Treasury Management

FX Hedging: Protect The Business’ Treasury

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20 March 2023

FX hedging is an important tool for businesses that engage in international trade, as it helps to protect their treasury from potential losses caused by fluctuations in foreign exchange rates.

FX hedging is a risk management strategy that businesses use to protect themselves against potential losses caused by fluctuations in foreign exchange rates. This is especially important for businesses that engage in international trade, as they are exposed to currency risks when buying or selling goods and services in different currencies.

One common FX hedging technique is using forward contracts, which allow a business to lock in an exchange rate for a specific amount of currency at a future date. This helps to eliminate the uncertainty of fluctuating exchange rates, allowing the business to budget and plan more effectively.

Another FX hedging technique is using options contracts, which give the business the right, but not the obligation, to buy or sell currency at a certain exchange rate. This provides the business with some flexibility in managing their currency risk, as they can choose to exercise the option if the exchange rate moves in their favor, but can also choose not to exercise it if the exchange rate does not move in their favor.

Finally, businesses can also use natural hedges to manage their currency risk. This involves matching the currency of their assets with the currency of their liabilities, so that changes in exchange rates have a minimal impact on the overall financial position of the business. 

FX hedging is an important tool for businesses that engage in international trade, as it helps to protect their treasury from potential losses caused by fluctuations in foreign exchange rates. By using a combination of hedging techniques, businesses can manage their currency risk and plan more effectively for the future. Let’s take a look at some of the best practices in the current business environment. 

FX Hedging – Best Practices

In the current business landscape, FX hedging best practices include:

Establishing a clear risk management strategy: Businesses should identify their currency risk exposure and develop a clear strategy for managing it, which includes setting objectives, defining risk tolerance levels, and selecting appropriate hedging instruments.

Monitoring currency markets: Businesses should keep a close eye on currency markets and regularly analyze their currency risk exposure, as well as the performance of their hedging strategies, to ensure they are still appropriate and effective.

Using a combination of hedging instruments: Businesses should consider using a combination of hedging instruments, such as forwards, options, and natural hedges, to manage their currency risk exposure effectively.

Working with experienced FX providers: Businesses should work with experienced and reputable FX providers who can provide them with expert advice and support in managing their currency risk exposure.

Regularly reviewing and updating hedging policies: Businesses should review and update their hedging policies regularly, taking into account changes in their business operations and the currency markets, to ensure their hedging strategies remain effective.

Communicating with stakeholders: Businesses should communicate their currency risk management strategies and hedging policies to stakeholders, including investors, customers, and suppliers, to build trust and transparency and ensure everyone is on the same page.

These best practices can help businesses effectively manage their currency risk exposure and protect their financial position in the current business landscape.

The Most Efficient Method To Protect A Business’ Treasury

The most efficient method for protecting the business treasury from currency risks depends on several factors, including the business’s risk appetite, exposure to currency risks, and available resources. However, using a combination of hedging techniques can be an effective way to protect the business treasury.

For example, a business could use a combination of forward contracts, options contracts, and natural hedges to manage its currency risk exposure effectively. By using forward contracts, the business can lock in exchange rates for future transactions, providing certainty and allowing it to plan and budget more effectively. Options contracts can give the business more flexibility in managing its currency risk exposure, allowing it to take advantage of favorable exchange rate movements while also protecting against adverse movements. Natural hedges involve matching the currency of assets and liabilities, reducing the impact of currency fluctuations on the business’s financial position.

Another effective method is to work with a reputable and experienced FX provider, who can offer guidance on the most appropriate hedging strategies for the business’s needs and provide access to a range of hedging instruments.

Ultimately, the most efficient method for protecting the business treasury will depend on the specific circumstances of the business and its risk management goals. A comprehensive risk management strategy, including the use of a variety of hedging techniques and working with a trusted FX provider, can provide the best protection against currency risks.

What Happens If A Business’ Treasury Is Left Unprotected?

If a business treasury is left unprotected from currency risks, it is vulnerable to fluctuations in exchange rates, which can lead to financial losses. When a business engages in international trade or has foreign currency-denominated assets or liabilities, it is exposed to currency risk, which arises from changes in exchange rates between the currencies involved.

For example, if a business has foreign currency-denominated debt, a depreciation in the value of the domestic currency relative to the foreign currency would increase the cost of servicing the debt, leading to financial losses. Similarly, if a business has foreign currency-denominated receivables, a depreciation in the value of the domestic currency relative to the foreign currency would reduce the value of the receivables when converted into the domestic currency, leading to lower revenue and profits.

If a business treasury is left unprotected, these currency risks can lead to unexpected losses, which can impact the business’s financial position, cash flow, and profitability. In extreme cases, currency risk exposure can even threaten the viability of the business.

Therefore, it is essential for businesses engaged in international trade or with foreign currency exposure to manage their currency risk effectively by implementing appropriate hedging strategies. By doing so, they can protect their treasury from currency risks and ensure their financial stability and profitability.

Why Automating Treasury Processes Is A Must?

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26 January 2023

As new solutions arise in response to technological advancements and shifting company needs, the digitization of treasury operations is a must.

Although ensuring effective use of cash throughout the organization has always been a key priority for corporate treasurers, they have become more critical about maintaining transparency . Treasurers have to make sure their organizations had adequate liquid assets to endure repeated lockdowns, interruptions in the supply chain, and a drop in client demand. After three years into the pandemic, an evaluation is now necessary. How far have businesses come with treasury centralization? What obstacles to process automation still exist, and how may future collaborations between banks and fintechs help to overcome them?

Undoubtedly, the pandemic served as a wake-up call for many treasurers, but it is now more important than ever to provide visibility over and access to funds. The conflict in Ukraine, the sanctions that were imposed on Russia, and the continued COVID limitations in China are all causing supply chain delays for businesses globally, which has an impact on the demand for working capital and liquidity.

