The operational requirements of the treasury function have remained largely unchanged over time - banking and cash management, funding for the business and managing financial risk. Various treasury operating models from regional to global, profit centres to cost centres, centralised to decentralised exist. Treasury technology disruption and innovation continue to bring change at a rapid pace promising increased efficiency at lower costs. Against these choices and evolving landscape, how can treasury look at how their team brings value to the business and how its performance should be evaluated? What are the core key performance indicators (KPIs) that can define the mission statement for a future ready treasury function?
Successful finance and treasury functions take business performance to the next level by focusing on converting reported earnings into centralised cash. What the business creates, the finance function reports, and the treasury function converts into real liquidity.
In essence, using a cricket analogy, I view the business as the bowler - generating earnings for shareholders in the form of wickets. It uses all of the delivery capabilities it can - fast, spin, swing, etc. - using innovative means, and sets a field position to attack its business objectives.
So what is treasury's position? Simply to ensure that the bowler's effort is protected, where no "runs" are needlessly conceded. Therefore it is the treasury - the wicket-keeper who provides the bowler the confidence to strive hard to achieve the maximum results - notwithstanding the occasional wide or no-ball of course! - and with the knowledge that the efforts will stay protected. That’s not to say that the wicket-keeper cannot also contribute to the occasional catch or stumping, through sound judgement and opportunity.
A well run operational treasury function should thrive by protecting and delivering value created by the business. As technology life cycles shorten, high performing treasury teams can target low cost means of delivering automated and efficient platforms for payments and cash collection, within in-house banking models. Working capital cycle potential is realised by a combination of commercial terms and process optimisation. Data quality is tightened to provide reliable reporting and drive cash generation, and advanced driver-based forecasting embeds cash culture, with clear KPIs (Key Performance Indicators), decision-making information and incentives.
Technology-led change is the key to improving processes and drive decision making through automation and simplification. That said, treasury transformation is both costly and time-consuming. Business cases for investments make capital and project costs difficult to get approved and an implementation could be out of date by the time it goes live. Considering subscription-based outsourced models and cloud-based SAAS solutions, and a long-term implementation partner may bring the rapid pace of change closer and position treasury as an innovator or fast follower. "Do nothing" is no longer a viable option - not only missing out on improved efficiencies and lower costs - with regulatory requirements (i.e. SEPA), potential errors (through manual and in-house excel based processes), and security and fraud issues, that could mean losing competitive advantage or, worse, increased operational and reputational risk.
Properly defined, addressed and invested in - this mission statement approach can stand for delivering more certainty over cash delivery value, with improved discipline and financial control, minimal leakage and enhanced financial credibility. Treasury performs as a trusted business partner, judged on protecting value. A safe pair of hands to convert reported earnings through the working capital cycle into free cash flow and centralised liquidity. Shareholders ultimately invest in companies that excel in their core activities and run reliable, assured and secure corporate functions that deliver market confidence.
The time is right for a tightening the mind-set on how to judge treasury functions. So, a high performing technology-led treasury function, that focuses on end-to-end revenue to cash conversion, puts the business in safe hands, I'd say. Do you agree? Leave your comments below.
