Over the last year, we have investigated several subjects that will be front of mind for many treasurers as they seek to review and improve their cash-management activities. These include cross-border payments, the impact of ISO 20022, corporate transactions and foreign exchange. We have also dug into how treasurers can improve engagement with their boards.
Treasurers are now in a good position to take these lessons forward, so here is a quick reminder of some of the key issues.
An increasing range of payment choices now means that treasurers have a greater level of choice for settlement, depending on factors such as cost and urgency. These changes are being driven by a cocktail of technological advances, evolving customer and supplier expectations, regulatory developments and the need for improved efficiency and transparency.
Alongside this, new trade agreements now offer companies the opportunity to expand into new markets. One dramatic change has come on the back of the UNCITRAL Model Law on Electronic Transferable Records (MLETR), which allows the use of transferable documents and instruments such as bills of lading, warehouse receipts, bills of exchange and promissory notes in electronic form.
Combined, these developments will mean increased transparency and visibility for corporate treasurers. Reduced friction and faster payments will remove barriers and give companies greater confidence to scale their international activities, so it makes business sense to continually think about trade and payments solutions together and understand the advantages they can bring.
Financial market infrastructures, such as CHAPS and TARGET2 as well as the global financial messaging system Swift, have begun to migrate to the globally recognised message standard ISO 20022 XML and this will continue throughout 2024 and 2025. As this takes place, corporates will begin to reap the benefits of improved interoperability, data structure and quality, efficiency, forecasting and transparency across their payments.
But you need to be prepared. For some organisations, ISO 20022 introduces significant changes to financial messaging. Work out how these changes will impact your current systems and processes, including your treasury management systems (TMS), payment platforms, and enterprise resource planning (ERP) systems.
ISO 20022 is all about getting the right data in the right place, so check your existing data sources, such as your master vendor list, and map the fields to the new standard. Test implementation with your partners, train your staff and understand adoption timelines, migration plans and switch-off deadlines. Finally, and as importantly, identify how to take advantage of the benefits that the new standard will offer.
A transaction, whether a merger, acquisition or divestiture, provides a great opportunity for treasurers to help shape strategy and outcomes, reinforcing their credentials by delivering a clear treasury structure against a strategic framework that ensures higher levels of visibility and, as a result, the wider success of the transaction.
However, treasurers should ensure they engage early in the process, and help scope the ideal operating model post-transaction. Seeking trusted advice would be a good option as the skills required can sometimes be different to those needed to run a treasury function.
Treasurers can identify value generation through a clear understanding of systems and technology, liquidity management and visibility, banking procedures and treasury operating models and controls, and payables and receivables.
Post-transaction, it will be important to understand where the liabilities lie from Day 1 of the new entity – identifying what you are immediately accountable for will help you prioritise your workflow.
Increased volatility in FX markets is one consequence of geopolitical tensions and sustained inflationary pressures. Some of these pressures may begin to recede in 2024, but nevertheless treasurers need to pay close attention to FX risks.
The first step will be to understand the organisation’s true FX exposure. This will require a deeper understanding of business models, supply chains and internal structures. Close involvement with contractual discussions will be important – pricing and invoicing currencies may not be the same, so it is important to check source documents. Centralising and managing FX risks by creating cash-pooling structures can pay dividends, allowing treasurers to aggregate an organisation’s currency liquidity and working capital in one place.
If the organisation is a group of companies, involve all entities in the development of an FX group treasury policy to maximise effectiveness and proportionality at all levels. Finally, consider the use of automated software solutions to help manage any FX exposures themselves.
The recent rise in geopolitical uncertainty, macroeconomic challenges and some added focus on banking counterparties has meant many boardrooms have been reviewing their treasury policies. As a result, there is now an opportunity for treasurers to help non-executive directors fulfil their fiduciary responsibilities and understand what good treasury practices and policies look like.
To help improve boardroom engagement, here are some questions that treasurers will want to help their non-executives answer:
Many of the questions that non-executives have are likely to boil down to understanding risk, and what is being done to manage and mitigate these risks. Non-executives will be sophisticated enough to understand that risks cannot be eliminated, but they will want to understand how they are being managed.
Barclays Bank PLC is registered in England (Company No. 1026167) with its registered office at 1 Churchill Place, London E14 5HP. Barclays Bank PLC is authorised by the Prudential Regulation Authority, and regulated by the Financial Conduct Authority (Financial Services Register No.122702) and the Prudential Regulation Authority. Barclays is a trading name and trade mark of Barclays PLC and its subsidiaries. Find out about the Financial Services Register.