Since they cannot predict the future, treasurers help the company by getting back to basics.
One of the underlying themes of winter and spring meetings of The NeuGroup peer group universe is that in these uncertain times it’s best for treasury and the finance function as a whole to concentrate on the things it can control. In this they taking a hunker-down approach and using their skills to keep the company finances safe and finding new ways to deploy company cash.
This was also a takeaway from a recent Deloitte survey of CFOs, where respondents put “providing information, analysis, and metrics” as one of the top areas of concentration. Also top of the to-do list for finance was “influencing strategy and operational priorities” and “ensuring initiatives achieve desired business outcomes.”
“After indicating a strong focus on business planning and growth near the end of 2011, companies now appear more focused on execution and defending current markets with a declining focus on new markets and M&A,” Deloitte said in its survey.
If recent discussions at NeuGroup peer group meetings are any indication, then one area that has been a focus (and requires flawless execution) is cash management. That’s because finding liquidity in the current environment has become difficult. Indeed, large US-based global corporations face rising funding costs and decreasing funding availability and have begun to get back to their working capital roots and use it as an internal funding source.
At the meeting T30-2 bank sponsor Deutsche Bank noted that corporates extracted almost double the amount of cash from the working capital cycle in 2011 as they did in 2007, and called working capital the next frontier for gaining efficiency. Using the company’s own working capital allows for greater transparency, gives the company control over its cash, allows for negotiating payment terms with clients and provides financing options for both collecting receivables and paying suppliers. As a result, improved working capital also improves operational efficiencies and control.
One area of working capital management is the cash and credit in the supply chain. Here companies are finding innovative ways to optimize and customized supply chain financing strategies. That’s because they offer treasury the opportunity and flexibility to implement more efficient working capital programs.
Treasurers are also leveraging advances in technology to tighten up their treasury management systems, overhaul or implement new ones. They’re also taking advantage of virtual bank accounts and smart-phone technology to reduce the hassles of physical accounts and interactions spread all over the globe. This has allowed for greater breadth and speed of transactions. Banks, under siege on the capital and lending side, have also helpful by developing products to help companies improve working capital, such as payment factories that shift the logistical burdens more to themselves.
So as the chaos in Europe continues and the outlook for earnings and bank relationships look bleak, treasurers will stay tactical and keep themselves ready for recovery and opportunity.