The Biggest Challenges for Treasury Management Departments

Deloitte released their 2015 Global Corporate Treasury Survey in January this year, which found after surveying 100 corporations that cash repatriation, treasury technology systems and liquidity risk management are the three biggest challenges that treasury departments face.

Since the 2008 financial crisis, treasury teams have been encouraged to undertake a more strategic role in order to combat the problematic issues that arose during the crisis.

Deloitte reported that the “primary challenges facing treasury groups today have not yet been resolved with the increased investment in treasury technology, a trend over the past few years. Inadequate systems, FX management, and visibility to global operations continue to be difficult.”

The survey revealed that 50% of the respondents had issues with cash repatriation, which is the process of converting foreign currency, dependent on the exchange rate at the time of settlement. Half of treasury departments surveyed also believe that foreign exchange volatility is a problem which reiterates the need for effective risk management when dealing with big sums of money.

Credit Suisse estimate that “amounts repatriated or earmarked for repatriation hit $301 billion in 2014.” Companies are reluctant to repatriate their cash because of the high corporate tax rate. According to a recent JPMorgan report, Apple for example, “is hoarding about 89% of its total cash overseas.”

Sabine Vollmer from CGMA Magazine offers advice for companies being taxed for cash repatriation. She encourages firms to have a cash management strategy where “treasurers work closely with their colleagues in tax and legal functions to understand and assess the impact of new regulations.”

Vollmer also says that “companies should ensure they make the best use of technology and inquire whether they would benefit from innovations such as in-house banks and payment factories.”

40% of survey participants said that they use enterprise resource planning (ERP) software and are still finding it creates an inadequate treasury infrastructure. The report showed that “most corporate treasury groups rely on multiple ERPs for data sources and use multiple solutions (some manual) to address their company’s needs. This may lead to increased operational difficulties and risk rather than providing sufficient solutions to address these challenges.”

Last month, however, the CitiConnect ERP Integrator, an extension of CitConnect, Citi Bank’s industry leading connectivity platform which is part of their electronic banking product suite, won the 2015 Celent Model Bank Award.

In 2014, PwC conducted their own survey called ‘Treasury Shown in a New Light’ which questioned 110 companies across the world. The findings showed that “Technology and workflow has become the backbone of effective treasury management and treasury applications have been indispensable to most treasurers.”

Also, “80% of respondents said that they had integrated TMS with other systems as a way of reducing operational risk and more than three-quarters had upgraded their existing TMS or implemented a new system recently.”

More recently, asset management solutions firm Indus Valley Partners, introduced their new customisable treasury system, IVP Treasury 3.5 this week, which will be available on the cloud for businesses who are seeking a more reliable treasury management system (TMS).

Although new treasury management systems are being used to eliminate risk, Deloitte implies that homegrown approaches “may pose greater cyber and operational risks.” The survey found that security is also being considered by businesses and that “30 different vendor solutions were cited as being used by respondents, often in conjunction with a primary treasury management system.”

“The majority of respondents indicated that the treasury group is engaged directly with its technology vendors,” the report said.

Deloitte also commented on how a customised ERP system would be beneficial as “Migration onto a single ERP platform can allow for improved data sourcing and consolidation.” Another company-wide transformation initiative that treasury services currently use is legal entity rationalisation which “can provide an opportunity for improved liquidity.”

29% of the respondents of the Deloitte survey said that liquidity, the ability to convert assets into cash quickly, was a primary issue that their treasury department was faced with. In order to be more strategic, 70% of treasurers surveyed said they had ordered a mandate for liquidity risk management from their CFO and 95% of respondents said this was “important” for a treasury department.

This week, it was reported that MORS Software will deliver their MORS Treasury Manager and MORS Liquidity Manager system solutions to Hoist Finance, a leading debt restructuring partner to international banks. These systems will enable Hoist Finance to manage their daily treasury operations and maintain a clear view of the company’s liquidity position by providing data on individual transactions.

Magnus Linnersand, Head of Treasury at Hoist Finance said that they “wanted a flexible treasury solution that would enable us to monitor and manage risks, as well as generate LCR (Liquidity Coverage Ratio) and additional regulatory reporting.”

The Deloitte Global Treasury Survey outlines the major problems that treasurers deal with as cash repatriation, adequate treasury management systems and liquidity management, and in order to overcome issues related to these areas, treasury departments should be strategic and engage in transformation which can “lead to more streamlined systems and processes and potentially reduce overall costs within treasury.”