The document discusses the changing role of corporate treasury and drivers of that change. Regulatory changes and the need to optimize banking relationships have increased pressure on treasuries. Corporates expanding into new markets also impacts treasuries. Treasuries are expected to manage financial and cash risks more strategically. This has increased the need for operational efficiencies like centralizing activities, implementing technology solutions, and establishing liquidity structures to improve processes and access to information. Taking steps like these allows treasuries to focus more on strategic priorities while demonstrating their value through performance measurement.

1. 4 TMI | THE SOUTH AFRICAN TREASURER
TREASURY: THE DRIVERS OF CHANGE
T
reasury is the face of the corporate with the external
financial markets, underlining its high profile and strategic
importance. Since the global financial crisis more is expected
of treasury as it has become the financial nerve centre for the
organisation, and it has to prove its value to the organisation,
without necessarily having the luxury of more resources. This is
against a backdrop of an environment that continues to change –
making things more challenging but also creating opportunities to be
more efficient.
Some of the drivers for change have been:
External
G Regulatory changes (e.g., Basel III) – derivative products and bank
funding is getting more expensive and potentially scarcer for the
corporate. This places more pressure on the corporate to optimise
internal liquidity and to diversify funding away from banks
G The necessity to optimise banking relationships has increased –
treasury must now better match a bank’s capabilities to the
corporate’s needs and ensure the bank’s return expectation can be
managed given the available wallet size
G New complexities bring new risks, meaning risk management is
becoming more important - there is an increased risk from security
breaches and fraud
Internal
G In order to grow their business, corporates are entering new markets
and jurisdictions where challenges may be totally different from the
home base. The treasurer as custodian of the cash and financial risks
have a pivotal role to play in this
G Realising that liquidity gives business continuity, senior management
now better understands the strategic importance of the treasury
function
G As the profile of treasury has increased, there is closer scrutiny from
the board, and consequently they are demanding a more formal
measurement of treasury performance.
byRiaanBartlett
TowardsaMore
Efficient Treasury
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2. TMI | THE SOUTH AFRICAN TREASURER 5
TREASURY: THE DRIVERS OF CHANGE
What doessuccesslooklikefora
corporatetreasury?
Treasury typically looks inward in order to
optimise its own efficiency. But with the
increased strategic role treasury can play and
technological advances there is an opportunity to
optimise treasury related processes at a
company-wide level. In addition, as treasury
becomes more involved in working capital
management, supply and procurement, this
influence can go further, possibly extending to
the end customer.
Treasury will be successful if it:
G ensures the corporate is funded at all times
G manages the risks of the organisation
effectively
G makes effective financial decisions
G can respond swiftly to events
G can successfully work cross-functionally
G has credibility both within and outside the
organisation, and
G can demonstrate its value to the organisation
through objective performance measurement
In order to achieve the above, the following need
to be in place:
G A deep understanding of the corporate strategy
and alignment thereof with the treasury
policies and strategy
G Strong treasury team with different but
complementary skills
G Support from the board and senior
management, in particular the CFO
G Credibility with the providers of capital
G Simple but transparent KPI’s that will measure
the performance of treasury, and
G A strong treasury infrastructure with the
optimal use of technology.
But there are challenges in achieving the above,
some of which can include:
G Lack of skilled personnel, meaning the treasurer
may have to get involved in operational issues,
leaving less time for the more strategic issues.
Additionally, treasury will have to ‘over-rely’ on
banks for advice (banks would expect
something in return – nothing is for free)
G Budgetary constraints e.g., implementing a
treasury management system (TMS) or hire
good people
G Get buy-in for strategies that may prove to be
unpopular e.g., give the organisation the
message that capital expenditure must be cut
to improve the financial strength when there is
a strong focus on growth
Efficiency is not only about systems and
technology, it extends to every activity for which
treasury is responsible.
Achievingfinancialefficiency
Business partner
Treasury must be involved with strategic planning
from the start, and for this to happen more
effectively treasury must be seen as a business
partner i.e., they must be visible and trusted. The
rest of the organisation must believe that
treasury’s input is essential i.e., ‘Has treasury been
consulted?’
Get close to the business
Treasury cannot operate in a vacuum and
essentially it is a support function to the core
business. Treasury should understand the business
and build good relationships with the business
unit CFOs. Treasury needs to understand what
their challenges are, but the CFO’s must also have
an appreciation of how their actions can impact
treasury and its mandate.
