Staying Upright on a Sea of Change

Three ways to leverage the tumultuous external environment to enhance the position of corporate treasury in the organization.

When the external environment is roiling, the key to successfully navigating the tumult is to not just accept, but in fact leverage, the forces of change. That often holds true for professionals in any career path, but it’s certainly the case for treasury professionals today.

Since last decade’s liquidity crisis, the role of the corporate treasurer has been wholly transformed. In this era of heightened counterparty risk, low interest rates, and tight liquidity and credit, effective management of the treasury function has become a determining factor in businesses’ success. As a result, the role of corporate treasurer has become both more visible and more strategic than ever before.

These global geographic and demographic shifts are impacting companies’ working capital positions, their payables and receivables, their liquidity position, and their trade finance requirements. Due to the interconnectivity of the global economy, coupled with the inherent shift in economic growth, few treasury functions are isolated from these changes, regardless of their organization’s current mix of international and domestic business. Ultimately, we are all affected by the evolution of the macroeconomic global environment, and we will continue to be affected in the coming years. As corporations expand sales channels or supplier networks around the world, the challenge for treasurers will be extending the financial supply chain so that it always provides optimal support for the organization’s physical supply chain. In many cases, moving into new markets raises clearing-infrastructure or regulatory issues that the company may not have dealt with previously, issues that may well impact other areas, such as liquidity management.

In global expansion, knowledge is power. Companies entering a new market need a clear picture of all the ways in which that market’s unique characteristics might impact their cash flow. Thus, treasurers can add real value when their organization is venturing into the unknown by raising awareness of any laws, regulations, or social conditions that may affect payables, receivables, borrowing, or banking activities in the region. A company’s expansion plans, including the introduction of new products, is not going to get off the ground easily if the treasury team doesn’t manage currency and foreign exchange issues properly, or if they’ve overlooked a necessary component of the infrastructure for making or receiving payments.

The treasurer has a unique role, sitting across multiple information flows that could, and should, inform the CFO’s decisions. This information goes much deeper into corporate strategy than just cash positions. Internally, treasurers must effectively digest information and incorporate input from financial planning, business development, and sales and marketing to ensure that objectives are clear and that the necessary resources are made available. Externally, feedback from shareholders, ratings agencies, banks, and other credit providers should help shape the appropriate capital structure and deployment strategies. Treasurers who succeed in using technology to collect, marshal, and deploy information by orchestrating meaningful and comprehensive discussions can add significant value to their organization and thereby help solidify their strategic position within the company. 

Furthermore, corporate treasurers can leverage their relationships with the company’s banks to gain access to data that can help them make better-quality, more intelligent decisions about liquidity management and the company’s working capital. Banks are effectively the ambassadors of best practices in liquidity and working capital management across various industries and geographies. The strategic treasurer leverages the knowledge of his or her partner banks to understand the drivers of successes and failures in other organizations. In the future, clients will lean on banks more than ever before, and the ability of a bank to deliver valuable information will ultimately dictate the success of these relationships.  

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