack must strip away barriers of legacy processing and move you to a world of interoperability. You will have fewer, more centralized accounts to simplify processes. Your smarter treasury function should be powered by a scalable, API-first, architecture designed for real-time processing with timely, accurate and normalized data. Machine learning and AI tools will be embedded to support automated processes. All of this should be sustainable, secure, and built to drive ubiquity of data in a bank agnostic, flexible structure.
The end game in forging this path to more modern tools will be to transform the treasury function from a cost center to a value driver, contributing to the bottom line by monetizing your working capital and unlocking liquidity. This transformation will allow you to successfully respond to the growth and evolution of your business model for years to come.
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