While the corporate treasurer’s fundamental role has remained steady, the treasury function has seen dramatic impacts from a changing market that is increasingly moving toward real time. In pursuit of instant cash management and visibility, treasurers’ modernization efforts have been underway for some time, with the global coronavirus crisis greatly accelerating those initiatives as liquidity management has become even more vital to the enterprise’s overall health.
Though the corporate treasurer’s strategic focus to understand cash positions has been a constant, the points of friction preventing that visibility continue to evolve and intensify, according to Lori Schwartz, global head of liquidity solutions and escrow at J.P. Morgan.
Luckily, technology continues to evolve in ways that can aid treasurers in their pursuit of optimizing liquidity management.
“While those friction points are indeed impactful, they’re not insurmountable,” Schwartz recently told PYMNTS’ Karen Webster. “But they need to be planned for.”
As corporate treasurers hit the ground running in 2021, Schwartz said, they must be strategic about implementing cutting-edge solutions and should work with their banks as collaborative partners to overcome the biggest barriers to working capital optimization.
A Fork In The Road
Pain points existed in liquidity management processes well before the pandemic ever hit. Though treasurers’ goals of optimizing working capital, forecasting payables and receivables, and funding accordingly are relatively straightforward, the reality is that everything from managing cash in various currencies, to moving funds across borders, to overcoming constraints from different time zones add plenty of friction to the liquidity management process. Intensifying these pain points is the continual shift toward a real-time world in which instant movement of funds has made understanding cash positions at any given moment even more complex.
With the onset of the coronavirus crisis, those friction points were exacerbated by abrupt business model shifts and, for many, a significant reduction of capital inflows, as Schwartz explained.
“The most repeated question across all companies was, ‘How much cash do I have?'” she said. “That was made all the more important as companies shifted from reliance on their revenue-generated cash to things like intercompany funding and external sources of cash.”
Treasurers may have faced many of the same challenges. Still, their experiences in overcoming them varied greatly — in large part depending on the technology adoption strategies they implemented before the pandemic hit.
Some key tools that emerged as most beneficial to treasurers included physical cash concentration, notional pooling and virtual account solutions.
“What we saw directly was a fork in the road, a divide where companies that hadn’t invested in those solutions were slower to access and optimize their cash, whereas centralized treasuries, and many of those with in-house banks, could more swiftly respond and funnel cash where it was needed,” said Schwartz.
The leaders, said Schwartz, were those who identified key tools to optimize liquidity management and paid attention to how their banking partners actually developed those solutions in favor of seamless integration.
The key to a successful technology strategy is a focus on data. To make use of valuable information stored with treasury tools, those tools must be built with a focus on interconnectivity and accessibility of data — ideally, in real time.
“I always advocate for treasurers to focus not just on what products the banks can provide, but how those products have been built, because it’s that interoperability that’s going to offer flexibility for the future,” said Schwartz.
A Forward-Looking Strategy
As corporate treasurers look out into 2021 and beyond, they’ll be wise to turn to their banking providers as strategic collaborators that can help identify the technologies to facilitate real-time cash visibility and liquidity management and to seamlessly integrate those tools in the back office.
It will be key for treasurers to understand that no single technology can achieve working capital optimization. Rather, Schwartz said, it’s often a combination of tools working together that yield the best results.
For instance, both cash concentration and notional pooling can enable a treasurer to understand an end-of-day cash position. Yet, it’s when these two techniques are combined that a treasurer can truly optimize liquidity management across borders and currencies. Virtual accounts can elevate this even further by enhancing underlying data integrity and availability.
In the year ahead, treasurers’ top goals and biggest challenges will be largely the same as 2020, whether the market continues on a volatility course or experiences a rapid rebound. But what is different, said Schwartz, is that the technologies available to treasurers are growing more sophisticated. Treasurers should lean into the opportunity to work with their banks and mix and match the tools that can elevate their liquidity management capabilities.
“My encouragement to all corporate treasurers is that the effort is worth the reward,” she said. “Make sure to understand not just the products today, but more so the way technology has been built and how that will benefit flexibility in the future. Because, if we know anything, we know that the future is not a certain path.”