LatAmTPG members talk cash forecasting, ESG investing and building a resilient treasury at their first-half meeting.
Cash Forecasting
When it comes to forecasting available cash, no one model fits all.
A consistent goal of treasury everywhere is predicting the availability of cash. This drives many planning decisions, whether it’s the need for short-term working capital funding or longer-term investments to ensure the health and growth of the business. This is especially true in many LatAm markets where access to intercompany funding is often limited due to regulatory restrictions on cross-border loans.
The other R&D. There was much discussion about the merits of R&D (Receipts & Disbursements) forecasts and using historical data on monies coming into and out of bank accounts as a predictor of future collections and payments. In contrast to this bottom-up approach, there were also good conversations around using the traditional top-down approach, using financial planning techniques of taking P&L and balance sheet forecasts produced by business operations to estimate cash balances and funding needs. In a perfect world, these two approaches will arrive at the same destination. But in the world in which we live, there is often an initial difference which, once reconciled, may lead to a better forecast and improved future forecasts.
On the bottom-up side. One member shared some of the work his company has done internally to develop some great tools by using historical data to create a rolling forward forecast. It then applied a variety of traditional forecasting algorithms against that historical data to test for accuracy, made adjustments and retested to eventually get to an algorithm where accuracy was very high.
By developing a formulaic solution based on their own experiences, adjusting for known one-off issues, they were able to have much greater confidence in right-sizing credit needs, which should lead to lower costs. Note also that this company found that different models/algorithms suited different flows or exposures better, so be open-minded and try what works for you.
Investor, Employee Interests Go Green
Going green can be a reality with green bonds and other ESG initiatives.
For those companies that fit the profile, this is another opportunity to appeal to financing investors and diversify their sources of funding.
Green bond market segment is growing. Going down the green path as a positive way to “sell” the company both internally and externally struck home with members; it is not just a marketing tactic, but also a way of doing things that are important to the workforce and to consumers alike.
Building a Resilient and Valued Treasury Organization
Treasury needs to be organization not only of the present but of the future, too.
Honor company tradition but embrace the new. Becoming efficient and effective can lead to things you hadn’t thought of before. How much great talent do companies overlook because they don’t look at everyone? Talent is everywhere and maybe not so concentrated in the places you usually look. While elite schools like Berkeley, Stanford, Wharton, Yale, Harvard, etc., may provide a concentration of good candidates, there are other options. Members suggested that state and regional schools hold a few hidden gems when it comes to talent.
Thinking long term. The long-term strategy of building an elite treasury organization needs both tradition, an understanding of where you are coming from, an open mind to new things and an ability to move to the next level. As the saying goes, “If you are not moving ahead, then you’re likely falling behind.”
Get out and talk to people to communicate the treasury mission. To be an effective organization, it is critical to make treasury relevant. And treasurers can promote this relevance by being treasury evangelists. If you’re out in the planning and reporting part of the world, it’s hard to get your financial partners to appreciate what you do until the company is in the toilet (see financial crisis) with its own hand on the handle; e.g., like a credit downgrade or tight covenants. Finding a way to have regular meetings with people outside treasury—perhaps creating committees to review cash, foreign exchange exposures and hedge strategies, as well as retirement investment—can help sell treasury’s mission. One member shared his company’s strategy to do quarterly roadshows to reach out to regions and talk about what treasury does for them and what kind of communications are needed to ensure success.
Growing scope of members’ roles. Many of the participating companies are expanding their responsibilities beyond the LatAm region. While the primary focus of the individual manager may be for “south of the border,” there is often a global responsibility as well, either in partnership with other regions or with a global shared services center or center of excellence.
Unite to defeat manual signatures. Among the members, there is a wide range in terms of the dependence on manual signatures in bank account management, as well as diversity on the ability to make only a few HQ-based people signatories on accounts. Here, it may pay off to push relationship managers on what is truly doable (if they do it for one MNC, why not yours too?). And one of the takeaways noted by several members was to check into DocuSign to streamline BAM and payment approvals further.