Part 1 Treasury 2025 - Prepare today

Part 1 Treasury 2025 - Prepare today

2025 seems very far away. But what did treasury management actually look like ten years ago?

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2025 seems very far away. But you only have to look at the past and think about how much the world has changed technologically since then to be quickly taken aback. If you then think of the increasing speed with which the world is changing nowadays you would quickly wonder what the next ten years will bring. In the treasury management area it is also important not to fall behind developments in the environment and especially in companies. As treasury assumes responsibility for the handling of cash flows and management of financial risks, it has a material integrative role in the company. Among others, the association of German treasurers [Verband Deutscher Treasurer] illustrated this with its position paper "Definition Treasury" from June 2017. This responsibility must be assumed. Thus, it is now time to set the course to make the best possible contribution to the success of the company.

But what did treasury management actually look like ten years ago? Ten years ago, in 2007, treasury was fundamentally more decentralised. Group companies in many respects could operate more freely, as the necessary transparency in the discharge of the control function was often missing in central treasury. Data was not centrally compiled, analysed and corresponding actions taken; instead every Group company with treasury activities independently drew their own conclusions and took their own actions in many areas. A significant reason for this was the difficulty in technically connecting the companies to the treasury department.

From a technical point of view, the world of treasury looks a lot different today. In particular, treasury systems equipped with a fully-fledged range of functions have developed to integrated platforms that interact with widely available apps for special tasks. Thus, for many treasuries the issue of central data storage has already become reality. At least this is the case for the most important treasury processes. Further development is relatively clear to see: further integration of treasury data and the use of this data for decision making processes e.g. in risk management.

So what are the drivers compelling treasury to already become active in order to be prepared for 2025? External factors, including geopolitical power shifts or terrorism, economic changes such as Brexit lead to modified market accesses that are vitally important for the financial market in particular. Shorter product cycles and changes to the business model, such as in the event of the sale or purchase of business areas, have an effect on the internal processes for financing and risk management among others. But is this anything new? No. All the above mentioned points have been known for a long time and it is clear that treasury offers the right tools for these drivers and employs such tools flexibly. What are the right tools and what must be done today? That is what we want to consider in this article and highlight the following four areas:

  • Automation of standard processes
  • Digitalisation of decision-making processes
  • Embedded compliance
  • Performance as a quality indicator

New technologies are currently being discussed in the treasury world. Initial implementations, for example the issuance of promissory notes using blockchain technology are becoming visible. However, in many areas it is unclear which technologies gain the upper hand and how these can be used in treasury. Yet even with this uncertainty, it is clear that already at this point the right course of action is necessary to position treasury in this context. Those actions are as follows:

Automation of standard processes

The main terms in this regard are 'Straight through Processing', 'Management by Exception' as well as autonomous systems or 'Smart Contracts'. Take the example of the process of FX-exposure/liquidity planning, processing of bank statements or the removal of OCI in the context of hedge accounting. There are many further examples. In the framework of these processes, media disruptions (for instance the manual export of inventory lists to generate a report), manual adjustments (e.g. data conversion) and error correction appear on the agenda in many treasury departments - and to a significant extent! In this way, resources in the form of HR and expertise are tied up and are missing elsewhere like for example in the implementation of new technologies and preparation of financial strategies. We expect that lots of these processes will be completely automated in Treasury 2025, deviations in stipulated processes will be settled and the newly gained capacities will be available for strategic tasks. To this end the basics must be laid today. In this regard, 'resource drainers' should be identified and consequently eliminated on the basis of an analysis of processes and methods. The implementation of the standardisation of the process landscape and the elimination of exceptions is the only logical consequence.

Digitalisation of decision-making processes

The main focus is on networking of relevant information in real time, system-based decision-making on the basis of comprehensive data and self-learning systems. If we take the example of FX management, we can already see parameterised rules for decision-making as a basis for determining hedging contracts in some companies. In non-standard cases, like for example securing a dividend in foreign currency or project financing, complex individual decision-making based on manually prepared analyses is still the industry standard. To prepare a system-based decision-making process in Treasury 2025, we must ensure already at this point that a comprehensive, system-based exposure in real time is available and clear rules for the given conditions are defined. Individual decision-making will be replaced by a system of simulation and scenario-based decision-making and increased security for the corresponding implementation will be created.

Increased efficiency, the correct allocation of resources and greater certainty in decisions are the major effects of the areas discussed; however, we are not yet at the end of our journey to Treasury 2025. To see what opportunities await you and what you should do already at this point, read the second part of our article "Treasury 2025 - Prepare today" in our next Newsletter on 24.08.2017.

Source: KPMG Corporate Treasury News, Edition 69, July 2017
Author: Stephan Plein, Senior Manager, Finance Advisory, splein@kpmg.com 

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