- Article
- Managing Risk
- Operational effectiveness
The Value of Treasury Centralisation
Expectations of the treasurer have never been higher. Advancements in payment technology, new regulatory initiatives and shifts in the business landscape are challenging treasurers to innovate and change. But how can all of this be achieved, especially when resources are stretched?
As the saying goes, change is inevitable – growth is optional. In other words, to make the most of a shifting environment and ensure future business success, transformation is required. But in this fast-paced environment, treasurers need to stay ahead of the game by understanding solutions and treasury tools that can optimise regional liquidity management, enable more efficient corporate structures, and achieve more effective cash flow forecasting.
Why centralise?
As companies grow and expand, centralising treasury and cash functions can improve visibility while adding efficiencies and control. But centralisation is not always the end goal for all treasury functions; it’s about assessing what works best for the organisation.
While the concept of centralisation isn’t new, it has never been more important than in today’s dynamic business landscape that requires organisations to make faster decisions to navigate ongoing uncertainties. And with treasury transformation being a key priority for many organisations, centralisation has become an essential mechanism to enable that journey.
In this article, we broadly categorise the centralisation journey into three phases with differing levels of complexities.
Phase 1: Cash centralisation
The first is to centralise cash, interest and FX through solutions like cash pooling or multi-currency management structures. This can serve as a foundational step to minimise fragmentation of cash positions and optimise yields through centralisation.
Phase 2: Transaction standardisation
The second phase is to overhaul day-to-day transaction workflows by automating and standardising processes to improve efficiency, visibility and control. Options like Shared Services Centres can support back-office functions to free up time for core activities, while Payment Factories can help standardise payment and invoice processing.
Phase 3: Advancing treasury centralisation
The third phase involves further centralising transaction processing through more sophisticated structures like on-behalf-of arrangements or setting up a regional treasury centre or in-house bank to drive efficiency on large transaction volumes across multiple currencies and jurisdictions.
The role of technology in centralisation
Whichever stage an organisation may be at – technology has undoubtedly been a critical enabler of modern treasury operations, and its role in achieving centralisation cannot be overstated.
Emerging digital finance solutions, including liquidity platforms and cash flow forecasting systems, for example, allow centralised functions to automate and standardise processes to improve cash visibility and efficiency, while technologies like robotics process automation (RPA) and application programming interface (APIs) are enabling the transition to real-time treasury. At the same time, technology-driven bank connectivity options ranging from host-to-host to SWIFT and APIs, are further enabling organisations to streamline system connectivity and rationalise treasury processes.
Selecting the optimal approach for treasury centralisation
Choosing to centralise treasury is about finding the right fit for your organization – which may need to be reassessed time and time again as your business grows. What is scalable today may not be tomorrow.
As such, it helps to work with banking partners that can help you determine the optimal centralisation model for your organisation and share best practices on what has or hasn’t worked with other clients.
