Treasurers must start with defining treasury policy, processes and procedures which clearly outline the objectives and desired outcomes. It is crucial for company boards to actively endorse this.
A simple treasury policy emphasising visibility, automated tracking of inflows and outflows and counterparty risk management can establish basic guidelines for change and cooperation across the organisation.
This is a necessary foundation for effective treasury management that centralises cash and establishes cash levels appropriate to the size and volatility of the business.
The simpler the goal, the easier it would be to articulate and measure against. Organisation-wide willingness to embark on control of cash can be better achieved through a board mandated treasury policy.
A significant challenge for treasurers continues to be resourcing. In the last 10 years, there has been much said about the treasury in an organisation playing a much wider and strategic role in enterprise-wide risk management but the resources added to this space haven’t necessarily kept up with the rising expectations.
Resourcing needs are likely to be higher in periods of initial implementation. A clear board-mandated policy can give treasury the licence to add resources, cross-skill staff and re-prioritise initiatives during the phase of implementation.
In my own experience of observing successful implementations of projects, I have seen the most impact where treasury has operated with the right resourcing armed by a clear mandate from the board.
While treasury is the author of this policy, the board’s mandate ensures there is an agreed governance model for accountability in line with the policy which will further provide an impetus to getting broader support for implementation.
The risk of running out of cash can never be completely hedged. In case something untoward happens, having a plan means energy is focussed on the response rather than the emotions of how or why it was allowed to happen.
This policy can become the guiding principle which pushes the organisation towards enterprise wide risk management.
For example, account rationalisation can be an emotional and challenging topic within an organisation with many different entities, currencies of operations and banking relationships.
It is not uncommon for companies in Asia to open bank accounts with multiple banks based on the convenience of their trade partners. Such bank accounts, while perhaps beneficial from a customer service angle, clearly obscure cash visibility, if that is a goal outlined by the policy.
Another simple goal that mitigates risk is automated inward confirmations. Many companies rely on an army of people identifying inward receipts and applying them to outstanding invoices.
Often a payment transaction needs information from multiple sources to complete the story around the transaction - costing time and money.
Finally, centralisation of cash with treasury to extract greater returns on cash through increased scale and bargaining power for investments and borrowing can lead to the whole organisation benefitting from the outcomes.
Shailesh Venkatesh works in Liquidity Management - Product & Solutions, Transaction Banking at ANZ