Evolving Treasury

Fast-Track to the Future

Expectations of the treasurer have never been higher. Treasury teams must adopt the latest technologies and payment methods, obtain instant visibility over cash, optimise liquidity, manage the ongoing impact of Covid-19, and embrace ESG throughout their activities. But how can all of this be achieved, especially when resources are stretched? Two experts from HSBC’s global payments solutions business share their insights around transforming the treasury department into a future-fit centre of value creation.

As the saying goes, change is inevitable – growth is optional. In other words, to make the most of a shifting environment, and ensure future success, transformation is required. To this end, treasurers across Europe are currently leveraging the business and societal shifts of the past several years to embark on ambitious transformation projects.

Michèle Zaquine, Director, Head of Propositions and Commercialisation Continental Europe – Global Payments Solutions, HSBC Continental Europe, explains: “The onset of the Covid-19 pandemic and global lockdowns forced companies to think differently almost overnight. Remote working became the norm, and e-commerce business models came to the fore, together with digital workflows. This was a huge change for treasury – and many departments addressed legacy processes to enable smooth and secure working from home practices.”

Inevitably, the health crisis also led to an intense focus on cash flow, with companies looking to build cash buffers to withstand shocks, while also shoring up supply chains. Arguably the most significant challenge, however, was not so much the pandemic itself, but the perfect storm surrounding it. Zaquine elaborates: “At the same time as Covid-19, treasurers were coping with low and even negative interest rates, together with regulatory changes, Brexit, technology developments, and an ever-increasing focus on the ESG agenda.”

This confluence of factors has crystallised the need for real-time treasury data and insight, she believes. “Treasurers and CFOs alike now recognise that to enable effective decision-making, especially during challenging times, treasury must have access to instant, relevant data on demand – whenever and wherever. Agility within the treasury function is essential if the wider business is to remain competitive.”

Myriam Radi, Senior Commercialisation Manager, Liquidity & Investment Products, Global Payments Solutions, Europe, HSBC Continental Europe, agrees, adding: “Combined with Brexit, the pandemic amplified the need for strategic cash and liquidity management and created unprecedented uncertainty in the management of working capital. In this volatile and unpredictable market environment, data has become king. The ability to instantly access an accurate and timely cash forecast not just in the short term, but as far forward as possible, has become indispensable.”

More change on the horizon

On top of existing challenges, further changes are coming down the pipeline – which means an additional chance for transformation. One such shift Zaquine highlights is the adoption of ISO 20022 XML across market payment infrastructures, starting in November 2022 within the interbank payments messaging space. These changes are ultimately beneficial to the industry and will help streamline payment processing. “That said, there are also significant potential benefits for corporates,” believes Zaquine. Chief among these advantages is the possibility to increase data quality and straight-through processing, thanks to the XML format.

Another market development for treasurers to have on their radar is the growth of open banking and the subsequent use of open APIs within the treasury arena. “Open banking is changing business models and the modus operandi of leading-edge treasury departments – they can now use APIs to aggregate multi-bank cash positions in real time, for example, and also leverage APIs to initiate payments straight from their ERP or TMS, for example.”

In isolation, these developments will not move the needle for treasurers, says Radi. “But looking at the bigger picture, treasurers can really start to future-proof their operations, if they are ready to embrace these changes as a holistic transformation project.”

Defining treasury transformation and its rewards

In its broadest sense, treasury transformation is about generating efficiencies in the corporate organisation end-to-end. But transformation triggers can come from within the organisation, or outside – ranging from factors impacting the supply chain to the need for optimising the cash conversion cycle, as well as new business models that a corporate is developing.

Given the digital age in which we are now operating, transformation is also about embedding more automation in the corporate organisation, embracing digital tools, transitioning to real-time treasury, and building in control and transparency into day-to-day activities.

Transformation is not just about the here and now. Treasury transformation projects must also help prepare the department, and team, for the decade ahead – determining the future treasury organisation structure, needs, strategy, technology, and partnerships.

The rewards on offer for achieving such a transformation include: greater process efficiencies; reduction in costs; better use of internal resources – with team members freed up for strategic tasks thanks to automation; and above all visibility and control over cash.

Preparing for transformation

Any successful treasury transformation project will extend beyond the function’s four walls, into the wider finance and accounting team, as well as technology, sales, procurement, tax and legal, banking partners and more. Given the extent of such as project, Zaquine and Radi believe the following steps can provide a solid foundation:

1. Gather all of the impacted teams together and collaboratively pinpoint areas of inefficiency in the current process. This might seem like a Herculean task, but it is important to understand (and be open about) current roadblocks to efficiency, in particular manual tasks that could be automated, and other pain points across treasury’s remit, end-to-end.
2. Determine both short- and long-term objectives for the transformation project. This process might include a review of:
   • Banking partners and bank accounts held across different geographies.
   • Payment flows and methods – both in and out of the business, and examining how real-time instruments impact these.
   • Internal systems such as the ERP/TMS and whether they remain fit for purpose, or require an upgrade, or an alternative.
   • Emerging digital solutions, including liquidity platforms and cash flow forecasting systems, for example, and the technology necessary for real-time treasury, including RPA and APIs. Radi comments: “To achieve maximum results on a targeted outcome, it is essential to assess those digital tools that will best serve automation and decision-making.”
   • Bank connectivity options – ranging from host-to-host to SWIFT and APIs. Some leading corporates are complementing legacy connections with APIs in order to access real-time information in a seamless manner, with API calls being made for instant information on demand, as frequently, or as infrequently as needed.
   • The level of centralisation of the treasury structure. Centralisation is not always the end goal for all treasury functions. Zaquine says that it’s about assessing what works best for the organisation, whether that be a decentralised model where efficiencies are built-in or a more centralised organisation that reduces the number of banking partners and accounts, together with streamlined systems and connectivity solutions. Here, it is important to consider whether a regional hub, shared service centre (SSC), IHB or payment factory could suit the company’s future needs.
   • The liquidity solutions needed to support the treasury transformation project. Radi comments: “This ideally includes cash pooling aided by a liquidity dashboard and supported by automated forecasting services.” Taking this kind of holistic approach to liquidity management will enable the treasurer to have 24/7/365 real-time access to a clear and complete vision of their liquidity – which is precisely what transformation aims to achieve.
3. Outline considerations around the target operating model. Any transformed treasury function will have impacts – ranging from tax, legal, and regulatory considerations to the need for a local labour force and language skills. Pinpointing these eventualities and asking the right questions upfront is a critical step in any successful treasury transformation project. Additional considerations here include the culture and ethos of the company, as these can have a significant impact on the success of future models.
4. Explore best practice among peers through personal networks, treasury associations, specialist events, and media – as well as through banking partners that can draw on experience from other client journeys and showcase the tools and solutions available. This should also include considerations around ESG, which is becoming an essential ingredient of any modern treasury function.
5. Secure buy-in from internal stakeholders by building a robust business case looking at the benefits to the entire organisation and search for executive sponsorship to help drive the project forward.
6. Implement a project roadmap and a plan for change management, appointing champions in all relevant teams where possible. Good change management involves allocating the right resources to meet defined timelines, informing and onboarding suppliers and customers, and implementing new tools while training internal teams to use them going forward.

Centralisation trends

According to Radi, there has been a greater push for treasury centralisation in recent years, especially in Europe, with corporates relocating to hubs that offer relevant capabilities in line with an appropriate regulatory framework. “For example, countries such as the Netherlands, Ireland or Luxembourg to name just a few have seen the expansion of treasury centres beyond just locations for cash concentration, with IHB structures and more diverse activities being added.”

Calling on expert resources

As outlined above, treasurers have recourse to various sources of expertise to ease their transformation planning, and the journey itself, including banking partners. Zaquine comments: “At HSBC we have accompanied a number of our customers on successful transformation journeys. Naturally, these projects are always customised to suit each specific company’s needs, but the process typically involves assessing connectivity options, including more recently the use of APIs, the choice of payment types, and the use of added-value solutions, such as virtual accounts.”

Another innovation that can greatly assist with treasury transformation is cash forecasting software. Now more than ever, companies have to ensure cash flow forecasts are as accurate as possible – often by adjusting scenarios to take into account the evolution of their customers’ payment behaviour in response to macroeconomic challenges. “Our experience shows us that this is still a significant pain point in treasury teams where forecasting is partly or entirely manual – and therefore slow, time-consuming, and often inaccurate,” explains Radi.

Recognising this hurdle, and as part of HSBC’s drive for digital innovation, the bank has now partnered with a leading fintech provider and launched a next generation cash flow forecasting solution embedded within the HSBC Liquidity Management Portal.

Radi outlines the benefits: “The tool helps our clients with the automation of their cash flow forecasting process. It is highly configurable so it can map and accurately reflect the corporate environment. All configurations and user rights are managed and controlled by the customer in a self-service environment, and segregation of duties can be set up between the various entities/business units.”

In terms of capabilities, the tool can compile a forecast of all cash movements from the present day out to a time horizon of three years. What’s more, the tool is fully scalable and can evolve as the business changes and grows. “It’s also simple to navigate and there are dashboards that provide an at-a-glance view of key performance indicators, as determined by the treasurer,” she says. As well as providing a barometer of future liquidity based on bank account balances and payables and receivables, the tool also enables treasurers to perform in-depth analysis of cash flows.

“This kind of innovation can be extremely powerful in helping treasury to work towards transformation goals, as there is minimum disruption or effort required on the corporate side, yet significant efficiency, visibility and decision-making gains to be had,” summarises Radi.

Liquidity developments: virtual accounts

While traditional liquidity solutions are essential to any treasury function, emerging solutions using virtual accounts are picking up speed and can bring value for certain corporate organisations, believes Zaquine.

These virtual ledger records, as opposed to physical bank accounts, are maintained by the bank in relation to a corporate master account in any given currency. They can be used to record both receivables and payables.

The potential benefits include:

• Greater visibility and control since virtual accounts enable the segregation of payables and/or collections, as well as the easy identification of entities against a given currency
• Bank account rationalisation, reducing the cost of account maintenance as well as enabling the optimisation of ERP and connectivity channels
• Tracking of payments end-to-end with a suite of reports that integrate back into the customer’s ERP system
• An intuitive user interface that offers flexibility and visibility on the virtual account structure, as well as intercompany positions

“In addition to these benefits, virtual accounts can combine powerfully with real-time payments to present treasury with significant transformation potential,” observes Zaquine.

On the right path

That said, one solution or innovation does not make a successful treasury transformation. A true ‘transformation’ is a journey, with many moving parts – and it is the correct combination of these elements that delivers maximum results, over time, as part of a continuous development approach.

Zaquine adds: “The secret to getting a transformation project right is to make sure that the goals are appropriate for the corporate organisation and culture. Equally important is phasing the change journey so that disruption is limited both internally and externally. In addition, securing the appropriate internal and external counsel to ensure that the target structure is in line with legal, tax, and regulatory requirements is critical and should not be overlooked.”

While the thought of such an involved project can be daunting, “engaging in a successful treasury transformation will open up a world of opportunity for treasurers,” comments Radi. Zaquine agrees, concluding that: “Transformation is a continuous improvement journey we embark on in partnership with our corporate clients, and ultimately help them to solve their business challenges, make nimble decisions, and prepare for the future – in terms of strategy, technology, and sustainability. It’s extremely rewarding and incredibly worthwhile.”