In order to free up time to focus on more strategic activities and business partnerships, the treasury function must continually improve automation. This is especially true as we move into a period of renewed geopolitical and economic uncertainty. Automating processes from beginning to end takes time.

Where To Start

To automate treasury activities, a wide range of solutions are available, including bank connectivity, file formatting, cash flow forecasting, data analytics, in-house banking, bank account management, receivables reconciliation, and fraud prevention. Given the variety of suppliers on the market, the variety of choice may seem confusing, but as the financial technology sector develops and grows, it is getting easier to recognize and obtain new capabilities.

To supplement their treasury management system (TMS), enterprise resource planning (ERP), and/or banking systems, some treasurers will still look for and use specialized technologies. However, to enable automated processes and better decision-making, TMS and ERP suppliers have either created or acquired specialized capabilities, or they have collaborated with other providers to achieve this.

The issue facing treasurers is not what they can automate, but rather which task they ought to take on first. Typically, a problem statement like: Which tasks use the most time or resources informs the priorities for automation. Which procedures are most vulnerable to fraud, mistakes, and omissions? What initiatives is the Treasury looking to embark on but cannot fund with its current resource base?

Automation In Practice

For treasurers, projecting cash flow accurately and on time has been a persistent problem that frequently ranks first in industry surveys. Data is frequently kept by numerous teams within the company, each of which has a separate system to create files in a variety of formats. By the time this process is finished, the report may only be of limited value because compiling this data frequently requires time and physical labor.

Therefore, firms must collaborate with technology partners to create a cloud-based, SaaS solution that aids in financial team decision-making. Given that the goal is to apply predictive analytics and AI models to optimize organizational processes, such a system provides real-time visibility over transactions and even goes beyond cash flow forecasting. In order to provide services like working capital optimization, FX hedging suggestions, end-of-day liquidity forecasting, and performance against environmental, social, and governance (ESG) indicators, the solution retrieves data from clients’ ERP and TMS and consolidates it with bank data and data from third-party data vendors on a single platform.

Up until recently, billing receivables reconciliation was frequently a manual or semi-manual procedure, which posed less of a challenge when resolving a small number of high-value transactions. The cash flow dynamic changes from sizable wholesaler and distributor payments to a high volume of little and micropayments as businesses adopt direct-to-consumer (D2C) business models. In order to enable real-time fulfillment and continuous service delivery, these must be quickly reconciled.

As a result, technologies are required to automate the reconciliation process, frequently leveraging AI and ML to generate clever matching criteria. Working with a third-party fintech provider to use their service offering for an integrated, rule-based auto-matching capability is an illustration of this. In addition to providing an intelligent, ML-based matching engine, this combines various payment methods and data sources. It also automates file conversion and optimization for import into ERPs. It gives treasurers a thorough, up-to-date, and precise view of reconciled cash flows to manage liquidity, while business teams may continue to offer customers access to goods and services without interruption.

Continual Digital Transformation In 2023

As new opportunities and solutions arise in response to technological advancements and shifting company needs, the digitization and optimization of treasury operations and decision-making is an ongoing process. When used outside of the finance department, i.e. when combined with an enterprise’s sourcing and distribution value chains, some more recent technologies, such as blockchain and distributed ledger (DLT), have the potential to completely change how treasury processes and transactions are carried out. Although they are still uncommon in the treasury sector, blockchain-based solutions like smart contracts are becoming more developed.

With the possibility for real-time, transparent processes and transactions, these technologies that support AI, ML, and API-based connection will eventually become more common, making the distinctions between finance, procurement, and fulfillment processes less rigid than they were in the past. Treasurers can further streamline and improve the efficiency of their operations and the quality of their decision-making by collaborating with their banks and technology partners, remaining informed of emerging fintech prospects, and becoming an even more valuable partner to the business.

4 Key Areas To Consider When Effectively Managing Cash Flow

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9 January 2023

When done correctly, cash flow management can point out upcoming challenges and ongoing issues and help find solutions.

Poor cash flow can cause a business to collapse even when it seems to be succeeding. Additionally, even if inadequate cash flow does not put the company in danger, it may limit its ability to expand. Despite having a solid top line or consistent bottom line profitability, businesses cannot advance without cash. When done correctly, cash management can point out upcoming challenges and ongoing issues and help find solutions.

The company’s timely collection of accounts receivable is its primary source of cash flow. Businesses frequently lack or fail to adhere to suitable procedures for controlling their cash flow. Many businesses argue that their cash flow problems are not their fault and that they are the ones who are not getting paid by their clients. A company needs better clientele, better procedures, or a mix of the two if it is having trouble collecting its money. Companies will need to prepare for this if their clientele routinely makes late payments.

Aged receivables carry a significant danger of being written off, which has a negative effect on the company’s bottom line. However, aged receivables are not the only cause for poor cash flow. Poor cash flow management can hurt the company’s reputation and relationships with clients, employees, and subconsultants. If businesses want to avoid having poor cash flow, they should take a look at these 4 key areas; 

Reduce Spending

One of the more obvious strategies to improve cash flow is to cut back on spending. This is obviously easier said than done. But even a small number of cuts can have a big impact. To start putting this technique into practice, carefully review all of the company’s expenses. How much is spent on monthly expenses for electricity and office? How much money is spent on insurance, paying employees’ wages, and other expenses? Look for places where spending can be cut after doing some analysis. Additionally, it is crucial for businesses to look for alternative revenue streams.

Perhaps the business could sell a membership or subscription service, introduce a new good or service, or both, boosting their monthly income. Businesses may also want to think about purchasing energy-efficient, environmentally friendly equipment. Before committing to a recurring expense, such as a software subscription or equipment rental, businesses should weigh their options.

