Treasury 4.0 – Cash management | KPMG | SE

Treasury 4.0 – Cash management: The future has been and gone

Treasury 4.0 – Cash management

Cash management has always been with us. That is how it feels, at least. It has also continually developed and evolved over the years, sometimes taking major strides forward.

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In no particular order, this article discusses issues relating to Treasury 4.0. It outlines key topics and provides food for thought about the direction in which treasury departments will move. But it also invites the reader to debate these issues with our authors.

Cash management has always been with us. That is how it feels, at least. It has also continually developed and evolved over the years, sometimes taking major strides forward (planning support provided by treasury management systems, EUR cash pools), and sometimes contenting itself with smaller steps (cross-currency notional pooling, virtual accounts) that have yet to become fully established. One thing that has barely changed up to the present day, however, is the personnel expense that cash management involves at many companies. Rather than talk about the reasons why this is so, let me simply paint a picture of what cash management in a digitized world should – and will – look like in the future.

Before doing so, let us take a step back. Ultimately, cash management is nothing more than the residue from fundamental entrepreneurial decisions about the capital resources made available to subsidiaries. Logically, therefore, the question of the strategic orientation of cash management will be predetermined substantively by the equity and debt structure of the individual company, and by the target system that results from this structure (e.g. the optimization of interest expenses or total costs after tax).

Our focus, however, is on the daily routine process of cash management (excluding payment transactions). What should this process look like under Treasury 4.0? How can it be shaped and molded by the technological possibilities we already have today? The following processes – sketched only briefly here – are of relevance to our subject:

  1. Bank statement processing: Automated retrieval of all account statements in electronic form before the working day begins; monitoring of possible errors and automated notification to the relevant bank. Automated clearing of the account statements in the bank accounting unit. Display of the corresponding status for each account on the cash manager's dash board.
  2. Planning: Planning is matched automatically in parallel to the clearing of the account statements. By default, uncleared planned positions from the previous day are moved to the current day and displayed to the cash manager. The latter then decides which of these inflows/outflows they want to look at and whether or not planned payments can remain unchanged. Bank account planning is scheduled automatically on the basis of outflows from these accounts (information from the payment factory), expected inflows (liquidity forecast – note: either automated and self-learning or based on the use of predictive analytics depending on the business model) and the inflows and outflows from financial transactions taken from the central treasury management system for the current value date. Account transfers are generated by the system in accordance with defined rules wherever no zero balancing rule has been put in place by the bank. Limits are monitored automatically in real time. Transactions are stopped if they would exceed a defined limit. A non-compliance report is then generated and forwarded to predefined recipients. It also appears on the dashboard for manual processing by the cash manager.
  3. Short-term borrowing and investment: Planning for both the current day and the next two to seven working days is taken into account. Matching can be extended to include four-week, eight-week and twelve-week liquidity forecasts, from which rule-based proposals are made for the borrowing or investment of funds. Predefined processes (automatically) implement these proposals, with or without automated requests for comparative tenders.

At this point, you might be asking yourself what cash managers will spend their days doing in this scenario. Essentially, their job will be restricted to monitoring the automated processes and handling the manual postprocessing of exceptional cases. This in turn automatically raises two further questions:

  1. How many resources will a corporate entity need to handle these activities across all its companies? Initial analyses show that as much as 70% of the daily cost of cash management could be saved.
  2. Does this activity have to remain with the treasury department, or would it not be much better to attach parts of it to the bank accounting unit or a shared service center? There are a series of arguments for and against this kind of shift – especially if we include those tasks that concern themselves with the definition of the rules described above for the automated implementation of individual activities.

Either way, it is a fact that the process automation steps described in this article are, to a very large extent, already technically feasible today (albeit not yet with all systems) and will prompt a significant change in the job profile of cash managers. Digitization stops at nothing, and cash management is no exception.

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