Does the perfect Treasury Organization exist?

The question often arises as to the best way to organize a company's treasury function. The question is pertinent, but the answer is tricky because there are so many parameters to consider. The perfect structure does not exist, and there is no one solution that will suit everyone. The culture of the company and the importance of the treasury function for the CFO or C-level will determine whether it is developed or not. Nevertheless, let's address a few points that should be borne in mind.

When is a treasury function required?

The question of when to set up a treasury function is a pertinent one, yet it's often asked only by students. Of course, it's hard to come up with a clear-cut answer. The Norman answer would be to say that “it depends” ... It's a case-by-case approach that needs to be adopted. In principle, treasury work, like Monsieur Jourdain's prose (a French literary reference), is something we all do without always knowing or naming it. Having a dedicated, specialized treasurer is not always justified. If the company's activity does not include subsidiaries, foreign currency transactions, financing, multiple bank accounts, purchases or sales of raw materials, etc., the scope of activity under the treasurer's responsibility is limited. The scope of activity under the treasury will determine the number of people. This can range from one to 100+, without this difference always being explained by anything other than the culture of financial risk management. So, perhaps a dedicated treasurer is not justified. One fact is certain: we rarely have just one person in charge (but it can happen). There are companies with sales of EUR 500 million and their own treasury, and others with sales of one billion and no treasurer at all. This means that different factors need to be overweight to establish the need. However, every company should manage its own cash flow, and if the size of the company does not justify its own treasury department, it can be outsourced using appropriate in-house banking tools (e.g. KANTOX for FX and FENNECH or COMO for all cash management services). It seems to us that there is no longer any reason to claim that we don't have the minimum size required to manage cash like a professional.

Best practices in organization

Without claiming, once again, to hold the magic formula applicable to all, we can list a few best practices. Centralization and hyper-automation are the two best recommendations for efficiency and productivity. They are therefore virtuous. Technology facilitates centralization (even if some want to keep regional or continental hubs). Managing teams on several continents remains a pain in the ass and complicated to manage. Having semi-treasurers on different continents is often imperfect. We're seeing less and less of this type of approach. The rule is to limit subsidiaries' financial autonomy and bank management to zero.? The concept of Shared Service Centers (SSC) seems to us to be inappropriate for the treasury. To be effective, treasury must be centralized, not a shared service like HR or accounting. If the treasury is decentralized, it will lose efficiency and require duplication of staff. On the other hand, account virtualization (which I've often mentioned in previous articles - not virtual IBANs, mind you) makes it easy to set up an optimal In-House Bank (IHB), even without a dedicated treasurer. This is where we come in, as Transfer Pricing and its demanding rules can be managed automatically. Some forward-thinking countries, such as Luxembourg, are studying the compartment company.?

Which team for the Treasury Department??

The number varies from company to company. However, one unavoidable constant is that the more technologically sophisticated the company's cash flow, the smaller the number of FTEs in the department. Here again, hyper-automation enables optimization. The number of FTEs should be an imposed KPI. The larger the team, the greater the operational risks. So, the golden rule is that “less is more, and therefore we automate as much as possible”. Of course, there has been a gradual reduction in the number of people in the treasury departments, thanks to technology. However, AI and hyper-automation are changing the profile of the treasurer of the future, more expert and educated than ever. The rule will therefore be fewer but better qualified people. Sophisticated treasuries measure their performance via KPI's. For example, the number of payments per FTE should only increase. And value creation should be the absolute measure. Which treasurers are doing this? I ask you. Yet, the more technologically advanced the treasury, the better it performs, and by the same token, the more sophisticated the treasury management, the better the company performs (in terms of net income). Surveys such as those conducted by EACT enable companies to benchmark themselves against their peers. Some consultants claim to be able to benchmark their peers. However, this type of analysis remains precarious and unscientific. There is no miracle recipe, but there are some commonsense principles to apply to achieve greater efficiency. Cash flow reflects a company's performance, and an unavoidable point of attention during an IPO (since a few scandals, including the notorious WIRECARD). Analyzing an MNC from a treasury perspective is interesting and instructive in many ways. Let's not forget that skills will gradually change, and that the treasurer will become even more of an IT and AI expert. More than ever, training must be continuous, as technology is advancing at such a rapid pace.

End of the classic trilogy: ??front-mid-back?? & emergence of Service Center role

Traditionally, treasury was organized into front-mid-back offices. This trilogy is tending to disappear, to be replaced by a more efficient organization, where each can replace the other in back-up, more by risk and by zone. The banking-type organization is somewhat obsolete. We prefer a more flexible and dynamic organization, while maintaining the segregation of duties. Small size also requires ingenuity and versatility.

The best practice is therefore to turn the treasury into a service center. Please find below the different possible variants, although we can't establish the best one, a clear trend is emerging.?

Classic Organizational Features and Structures:

There is no prescriptive answer to the question of optimum treasury structure. Please consider the different options commonly adopted for treasury function, and key features of a treasury organizational structure. (in GREEN the best practices)

Culture is everything...

The budget allocated to the treasury department is another reflection of interest in treasury and risk management. Statistically, the more indebted a company is, the more weight and consideration the treasury will have. Treasury creates value by being closer to operations and the business. If you're aware of this, you'll allocate the right tools and budget to it. The more sophisticated treasury management is, the easier it is to integrate or decouple from buying and selling operations (i.e. M&A). Digital autonomy is a new approach that enables assets to be decoupled more easily and sold more effectively. As CFOs generally do not come from the world of treasury, this department is not their priority. The interest comes from their background and risk appetite. Publicly listed companies are also generally more and more developed. Technology is organized around the two backbones of TMS and ERP. The golden rule (once again) is to limit the number of different tools as much as possible (“best of breed” trend). Clearly, then, the structure varies according to the company and its profile, even if certain trends do emerge. Organization and technology remain two excellent measures of a company's overall financial performance. A company with a well-developed cash flow is a sign of good health.

Fran?ois Masquelier, CEO of Simply Treasury? Luxembourg January 2025

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