New world order: priorities for corporate treasurers, today and tomorrow

By Karen Penney | 8 August 2016

In today’s continually changing global economy, it’s now more important than ever for corporate treasurers to protect their organisation against uncertainty. However, given the shifting economic macro-environment, this is no mean feat: the number of unknown variables is increasing, and so the task of managing risk is becoming more complex. The good news, however, is that there is a great deal of innovation in treasury and payments technology that will help corporate treasurers to address the challenges posed by an evolving landscape.

Digitalisation and innovation in treasury technology is helping to increase the speed, efficiency and safety of treasury operations. Today’s treasurer must therefore be able to embrace emerging technologies to better manage these priorities, to increase stability and to help address funding inefficiencies across the supply chain. Uncertainty in the global economy and an increasing focus on risk management, liquidity and cost control has put the treasury function centre stage.

Improving liquidity planning and management

Given the evolving global marketplace, being able to effectively manage the liquidity of the business is vitally important. Having flexible funds available at any given moment will help treasurers navigate the risks posed by operating in a fluctuating and international market. With this in mind, the corporate treasurer’s job has become increasingly strategic, as corporations rely on their treasurer to make informed decisions about working capital management and risk exposure.

There are a number of approaches that businesses can employ to optimise their cash flow and available working capital. Firstly, it can be tempting for companies to become over-reliant on a single source of credit. Making simple operational changes such as using additional short-term financial resources to optimise liquidity can significantly ease cash flow pressures and help to sustain ongoing activities. For example, companies can defer payment by using third party payment providers to pay suppliers on a company’s behalf.

Secondly, treasurers need to focus on gaining further visibility and control over costs and expenditure, enabling them to make better-informed decisions and gain a greater understanding of potential cash pressures in the future. Expense management tools allow businesses to track trends, such as potential over-expenditure or excessive ordering. Having accurate information management systems and forecasting in place ultimately leads to tighter financial control resulting, hopefully, in more opportunities for investment and growth.

Embracing greater automation through technology will be essential to successfully managing cash flow. By automating operations and processes, treasurers will be able to dedicate more time to analysing spend and assessing risk.

Managing risks in international payments

Another key priority for corporate treasurers will be the process of making international payments, and protecting their business against the associated risks. Businesses are increasingly looking to overseas for new growth opportunities, both in terms of customers and suppliers: the American Express Global Business and Spending Monitor 2016 found that 26% of companies in Europe plan to expand their sales in Asia over the next year, and 23% in North America.

Operating in the current global environment has, however, comes with its own set of challenges for corporate treasurers. The complexity of making international payments has historically been a challenge for companies looking overseas. Letters of credit have traditionally been used as a means of securing cross-border transactions, acting as a guarantee for suppliers that they will receive payments for their goods upon receipt, and vice versa, providing a degree of protection for the buyer in the event of non-delivery. Whilst letters of credit offer a well-established means of managing risk, they may involve multiple parties, which can complicate an already time-consuming system.

Moreover, every cross-border payment has foreign currency exposure – businesses may try to eliminate exposure to exchange rate fluctuation by negotiating all deals in a single currency such as Sterling or US Dollars. Likewise companies may try to insist that all invoices are in their home currency. In reality, the home currency and overseas rates are in a constant state of flux, so what is really happening is that risk is transferred from purchaser to supplier. While this might appear effective, this kind of risk transfer usually carries a hidden cost, which probably translates directly into higher costs of goods and services.

The good news is that treasurers now have a variety of modern payment solutions and services at their fingertips, and these have the potential to simplify international transactions and reduce the risks traditionally associated with cross-border payments. Buyers are increasingly turning to specialist card solutions to pay for cross border transactions, as they can offset FX conversion fees traditionally associated with payments on local currency cards. There are also online solutions that give customers a range of options for improving payment processes, with some allowing them to purchase forward contracts to help manage exchange rate risk.

Fundamentally, the job of the treasurer in the future will be even more focused on protecting the organisation against uncertainty. Fluctuating market conditions make this a formidable task. But by embracing automation, new technologies, and modern payment methods, treasurers can make payments and manage their cashflow more quickly, efficiently and securely. 

By Karen Penney, Vice President and General Manager UK, American Express Global Corporate Payments.

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development