covid-19

Elevating the Role of Treasury in a Crisis

January 9, 2021 by Tom Vu

COVID-19 has highlighted the importance of cash flow forecasting, data analytics and cybersecurity, and in so doing the pandemic has elevated the role of treasury.

More than 80% of treasury professionals globally said they believe treasury has become more valuable to their organizations during the pandemic.

Treasurers are tackling unforeseen challenges almost daily. Digital transformation has been fast-tracked. Security risks are growing. Work culture is being reimagined.

In the spring of 2020, our Journeys to Treasury alliance surveyed treasurers in search of practical insights applicable to senior finance leaders worldwide.*

The findings illustrate treasury’s rapid evolution and offer actionable ideas for navigating COVID-19’s impact.

Toward a Simplified, Modernized, Centralized Treasury

Companies of all sizes want streamlined operations, improved visibility into cash flow, and to optimize liquidity and manage risk. Treasury centralization can deliver all those advantages.

In our survey, 28% of treasurers identified centralization as a priority reflecting a long-term trend as treasurers push for better efficiencies and increased control.

The barriers to centralization have included: fragmentation and lack of standardization across processes and controls, bank relationships, account structures, and technology platforms.

But during the pandemic, the liquidity position has changed markedly for many businesses, underscoring the urgency of better managing liquidity and risk through centralization.

And with centralized treasuries adapting more quickly to the current business environment, some organizations are also seeing an injection of resources and support for the transition from senior management.

Top Priorities for Treasurers

Treasurers are reshaping how they work with teams and get work done. Creating the right culture and using the right tools has become crucial. With uncertainty clouding the horizon, finance leaders are asking themselves: What should I prioritize and how can digitization empower my team to make better-informed, data-driven decisions?

Cash flow forecasting is the highest priority for 55% of treasurers, continuing a long-term trend, and reflecting the importance of liquidity management during the crisis.
62% use, or plan to use, data analytics—compared with just 43% in 2019.
35% use, or plan to use, application programming interfaces (APIs) to facilitate integration for on-demand or real-time transactions or data exchange.
More than half (52%) of treasurers are interested in exchanging information in real time, and 47% are interested in real-time liquidity, real-time payments and collections.
37% reported that working capital management is a significant priority for them. But more than half (56%) indicated that they either have no role in working capital decision-making, or have influence rather than responsibility.

Cybersecurity: Heightened Vulnerability and Risk

The pandemic is proving a lucrative opportunity for scammers, fraudsters, and organized cyber-crime gangs.

Whether it’s Zoom meetings, fitness classes or virtual happy hours, work and social life have moved almost completely online. This can make them more susceptible to fraud.

Cyber criminals are exploiting this convergence of forces to spread malware and steal financial and personal data. The FBI calls the spike in fraud the “other” coronavirus crisis, and the SEC has warned of the growing cybersecurity risk to corporations.

Cyber criminals are using an array of attack methods and techniques that require organizations to respond to threats across multiple channels. At the same time, the proliferation of payments types has introduced new risks to organizations. Advanced technologies like multilayered security with adaptive authentication can help protect against threats, but treasury must also adopt a risk-management approach across the function. For example:

Treasury best practices:

Ensure processes and controls remain rigorous given the extraordinary circumstances
Allow extra time for key tasks to avoid making rushed decisions or taking action hastily and under pressure
Build backups into approval processes and provide mobile access for critical business users to enable remote approvals
Centralize master data handling
Digitize processes, avoiding manual and undocumented workarounds
Ensure systems deliver end-to-end traceability and drill down on individual transactions
Use data analytics as an additional layer of protection and be particularly careful when dealing with new clients and/or suppliers
Sanctions screening can be another potential line of defense

Payments best practices

Make sure employees know you will never ask to make urgent payments that do not follow normal procedures. Make clear in your policy that refusing to act on an instruction that is outside normal processes would never be a disciplinary offense.
Maintain vigilance against the risk of identity fraud.
Check and double-check that you know whom you are communicating with. Contact them using known and verifiable details, particularly when onboarding suppliers or amending suppliers’ settlement instructions.
Do not assume that callers are who they say they are (and don’t trust caller ID).
Never give anyone bank or security codes.
Check with management if you have doubts before executing a payment.
Participate in community fraud prevention and supplier validation programs.

The COVID-19 crisis unexpectedly elevated treasury’s role in managing existential issues around liquidity and risk. Although the way treasury functions operate has been reshaped, priorities have remained largely consistent.

Treasurers remain motivated by a long-term, strategic view of business needs, as opposed to being impulsively reactive to the day-to-day demands of the crisis. They have been empowered by technology providing transparency, real-time data and analytics that supports transactions, maintains flexibility and accelerates supply chain and cash cycles.

In the face of the crisis, the priorities of treasurers have not changed significantly, reinforcing the stability of the function during uncertain times. But the role of treasury continues to evolve in the drive to deliver ever greater organizational value.

We are marking the fifth anniversary of our Journeys to Treasury alliance with a “COVID-19 Special Edition” series to help treasurers navigate this unprecedented period. Read previous articles on Cyber Threats, Business Continuity, Managing Liquidity Risk, Cash Flow Forecasting, FX Hedging in Volatile Markets, and Managing the Working Capital Gap.