Create Additional Revenue Streams

Look for prospective locations to develop new revenue streams as a fantastic way to efficiently manage cash flow. Businesses can assess which of their products and offerings are already doing well in the market and come up with ideas for how to enhance them with new features or offerings. Companies may easily offer their customers more because they already have a customer base that is familiar with their brand and prepared to buy.

Choosing lanes that correspond with a company’s passion and area of competence is the first step in developing several successful revenue streams for that organization, as opposed to choosing what business leaders believe they should do according to market expectations. A company will stand out in the “noisy” sea of rivals by developing credibility and an appealing invitation to acquire customers. Business owners should have confidence in what they know, and customers will follow suit.

Repackaging and repricing current services to appeal to a different audience is another easy option to generate new money. One customer divided a day-long training program into smaller seminars that were provided over several months. That made it more acceptable to managers who could not take their employees away from jobs that generated income for a full day of training.

Offer Prepayment Rewards

Businesses can encourage their consumers to prepay a portion or their entire amount in front by providing a range of incentives, from discounts to extra products. Businesses can also use gift cards or other products to build a unique rewards program. Customers that prepay for large packages, services, or a number of items may be eligible for additional benefits. They will be motivated to stick around and keep on making purchases thanks to these incentives.

Every business believes that “cash is king,” and a company’s cash flow is its lifeblood. Therefore, it’s always a good idea to develop a customer incentives program that boosts cash flow. Businesses can increase their consumer base and foster brand loyalty by providing sales, discounts, and other unique perks. Additionally, businesses can make it even simpler to provide such prepayment rewards by automating and streamlining their present AP operations.

Keep An Eye On Your Inventory

Is a significant amount of the company’s cash flow going toward inventory? Although inventory may be a company’s lifeblood, owners shouldn’t want it to dry up their cash flow. Inventory management can give a diagnosis of a company’s health. After all, buying too many goods or materials and failing to sell or use them quickly enough could lead to a financial loss. Businesses may lose money if they underbuy their inventory and run out of everything just as orders start to come in.

Because of this, it’s crucial for firms to strike a balance between having too much and too little inventory and determining the precise amount that will suffice to meet customers’ needs. In order to maximize cash flow and reduce costs, how can firms manage their inventory investment the best? Businesses will need to classify their inventory into dead, slow-moving, and productive categories and handle it accordingly.

Dead inventory is stock that has been on the shelf for a while but hasn’t been moving. The company’s  inventory turnover ratio is probably being negatively impacted by this deadstock. It is pertinent that businesses m ake a speedy sale of any dead stock rather than keeping it on the shelves. Declare “unsellable” any dead stock that does not sell, and ask the distributor if they will accept it back.

Although slow-moving stock is still in motion and not dead stock, it might be headed towards obsolescence. The identification of slow-moving inventory may be challenging in the current economic climate. Due to the current volatile market, businesses that sell things have seen an unprecedented slowdown in their business. When examining inventory movement, such environmental elements must be taken into consideration.

Having said that, sluggishly moving goods lock up the cash in unsold stock. It has a detrimental effect on cash flow and profitability. If the business has investors, their return on equity will be reduced. Businesses  should check into businesses similar to their own, especially those in the same industry, to ascertain whether some of the inventory is indeed moving slowly. If the isolated item falls beneath the inventory turnover target that has been set for the products the business offers, those products can be designated as slow-moving. The company can then take steps to remove it from their shelves or warehouse.

Inventory that sells, increases revenue, and improves cash flow is considered productive inventory. Even if the productive inventory may have been sold slowly during this period of high volatility, it is still selling, and when the economy improves, businesses should notice a nice boost in the sales of their product inventory. Businesses must keep track of and confirm the productivity of the inventory they believe to be productive.

A company’s ability to create enough cash from its operations is essential to its ability to pay its bills, pay back investors, and expand. Cash is the lifeblood of a company. Even if a firm might falsify its profitability, its cash flow gives insight into its true state of health. Businesses can efficiently manage their cash flow by focusing on these 4 important areas.

Key Themes For Treasury Management In 2023

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6 January 2023

Treasury priorities have evolved as a result of political uncertainty, technology breakthroughs, and global economic insecurity in international marketplaces.

The main priorities for Treasury teams in 2023 include strengthening liquidity management, boosting cash forecasting capabilities, and improving the organization’s capital structure. Many of these themes are still vital in 2023, but priorities have evolved as a result of political uncertainty, technology breakthroughs, and global economic insecurity in international marketplaces. That being stated, here are four critical elements that finance and treasury leaders must be aware of:

Enhancing Liquidity Management 

Given the uncertainties that modern financial leaders face, it is critical to adapt your liquidity management plan to shifting conditions. It should be noted that new technology can promote tactical and strategic evolution. Not only does technology influence how payments are made, but it also influences how businesses handle and account for payments. Many businesses are seeking for ways to streamline their payment procedures, and the rewards are substantial.

Companies can save money by integrating payment systems with their current treasury workstations and ERP infrastructure. A central payments system will incorporate the most recent security procedures and regulatory compliance modules, as well as the ability to accept all payment kinds. Furthermore, visibility is essential for boosting controls, and implementing cloud-based ERP or treasury workstation solutions can connect cash flow planning tools with your company’s CRM and sales management systems. This may be a great tool for providing relevant visual cash flow measurements to leaders across the firm that represent the strategic drivers of rigorous cash flow management.

Improving Cash Forecasting Capabilities

A company’s worst nightmare is running out of cash or miscalculating future cash inflows and outflows. To avoid such disaster scenarios, businesses employ cash flow forecasting tools to better understand their existing and future financial positions. It is critical to have accurate cash forecasting assessments in place because they are critical to the company’s success. CFOs can base strategic investments and financial decisions on them, and they can help CFOs decide how to shape the company’s future.

