At SIBOS, treasury experts discuss how to arrive at world-class when it comes to cash management.
What does “world class” cash management look like? Unfortunately there is no good answer to that question because there are as many definitions as there are definers. For instance, world class for a $75bn company may be different than for a $2bn company. What’s more, world class for activities geared for, say, Toronto, may not be as applicable to rural China.
So, if a cash management function determines it wants to be world class, what does it actually aspire to in order fit the changing global economic situation?
At SIBOS in Toronto this week, Thursday morning’s Community Session helped addressed this question. Drawing on insights from a World-Class Cash Management Principles project conducted over the past year by The NeuGroup’s Global Cash and Banking Group (GCBG) and Citi Treasury Diagnostics. Bryan Richardson, senior director and project leader at the NeuGroup, led a session panel along with three GCBG members, including Cargill, Dell and eBay. Along with Ron Chakravarti, a managing director with Citi Global Transaction Services, the panel focused on three key elements of the 15-category study, which looked to identify the core principles that should define globally applicable, world-class cash management for any sized multinational.
Bank Account Management. Bank-account management could very well be the most manual and cumbersome of treasury activities. Of the companies participating in the project (the GCBG is made up of 26 leading MNC treasury professionals), only five reported any meaningful level of automation.
“This is a significant issue for all corporates as well as the banks themselves that have to receive, process and store the myriad documents they receive,” said John Christensen, Assistant Treasurer at eBay.
But rather than start with the promise of eBam as a quick-fix elixir, world-class bank account management still places a strong emphasis on solid fundamentals first. “You have to start with a solid, well-designed banking resolution that has the right balance of control and operational efficiency,” noted Silver Zuskin, EMEA treasurer with Dell. “You don’t want to grant authority to inappropriately low levels but you also don’t want to have to go to the CFO, or even the Treasurer, for routine activities.”
A world-class treasury has clear policies that grant sole authority to a centralized treasury to have exclusive ability to open and close accounts or grant permissions to open or close accounts. Using treasury as a portal for all bank account activity ensures the company is aware of all accounts and its activities globally.
“But can a company be world-class at account management without striving for automation?“ Mr. Richardson wondered. “It’s not completely barren of technology,” said eBay’s Mr. Christensen. “World-class treasuries, at a minimum, have a robust centralized database or mechanism to record and maintain information about all accounts globally. Most TMS’ have a module for this.”
Further, centralized control is greatly aided by digitization of documents related to account management and this lays the foundation for bank accounts to be managed electronically from centralized treasury locations.
Bank Relationship Management. When and to what extent treasury can relinquish centralized control, especially between HQ, regional treasury centers and local treasury staff, is a key balancing act for world-class bank relationship management as well. The centers and locals often work closely with local banks or with local or regional offices of large global banks. So the question is how much ownership and responsibility should they have? Rather than stipulating a specific rule, the principle that applies is: Bank relationship ownership and management is shared with treasury centers commensurate with their level of authority, interaction and reliance on the banks.
Another aspect of bank relationship management is the periodic review, or report card. This activity is a vital characteristic of a world class treasury and follows this principle:
- Formal review of bank account structure and bank relationship performance occurs at least annually and more frequently if significant changes warrant.
Regular reviews also help ensure that rapidly evolving treasury needs continue to be met by equally evolving banking services.
Technology End State. Another important principle guiding world-class cash management is for treasury to map out its desired technology end stated clearly. This starts with:
- A global single instance of a treasury management system (TMS) and ERP is established or in process.
Jeremy Kidd, IT manager with Cargill Value Services, and in the midst of a multi-year project of rolling out a single instance of an ERP and corresponding treasury module, was asked for his views on this. “For a company with the size and complexity of Cargill it is absolutely essential that we have a substantial system and that it be a single instance for the ease of maintenance. We cannot be world class otherwise.”
Another vital technology principle is that “a world class treasury has dedicated IT support.” This resonates more logically in that the vital functions and processes within treasury are recognized by the company and therefore their technology needs are specifically provided for. Jeremy, who serves in a treasury IT role, agreed. “Again, the size and complexity of Cargill warrants dedicated IT support, but for smaller companies it should be present, too, even if it’s half a head count in the IT department.”
Better focus on cash growth. The overarching objective of any world-class treasury should be to improve the efficiency with which it manages the more mundane cash processes so that it can focus more attention on supporting the businesses generating it. This is all the more true as growth shifts to those parts of the world where both doing business and managing resulting cash flows pose greater challenges. Focusing on principles rather than specific solutions allows for application to a fuller array of companies, businesses and local market environments.
“As service providers, banks can help clients understand the application of world-class principles to their situation, having seen them applied by other customers, and offer solutions to complement them,” said Citi’s Ron Chakravarti. “With the help of Citi Treasury Diagnostics and projects such as this one, we also further our understanding of what it means to provide world-class solutions for today’s world.”