Corporate treasury enters an era of digitalisation

The virtual world has made a deep impression on the physical world, and no aspect of the economy has remained immune from the turning tide.

With automation, robotics, electronic payments, digital wallet and smart wearable devices permeating daily life, it is only fitting that the back-end of the global economy also goes through an overhaul, as customers demand more in-time services and efficiency of operation.

“Technology is key to developing the functionality our clients need to become more efficient,” says Lee Butler, global head of FX e-distribution for HSBC¹. “However, as corporate treasury teams gain more control over FX activities, they also want rich and useful content to help them make better, smarter decisions.”

Supporting growth objectives

While core treasury functions are not changing, the chief financial officer (CFO) and their department are under pressure to respond to the rapidly evolving landscape. Treasury technologies can help CFOs better support growth objectives, according to a white paper from The Hackett Group titled ‘The CFO as Chief Growth Officer’² sponsored by Kyriba.

First, they can help shorten the cash conversion cycle by leveraging technologies and supply chain financing techniques to decrease days sales outstanding (DSO) and extend days payable outstanding (DPO). Having a single, automated solution delivers a timely, accurate update of the company’s cash position. It also optimises liquidity management, takes advantage of complete cash visibility to reduce external borrowing, and sharpens forecasting capabilities.

According to management consultancy BCG Group³ , treasury digitalisation can reduce operating costs by an average of 20 percent to 30 percent and increase average net interest income (NII) contributions by 10 percent to 15 percent.

A key risk management tool

As a company’s relationships with their buyer and supplier relationships diversify globally and become more complex, so do associated transaction patterns in the physical and financial supply chains. Digital solutions are crucial in mitigating new risks, such as protectionist trade policies and increased exposure to emerging markets.

A PricewaterhouseCoopers’⁴ (PwC) 2019 Global Treasury Benchmarking Survey notes that currency risk ranks third overall on the treasurer’s agenda, with a special focus on emerging markets and is also the most prevalent financial risk managed. More than eight in 10 respondents- 85 percent- cited currency risk as a financial risk managed by treasury. Tech-savvy treasury teams are using digital tools to their advantage. Technologies such as artificial intelligence, robotic process automation, and data analytics are being leveraged to conduct critical tasks, make decisions and reduce risk.

“The treasury function is continuously evolving,” said Eric Cohen, Principal, PwC United States. “By taking steps to digitally upskill, treasurers and their teams are better equipped to support their current and expanding scope of responsibilities, as well the strategic vision for the company at large.”

While treasury departments continue to prioritise cash flow forecasting, funding, capital structure, and currency risk, new challenges such as technology/digital innovation, working capital, and banking relationships were key issues highlighted in the PwC survey, reflecting the new realities of the marketplace.

How to go digital

The first step in digitalisation lies in the treasurer gaining expertise in this new area. CFOs will need to take the lead in designing digital financial processes to suit the business, as well as educating the business on new payment options and new ways of interacting with customers.

At the treasurer’s disposal are a variety of technologies, from blockchain and artificial intelligence to cloud technology and Robotic Process Automation (RPA).

Today’s cloud-based treasury management systems can also easily streamline the balance collection process by building automatic connectivity to multiple banks, assuming the tedious multi-portal access process and delivering the CFO daily (or even real-time) information about the organisation’s global cash position.

At its most basic level, digitalisation in the field of treasury will transform processes, reducing steps and allowing the handling of large amounts of data. These new technologies will also help support growth objectives by increasing day-to-day efficiency, sharpening forecasting capabilities and playing a key role in risk management.