Financial flexibility
Treasury must ensure the corporate is funded at all
times. This means having the right money in the
right place at the right time. This is achieved by
ensuring:
G Visibility of cash and access to liquidity
G Financial discipline is maintained, and
G Financial flexibility is preserved
Some of the ways the above can be achieved are:
G Accurate cash flow forecasting – rolling cash
forecasts that reflect each business unit’s
funding priority and real-time control of cash
mobility are essential elements of running a
business in good times and in bad.
Ideally,treasury must not be just a consolidator
of different forecasts but must be a driver.
G Sufficient liquidity buffer – in the form of cash
and / or committed facilities. Be careful not to
use short-term facilities as core funding, as this
may impact the ability to manage cyclical and
unforeseen cash outflows.
G Maintain strong relationships with providers of
capital (debt investors, banks) – they must
understand the credit and broad funding
strategy of the company and senior
management has an important role to play in
this.
Manage the risks effectively
This is about determining what can go wrong, how
bad it can be, what can be done about it, and then
taking action. It must be determined how much
risk the corporate can retain vs how much risk it
wants to retain. Treasury as custodian of financial
risks will play a critical role in this and being pro-
active is the key - the treasurer must prepare for
unlikely events. Risk management will be
successful if:
G There is a strong risk culture in the corporate
and senior management lead by example
G There is a risk committee whose members
really understand risk
G Over reliance is not placed on models e.g., VAR-
type measures do not tell you how much you
can really lose
Fig1–Process,technologyandstructure
TREASURYPROCESS
• Cash
management
• Riskmanagement
• Confirmation/
Settlement
TECHNOLOGY
• TMS,ERP
• Dealingplatforms
• System
integration
• Bankconnectivity
ORGANISATIONAL
STRUCTURE
• Centralvs
regional
centres
• In-housebank
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3. G A holistic view to risk management is taken –
do not manage risk in silos
G A mandate is in place that allows for sufficient
flexibility to manage risk
Making effective financial decisions
The treasurer must have confidence in the
numbers that form the basis for financial
decisions. For this it is important to have good
systems that can provide:
G accurate information (one source of the truth,
sourced from a system), and
G timely information (allows for quicker decision-
making particularly when markets are moving
fast)
For important decisions, treasury must get senior
management on board as early as possible. Here,
the ability of the treasurer to sell ideas and explain
complex issues in a simple manner, is essential.
Achievingoperationalefficiencies
Overview
Operational efficiency mitigates the risk of error
and fraud, which in turn can reduce costs and
facilitate better decision-making based on greater
visibility over information and transactions. The
treasurer needs visibility into global operations,
cash and financial risks as visibility is needed to
turn data into advice. Importantly, if operations
run smoothly then the treasurer will have more
time for the more strategic issues.
Some of the ways operational efficiency can
be achieved are:
Centralisation of treasury activities
The decision to centralise is often driven by:
G developments in technology (enterprise
resource planning – ERP and TMS and internet
capabilities mean even smaller companies can
centralise their treasury activities)
G the need to demonstrate good governance i.e.,
greater control over treasury activities
G importance of having access to immediate
information (e.g., counterparty risk during the
global financial crisis)
G obtaining visibility and optimum control of
cash (need to have cash where it is needed)
Centralisation can take different forms: for
example having all activities and policies
centralised, central policies but regional
execution, using vehicles such as shared service
centres and payment factories etc. Factors to
consider will include size of the company,
geographic distribution, use of technology,
available local expertise and the need for control.
Technology
Using technology is about managing, securing,
reporting and sharing information. It becomes
increasingly important where the business is
expanding into new locations where the level of
technological use is low or different from the
home base.
In terms of choosing a TMS, there are different
options available e.g., a dedicated system,
treasury module of the company’s ERP system
(e.g. SAP), software-as-a-service (SaaS) or
application service provider (ASP) model, or the
increasingly popular cloud-based systems. Some
of the key factors to consider are functionality,
scalability, flexibility, security, cost, integration
and support from the provider and internal IT. A
good treasury system can achieve benefits that
include:
G reduced risk of manual error (automation)
G reduced operational risk and costs
G reduced process complexity (simplification)
G access to transparent financial information
G improved risk and financial analytics
Many sub-systems can be integrated: for example
forecasting, accounting, reporting, confirmation,
risk management and market data systems as well
as trading platforms.