Cash flow forecasting, like most things, is easier said than done. Creating accurate forecasts can be a difficult task. CFOs must examine numerous factors, especially as the company grows in size. Fortunately, there are several excellent cash flow forecasting tools available to assist CFOs in overcoming obstacles and making forecasting easier and more accurate. Such solutions will provide CFOs with a real-time snapshot of the company’s cash situation, inflows, and outflows whenever they need it. The more recent the data, the more effectively CFOs can justify their judgments.

Since the previous year, it has been widely accepted that both the gathering of real-time information and the connectivity to all source systems should be automated, allowing CFOs to receive real-time insight into their cash position without the need for manual labor. On that topic, organizations should examine their software and seek for methods to improve or enhance such systems so that those insights can be categorized and effectively transmitted to CFOs, since finance chiefs continue to struggle with optimizing such data. Companies should identify strategies to update their current systems in order to improve cash forecasting capabilities in 2023.

Optimizing Capital Structure

There is an increasing focus on how corporations change, or fail to modify, their leverage. The adjustment pattern is interesting because it can assist to distinguish between competing capital structure theories. According to prior research, corporations are more likely to issue stocks when their market valuations are considerably higher than their book values and their past market values are high. As a result, the companies become underleveraged or have their obligations lowered in the short term.

Due to the companies’ relatively quick changes of ideal capital structures, the outcomes of long-term measurement on capital market timing do not seem to have an impact on the choices made by the firms regarding capital structures. The analysis leads to the conclusion that equities market timing is significant in the short term but not in the long term.

It is obvious that economic conditions are dynamic, and businesses cannot operate in a market that is actively using stagnant and outdated business practices. To avoid problems like those in the previous example, finance leaders and CFOs must have a longer-term view than a short-term one while attempting to optimize a company’s capital structure. Before changing their capital structure, CFOs should also keep the business objectives in mind.

Being A Value-add To CFOs & A Strategic Advisor

In terms of financial affairs, treasury experts essentially serve as the company’s trusted consultants. They are constantly thinking ahead and strategizing how they may provide value and promote success. Performance and financial results will be directly impacted by the choices they make. It is clear from the nature of their position within the organization that they must collaborate closely with the CFOs and other business leaders in finance. A working partnership between the two is necessary.

Treasury professionals will evaluate the risk, consider the benefits and drawbacks, and offer recommendations on whether a company should extend operations into a new location in order to produce significant income and get a competitive advantage. If so, they will help the CFOs create and carry out a financial plan that supports business growth.

In a different scenario, economic issues including interest rate increases, regulatory changes, and unstable currency exchange rates can seriously affect any firm. Treasury experts will examine these market conditions, predict how they may or may not affect the company, and work with CFOs to develop ways to reduce any potential financial risks to the company.

The treasury function has unquestionably become more significant and has improved in terms of the versatility that needs to be taken into consideration. Businesses must consider these important treasury management themes in 2023 if they want to guarantee the long-term survival of their enterprise during these years of highly volatile markets.

The Need For CFOs To Be Dynamic In Their Cash Flow Planning

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Fatihah Ramzi, DigitalCFO Asia | 6 December 2022

With an inflationary climate, increasing interest rates, decreased customer demand in a global slowdown and higher labor costs in a tightening market, what can the CFOs do to manage the effects of these problems on cash flow?

CFOs must be nimble to meet the demands of their cash flow planning given the ominous economic clouds that lie ahead. Many businesses have recently been plagued by the “Too Much Inventory” problem. Market volatility, excessively optimistic sales forecasts, customer dissatisfaction anxiety, a flight to “safety stock” brought on by supply chain disruption, and previous organizational responses to consistently high inflation all contribute to the problem.

It is no surprise that operating and cash flow margins are being squeezed and liquidity discussions are becoming more crucial when one considers the inflationary climate, increasing interest rates, decreased customer demand in a global slowdown and higher labor costs in a tightening market.  So, what can the CFOs do to manage the effects of these problems on cash flow?

The need for a more dynamic approach to cash flow management is highlighted by these advances, which CFOs must coordinate with a wide range of organizational stakeholders, internal and external data sources, information systems, and cutting-edge technology solutions. Many companies have chosen to increase prices in order to pass on to customers the increasing expenses of manufacturing, shipping, and talent. Many clients have hit that critical threshold as they are postponing and/or lowering their purchasing activity, and that technique will continue to work until it doesn’t.

Leading CFOs are addressing demand-side concerns by increasing the sensitivity of cash flow management, which includes planning and forecasting, to both internal and external variables. Understanding the factors that contribute to ineffective demand planning, the dangers associated with it, and what promotes effective cash flow planning are necessary for this.

Many businesses and finance departments have spent a lot of time, thought, and effort updating antiquated solutions to supply chain risk management in response to disruptions and flaws that predate the worldwide epidemic. Similar changes are needed on the demand side of the economy as a result of ongoing market volatility and uncertainty because higher prices and rising interest rates influence consumer purchasing decisions. Along with that, the increased risk of customer credit and raised cost of capital have negative effects on capital expenditure planning and strategic investments.

