An Ernst & Young report shows treasurers need to make faster, more fundamental changes to help the company succeed.
Despite the big impact treasury has had on the company’s finances over the last few years, it still must do more to help companies meet their goals. That’s the takeaway from a just released report from Ernst & Young.
Among the key findings:
- 40 percent of treasurers highlighted financing as the biggest issue they had to deal with in the past year, while accuracy of cash forecasts and cash management remains a significant challenge.
- Financial risks dominate treasurers’ top concerns while operational risk is not high on their agenda.
- Almost half of treasurers believe better use of technology is key but admitted that their use of technology is not mature.
- Over 60 percent of treasurers reported difficulty in recruiting. E&Y suggested that this “may simply be a case of demand exceeding supply,” although only about 30 percent of respondents indicated their talent management programs were mature.
Cash forecasting and cash management have always been a big challenges for treasurers. It was also identified recently in the NeuGroup’s own Principles of World-Class Cash Management project (see related story here). In that project, treasurers highlighted their aspirations to create policies and procedures that cover the most critical cash management functions, something that still isn’t universal.
In the E&Y report, many respondents identified cash forecasting accuracy as a “liquidity risk management challenge.” One reason for this was inadequate technology. “The technology options available to treasurers are highly sophisticated, but our experience has demonstrated that, despite acknowledging their technology limitations, steps are rarely taken by treasurers to improve this area,” said Dimos Dimitriadis, director, Treasury Advisory at Ernst & Young . “Without a carefully articulated business case, the upfront investment and related upheaval of a system change can be off putting, but it can pay dividends in the medium to long term.”
Centralization was also seen as critical. E&Y said decentralized payment arrangements led to less transparency and worse, a lack of access to business units’ cash. Because of this, “pockets of funds may exist across discrete areas of business that could be put to use as working capital by treasury,” E&Y said in its report.
E&Y said that significant progress for treasury and the broader business won’t be realized “without a clearly defined target operating model” that incorporates all of the challenge areas listed. “If these issues are not addressed in the near future, some treasurers may find it difficult to influence not only the direction of the treasury, but also the future direction of the company,” Mr. Dimitriadis said.
For its report, E&Y conducted face-to-face interviews with 101 treasurers from large corporations in 14 countries and from 23 industries.