How Finance Operations and Treasury can collaborate to optimize working capital

Partnership with SAP S/4HANA Cloud ERP : Join me on November 20th; I'll speak at the "Unlocking Business Value Across Treasury, Risk, and Finance Operations " webcast, part of the 2024 Cloud ERP Essentials Webcast Series. Together, we'll explore more to overcome data silos, improve cross-team communication, and embrace the opportunities that digital tools offer while also demonstrating the key capabilities. Make sure to register today!

Effective working capital management is a critical focus for any company seeking to optimize its cash flow and improve its financial health. Yet, many organizations need help aligning Finance Operations and Treasury teams, which play vital roles in this process. By fostering collaboration between these teams and leveraging the right technology, companies can unlock new efficiencies in managing their working capital. This blog explores how Finance Operations and Treasury can work together more effectively, what roadblocks typically stand in the way, and how technology can bridge the two.

The Roles of Finance Operations and Treasury

Finance Operations primarily oversees day-to-day financial activities, including invoicing, accounts receivable, accounts payable, and expense management. Treasury manages the company’s liquidity, funding, and financial risks. Both teams significantly influence working capital, but their perspectives often differ.

• Finance Operations focuses on operational efficiency, including shortening the cash conversion cycle through efficient collections and payment processes.
• Treasury focuses on ensuring the company has sufficient liquidity and access to funding, aligning short-term cash needs with the long-term financial strategy.

The key to success in working capital management lies in fostering collaboration in which these two teams align their objectives, share information seamlessly, and leverage their complementary skill sets.

Key areas for collaboration

1.??Cash flow forecasting: Treasury and Finance Operations need accurate and timely information to manage working capital effectively. By working together on cash flow forecasting, they can ensure that accounts receivable and payable data is up to date, giving Treasury better insights into future cash positions and helping them make more informed liquidity decisions.

2.?Payment strategies: Treasury teams often have insight into payment timing and funding strategies, while Finance Operations understand the payment terms negotiated with vendors. Collaboration here can help optimize payment cycles and prevent cash flow bottlenecks.

3.?Managing customer and supplier relationships: Treasury’s view of financial risk should be integrated into the company’s approach to customer credit and supplier terms, often managed by Finance Operations. This coordination can help strike a balance between maximizing cash inflow and minimizing financial exposure.

Leveraging technology to improve collaboration

Technology can be a powerful enabler for better collaboration between Finance Operations and Treasury. Digital tools like integrated financial management systems, automation, and AI-powered analytics provide a unified platform for both teams to share data and insights.

• Enterprise resource planning (ERP) systems: ERPs offer end-to-end visibility of financial processes, enabling real-time data sharing between departments. When Finance Operations and Treasury access the same data, they can make more informed decisions and address issues faster.
• Cash management solutions: Treasury management systems (TMS) and cash management tools can automate routine tasks such as payment scheduling and cash flow analysis, freeing both teams to focus on strategic activities.
• Data analytics and AI: By using AI and predictive analytics, companies can better forecast cash flows, identify trends, and proactively manage working capital. Advanced analytics can help predict when customers will pay invoices, or suppliers may offer discounts, allowing both teams to optimize their cash positions.

Common roadblocks and how to overcome them

Despite the clear benefits, companies often need help aligning Finance Operations and Treasury on working capital management. Some of the most common challenges include:

1.?Siloed systems and data: One of the most significant barriers is the lack of integrated systems. Many companies operate with Finance Operations and Treasury using separate systems, which can lead to inconsistent data and misaligned priorities. The solution is investing in unified financial management platforms that provide real-time access to shared data.

2.?Communication gaps: Without regular communication, Treasury and Finance Operations can end up working in silos. Regular cross-departmental meetings and shared KPIs related to cash flow and working capital can help bridge this gap, fostering a culture of collaboration.

3.?Resistance to change: Technology solutions can fail to deliver if the teams are not aligned on processes and there is resistance to change. Treasury and Finance Operations should be involved in selecting and implementing new tools, and change management programs should be established to ensure smooth transitions.

Massive potential for working capital optimization

Optimizing working capital is a cross-functional challenge that requires the close collaboration of Finance Operations and Treasury. By aligning their strategies and leveraging modern technology, these teams can enhance visibility, improve liquidity management, and boost financial performance. For companies to succeed in this endeavor, they must overcome data silos, improve communication, and embrace the opportunities that digital tools offer.

Effective working capital management can make the difference between thriving and surviving in today's fast-paced business environment. When Finance Operations and Treasury work together, supported by the right technology, businesses are better positioned to optimize their resources and achieve sustained financial success.

Unlock significant business value by optimizing your finance operations and treasury responsibilities to maximize cash management, mitigate risks, and optimize finance performance. Join me on November 20th, I'll be speaking at the "Unlocking Business Value Across Treasury, Risk, and Finance Operations " webcast, part of the 2024 Cloud ERP Essentials Webcast Series. Together, we'll explore more to overcome data silos, improve cross team communication, and embrace the opportunities that digital tools offer while also demonstrating the key capabilities. Make sure to register today!