Building a resilient treasury function – to protect, manage, and grow

Corporate treasury functions have long since outgrown their origins as cash management and liquidity specialists. Today, a treasury function must also be able to anticipate risks and disruptions, maintain operational stability in any circumstances, and develop recovery playbooks to rescue their organizations from the most extreme of setbacks.

A resilient treasury function is not just a steward of cash but an advisory and strategic arm of the business, instrumental to risk management and stability. It must at once be a function that protects, manages, and drives growth – three different but essential tasks. That is a big ask.

But many corporate treasury functions have learned, the hard way, that they can do it. They have endured a pandemic, a rising rate environment, and dramatic changes in their cost of funding, while dealing with pressures on supply chains, working capital and liquidity management.

These lessons must not be forgotten, but rather reinforced.

The pandemic combined with a drive from governments and regulators for more digital economies to make a considerable shift in treasury practices. Where Covid-19 accelerated this trend by forcing digital adoption and prompting treasury practitioners to work remotely, regulators have contributed by making 24x7 real-time payment platforms – with enhanced features like QR code support – the preferred norm.

Digitalization greatly accelerates the velocity of money and the speed with which commercial transactions can be completed. New business models have arisen, requiring treasury organisations to transform themselves comprehensively and quickly. And new digital tools, such as accounts receivable systems that use machine learning to automate reconciliation processes, have been developed. The use of API technology has brought greater integration of banking technology into companies’ customer-facing portals.

The explosion of data, properly harnessed, is a great asset to treasury workflows. Artificial intelligence and machine learning elevate what can be done with that data, analyzing it to identify patterns and trends invisible to human analysts. This helps treasurers to make more informed decisions about cash management, risk, forecasting and investment strategies. And data techniques such as duration analysis and VaR (Value-at-risk) are of great assistance in a volatile market environment.

But these trends bring considerable challenges and responsibilities too. 137 countries worldwide have implemented legislation to ensure data protection and privacy. Others will follow, and existing legislation will evolve at pace – but in a fragmented way. Treasury workflows, and the data flows within them, are becoming increasingly complex.

So a resilient treasury must think hard about the collection, use and sharing of data. Professionals must ensure not only that they are compliant with existing regulation, but that they are ahead of where those laws are likely to go next.

The pace of digitalization has been accompanied with an acceleration in the scale and sophistication of bad actors. Global cyberattacks increased by 38% year-on-year in 2022¹, as attackers exploited collaboration tools that had been developed to assist with remote working environments. AI will increase these volumes still further.

Treasury functions require vigilance and increasingly specific people skills to fend off the dangers. They must adopt a multi-layered approach which combines culture, people, processes and technology in a unified response to this unprecedented threat.

The resilient treasury must be abreast of other developing themes. One is Environmental, Social and Governance (ESG).

In some locations, such as China, ESG-related KPIs are embedded in treasuries’ scorecards to demonstrate green finance transition. Increasingly, if corporates do not meet ESG standards embedded in their institutional credit scores, this will affect their debt capacity and the efficiency of their borrowing.

The selection of counterparties and contractors must also be considered through an ESG lens.

Alongside newer themes, a resilient treasury must keep several core responsibilities in mind:

• The development of Business Continuity Planning (BCP). This should clearly document the process, procedures and people required to respond to and recover from incidents.
• Cash and risk management remain the cornerstones of treasury. New tools are available and should be embraced: advanced cash flow forecasting, for example, can help treasurers use predictive and regression models that learn from customer behaviour.
• Treasurers need a treasury ecosystem that includes stakeholders throughout the value chain. Real-time data and cloud-based digital B2B networks bring visibility and connectivity to working capital.
• Process governance is vital. A study of internal processes can automate routine tasks, eradicate human error, save money, alleviate bottlenecks and build resilience. It also helps with regulatory compliance. And staff must be trained in the range of capabilities required to follow new, and often data-heavy, processes.

Treasury practitioners have been severely tested in recent years, but have learned valuable lessons from the process. Automation, digitization and hybrid working models have all been advanced by the challenges treasurers have faced. The resilient treasury that has resulted is more important than ever in a rapidly-evolving landscape of diverse threats.