ENTERPRISE FINANCIAL MANAGEMENT
3 key areas where CFOs
say treasurers need to be
more strategic
Few functions are more fundamental to the corporate enterprise than treasury. Few have a
longer history, either. Managing cash and liquidity, along with all attendant processes and
risks, have been critical under-takings for as long as there have been businesses. And the
importance of having a good treasury function has only accelerated in recent years as
business enterprises have become increasingly complex.
1White Paper: 3 key areas where CFOs say treasurers need to be more strategic
A new CFO Research Services survey of more than 150 senior
financial executives in a wide variety of industries conducted
finds that only 8% say their treasury function is operating
at a best-in-class level. In fact, nearly half see their treasury
functions operating at an average level.
That’s a problem. As professional services firm Ernst & Young
noted in a recent report on treasury management systems,
“Finding the right response to the right questions on the
treasurer’s and CFO’s agenda can make the difference
between a thriving company with a solid credit rating and an
organization struggling with liquidity and credit downgrades.”
The challenges to doing better are many, but the top three,
cited by about a quarter of all survey respondents, are
(1) the complexity of their organization’s financial structure,
(2) inadequate technology for conducting effective analysis,
(3) a lack of a standardized approach to working capital
management. See Figure 1.
What’s interesting about those answers is that the first of
those three challenges can be addressed by dealing with the
second and third. It’s no surprise to anybody in the treasury
function, of course, but many treasury operations still rely
on spreadsheets for much of their work. They are electronic
spreadsheets, to be sure, but still a tool whose paper
roots trace back thousands of years. And even electronic
spreadsheets remain prone to a laundry list of shortcomings,
highlighted by version control issues and a broad
susceptibility to errors associated with manual data entry.
In fact, only six in ten survey respondents say their
organizations make use of a dedicated treasury management
system, the sort of system that Ernst & Young credits
with being “at the forefront of driving the automation of
treasury functions.”
Three key areas of need: Risk, Cash,
and Working Capital Management
All this suggests that treasurers and their organizations have
a vast opportunity to do better. The survey respondents are
clear, too, about where CFOs see the greatest needs. By a
comfortable margin, they consider risk management, cash
management, and working capital management the three key
areas where treasury needs to be much more strategic and
do a much better job of supporting business objectives.
To be even more specific, 43% of survey respondents say
treasury needs to do a better job of supporting business
objectives in the area of risk management, 40% in the area
of cash management, and 35% in the area of working capital
management. About a quarter also see room for improvement
around payments management, liquidity management, and
data visualization and reporting.
Risk management—including managing liquidity risk—has
been viewed with greater urgency by many organizations
ever since the 2008 financial crisis, when many sources
of credit dried up. Since then, new regulatory measures
adopted to prevent a repeat of the crisis have added to the
complexity of the treasurer’s risk management challenges.
And even though the financial crisis is fading further into the
rearview mirror, a study by The Global Treasurer just two years
ago found 44% of treasurers still concerned that their risk
management performance was mediocre or poor. The study
added that this was particularly relevant at organizations using
spreadsheets and enterprise resource planning software
for risk management rather than dedicated treasury and risk
management systems.
Complexity of our financial structure 29%
Inadequate technology for effective analysis 27%
Lack of a standardized approach to working capital management 23%
Complexity of our risk profile 22%
Inadequate data for efficient analysis 22%
Inadequate staff to meet demands 22%
Higher priority placed on other corporate/finance functions 21%
Lack of a standardized approach to cash management 19%
Lack of Treasury team expertise/knowledge transfer 19%
Corporate culture that does not value Treasury 16%
Lack of C-suite recognition of key Treasury issues 15%
Lack of attention from the CFO 12%
Figure 1: CFO listing of the largest challenges working against effective Treasury Management
2White Paper: 3 key areas where CFOs say treasurers need to be more strategic
To be fair, treasurers have notched some wins over the past
decade. In its 2018 US Working Capital Survey, for example,
the Hackett Group found that the top 1,000 U.S. companies
ended 2017 with a stronger working capital position than
they had at the start of the year, in part by improving their
days payables outstanding. They did this despite a turbulent
environment that included rising interest rates, accelerating
merger and acquisition activity, and climbing prices for raw
materials. Still, The Hackett Group said, those top 1,000
companies “left more than $1 trillion (in working capital) on the
table and ignored a proven opportunity to increase profits by
as much as 20%.”