Finance groups benefit from deeper, more immediate insights into the trends and forces affecting cash flow thanks to dynamic cash flow management. This transparency enables CFOs to make sure that business partners across the organization focus on more than just the P&L statement and capital planning, and instead handle cash flow in a way that supports organizational resilience in the face of unpredictability. Such methods of cash flow planning comprise:

  • Working capital analytics: These insights go beyond standard DSO, DPO, and DIO analysis to identify trends impacting receivables, payables, and inventory that support actionable intelligence to enhance working capital and cash conversion. The collection effectiveness index (CEI) can be calculated by finance departments to evaluate chances to increase client collections. Analyzing the proportion of high-risk accounts offers further insight into the factors that affect receivable performance as well as the make-up of the customer base, which should help with credit risk management. By comparing discounts provided and received, a company may be able to benefit from early-pay discounts or gain more insight into lost chances.
  • Scenario-based planning: Finance organizations can minimize financial risks and improve cash management by employing just a few important variables connected to the macroeconomic conditions (for example, interest rates) and company-specific drivers (for example, swings in consumer demand). A competent scenario plan recognizes connections to specific outcomes, such as the need for or decrease of external finance or the implementation of cost-cutting measures that have an impact on fixed or variable expenses. Making better educated investment, financial, and operational decisions requires CFOs and business executives to analyze and compare various cash flow scenarios. Notably, one in three firms are improving and/or expanding scenario planning to manage concerns resulting from inflationary patterns in the market.
  • Stress testing: Running “what-if” scenarios helps firms quickly adjust to shifting market conditions while illuminating best and worst case situations. CFOs frequently use a scenario-driven methodology to examine how different economic hypotheses may affect a company’s operations or a portfolio of investments. Finance teams execute numerous simulations for various probable and severe scenarios, starting with a baseline projection for the most likely outcome, to create a probability distribution of economic outcomes. By detecting prospective changes to the cost of capital and illuminating which investments should be scaled back depending on a specific increase in interest rates, these assessments can also assist capital planning.

Along with other economic, supply chain, and ESG-related factors, leading finance organizations also factor product profitability data, inflation-adjusted data, debt and equity strategies, currency exposures (and mitigation plans), and workplace planning strategies into cash flow planning. Such initiatives produce more useful outcomes. One possible outcome of product profitability assessments is the rationalization of SKU products, which can free up inventory, lower expenses, and even reveal completely unproductive client connections.

A dynamic cash flow management capability necessitates new partnerships, accompanying technology, and frequently, a new way of thinking. Sales partners and other finance clients frequently think in terms of P&L. Excess inventory and the business actions that led to it are probably not costs from the perspective of cash flow. A cash flow perspective enables business partners to comprehend how decisions they make eventually impact how operations are funded and even the outcome of major initiatives.

CFOs should ask for access to more data sources across the company as they broaden and strengthen their relationships with more business stakeholders on cash flow management-related projects. In order to better understand changing consumer needs, demand planning, sales, and marketing departments should improve their interactions with finance organizations. In order to manage changes to short- and long-term strategies to manage cash, investments, debt, and foreign currency exposures, treasury groups should keep CFOs aware of their work with banking partners.

To monitor debt parameters and covenant computations, as well as to comprehend the cash flow effects of planned capital projects and strategic initiatives, finance and treasury should also work closely together. The finance group may guarantee that the appropriate tools and insights are available to implement new cash flow planning models by working with data analytics teams and the IT department.

The yearly planning and budgeting processes that are currently under way in many businesses present a good opportunity for CFOs. While engaging business partners in the finance group’s ongoing drive to analyze and access greater data that is stored outside of the CFO’s direct control, they should argue for dynamic cash flow management. Making a strong case for the value of a cash flow mindset can help CFOs avoid having insufficient knowledge to prevent declining margins, emerging liquidity problems, and other problems from negatively affecting business performance in the months to come. All in all, it is necessary that CFOs use a more dynamic approach to their cash flow planning if they want to remain strong in the face of market volatility that will continue on even in 2023. 

The function and responsibilities of Treasury go beyond only managing cash today

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Photo by DigitalCFO Asia, during the DigitalCFO Asia Roundtable with Kyriba on 22nd November 2022

The pandemic has already substantially impacted the Treasury and business in general. Many challenges arose from the realities of a treasury staff being able to work remotely, but they weren’t the only ones; it also necessitated a reevaluation of treasury strategy and a study of how things need to be done in this contemporary setting.

Regarding fintech, corporate treasurers have had a difficult year as they deal with new problems, including cash flow, liquidity, and currency volatility. Treasury has duties beyond just managing cash, but providing the CFO with accurate and timely information can be challenging without the right tools and controls. During the DigitalCFO Asia Executive Roundtable – Accelerating Insights, Action and Growth with Digital Treasury Transformation in collaboration with Kyriba on 22nd November 2023, CFOs and finance leaders had an insightful discussion while sharing their treasury process challenges.

Corporate treasurers have experienced a challenging year pertaining to fintech as they deal with new issues related to cash flow, liquidity, and currency volatility. During the roundtable discussion with Shalini Shukla, Consulting Editor at DigitalCFO Asia and Eugene Chua, Head of Treasury, DTOne, they uncover the top 3 Challenges facing the Fintech industry:

  • Cash Visibility
    • Flying Blind: No single source of truth, minimal automation, no connectivity to banks, and concerns for audit and regulatory requirements eclipsed the challenges of posting errors to the wrong accounts. As banks were added, more fees added up.
  • Risks & Fraud Prevention
    • Operational Risk: $40M at risk per month with burdened by manual processes and required one Treasury team FTE to manage cash positions and consolidate transactions; including manual consolidation of 3,000+ transactions per month from emails, and spreadsheets.
  • Payment Automation
    • Massive Growth: DTOne accelerated growth to $620.3M in 2021 from $273.9M in 2017, adding 11 new product offerings. Banking presence consequently increased from 9 countries to 14 countries. Treasury now manages 122 bank accounts with 27 unique banking partners.

In a survey conducted during the session, we found that instant payments are still one of the main priorities and challenges faced by CFOs and the treasury department. Payment networks, commercial banks, and central banks compete to make payments even faster. This is all very beneficial because timing delays in payments and the information they bring with them wreak havoc on cash predictions and liquidity reserves in addition to introducing risk and uncertainty.

