The corporate treasury landscape is evolving. Fides discusses the challenges and opportunities for treasury departments as they transition away from a world defined by Covid.
February 14, 2023
Politicians and government officials believe you should never let a good crisis go to waste. The sense of urgency it creates can lead to the adoption of new policies, measures and technologies that address the various gaps and shortcomings revealed.
Corporate treasury departments around the world are seeing the wisdom in such thinking. The Covid pandemic, along with other, longer-term disruptions like the trends toward digitization and greater regulation, has prompted them to improve their liquidity management, risk management and cash forecasting abilities while simultaneously seeking to streamline operations and costs.
Managing liquidity risk requires a reliable overview
Having survived the recent liquidity challenges to their daily operations, corporations are building on what they’ve learned and enhancing their capabilities. The time is also ripe, we believe, for firms that delayed their digital transformation to accelerate its pace and address their legacy treasury system architecture, or otherwise automate processes and improve access to data. Such investment will enable them to bolster their preparedness for any “next event” that might arise as they navigate and work to thrive in the post-Covid environment.
In the November 2022 Deloitte Global Treasury survey, respondents identified enhancing liquidity risk management as the top priority that CFOs have set for their treasury teams in the near term. While there has been no shortage of funding available in external markets, the emphasis on the treasurer taking ownership of working capital improvements has intensified as many organizations continue to deal with supply chain-related issues.
Numerous companies also reported that working from home for most of 2021 sharpened their focus on gaining greater control over domestic and overseas operations. The need for clear oversight has many of them looking more closely at treasury centralization and digitization.
A history of being ahead of the curve
Prior to the pandemic, rapid developments in products and solutions were already pushing corporate treasuries to embrace technology transformation. Fides had established itself as a leader in the field by going beyond core transaction execution, which treasury platforms historically concentrated on. Managing cash in these systems remained a labor-intensive exercise. Treasury managers were forced to manually log in to a plethora of bank portals and download PDFs, and then spend an inordinate amount of time reformatting, consolidating and reporting their positions.
Digital transformation, fueled by the pandemic’s requirement of remote work, brought powerful new tools to treasury departments that enabled them to consolidate and automate their operations. All-in-one solutions such as the Fides ONEHub merge payments, account reporting and electronic file transfer in a single central platform. These solutions have been supported by related tech advances, including affordable cloud services, application programming interfaces (APIs) that provide real-time / on-demand views of cash positions, and new connectivity channels. Not only has tedious manual labor been eliminated but treasury’s ability to proactively manage cash and liquidity has been democratized.
Treasury can now work off the same set of data and come to a “single version” of the truth. Managers enjoy a timely, transparent overview of their cash, wherever it is and whatever currency it’s in, which makes for speedier transaction processing, communication and reconciliation. Big Data analytics has in turn led to more dynamic reporting and made it far easier to analyze trends and historical cashflows with an eye to the future.
Making looking ahead more accurate
The pandemic only underscored the need for more precise forecasting and modeling. The respondents in the Deloitte survey singled out cash forecasting as another key priority they’re addressing this year. While treasury management systems (TMS) enable good forecast reporting, challenges arise from the source of the data and the forecasting model used. Deloitte reports that the majority of forecasting is still done in Excel, as is reconciliation of those forecasts with bank statements.
TMS and Enterprise Resource Planning systems (ERP) may feed in error-free aggregated data for reporting and analysis. But they may also require extra steps when it comes to things like bank message aggregation, format conversions or identifying payment issues. Working with a bank connectivity provider offers a number of advantages. It allows you to link to all your banks globally via the optimal channel for delivering real-time data, to automatically convert messages to the required formats, and to provide the centralized cash visibility needed for accurate forecasting and reconciliation.
Our “next-generation” forecasting tools are being continually expanded and embedded into our ONEHub to examine data patterns and external data points, including market data and consumer behavior. As the volume of data increases, we and our partners in our product ecosystem will work to incorporate advances in AI and machine learning so our clients can make more accurate long-term cash forecasts.
Dealing with regulations
When it comes to the current regulatory environment, the transition from interbank offered rates (IBOR) to the alternate reference rate (ARR) is weighing on the minds of treasury executives worldwide, including those surveyed by Deloitte. More than 60% of respondents pointed to the IBOR transition and to environmental, social and governance (ESG) factors as the issues most likely to affect them this year.
Legal and regulatory requirements can be onerous for corporates. To bank in multiple regions or countries requires a considerable output of time and resources. Most companies choose to outsource these functions to experts like Fides so they can devote themselves to their own business initiatives and responsibilities.
For treasury, detecting and preventing fraud ties in with regulatory compliance. Fides offers a wide range of validation services, and with all payments captured and managed by the same solution, fraudulent activity can be detected quickly.
Ensuring clients have the tools to succeed
The pandemic increased the workload on treasury due to the greater focus on liquidity and scenario planning. Our clients handled it well, according to reports we received, and demonstrated a high degree of resilience to the crisis. Their ability to aggregate, validate and standardize transaction data and communications guaranteed business continuity, which proved a critical success factor.
Further success depends on adapting the treasury operating model to changing conditions. The technical experience of staff needs to be supplemented with data/modeling expertise and other digital skills. Keeping costs under control remains a priority as well, and this is another area where we can help.
Master change with Fides
Adding new technology or replacing legacy systems constitutes a major undertaking for any firm, large or small. But no company should feel reluctant to work with external partners: sophisticated products and services suited to your needs are easier to use and more cost-effective than ever.
The worst of the pandemic may be over. But centralization and automation are not passing fads. They are long-term trends whose importance the pandemic highlighted. As the world leader in multibank connectivity, payments and transaction communications, Fides prides itself on supplying everything organizations require for efficient liquidity management in a single platform. We are committed to open banking and making treasury and financial operations as efficient, transparent and secure as possible. Whether you run our flagship ONEHub or take advantage of our seamless integration with third-party ERP, TMS and other backend systems, Fides is the only platform you need.
Achieving the full benefits associated with digital transformation, in our view, requires adopting a comprehensive outlook. By viewing capability enhancements through a transformative lens and working with experienced partners, you can realize improvements inside a shorter timeline than you envisioned, with no disturbances occurring to your business-as-usual activities.