For CFOs, shortcomings in the treasury function have real
consequences for the enterprises they help lead. 40% of
the respondents to the latest CFO Research survey say
unreliable cash visibility and forecasts are the biggest area of
potential concern emanating from their treasury function as
it operates today. This is because accurate and timely cash
forecasts are essential to optimizing capital structures, thereby
enabling better decision making for both short- and long-term
needs. An additional 38% of CFOs cite an inability to optimize
working capital management, while more than a quarter
list concerns about potential payments fraud and investor
expectations. In fact, 17% of survey respondents say their CFO
would not agree that their treasury organizations are able to
provide cash visibility forecasts, risk exposure data, or insights
related to global compliance that are extremely effective for
the stakeholders who receive them. See Figure 2.
A way forward: The importance of
technology and communications
While most of the world’s major economies are growing—with
growth particularly strong in the U.S. right now—challenges
related to managing risk, cash, and working capital are not
going to disappear. Among the many variables treasurers are
wrestling with now, and will likely be wrestling with heading
into 2019, are higher oil prices, new trade tariffs, rising interest
rates, and political uncertainty.
CFOs and other senior finance executives see two key ways
that treasurers can help themselves and their organizations.
One is by embracing technology that can help make their jobs
easier and allow them to do their work with greater efficiency
and deeper insight. The other is by building a better rapport
with the CFO.
A third of the respondents to the CFO Research survey
say CFOs want to see treasurers substantially improve the
technology solutions their organizations are using to match
industry best practices around cash management. A quarter
or more also want to see better use of technology for data
visualization and reporting, payments management, working
capital management, and risk management. See Figure 3.
Meanwhile, when asked what one thing treasurers should
do to develop a better working relationship with their CFO,
50 of the 116 survey respondents who answered focused on
improving transparency and communications.
40%
Unreliable cash
visibility and
forecasts
38%
Inability to optimize
working capital
management
30%
Potential
payments
fraud
26%
Investor
expectations
(e.g., for cash
repatriation)
20%
Ineective
payment
controls
20%
FX gains/losses
Figure 2: The treasury issues that cause the CFO the most potential concern
3White Paper: 3 key areas where CFOs say treasurers need to be more strategic
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Not surprisingly, it’s not that CFOs just want more face-to-
face meetings with their treasurers—although some do. More
commonly, survey respondents indicate that the treasurer
needs to be doing a better job of communicating with the
CFO in a timely fashion, bringing insights that would allow
the CFO to respond more quickly and precisely to issues
of critical importance—changes in the cash flow forecast,
for example.
All this reinforces the survey’s findings that CFOs are looking
to their treasurers to implement technologies and processes
that will enable more timely insight into how their enterprise
is functioning in key areas like cash management, risk
management, and working capital management. In fact, one
survey respondent explicitly urges treasurers to embrace
“more automation that raises red flags when necessary,” while
another advises that they “have all their data analysis reports
right before giving the CFO a report.”
The bottom line is that CFOs are looking to treasurers to be
a partner who doesn’t create problems for the enterprise,
but rather helps to prevent them, quickly identify them
when they do arise, and then solve them—protecting the
organization from loss. Even more, CFOs want a partner who
can help them accelerate the organization’s growth, unlocking
opportunities that in the past might have been overlooked.
A tall order? Perhaps. But certainly achievable. By equipping
themselves and their organizations with the right tools,
implementing the right processes, and keeping open
the channels of communication, treasurers have ample
opportunity to become the business partners CFOs want
them to be.
Figure 3: Most frequently cited areas where CFOs say treasury must improve
…to support business objectives …to be much more strategic
…to match technology/solutions
best practices
Risk management Working capital management Cash management
Cash management Risk management Data visualization and reporting
Working capital management Cash management Payments management
Payments management Payments management Working capital management
Liquidity management Real-time fraud prevention and re-sponse Risk management
References
i “Treasury Management Systems Overview,” Ernst & Young, 2018.
ii “Treasury Management Systems Overview,” Ernst & Young, 2018.
iii “Risk Management and Compliance: Two Growing Treasury Challenges,” The Global Treasurer, November 30, 2015.
iv “2018 Working Capital Performance of Top US Companies,” The Hackett Group.
3 key areas where CFOs say treasurers need to be more strategic
Few functions are more fundamental to the corporate enterprise than treasury. Few have a longer history, either. Managing cash and liquidity, along with all attendant processes and risks, have been critical under-takings for as long as there have been businesses. And the importance of having a good treasury function has only accelerated in recent years as business enterprises have become increasingly complex.
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