Understanding the attendees’ standpoint during the roundtable discussion, we can see below that most organizations are still in the starting phase of finance transformation while some are already in the ongoing and mature phases.

Steps to take in streamlining treasury operations to improve automation and mitigate operational and regulatory risk

  • Full audit to determine the impacts of accelerated growth against the already high operational risk resulting from legacy processes and systems within the finance structure.
  • Appoint a Treasury team to manage the specialized and strategic functions around cash, liquidity and bank transactions during a rapid growth stage.
  • Set up a small 4-person treasury team to solve The Big Problem, and deliver more value-added services.
  • Take an API-first approach to bank connectivity – demonstrating the best practice and innovation that solved the major problems of scalability, financial controls and strategic liquidity management for the company today and in years to come. (Bank connectivity and consolidation of accounts’ views enabled the team to negotiate a uniform fee schedule across a single banking group despite the account location. With a complete and real-time view of cash, DTOne converted idle cash to investment opportunity – yielding $450,000 per year.)

The treasury team’s responsibility is to gather and produce data for budgeting and cash flow statements, among other things. With the use of Kyriba, the team is not only able to grow as the Company does as needed, but the workflow is also more effective and fewer avoidable human errors are made. In essence, the launch of Kyriba will enable the Treasury team to scale up its network of banking partners and accounts to maintain pace with the expansion of DTOne and stay one step ahead of the competition.

Singapore C-Suite And F&A Professionals: Almost Two-Thirds Said Visibility Over Cash Will Be Key To Surviving Economic Storm

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DigitalCFO Newsroom | 16 November 2022

61% agree that understanding cash flow in real time will be crucial – but just under 4% of those surveyed by BlackLine are completely confident in the visibility they currently have .

A global survey of C-suite executives and finance and accounting (F&A) professionals commissioned by BlackLine, Inc. (Nasdaq: BL) has revealed a significant lack of confidence among the C-suite and F&A professionals when it comes to the visibility their company has over its cash flow, suggesting that many global organizations could be making decisions without an accurate, up-to-date view of company liquidity. This comes despite findings that suggest that visibility over cash flow and other financial metrics could be the key to businesses weathering the growing global economic storm. 

The survey of 1,483 business leaders and F&A professionals (conducted by independent research agency Censuswide across the US, Canada, UK, Germany, France, Singapore and Australia) also found that organizations globally are anticipating growing pressure and scrutiny over company financials as a result of ongoing economic uncertainty, with 22% of C-suite respondents globally indicating it will take 7-12 months before they start to feel confident about the economy again.  As a result, optimizing working capital and processes is high on the agenda, as companies look to bolster their financial resiliency to combat market instability. 

Keeping Track of Cash

With recessionary fears on the rise, more than half (57%) of Singapore respondents surveyed are concerned that prospects or customers will have less income to spend, which could impact sales/ revenue. About half of them (51%) are worried that their organization will face higher costs, while 48% are worried that they will need to look for new ways to optimize working capital without borrowing funds.

Perhaps as a result, 61% of Singapore respondents agree that understanding cash flow in real time is going to become more important for their company in the face of economic uncertainty.  But nearly all respondents (96%) said they could be more confident in the visibility they currently have over cash flow. 

This suggests that the majority of Singapore organizations could be at a serious disadvantage when it comes to making strategic decisions.  Of those that believe visibility could be improved, 56% are worried their company is making decisions based on inaccurate or out-of-date information and 50% say the lack of visibility over cash flow makes them less confident that their organization can remain competitive over the next 12 months.

“Economic instability and volatility have increased over the past few months, adding more uncertainty to an already challenging and unpredictable global business environment.  Once again, Finance & Accounting is caught in the eye of the storm, with CFOs and those who report into them feeling the pressure,” said BlackLine CEO Marc Huffman.  “There is widespread acknowledgement that better visibility over financial data, processes and working capital is needed if organizations want to weather the storm.  Company leaders across the world will need to carefully consider how their organization can respond and remain competitive, agile and resilient in the coming months.”

Financial Data Under the Spotlight as Organizations Brace for Recession

With external pressures that are hard to predict, real-time visibility over financial data, processes and working capital will be key to survival, leading to greater pressure on CFOs and those who report into them, according to the research. 

Over half (54%) of C-suite and F&A professionals in Singapore predict that their companies’ financial reporting will come under increased scrutiny over the next year.  Half of these respondents (50%) believe that financing will be harder to secure, and a similar number (55%) expect the ability to view their companies’ financial data in real time will be a “must-have” for business survival over the next 12 months. 

Against this backdrop, over two-thirds of (68%) CFOs in Singapore said that they were responsible for ensuring their company’s wellbeing during an economic downturn, compared to less than a third (30%) who said that this was the responsibility of their CEO.  This indicates that as company finances come under the microscope, pressure to deliver insights to leadership in near-real time could weigh heavily on CFOs and the finance function.

The Biggest Pain Points

When asked about the biggest pain points for the F&A currently, identifying manual/human errors during the month-end close process was a pressing issue for more than a third (37%) of Singapore respondents.  Similarly, 37% said they faced overdue and unsettled intercompany balances, while 36% said they do not have enough automated controls for the volume of data.  C-suite and F&A respondents said the three biggest challenges they will face in the coming year are: 

  • Reduced budget for their department
  • Increasing regulations and scrutiny
  • Being able to provide accurate data quickly enough to help the organization respond to market changes

Looking Internally to Optimize Processes and Working Capital

In response to increasing financial pressure, responses suggest that organizations now need to look internally for ways to optimize working capital and processes, with 51% of local respondents saying that they will invest more in digital transformation initiatives and 49% wanting to implement or scale automation solutions to help optimize and increase working capital within the next year. 

