Five Steps to Transforming Your Global Treasury

Adapting to New Demands: A Guide for Corporate Treasurers

As the economic landscape shifts from established markets in Europe and North America to emerging ones in Africa, Asia, and Latin America, corporate treasurers face increasing pressure to enhance their performance. Rapid growth and evolving regulations have left many treasurers struggling with core activities in their home markets, such as cash management, banking, debt and funding, investments, and risk management for currencies and interest rates. These challenges are exacerbated as companies expand into emerging markets, where diverse banking protocols and customs complicate the treasury function.

The financial implications of lagging treasury performance are significant. Companies incur additional interest expenses from inaccurate cash flow forecasting, lose money by failing to hedge currency and interest rate exposures, and pay unnecessary taxes due to inefficient cash movements. Fraud risks, financial covenant breaches, and credit rating downgrades are additional concerns for treasurers operating without a robust global strategy.

To address these challenges, I have identified five key steps to improve the global treasury function:

1. Centralize the Treasury Function Globally

Many companies still operate with decentralized treasury components, particularly in developing markets. Centralizing the treasury function at the corporate headquarters, while maintaining flexibility for regional inputs, can provide a comprehensive view of cash flow and risk positions. This centralization allows for optimized debt and investment portfolios and minimized taxes and financial risk. Despite potential resistance from regional managers, the benefits of a unified treasury function outweigh the drawbacks.

2. Strengthen Governance

Effective governance is critical to managing the risks associated with the rapid movement of funds and complex financial instruments. A thorough review of policies and processes, followed by rigorous testing and training, can strengthen governance. Regular stress tests, including unannounced simulations, ensure operational readiness and highlight potential weaknesses in the system.

3. Enhance Treasury Management Systems

Despite the availability of advanced treasury management tools, many companies still rely on spreadsheets, which are prone to errors and lack integration. Investing in sophisticated treasury management systems can provide automation, integration, and enhanced management reporting, reducing the risk of costly mistakes. These systems offer a unified database and stronger internal controls, which are essential for a centralized global treasury.

4. Increase the Accuracy of Cash Flow Forecasting

Accurate cash flow forecasting is essential for managing liquidity and financial risk. A robust forecasting process involves analyzing different cash scenarios, consulting with regional businesses, and running currency "what if" scenarios. Advanced treasury systems can support this process, but effective forecasting requires continuous input from various business locations.

5. Manage Working Capital in Developing Markets

Managing working capital globally is challenging, especially in developing markets with varied payment terms and business practices. Treasurers must spend time with regional business units to understand local supplier and customer behaviors. Effective working capital management can distinguish treasurers as strategic financial advisors and improve overall cash optimization.

As the responsibilities of the corporate treasury function expand, treasurers must adopt a global perspective and streamline their performance. While this may require an initial investment, the long-term benefits of a more effective global treasury are substantial.