As companies grow increasingly global and complex, the siloed treasury function is becoming a relic of eras past. Managing cash flow, handling foreign exchange, and maximizing earnings on excess liquidity remain core treasury functions, of course. But in this day and age, successful treasurers are those who extend themselves beyond the role’s traditional duties.
This trend is exemplified by the winners of the 18th annual Alexander Hamilton Awards in the category Cash Management & Liquidity Optimization, sponsored by Kyriba and Strategic Treasurer. The winning projects are diverse, but all five involved a project lead within treasury who reached across functional or even corporate lines to bring about significant change.
When Murphy USA needed to overhaul cash forecasting, the treasury team began holding regular meetings that included representatives of every business unit in the company. The dialogue was geared toward helping the business units understand how the company’s cash flows, and helping treasury understand how the business units work. Todd Gilreath, manager of cash management for Murphy USA, says the result was that everyone got more of a big-picture view of corporate performance. “We found that everybody knew their part of the business, and they knew it well, but they weren’t necessarily sure how it affected other parts of the business,” Gilreath says. “We told them that we, in treasury, don’t think we know everything. We gave the groups a lot of visibility into what the issues in treasury are, why we need their information, and how we’ll use it. We made our needs clear and tried to be very sympathetic to other groups’ issues. And because of it, we got a lot of buy-in. The business units gained a much greater understanding of what we do in treasury.”
John Chen, treasury director–Asia Pacific for Honeywell International, also believes in reaching across functional lines. His winning project involved the creation of a holding company in China to improve Honeywell’s efficiency in funding new capital projects in the country. “In Asia Pacific, there are so many regulations, so many controls, and so many legal entities that not all the variables can be covered by every function,” Chen explains. “This presents an opportunity for treasury managers to be a little bit more proactive and venture out of the traditional core treasury functionalities. When you see something that’s not covered, it’s a good idea to take up the slack. This helps treasury become more of a valued partner, enhancing the value of treasury and earning the respect of the business.” His key advice for getting others on board with a major treasury project: “Scour around the landscape and identify an ally or two. It’s helpful, of course, if your ally is someone who’s very influential. It's always good to have more than one person pushing an agenda through. It's definitely much easier than trying to do it alone.”
Once this automated workflow was in place, treasury undertook a second phase of the initiative, aiming to unlock the value of its custodial balances. The post-payment data reconciliation in the new workflow, together with a file-naming convention that treasury developed, enable pass-through treatment in which funds in the custodial accounts are directly tied to particular mortgage holders. This opens the door for FDIC coverage for those funds. Reaching this goal required close collaboration with the company’s audit, accounting, and legal departments.
“We had to make sure we were preserving the off-balance-sheet accounting treatment for these deposits,” Hayes says. “I have a background in banking, and I knew the pass-through treatment was something we could accomplish while maintaining our fiduciary responsibility related to the customer funds. I knew we had to work closely with other constituents within CoreLogic who didn’t have the same experience. It was important to help them understand why this makes sense and why it works from a legal and accounting perspective.”
Setting Wheels of Change in Motion at a Big Banking Partner
Active Network is an online registration business that had around $420 million in annual revenue before being taken private in 2013. The company’s systems power registrations for events ranging from sports and outdoor activities to community-center classes to business conferences. In addition to providing online forms and collecting registrants’ data, the company processes payments for hundreds of thousands of event registrations each year. This puts the treasury function in the unusual role of managing one of the company’s largest expenses. “Within Active Network, there’s obviously an emphasis on improving gross margin,” says Daniel Simmons, the company’s vice president and treasurer. “As a treasurer, I’m always looking at ways I can impact that. I am responsible for our credit card processing fees, which account for the largest single cost that rolls into cost of goods sold. So I’m always looking for ways to bring those costs down.”
In 2008, the company used JPMorgan for banking and lockbox services, and for credit card processing it used Chase Paymentech, a joint venture between JPMorgan Chase and First Data. When the joint venture ended in late 2008 and Chase Paymentech became the merchant services subsidiary of JPMorgan Chase, Simmons saw an opportunity. “Once that acquisition occurred, it dawned on me that it would make sense for Chase Paymentech to let us take earnings credit for credit card processing fees, just like JPMorgan does for other treasury fees,” he says.
