Managing treasury functions in the best of times requires a smooth integration of planning, tracking, reporting, reconciling, and forecasting. But in the current environment, performing these tasks has meant not only new challenges but the need for new solutions.
As more companies have been forced to embrace a remote working model, treasury operations are becoming increasingly dispersed outside corporate headquarters. While addressing issues of employee safety through social distancing, this new approach has required rethinking the overall process of consolidated treasury management.
“With most companies, when sales are going through the roof, their focus on internal controls, process improvement, and enhanced working capital strategies isn’t really at the forefront,“ observed H. Chip Spiegel, Director, Treasury Solutions at Bank of the West. “COVID has been basically a catalyst for greater awareness. It’s caused Treasurers and companies to recognize the things they have to do internally, and how they become more efficient in this environment.”
Although the ability to work remotely was already prevalent in some industries, in sectors such as manufacturing, retail, and transportation only 3 percent of employees were working from home just a few years ago. And whereas fewer than 40 percent of most employees were home-based at least one day a week before COVID-19, according to one survey, that level jumped to 77 percent during the pandemic and is expected to remain at 55 percent even after it passes. Indeed, one estimate suggests that as much as 70 percent of employees will be remote at least five days a month by 2025.
Given this new environment, the global impact of the COVID-19 pandemic and the resulting need to shift employees to remote workplaces—now and in the future—has focused attention on six key areas within treasury operations.
6 Keys to Remote Treasury
1. Risk and Control: With the introduction of lockdowns and social distancing, the sudden rise in the number of remote workers led to the immediate need to attend to controls surrounding system access and rapid deployment of hardware outside the office.
Whereas the treasury risk function was historically focused on transactional risk with clients and suppliers, that concern urgently expanded beyond transactions and increasingly became a matter of internal cybersecurity regarding flow of information.
External protections and defensive control protocols were needed as networks and internal systems were accessed from an array of external sites. In response, additional security parameters, including log-in recognition and sophisticated encryption capabilities, were required to provide multilayered, risk-based protection.
2. Liquidity: While issues of liquidity have always been a priority in business, the impact of the COVID-19 pandemic on production and supply chains, as well as customers and financial partners, had a profound effect on both balance sheets and liquidity management.
Changes in cash management—including investment decisions, debt management, and portfolio restructuring—were just some of the ways that companies responded to an unknown economic future. In this year’s first six months alone, for example, banks in the U.S. saw the addition of $2.2 trillion in deposits*—three times the amount of any previous comparable period.
Although ensuring supply chain continuity is not directly a treasury function, aging of receivables and monitoring of production feeds directly into treasury planning. And for many companies either selling into the international market or receiving materials and products from overseas, the challenges are magnified further.
3. Real-Time Reporting: Faced with a rapidly changing marketplace and economic conditions, companies were pressed to closely monitor payments and receivables on a real-time basis.
With the incorporation of advanced programming interfaces (APIs), Treasurers turned to systems that were able to access and control real-time updates from anywhere. Thanks to always-on account activities that give Treasurers the ability to track transactions and data among accounts, systems were able to go beyond the historical method of periodic batch reporting.
Supply chain disruptions required tracking of scheduled payments to align with shipping confirmations from suppliers, while verifying customer receivables required reliable reporting to ensure sufficient liquidity. In addition, transaction messaging and programmed alerts were especially key for remote cash management without the need for treasury managers to repeatedly check for updates on payments or pending transactions.
4. Information and Control: Many Treasurers also sought to leverage unattended scripted file reporting, which automatically populates reports into the company’s enterprise resource planning (ERP) system and matriculates out through the organization in various formats.
This information, in turn, could be distributed without a Treasurer’s immediate intervention. When a payment was received, for example, it was posted and recorded. Or if a receivable was returned, a file was sent to credit and collection, which could then put a credit hold on a particular customer.
In addition, payment initiation—whether a bank wire, same-day ACH, check, etc.—could be managed remotely with predetermined authorities and controls in place. Consolidated reports containing cash balance information, snapshots of payables and receivables, and line-of-credit utilization could be scheduled.
5. Forecasts: While many simulation tools exist to create forecasting models, each depends on rich, granular, historical data to be applied to future expectations. But unlike in the past, generating reliable predictions in today’s environment was problematic at best.
“Forecasting is probably the greatest source of angst for any Treasurer simply because what was sort of predictable is now no longer predictable,” Spiegel observed.
Recognizing and reassessing risk components within receivables, as well as incorporating risks on the supplier side, are vital activities in the current role of Treasurers. With the business landscape changing daily in various markets, accessing and updating financial information has been key to shaping any reliable business forecasting.
6. Communications and Morale: For any business function that takes place in a remote environment, ensuring high employee morale through robust communication is key. Maintaining frequent contact with managers and direct reports helps ensure that new ideas or new issues are discussed in a timely manner, while also improving a sense among colleagues that they remain valued and supported.
This heightened attention to information-sharing has become particularly important with the recent disruption of key supply chains, customer relationships, and business operations. In-person meetings, impromptu conversations within the office, and the distribution of paper reports are no longer possible at many companies. Ensuring system security for internal communications and file sharing has taken on heightened importance.
Navigating the New Treasury Environment
The treasury function has rarely been this challenging. With so many uncertainties about the global economy, supply chain efficiencies, and customer behavior, the difficulties inherent in attending to the traditional responsibilities of treasury were multiplied in just a matter of months.
By establishing secure protocols for report distribution, payments tracking, and the dissemination of financial information, companies have increasingly found success in transferring the treasury function to a remote environment.
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