Mr. Huffman continued: “There is no doubt that those who are using robust and comprehensive data to make rapid, intelligent decisions will be in a stronger position to adapt.  In this environment, it’s likely that greater emphasis than ever will be placed on the strategic insights which F&A can offer to the business.”

DBS and Xero eases SMEs access to working capital with hyper-personalised lending solutions

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DigitalCFO Newsroom | 4 May 2022

Both companies will collaborate on availing to Xero customers the option to share their transactional records from Xero’s platform with DBS

DBS today announced it has deepened its relationship with Xero, the global small business platform, to simplify the loan application process and increase access to working capital for SMEs in Singapore and Hong Kong.

Both companies will collaborate on availing to Xero customers the option to share their transactional records from Xero’s platform with DBS. By doing so, customers will be able to present a more holistic picture of their cashflow which in turn enables the bank to offer SMEs hyper-personalised credit terms and working capital limits tailored to their needs.

Joyce Tee, Group Head of SME Banking, DBS, said, “Our regular engagement with SMEs has consistently shown that cashflow needs continue to be top of mind for our clients, even as business owners seek new growth opportunities.”

Tee added, “We will continue to integrate our touchpoints seamlessly into the customer journey, so as to offer our SMEs more intelligent and intuitive lending solutions. DBS has been sharpening our digital lending capabilities by leveraging ecosystem partnerships and advanced data analytics to roll out solutions that are hyper-personalised to each businesses’ needs. DBS is pleased to take our long-standing partnership with Xero to the next level as we double down on our commitment to helping SMEs accelerate their growth.” 

Joyce Tee, Group Head of SME Banking, DBS

Despite the economy showing tentative signs of recovery, business owners are looking to shore up their balance sheets in anticipation of higher cost pressures going forward. According to the DBS SME Pulse Check Survey published in March this year, over 85% of SMEs indicated that ensuring consistent cashflow and managing costs was a key business priority in 2022.

Over the course of the Covid-19 pandemic, DBS has engaged SMEs in Singapore to extend working capital and cashflow support to them. Since 2020, DBS has approved over 14,000 collateral-free loans totalling more than SGD 6.4 billion to SMEs in Singapore, with over 90% of these loans going to micro and small enterprises.

“The expansion of our partnership with DBS is an incredible milestone for Xero in Asia. Digital tools and solutions have been a significant driver in empowering SMEs to become more resilient and competitive, but working capital is the lifeblood of small businesses everywhere,” said Joseph Lyons, Managing Director Australia & Asia, Xero.

“With DBS – our first banking partner in Singapore to offer API integrated bank feeds – we are excited to extend new offerings to our shared customers through SME financing. We look forward to continuing our work to further support SMEs with their financing needs, particularly in ensuring small businesses have the support they need to thrive.”

Joseph Lyons, Managing Director Australia & Asia, Xero.

DBS and Xero began their partnership in 2017 with a bank feed integration to give SMEs greater visibility and control over their finances with automatic bank updates. Xero is also a key partner of the bank’s DBS Start Digital Package, which is designed to help SMEs kickstart their digital transformation journey. To date, close to 400 SMEs in Singapore have tapped on Xero’s all-in-one solution to digitalise their accounting function through the DBS Start Digital Package. 

Tranglo enables Ripple’s On-Demand Liquidity service across its 25 payment corridors

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DigitalCFO Newsroom | 3 March 2022

Tranglo and Ripple join hands to scale On-Demand Liquidity, which leverages the digital asset XRP to facilitate low-cost cross-border payments for remittance providers

Tranglo has enabled Ripple’s On-Demand Liquidity (“ODL”) service for all its payment corridors, allowing remittance providers to process instant cross-border payments without costly pre-funding. 

This comes after the success of its pilot ODL deployment in September 2021, with 250,000 transactions worth USD48 million processed in the first 100 days.

At press time, ODL transactions via Ripple’s global financial network, RippleNet originate from markets including Australia, Japan, Philippines and Singapore, with other markets to follow.

Ripple, the leading provider of enterprise blockchain solutions for cross-border payments, acquired 40% of Tranglo in 2021 to scale RippleNet and the ODL service.

ODL leverages the digital asset XRP to facilitate low-cost cross-border payments on RippleNet. Remittance providers using ODL will not need to pre-fund accounts, allowing them to maximise capital efficiency to grow their business.

Tranglo Group CEO Jacky Lee said: “Our remittance partners want to enter markets as fast as possible at the lowest cost. ODL offers just that: they can start sending payments without locking in funds at different financial intermediaries, which can be costly and time-consuming. Remittance businesses that sign up for ODL also gain access to both Tranglo Connect and RippleNet, allowing them to better meet increasingly diverse payment needs.”

Tranglo helps financial institutions and businesses pay globally through Tranglo Connect, its proprietary cross-border payments solution. It integrates payout and partner services seamlessly, unifying the end-to-end payment process with direct API access. With Tranglo Connect, companies can immediately make payments to over 25 countries reliably and securely.

AFP Announces Formation of APAC Treasury Council

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DigitalCFO Newsroom | 1 March 2022

The Association for Finance Professionals (AFP) opened its Asia office in Singapore in June 2019 seeking to better connect with and serve finance professionals in the Asia-Pacific region. This year, we formed the APAC Treasury Council to further our understanding of the unique challenges and needs within the region.

GOAL OF THE COUNCIL

The goal for the council is to create an engaged networking advisory group with the purpose of discussing best practices and common challenges, and sharing ideas. The information we gather will extend to the AFP community through access to articles, research and events. 

“At AFP, we feel that the best way to learn is to rely on your peers within the profession, and we wanted to create a forum for our members to do that. We’re also looking for council initiatives that will be carried out by AFP’s Asia office to ensure that we’re meeting the needs of the region and globally,” said Tom Hunt, CTP, director of Treasury Services for AFP.  

