In times of economic turmoil, corporate treasury departments often change their priorities. During the financial crisis of 2007-2008, for example, the spotlight was on financial counterparties and whether they would fail. In recessionary periods, in another example, access to bank borrowing or credit markets takes precedence.
In an inflationary environment, though, the most important tasks can be inward-facing: managing cash and liquidity, for example, and keeping higher operating costs from fraying profit margins. That’s according to the Association for Financial Professionals’ 2022 Strategic Role of Treasury survey released last week.
Close to two-thirds of the 395 treasury professionals responding, 62% of whom were from companies with more than $1 billion in revenue, indicated cash management and forecasting were their number-one priorities; 63% indicated it was liquidity and cash planning.
Surprisingly, though, improving payments processes and adopting payments technologies came in third, followed by “bank relationship rationalization” — cutting down on the number of banking service providers.
Those would seem to be projects more suited to times of relative quiet within treasury departments. But circumstances have dictated otherwise. And if a CFO is coming up with a list of action items for treasury, they may want to put these two items on the list.
Adopting new payments technologies and processes is a priority because as a result of the shift to remote work, many paper payment procedures — like getting a “wet signature” on a document — couldn’t be followed. That forced lagging companies to go electronic, said Tom Hunt, director of treasury services and payments at AFP.
Despite all the improvements in payment technologies, though, accomplishing the switch may prove difficult. About 64% of respondents to a different question included “improving payment processes” in their top five most challenging tasks.
“Part of the issue may be lack of IT resources,” said Hunt. A company setting up payments through a bank needs help from IT to decide on the use of application programming interfaces (APIs), handoffs, process monitoring, and “a whole new level of sophistication around cybersecurity and ensuring security protocols are within company guidelines.”
The priority of cutting back on banking relationships, on the other hand, is about reviewing treasury’s discretionary spending, said Hunt. Seeking to root out unnecessary internal costs within treasury was deemed to be the fourth most challenging task for treasury departments. But bank fees for services like foreign exchange, cash management, and capital markets are an area where treasury has some control.
Treasurers can start by validating that the menu of banking services the company pays for are being used appropriately, said Hunt, and then benchmarking the company’s transaction volume and pricing of services from financial institutions. Then treasury may want to put out a request for proposal to get bids from competing banks, whether for specific services or to consolidate services into one bank to get (it is hoped) better pricing.
“A treasury person wants to prove their worth every day, and we work in a very intangible environment,” said Hunt. “But bank fees are probably one of the most dependable things that are seen and can be felt and therefore can be measured and managed.”