Treasury as Painter of the Big Picture
When Murphy Oil was preparing to spin off its retail business in the fall of 2013, management realized that the new organization needed a robust cash forecasting system. Cash flows in the larger entity differed significantly from cash flows in the retail division, and the retail business experienced large swings in working capital caused by timing mismatches between payments and receipts. This wasn’t a problem in the consolidated company because Murphy Oil was able to borrow via unsecured revolving credit lines. But the new entity would not have that option.
As soon as the divestiture was announced, leaders of the new organization, which would be called Murphy USA, recognized three treasury-related needs:
Taking up the Slack in APAC
After Deng Xiaoping announced China’s new “open door” policy at the end of 1978, Honeywell International was one of the first multinational companies to open an office in Beijing. Since then, the organization has established subsidiaries and joint ventures in more than 20 Chinese cities, investing more than $1 billion in the nation. With plans to continue expanding in China, Honeywell needed to find a more efficient means to fund this growth.
Business licenses in China limit the scope of activities a company can pursue, so multinationals tend to have an assortment of Chinese subsidiaries, each with a narrow focus. Funding capital projects in these subsidiaries generally takes one of three paths. First, bank financing is an option, but it is costly, it increases leverage at the corporate level, and it involves covenants that may limit organizational flexibility. Second is cross-border intercompany lending. When a foreign investor sets up a legal entity in China, it must register both the business’s total investment and its registered capital with the Chinese Ministry of Finance and Commerce (MOFCOM). The difference between total investment and registered capital is known as the business’s “funding gap”—which is the maximum the company can borrow from overseas. In addition, cross-border cash infusions require registration with the State Administration for Foreign Exchange. “Cross-border investments by multinationals into Chinese subsidiaries require a burdensome administrative process,” says John Chen, treasury director–Asia Pacific for Honeywell. The final cross-border funding option is to have Chinese subsidiaries pay dividends to the multinational parent company, which then harnesses those dividends to fund other ventures. Such an arrangement can be inefficient if continued investment is required.
Streamlining One of the World’s Most Complex Treasury Functions
With over $150 billion in revenue streaming in from 140 countries in more than 25 currencies, the treasury environment at General Motors is one of the most complex in the world. Several years ago, around 100 GM business units were pooling their cash, but management of the cash pools was cumbersome and labor-intensive for treasury teams. When a unit wanted to either contribute to or withdraw from a pool, it would send an email. The transaction would be manually entered into a spreadsheet and manually re-entered into a treasury management system. Staff would retrieve the exchange rate from Bloomberg, if appropriate. Settlements would be processed in the treasury management system and released on workstations for the banks of the business unit and the cash pool. The following day, staff would reconcile the transactions between the bank workstations and the treasury management system.
Each step required manual data transfer, and the company used manual controls to avoid errors. “At several points in the process, the same data had to be transferred or manually entered,” says Amar Srinivasan, manager, corporate treasury, with GM. “If one person was entering data, we had another person actually confirming that the right amount was entered. A lot of time was being spent just to make sure that we avoided data errors.”
Finally, treasury worked with IT to replace multiple legacy systems with one treasury management system that allows for end-to-end straight-through processing. All the previous steps required to initiate a transfer of cash to, or withdrawal from, any GM cash pool around the world now can occur within the single system, with settlements automatically processed and reconciled via SWIFT messages to and from the banks. Business units participating in GM cash pools can access intercompany cash much more quickly than before, even as controls are stronger.
“One of the biggest benefits of this project is the faster responsiveness to business needs from a cash standpoint, both getting cash places sooner and being able to deploy incremental liquidity faster,” Davlin says. “Another key benefit is the improvement in controls. That really can’t be overstated. We still have controls in place, but automation reduces the degree to which we need to worry about errors being created through manual data entry. Increased visibility and improved controls are very important in today’s regulatory environment.”