Below are some of the most common ways in
which efficiency is increased by using technology.
a. Straight-through processing (STP)
STP is the efficient, secure and instantaneous flow
of information within a system, within systems
within a department, with other internal systems,
with other parts of the business and with external
parties. The result is lower costs and faster, more
efficient transaction processing. An example of
STP is the automatic posting of journal entries
created in the TMS into the general ledger system
and cash balances reported from banks.
b. Connectivity
The format of financial messaging between
counterparties is standardised – efficiency is
enhanced as data is transferred between systems
and counterparties in a consistent way. This
reduces cost and improves control. It also
facilitates the expansion of trade both
geographically and demographically as well as
giving transparency and visibility over transactions
and positions across the corporate’s network of
banks.
c. Liquidity structures
Liquidity structures are designed to support
pooling, visibility and access to cash of the
corporate. The aim is to optimise liquidity across
currencies and borders. In designing a liquidity
structure the corporate should seek to:
G use pooling and cash concentration where
possible
G improve reporting for risk management, control
and governance purposes
G automate functions as much as possible and
maximise STP
One of the structures to be considered is an in-
house bank (IHB). Group treasury acts as the
primary source of all banking services to business
units on an arm’s length basis. Some of the
benefits of an IHB include:
G minimising banking costs
G more accurate forecasting of daily cash
6 TMI | THE SOUTH AFRICAN TREASURER
TREASURY: THE DRIVERS OF CHANGE
Forimportant decisions,treasurymust get
seniormanagement onboardasearlyas
possible.
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4. 8 TMI | THE SOUTH AFRICAN TREASURER
TREASURY: THE DRIVERS OF CHANGE
requirements and minimising idle cash
balances
G simpler and transparent bank account
structures and bank account rationalisation
G automatic cash concentration mechanisms,
and
G improved processes around intercompany
loans
Technology can also improve working capital
management through the use of shared service
centres and payment factories.
Shared service centre (SSC)
An SSC performs common finance and
administrative functions for multiple subsidiaries.
There are a number of requirements, however, in
order for an SSC to achieve maximum efficiency
including a fully integrated accounting or ERP
system for the group, skilled staff, centralised
cash management and a TMS. From a cash
management perspective an SSC can lead to:
G a significant reduction in costs and greater
STP
G improved working capital position due to
streamlined collections, and
G improved forecasting due to centralisation of
financial information.
It also provides benefits to the subsidiaries by
allowing them to focus on their core business.
Payment factory
A payment factory is an extension of the IHB
and facilitates processing of inter-company
payments and loans and provides more control
over the timely and secure transmission of the
payment instructions. Some of the benefits
include:
G centralisation of payment information that
can help improve overall liquidity
G more effective management of foreign
exchange by concentrating exposures at the
group level
G improved internal controls as automated and
standardised processes will reduce
operational risk, and
G greater transparency achieved contributes to
increased security
A payment factory will, however, require a
common technology platform within the group.
This is often done as part of a company-wide
ERP implementation.
Takingtreasurytothenext level
A focus of any treasurer must be to position
treasury so that the department is seen as a
business partner to the rest of the organisation.
The more treasury can do with the least amount
of resources the better, especially in a world where
managing cost is increasingly important.
Technology is an important enabler in this regard
– scalable solutions must exist that support future
growth at minimal cost and minimal additional
resources.
Additionally, treasury must aim to eliminate all
forms of duplication, stop non-value adding tasks
and simplify processes where possible. This will
mean a more effective and efficient treasury
department that will be to the benefit of the
whole organisation. It will enable treasury to
spend more time on strategic issues and to engage
more actively with key stakeholders. Furthermore,
as treasury continues to evolve in tandem with
technology, this will require a new skillset for
treasury personnel - a strong focus should
therefore be to attract, retain and develop the
talent that can facilitate this in order to take
treasury to the next level. I
RiaanBartlett
After qualifying as a Chartered Accountant, Riaan joined the
Billiton Group where he held various dealing positions in
Treasury and then became the Risk Manager for Billiton Plc.
He assumed the role of Treasury Front Office Manager when
BHP and Billiton merged in 2001, tasked with setting up a new
front office for the combined group. From 2005 to 2012, Riaan
was Vice President Corporate Finance for BHP Billiton, based
in Melbourne. As part of the role, Riaan had responsibility for
the Portfolio Risk Management Strategy of the group.
Riaan is a Chartered Financial Analyst (CFA), a Member of
the UK Association of Corporate Treasurers (MCT), a Certified
Treasury Professional (CTP) and holds qualifications in
financial risk management (FRM and PRM). He has also
completed an Advanced Certificate in Treasury Management
(cum laude) at the University of South-Africa.
Riaan is based in South Africa and can be contacted at
rbajjona@gmail.com
Themoretreasurycandowiththeleast
amount ofresourcesthebetter,especiallyina
worldwheremanagingcost isincreasingly
important.
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