We are in the era of the business unusual. The new risks and market changes that COVID-19 ushered altered business norms. Well-oiled and prepared businesses survived (and some thrived), with many companies taking defensive financial positions and granular control over liquidity.
As liquidity became a significant concern for organizations, the Treasury Department was asked to monitor inflows and outflows more closely. It also shone the spotlight on the department.
Decision-makers demanded real-time data across a multitude of projects as they navigated the new normal market. As a result, process inefficiencies, data integrity, and the limitations of overdependence on Excel spreadsheets were exposed.
A recent FutureCFO C-Engage vRoundtable examined the role of digitalization in addressing these challenges and gaps. Co-hosed by Kyriba, the lively discussion highlighted a general shift toward the digital Treasury.
New normal, new expectations
One immediate challenge that the Treasury department faced was foreign exchange (FX) exposure.
Steven Ho, finance director at TVS Asianics, noted that his business does a “fair bit of transactions in foreign currencies.” The global market volatility has made this a significant risk for this business, and Ho is looking to minimize the exposure and mitigate potential losses.
While TVS Asianics took a cautious approach with hedging strategies, the unpredictable demand and supply, and subsequent payment delays has the potential to lead to FX exposures. “We did not want to get ourselves cornered by the exchange fluctuation. And this can be quite huge when you consider transactions that are in the six or seven figures,” Ho said.
It is a point that Maggie Yeo, the chief financial officer at Intraco Ltd., also highlighted as her most significant concern.
Another primary concern is cash pooling and netting, which other participants like Chin-Wee Chew, financial controller at ResMed Asia Pte Ltd, pointed out as a significant focus area. The challenge was not setting it up but managing the process. It requires a fair amount of time spent on investigation and fact-finding.
“There may be instances where there is a matching requirement of payment and cash requirement. So, this is still done very manually,” said Chew, who felt it was not ideal.
“We need to ensure that we optimize the process to get the funds back from the overseas entities to the head office,” added TV Asianics’ Ho.
For Imelda Oei, global head of tax at Integrated Micro-Electronics Inc. (IMI), treasury and shared services was a key concern. She noted that there should be more coordination, and part of the problem stems from not having a system that can allow quick data access.
“So, having one platform that can be accessed from other sites around the world will be good,” Oei added.
Changing the Treasury-IT conversation
The need to optimize and digitize Treasury has led to new levels of conversation between the department and IT.
For Tony Lee, vice president for group business solutions and systems at CapitaLand Limited, the question becomes how to empower Treasury for efficiency.
“The primary concern is to ensure a deep set of analytics and capabilities for both the loan books and cash books. So, we’ve been focusing on delivering these using our own data lakes and tools,” said Lee. He noted the main aim is to help his company’s CFO to “have control of across the entire CapitaLand’s books.”
Jaeson Kim, the managing director for Asia Pacific at Kyriba agreed that digitizing Treasury will require IT and the finance department to talk closer. He noted that there is a lot of queries from customers around payments and risk exposure. The primary motivation is protecting cash and remaining fairly liquid during uncertain times.
Another area where Treasury is working closely with IT is in detecting fraud. “I think fraud has become a huge topic in COVID-19 situation right now,” said Kim.
Equally important is supply chain financing, which touches on the topics of invoice and reverse factoring. “People are looking to see if there are ways for them to leverage their excess cash or the limitations in [acquiring] cash,” added Kim.
Becoming a strategic partner
All participants agreed that digitizing Treasury is essential. Efficiency and agility remain the top motivations.
For example, the current uncertainty requires companies to do quick scenario analysis. While historical norms can offer some guard rails, many CFOs at the roundtable acknowledged taking the right steps forward was never clear during the current uncertainty.
They wanted quick access to the right data, scenario analysis on the fly, and a single transparent view of the financial operations. Digitizing Treasury allows this.
Intraco’s Yeo added that having data in real-time matters in the current market. When Kyriba’s Kim queried, what was preventing real-time data analysis, the participant’s overwhelming answer was using Excel spreadsheets. ResMed’s Chew noted the current use of Excel spreadsheets has made information patchy.
Another reason for the inability to access real-time information is the use of financial systems that were not designed for ingesting real-time data. Intraco’s Yeo noted that the staff tends to process data at the end of the month. This is a bad habit which she would like to change. Otherwise, even if the ERP system is real-time, information will not be up to date.
For IMI’s Oei, this makes the alignment of technology with financial processes vital. TVS Asianics’ Ho noted that this alignment should go beyond process and products and include the operations team’s understanding of cash, FX, and treasury functions.
“Another point is that the input of the actual data into the system is not done in real-time. People tend to wait for everything to be ready before keying [the data] into the system,” Ho added.
Nelson Wong, head of treasury at GuocoLand Limited, also pointed out user acceptance of new systems and technologies. He noted that having a system that works like Excel can lower the resistance and improve adoption rates.
The future of Treasury
One significant benefit of digitizing Treasury lies with better data integrity.
GuocoLand’s Wong noted that using spreadsheets can become tedious when “different bosses want to see the same information slightly differently.” This means his team has to slice and dice the data sets based on specific areas of concern.
“The worry is about whether the information is ‘wholesome.’ You may leave a few crumbs [of information] here and fall off the entire pie, and you wouldn’t know about it. This is where data integrity, as well as the analytics capability of digitization, actually stands out.”
TVS Asianics’ Ho felt that digitization can speed up decision making. “Because the numbers of the currency keep changing every minute or second, the senior management procrastinates on certain decisions. So, you end up with a lot of number crunching, but no decision is made. Sometimes, too much information can be a hindrance to decision making.”
By making information real-time and allowing the information to be presented more intuitively, Treasury can quickly help decision-makers make the right decisions.
As a result of the transparency, decision-makers and CFOs can, for example, know if their cash positions are at risk immediately. It allows companies to become more proactive rather than reactive to market trends.
IMI’s Oei agreed. She noted that digitization can lead to better risk management and liquidity optimization while preparing for new regulations and guidelines. GuocoLand’s Wong added that CFO teams can now stress test scenarios, vital in a climate of uncertainty.
“Currently, until you get your MT940 in place, you will not have the visibility [to do this],” said Wong. MT940 is the SWIFT banking communication standard for the electronic transmission of account statement data.
Cedric Chambault, sales director for Southeast Asia at Kyriba, observed that overall digitization can allow companies to make Treasury efficient.
“We already have seen an evolution in terms of Treasury’s responsibilities. Some organizations now have the Treasury team as the payment gatekeeper,” Chambault explained.
In turn, he noted, a digital Treasury will give companies the real-time transparency needed to take the next steps. It also makes Treasury a strategic partner of the business.
