Since 2008, interest rates have risen over 500 bps, translating to a higher cost of funds for corporate treasury. Due to the significant rise in rates, there is an urgency among companies to reduce their expenses, enhance operations, and strategically manage their liquidity. This urgency has intensified a trend toward centralization, with many companies focused on consolidating their cash management platforms to achieve a well-rounded and comprehensive corporate treasury system. Centralized cash management involves consolidating all resources from various subsidiaries and entities and integrating them into a single location to improve liquidity operations. It enables access to daily cash positions across currencies, geographies, and subsidiaries quickly and easily, fostering strategic decision making across the enterprise.
In this article, we will be examining the benefits of centralization in treasury, key factors that ensure your company successfully integrates to a centralized system, and insight into leading edge technologies used by treasury organizations to help with liquidity consolidation.
Key benefits of a centralized treasury
Some key benefits that are enabled with centralized treasury include:
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Enhanced visibility and financial controls :
A centralized approach to corporate treasury and cash management helps enable access to real-time financial data and cash flows for all relevant stakeholders. This consolidated view facilitates enhanced controls over funds and better risk management, which can lead to more effective and efficient financial strategies. -
Better forecasting :
Accurate financial forecasting is a cornerstone of effective cash and liquidity management. The lack of real-time information can significantly impact the forecasting accuracy in decentralized systems. Therefore, centralization can provide an aggregated, real-time view of financial data, which in turn leads to more accurate and reliable forecasts. -
Reduced transaction and FX costs :
A centralized structure enables pooling funds and can lead to netting of transactions and FX hedging. This can result in a reduction of the costs associated with a decentralized structure. -
Improved operational efficiency and adoption of technology :
In many smaller organizations, resources in cash management are often limited, making efficiency and leveraging of technology paramount. Centralizing your cash management treasury functions not only streamlines operations, but also frees up the time of FTEs. This allows for more strategic functions within the treasury team such as business/geographic expansion. -
Improved security measures :
In today’s digital world, cyber threats are continuing to rise. Therefore, a heightened focus on security process and policy is required. Centralized systems provide enhanced security features such as well-developed encryption algorithms and multi-factor authorizations. It allows for a robust defense against threats both internal and external, which can result in a more secure cash management operation.
Key success factors for centralization
To ensure your company successfully migrates to a centralized cash management system, it is critical to follow these key factors:
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Bank account rationalization and evaluation of local versus centralized control :
Rationalizing banking relationships and bank accounts is an important step towards a centralized cash management and liquidity structure. The process for bank and account rationalization is a straightforward process: Treasury starts by taking banks and accounts across the organization and identifying the type, purpose, and currency of each, as well as the ownership and signatories. This process will assist with standardization and automation across legal entities, strengthen oversight, and provide an efficient structure for liquidity management. -
Focus on digital transformation and adoption of new technologies:
Through digital transformation, world-class treasury organizations can improve efficiency by nearly 20%, making them 60% more efficient than typical traditional treasury organizations. Leveraging technology can free up staff and budget resources, enabling world-class treasury organizations to further digital transformation initiatives, engage in more value-added activity, or fuel company growth.
Leading centralization technologies currently utilized by treasury organizations
All treasury organizations, even those that are already world-class, can accelerate their digital transformation roadmap with smart automation, robotic process automation, intelligent data capture, and other leading-edge technologies. These processes can often be implemented comparatively quickly and allow for significant improvements in efficiency and effectiveness. Some of the top technologies being embraced within treasury organizations include:
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AI/ML and Predictive Analytics :
These are the most popular and preferred technologies adopted by treasury and finance organizations. In corporate treasury, AI/ML has a wide range of applications and is not limited to automating daily routine tasks; it also provides valuable insights and predictions for strategic decision-making. When combined with predictive analytics, corporations can harness the immense potential of data to help anticipate financial trends and threats. These technologies have innovated with fraud detection, cash forecasting and liquidity management. -
TMS :
Historically, centralization required a huge IT uplift and lengthy implementation timelines. With market adoption of cloud-based Treasury Management System (TMS) models, organizations are expediting their adoption of TMS within their treasury operations. These systems are known for their accessibility, scalability, and integration capabilities.
A centralized treasury management system has significant benefits that can elevate your company’s financial operations, including improved visibility and financial controls that can enhance operation and security measures. Transitioning to a centralized treasury may seem overwhelming, but by rationalizing banking relationships and accounts, in addition to leveraging new technology, you’ll set the right foundation for a centralized cash management platform to support your global operation needs.
