Shared services – Why not for Treasury? | KPMG | SE

Shared services – Why not for Treasury?

Shared services – Why not for Treasury?

Apart from the usual aspects of process optimization (such as eliminating redundancies and standardizing processes), there is another way to improve the effectiveness and efficiency of processes: (internal) outsourcing or bundling of processes in shared services units.

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Partner, Head of Treasury & Investment Management Team

KPMG i Sverige

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Digitalization - a subject of ever greater concern to us all

Digitalization - a subject of ever greater concern to us all - in our private and professional life. The transformation of corporate processes aimed for in many cases and already implemented in some instances also includes Treasury and changes the requirements for treasury staff as well as business model for the treasury department (see our Newsletter article 'Treasury 4.0: From standardization to digitalization – treasury organization of the future' Issue 64, March 2017). However, while in the areas R&D and production for example the implementation of digitalization processes and thereby digital networking between those involved in these processes has become essential for the competitiveness of companies, in central administration the main driver is improving the effectiveness and efficiency of financial processes.

Apart from the usual aspects of process optimization (such as eliminating redundancies and standardizing processes), there is another way to improve the effectiveness and efficiency of processes: (internal) outsourcing or bundling of processes in shared services units. While the establishment of shared services centers in the area of financial accounting, HR management or travel expenses is part of the standard repertoire of optimizing the finance function, taking a shared services approach in the area of treasury management is still in its infancy. The reasons for this could be not realizing the potential benefits or fear of losing control once processes have been outsourced. But is this justified? Don't the principles generally applicable to the organization of finance also apply to Treasury?

Shared services in Treasury – What does this actually mean?

Generally speaking, the centralization of processes for the purpose of implementing shared services and the associated bundling of expertise and organizational alignment lead to an improvement of quality and the measurability of performance with respect to processes and activities. At the same time, the focus in outsourced areas shifts from generally manual, repetitive activities to complex value-adding activities. Doesn't this sound like a win-win situation? And why not also use it for the Treasury function?

This raises the question: which treasury processes are suitable for outsourcing to a shared services unit? The answer is the same as for other corporate functions: the more standardized, repetitive and automated the task, the more suitable for outsourcing. Generally, functions can be classified into a hierarchy according to their potential for outsourcing:

What does this mean for Treasury?

Treasury processes can be easily allocated to the categories shown in the diagram! Typical transactional and therefore fundamentally suitable activities for outsourcing are found for example in the following processes:

  • Cash management, particularly bank account management, processing of bank statements, scheduling and payments: 
    • Bank account management (such as opening, closing, document management, administration of powers of attorney) usually already is highly repetitive and standardised, also because of the formalised application processes of banks. Other largely transactional activities include for example the reconciliation of balances for liquidity planning (including checking the completeness of account statements), monitoring payment processes and initiating escalation procedures in the event of irregularities or conducting denied party checks in the course of checking payment files. Even the planning process can be outsourced, as it can be almost completely automated and controlled based on rules.
  • Transaction management, especially settlement of financial transactions:
    • A large proportion of repetitive and standardised activities relates in particular to the coordination of trade confirmations (especially with a view to regulatory requirements relating to EMIR), fixing confirmations, checking and releasing financial transactions or reconciling securities account statements.

Important issues with regard to compliance

No compliance issues should remain unresolved, especially for sensitive treasury processes, such as payment transactions. Precise process models and service agreements must be drawn up for each outsourced process. Additional agreements must be concluded for specific treasury processes, interfaces and authorization roles. And finally, adequate monitoring of the agreed service and process quality with clearly defined escalation procedures should not be overlooked.

Conclusion

The above examples of suitable processes clearly demonstrate that these are core treasury management processes – so that the outsourced processes must fit seamlessly into the treasury process model. This is possible with integrated treasury management systems that allow the processing of business processes at different locations and times with the support of workflows.

In many locations, the volume of treasury processes is not sufficient to make a convincing business case for establishing a shared service center. However, if there already is an established shared services infrastructure (and implementation costs in full do not have to be covered by treasury income), then a treasury shared services unit quickly becomes a viable alternative. This should also be seen in the context that treasurers increasingly have to consider the issue of standardization and automation anyway. Because it should not be forgotten that the standardization and automation of processes are a necessary prerequisite for successful digitalization.

The treasury shared services concept is only the first step. In order to best exploit economies of scale, external service providers bundle treasury processes across entities – with the right data protection and security procedures in place of course. Treasury Managed Services – a concept we will hear a lot more about in future, no doubt.

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