Transformation-focused treasuries | Cash and risks
Late last year, IDC surveyed more than 800 corporate finance leaders and found that improving cash management was among their top priorities. It’s not a shocking result, of course. The onset of the Covid-19 pandemic has forced treasury and finance professionals to focus, in no time, from managing the company’s long-term strategic initiatives to ensuring that company hold sufficient cash to fund core operations.
Yet many companies remain hampered in their ability to understand the full liquidity landscape in their complex businesses around the world. In the IDC survey, only one in eight respondents said they had real-time visibility into more than 90% of their company’s cash. Worse, less than 20% of respondents can reliably forecast the organization’s cash flow beyond one month. And less than 5% can reliably forecast the last three months.
These visibility limitations impact the ability of treasurers, CFOs, and management teams to make quick decisions about cash flow, internal project financing, or merger and acquisition (M&A) activity. That’s why the IDC report recommends that companies develop a “unified cash management strategy,” an enterprise-wide approach to cash management that incorporates input from top CFOs and even business line managers.
The result of a unified cash management strategy is that decision makers across the business are on the same page when it comes to cash flow. Decisions align and funding issues are handled in a coordinated way across the organization.
But for many treasury and finance groups, achieving a unified liquidity management strategy requires a complete overhaul of treasury processes. IDC research found that every company identified as a “leader” uses cash pooling and sweeps to optimize cash management efficiency. And very few companies identified as “lagging behind” are using these tools effectively. Meanwhile, nearly all leaders have effective processes in place in the areas of business continuity and contingency planning, payment fraud protection, and hedging. Only 35 to 55% of latecomers can say the same.
A move to completely revamp these core treasury functions can be overwhelming, but companies that embrace dramatic change often find the effort worthwhile. Ciena Corporation, a Maryland-based telecommunications equipment provider, is one organization that has successfully completed such a transformation project.
Following rapid global expansion, “we expected more changes to come in the future, and a piecemeal approach to cash flow improvements would not prepare us for what was to come,” says Thomas Liu, vice president and treasurer. “We saw this as a good opportunity to build a world-class global treasury infrastructure so that we can continue to effectively support Ciena for years to come.”
To learn more about the projects of Ciena Corporation and Turkish glass manufacturer Sisecam – and/or to ask questions to the leaders of these projects – do not miss the live Cash and risks webcast recognizing our 2022 Alexander Hamilton Prize winners in Treasury Transformation. Join us: March 16 • 2 p.m. ET • 11 a.m. PT. Register today!
Organizations that decide to move forward with projects similar to those of Ciena and Sisecam will likely reap substantial benefits. The IDC study lists five key benefits of adopting a unified enterprise cash management strategy:
1. Improved visibility. The survey found that about half of companies need more than 24 hours to create a consolidated view of company cash and liquidity. This turnaround is too slow to achieve the agility businesses need in today’s volatile market environment.
2. Better risk management. Slow information gathering reduces the effectiveness of the treasury team in managing foreign exchange, liquidity and fraud risks.
3. More efficient compliance. Treasury needs visibility into business liquidity in order to comply with all the nuances of the modern, global tax and regulatory environment.
4. Increased process efficiency. The IDC survey found that finance executives are constantly under pressure to do more with less. Improving process efficiency is one way to achieve this goal.
5. Greater flexibility in financing. Companies in which liquidity decisions incorporate information and insights from across the business are better positioned to take advantage of non-traditional funding sources such as asset-backed debt.
The report suggests that Covid-induced changes in cash management are here to stay. The question is whether corporate treasury professionals are ready to embark on a transformation initiative to upgrade their role.