* Journeys to Treasury is a unique collaboration between BNP Paribas, PricewaterhouseCoopers (PwC), SAP, and the European Association of Corporate Treasurers (EACT). The European Association of Corporate Treasurers (EACT) surveyed 200 treasury professionals from across Europe on treasury’s role and priorities. Survey responses were received between March 11, 2020 and April 15, 2020.

Recovery & Reckoning: Sustainability After COVID-19

January 8, 2021 by Tom Vu

After COVID-19, there is no going back to the way things were.

The pandemic’s impact has forced the world to embrace new ways to conduct business and to lead our lives. Long-term resilience hinges on recognizing that people, businesses, and the natural environment are interdependent.

As business leaders think about sustainability in new ways, the answer lies in not only asking what a rebound might look like, but how a sustainable recovery can be realized.

Through the Means & Matters content hub, Bank of the West explores how global sustainability is being achieved through choices in lifestyle, business, innovation, and leadership.

READ ARTICLE >

Six Keys to Remote Treasury Management

October 28, 2020 by hyperadmin

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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Lessons from the Pandemic: 4 Key Takeaways

July 15, 2020 by Tom Vu

After decades spent refining efficiencies in planning, production, and just-in-time distribution, the Food & Agribusiness sector suffered the type of jolt this year that no one anticipated. The sudden appearance of the coronavirus pandemic saw processing plants shuttered, distribution channels stressed, commodities markets shaken by unusual volatility, and some consumer sectors disrupted.

Much of the Food & Agribusiness industry has since returned, but the very real shock to the entire supply chain—from farm to fork—continues to resonate. While many commodity prices have stabilized, some food inflation is likely to follow. The protection and healthcare of industry workers will remain a top consideration. Versatile product packaging has been needed and distribution is under intense, new scrutiny. And corporate strategies are being fully rethought.

Indeed, the recent supply chain challenges have delivered both profound impacts to the industry as well as valuable new lessons. We see the greatest impact in four key areas:

Although many supply chains were stressed, most of the underlying market structure survived. Among the most immediate effects of the global pandemic was a sudden imbalance of supply and demand, and in a matter of weeks, markets responded with relative efficiency. Prices soared for some commodities—including wheat, rice, and durum—as consumption grew and some countries effectively closed their borders and hoarded the grains. In some places, egg prices more than doubled. Other products, including meat-based proteins, encountered supply disruptions that led to scattered shortages. While risks remain involving energy prices and supply chain disruptions, the global market for food commodities appears to have mostly stabilized for the time being.
On the demand side, the impact from shuttered restaurants and foodservice outlets meant that manufacturers and distributors needed to adapt quickly. The logistics chains that historically provided direct store distribution or supplied large regional warehouses were confronted with new pressures on inventory and enterprise resource planning (ERP) systems. Although these work well in a stable economic environment, with such a massive shock to the system, the traditional inventory supply chain management was thrown for a loop. And while producers were able in most cases to provide raw materials, manufacturers were challenged with changing their products to a suddenly altered landscape of retailers. As an example on the retail side, the sale of frozen-food products, which increased more than 90 percent at the peak of the lockdowns in March compared with the same period last year, remain very much in demand. With some reopening happening in the U.S., year-over-year weekly increases still remained around 20 percent as of mid-June compared with a year ago.
The consumer response was immediately felt and, from our perspective, is likely to remain. Faced with the inability to dine out as usual, or even find prepared foods from their normal source, consumers turned to those products found on store shelves and jumped into online order deliveries. Many consumers discovered—or perhaps rediscovered—canned foods and staples they had not purchased in years. Bread flour and yeast were but some of the popular products as baking returned to households. Much-improved frozen foods, more healthfully prepared products, and even animal-free protein were some of the alternatives consumers chose when confronted with closed local restaurants and a surge in meat sales that challenged some retailers. For the first time in our lives, many of us spent time ordering our favorite foods online: in our case, duck meats and related farm products from New Jersey; preferred chocolate bars from New Hampshire; and an excellent set of vegetable antipasti and main courses from an Italian restaurant in the neighborhood—all perfectly home-delivered. In fact, both Conagra and General Mills reported very significant increases in e-commerce sales in the three months ended May 31 compared with a year earlier. We expect some of this demand to continue in the ”new normal” future, leading to a volumes-based tailwind for the industry.
Our belief in the underlying financial strength of the industry was also reinforced. Many companies we talked to were focused on managing the impact of increased food-at-home consumption and the shutdown of many foodservice markets. Production and logistics shifts from foodservice to retail were top of mind, prompting questions about liquidity needs in the face of supply chain disruptions and uncertainties of what might lie ahead. Supply-chain financing, including credit needs and receivables risk, were also key interests for many of our clients, as were questions of strategic refocus regarding possible external growth. Given the disruptions occurring and the unknown duration of the impact of the pandemic, many companies have begun to reconsider their corporate strategy in light of a new market environment. Rather than shelve expansion plans entirely, the industry is likely to pursue new, albeit adapted, types of capital expenditures and different value-based acquisitions.

Much of the relatively quick recovery of most of the Food & Agribusiness industry has come thanks to the nature of the business itself. Essentially an industry based on just-in-time supply chains and fast-moving goods with inherently limited shelf lives, flexibility and agility were already at the core of much of the industry’s success.

While we expect more challenges and changes to come to the Food & Agribusiness sector, the industry has shown itself well prepared as it adapts to a new global environment.