“We are thrilled to launch this council as a way of furthering the goal of the AFP Asia office to elevate the treasury profession and create engaged communities through networking, education and training,” said Himashi Soriano, managing director of APAC. 

BIG PROJECTS AND BIG CHALLENGES

The inaugural members kicked off their first council meeting by discussing the projects they are working on and the key challenges they’re striving to meet in 2022. 

Top projects/priorities of the council members include: 

  • Supply chain financing.
  • Digitalization and automation.
  • Streamlining payment processes.
  • How to show the data in real time in both systems — ERP and TMS.
  • Centralization of FX execution.
  • Implementation of a TMS for the entire region.
  • Implementation of cross-border pooling structures.
  • Looking into alternatives such as cryptocurrency.
  • Optimization of working capital cost.
  • Exploring various fundraising venues such as accessing the debt market.
  • Exploring a joint venture or partnership.
  • Expanding to other countries through big cross-border projects.
  • New ways to accept payments from our retail customers in-store and online, faster collection and seamless reconciliation.
  • Diversity and inclusion at all levels, providing a safe and inclusive environment for everybody to be heard, to have a seat at the table and not feel left out.
  • Understanding the implications of trends in the treasury space such as digital currencies and cryptos.

The biggest challenges our members report facing right now include:

  • Cash forecasting.
  • How to get the planning data from the ERP systems to the TMS system.
  • How to reconcile the planning data with the actuals.
  • Bank transaction journals – every company is set up differently; they have their own TMS systems and ERP systems, so the data needs to be aligned between both of them, and how we can make big data available in both the systems.
  • Finding the right banking partners when you’re working in different markets and different regions.
  • Expanding our capabilities in treasury.
  • Interest rates: “It’s still nowhere near the 5% that I’m used to – back in the good old days,” said Toh.
  • LIBOR transition, alternative reference rates.
  • Succession planning in treasury.

“Treasury is kind of regarded as that back-office team that keeps the engine running and keeps the balance sheet working. So, in a lot of ways, developing our teams and developing our talent, giving them the opportunity to move around and experience different roles and different challenges to broaden their finance skill set is an important part of being a leader in your organization,” Max Sunarcia, Treasurer, Jardines.  

Inaugural members joining the AFP APAC Treasury Council include: 

  • Aron Akesson, Regional Treasurer, Carlsberg Group
  • Joris Chevaux, CTP, Regional Treasury Manager, Sephora
  • Siddhant Jain, CTP, Senior Functional Analyst (Treasury), Dentsu International
  • Vinit Mishra, CTP, Head of Treasury and Trade Finance – India, Louis Dreyfus Company India Private Limited
  • Shankar Ramaswamy, CTP, Treasury Business Partner, a global travel firm
  • Mukesh Singh, Treasury Manager, Microsoft
  • Max Sunarcia, Treasurer, Jardines
  • Jessie Toh, Treasurer, Coda Payments
  • Marcell Wiradinata, CTP, Treasury Manager, Philip Morris Sampoerna International Service Center
  • Pulat Yunusmetov, CTP, Treasury Manager, Danone

“It was a great first meeting,” said Soriano. “We look forward to continuing the conversation in March, and to learning more about our APAC members’ needs and how AFP can support them as they rise to meet both regional challenges and the challenges of the treasury profession as it continues to evolve in today’s world.” 

AFP is your source for corporate treasury expertise. AFP administers the Certified Treasury Professional designation, which serves as a benchmark of competency in the treasury profession.

Working Capital Improvements in a Supply Chain Crisis

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Written by Dan Rogney, Esker | 21 February 2022

In March 2020, whether they were ready for it or not, companies across every industry were abruptly thrown onto a roller coaster ride of harsh business challenges. Some managed to ride it out relatively unscathed, others hung on for dear life, many more fell off.

Now, despite COVID’s initial “shock to the system” far behind us, countless companies are still trying to find their footing in an unsteady landscape — the supply chain crisis being a particularly vexing disruption.

How Cash Position Impacts Supply Chain Efficiency

The lingering pandemic has made global supply chains even more vulnerable than they already were — in many cases, requiring supply chain leaders to focus on things outside of their normal scope, such as minimising the amount of money tied up in inventory and other areas of the business. For example, organisations who purchase supplies overseas are all competing for same goods — goods that are needed to serve their customers. The “winner” in this supply chain standoff is ultimately the company with the most cash on hand.

The question is, how can companies — many of whom are cash-strapped themselves in a still-uneven economy — unlock trapped liquidity and increase their working capital to get the products they need to serve customers and stay competitive?

As Esker’s Aaron LeHew discussed on S2 Episode 9 of Esker On Air, companies need to be proactive in implementing creative ways to set themselves up for success. “Even organisations with a strong balance sheet can be exposed to risks through the [financial] health of their customers and suppliers,” says LeHew. “This is either a moment to seize or sustain a competitive advantage or risk damaging the financial health of the organisation across the supply chain.”

Automation’s Role in Optimising Working Capital

Maintaining liquidity through 2022 and getting through the current supply chain crisis will require businesses to find new “levers” to pull that help quickly release cash. For many, AI-powered automation solutions are a catalyst to do just that thanks to their proven ability to:

  • Free up staff from manual, repetitive tasks that inhibit their ability to perform value-added tasks and slow down cash conversion
  • Empower multiple teams and departments with increased financial oversight, predictive analytics and performance monitoring
  • Improve the customer experience by offering self-service tools and greater autonomy

In the end, it all equates to smarter growth and increased financial resiliency — things every business will need whenever the next roller coaster swoops in to take us for a ride.

Want to learn more about automation’s role in optimising working capital? Check out the full conversation with Esker’s Aaron LeHew in Episode 9!

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