Faced with ongoing market volatility, the enterprise C-suite is leaning on its treasury teams like never before to protect company assets and to (ideally) also capitalise on competitive opportunities emerging from an unstable macroeconomic climate.
Global corporate treasury leaders can serve as particularly essential strategic advisers right now—if they can harness the right data, analysis, and technology strategy to navigate choppy market conditions.
A recent survey report from PwC and GTreasury, Treasurers: The First Line of Defense for Economic Disruption, offers the most current insight into how treasury teams and the office of the CFO are approaching volatility. This article discusses some of the key takeaways from that report.
Challenging during volatility—but can’t be neglected
Frequent and accurate cash forecasts are an organisation’s eyes and ears for maintaining cash visibility and liquidity while predicting cash flow amid a fickle market (and between a pandemic, geopolitical instability, and recession worries, fickle has become the baseline).
Harnessing disparately sourced internal data, advanced analytics, and connectivity to complete these forecasts is a crucial achievement but is a complex challenge without a modernised approach.
Treasury teams hampered by outdated systems and processes that require intensive manual effort due to a lack of automation will continue to struggle to keep up. This is why nearly half of the surveyed treasurers describe cash forecasting as somewhat or extremely difficult.
Accurate and frequent cash forecasts require efficient access to the most current company data, thoughtful forecast-to-actual variance analysis to make continuous improvements, and scenario analysis that anticipates potential economic and interest rate shifts.
The more scenarios considered and the higher the cash forecast frequency, the more prepared an organisation will be. The result is superior operational cash management, ROI, and confidence in paying down debt and traversing whatever conditions come next.
Corporate treasury actions for capitalising on improved cash management
Reliable, high-cadence forecasting is boosted by these recommended treasury tactics for managing turbulence:
1) Invest excess cash in instruments with advantageous interest rates. As central banks increase interest rates to combat inflation, treasurers should aggressively put cash to use—many still have not and leave money on the table.
2) Utilise advanced liquidity management techniques. Treasurers should take leverage in-house banking, payments-on-behalf (POBO) and collections-on-behalf (COBO) models, and virtual accounts. Doing so reduces transaction costs and enables greater cash concentration, allowing treasurers to address disruptions and maximise investments more easily.
3) Enhance working capital management. Treasurers should leverage cash forecasts to achieve better cash conversion. Some should consider creating a working capital council that is responsible for identifying working capital needs and for requesting valuable forecasting metrics from departments across the organisation.
Begin with quick wins in receivables and payables management and explore receivables factoring and supply chain finance as liquidity sources if cash flow dips.
To successfully pursue each of these actions, treasury teams need supportive collaboration across the business, and equally supportive tools and technologies.
Investing in a more modern treasury technology strategy
Treasurers and CFOs report zeroing in on technology and digital innovation to improve their ability to address cash and liquidity pressures. A lack of sufficient technology was noted as an impediment to managing volatile circumstances by 45% of the treasurers and CFOs surveyed.
While treasurers also cite securing the technology budgets necessary for digital transformation amid uncertain economic factors as another challenge, organisations that do make that investment reap substantial dividends.
For example, implementing a technology strategy to automate cash processes can yield clear visibility and control over cash, AI-driven predictions of liquidity needs, real-time transactional data updates, and faster connectivity for increased forecast frequency.
These capabilities must be understood as delivering not just treasury objectives, but also holistic objectives essential to the entire enterprise. Greater investment yields and cash conversion can make a difference in enabling businesses to launch in new markets or avoid layoffs.
Treasurers that shift from manual, time-intensive, and error-prone spreadsheet-based tooling to automated processes and real-time reporting can easily multiply their productivity, and their positive impact on their business’s overall financial health, growth, and competitiveness.
Consider these variables for a treasury technology modernisation strategy in response to volatility:
- Treasury platforms that centralise enterprise data enable advanced cash forecasting, predictive analysis, and scenario planning.
- API-based connectivity with banks and other portals enables faster, more real-time transactions and confirmations that replace slow and cumbersome manual methods.
- BI and data lakes greatly enhance treasury analysis, insights, and reporting, enabling better decision-making.
Be prepared for whatever comes next
Simply put, volatility should be treated as business-as-usual for corporate treasurers and the office of the CFO. With that mindset and plan, the treasury team can become as dependable as a rock when it comes to assessing the organisation’s current financial circumstances and determining a best-fit path forward.