Corporate treasurers are under greater pressure than ever to optimise operational resilience. The desired resilience is far more than ‘bouncing back’ after an unforeseen disruption.
Instead, it is both positive and proactive. Resilience is about developing strategic strengths to turn opportunities into reality, sharpening capabilities to predict, prevent, and mitigate risk, and setting up the business for sustainable success. To that end, here are three key areas for treasurers to focus on.
A business’s resilience is closely tied to its ability to adapt to evolving payment systems. For treasurers, this means integrating modern payment methods that enhance cash-flow management, forecasting accuracy, and customer satisfaction. Traditional payment methods like direct debits and BACS Direct Credits, while reliable, are being supplemented by innovative solutions. Faster Payments, Open Banking’s payments capability, and Variable Recurring Payments are three such solutions that offer alternative money collection, more flexibility for payments, and improved financial operations.
Faster Payments System
The introduction of the Faster Payments System (FPS) in the UK has significantly impacted the speed and efficiency of transactions. Established in 2008, FPS allows for near-instantaneous payments of up to £1m, providing a robust infrastructure for high-value transactions. For treasurers, leveraging FPS can lead to immediate fund transfers, thereby improving liquidity and operational efficiency, reducing the time needed to make urgent payments compared with Bacs and reducing cost compared with CHAPS payments. The capability to process in real time also helps in maintaining timely payments, which is crucial during periods of financial instability.
Open Banking
Open Banking, mandated by the UK’s Competition and Markets Authority (CMA) in 2018, is transforming the payment landscape. It allows customers to securely share their financial data with authorised third-party providers and make payments directly between bank accounts where previously only card payments would have been practical, facilitating innovations in financial services.
For treasurers, Open Banking presents numerous opportunities for improving resilience, including:
Variable Recurring Payments
One of the most promising innovations within open banking is Variable Recurring Payments (VRPs). VRPs will offer a flexible and user-friendly alternative to traditional direct debits and card-based subscriptions. They are expected to allow consumers to authorise payments directly from their bank accounts, with the ability to manage and cancel these payments easily. This flexibility will be particularly beneficial for some subscription services, providing a seamless experience for customers while reducing the administrative burden on businesses.
For businesses, VRPs should enable the streamlining of recurring payment processes, improve cash-flow management, and enhance customer satisfaction by offering more control over their financial commitments. However, for VRP to gain widespread adoption, robust consumer protection measures (like the current indemnity guarantees and chargeback mechanisms) must be established. Ensuring these protections will be crucial for businesses looking to adopt VRP.
Fragmented technology is a commonly cited problem that treasurers must address to strengthen resilience. Many organisations, especially medium and large enterprises, suffer from having multiple source systems or disparate versions of the same ERP system.
Such fragmentation complicates data integration and hinders the ability to gain real-time insights that are vital for sound decision-making. To move past this obstacle, treasurers should focus digital transformation efforts on selecting, consolidating, and integrating best-of-breed systems to simplify and streamline operations.
One key aspect of digital transformation is moving away from outdated tools like spreadsheets in favour of more robust financial management systems. Although spreadsheets might be a valuable tool for ad hoc reporting and analysis, their use as a systemic part of financial workflow management presents significant risks.
Spreadsheet-dependent processes are prone to errors and inefficiencies that can undermine the resilience and scalability of financial operations. Transitioning to comprehensive financial management systems can mitigate these risks and enhance operational efficiency.
Another area for targeted digital transformation is improving visibility into payments and cash flow. Visibility is critical for effective working capital optimisation and better forecasting, particularly in volatile economic conditions. Treasurers must be able to integrate real-time data from various sources, e.g. to see accurate cash positions across multiple accounts. A comprehensive view of financial health supports strategic planning and operational resilience.
Although spreadsheets might be a valuable tool for ad hoc reporting and analysis, their use as a systemic part of financial workflow management presents significant risks
Environmental, social and governance (ESG) factors have evolved from being mere compliance requirements to become strategic imperatives. Robust governance practices, even for organisations not directly regulated, can significantly enhance control and resilience.
By voluntarily adopting stringent governance standards, treasurers can better manage risks, ensure compliance and cultivate a culture of responsibility and transparency. This proactive approach not only improves stakeholder trust but can also attract ESG-focused investors, thereby bolstering the organisation's financial and reputational standing.
A key regulatory framework to be aware of is the Bank of England and the Prudential Regulation Authority’s (PRA) SS1/21 directive. This mandates that regulated firms assess impact tolerances for critical business services, including payments. These are important considerations for any type of business – not just those that are regulated.
Having contingency plans in place to handle payment system failures is essential to maintain operational continuity. For instance, establishing multiple pathways for payments can prevent disruptions if one system fails. This might include having both direct and indirect routes to BACS, or access to alternative payment rails like FPS.
Multiple regulations have been put in place to counteract the increasing threat of payment fraud and financial crime. For instance, the Economic Crime and Corporate Transparency Act provides safeguards against both internal and external threats.
Treasurers are wise to implement comprehensive strategies to combat money laundering, prevent payments to sanctioned individuals, and protect against fraud. For instance, sanction screening, even for non-mandated businesses, can prevent legal repercussions and protect the company's reputation. Additionally, tools like Confirmation of Payee can verify the legitimacy of account details before processing payments. This reduces the risk of internal and external fraud threats and ensures that funds are transferred to the correct recipients.
Treasurers are wise to implement comprehensive strategies to combat money laundering, prevent payments to sanctioned individuals, and protect against fraud
Despite the change in government, we anticipate the work on a National Payments Vision started under the old government will continue. By modernising payment methods, leveraging digital transformation, and aligning with regulations, corporate treasurers can not only mitigate risks but also position their organisations for sustainable growth and to capitalise on new opportunities in the dynamic financial ecosystem.
Richard Ransom is head of solution consulting, corporates at Bottomline
