The interest rate environment entails periods of high volatility driven by shifts in monetary policy, inflation pressures and changes in economic conditions. Corporate treasurers need strategies and tools to successfully manage these uncertainties.
For corporate treasurers, interest rate changes significantly impact their cost of borrowing, affecting their ability to manage cash flow and make investment decisions, thereby impacting a company’s overall financial health. Keep reading to learn more about the specific impacts of rate changes on corporate treasurers and how leveraging the right technology can provide treasury teams with the visibility they need to navigate this volatility and optimize treasury operations.
Strategies for helping your business thrive during a volatile rate environment
- Debt management – In a falling rate environment, corporate treasurers often look for ways to refinance at lower interest rate levels and extend maturities to lock in lower rates for longer term.
- Cash flow management – Treasurers can look to optimize their cash flow forecast, enabling them to anticipate changes in the economy. They can explore strategies to maximize returns on their cash holdings which can include investments in higher yielding instruments as well as focusing on ways to improve working capital efficiency.
- Investment strategies – As rates fall, corporate treasurers can search for alternative investment strategies which include expansion of business operations or new projects, higher-risk investments such as corporate bonds, and longer duration instruments. Accurate forecasting of cash needs and timing is crucial to ensure that liquidity is available for the operational needs of the business while optimizing return on investments.
- Hedging strategies – Corporate treasurers with international exposure to their business operations can re-assess the impact of lower US interest rates on their foreign operations and look to hedge their exposure to a falling USD.
- Cash forecasting – Accurate cash forecasting enables the investing, financing, and operational activities that help companies manage their cash positions across their operations and time horizons. It is the foundation for a liquidity strategy that supports day-to-day operational financing with reduced asset exposure and borrowing costs.
Technology solutions for liquidity management in a volatile rate environment
A fluctuating interest rate environment requires corporate treasurers to have full visibility of their cash positions across their global operations. Having insight into where their cash is across bank accounts, currencies and legal entities enables them to make informed decisions to efficiently and effectively manage liquidity
to maximize return and minimize expense. A Treasury Management System (TMS) or Enterprise Resource Planning (ERP) can help make this possible.
- Treasury Management System (TMS): A TMS provides corporate treasury with a centralized platform to monitor cash flows, enabling real-time insights into current cash positions, forecasting future cash requirements, and embedding a proactive decision-making protocol for optimizing cash and liquidity management and reducing risks to the business. Deploying a TMS has been more accessible to corporate treasury via SaaS based solutions. Software-as-a-Service based TMS provide scalability, reduced implementation cost, and automatic updates that can be easily integrated with core treasury solutions. SaaS TMS provide an accessible entry point for companies aiming to streamline their treasury operations.
- Enterprise Resource Planning (ERP): An accounting system or ERP is a fundamental component of treasury technology infrastructure, supporting treasury’s ability to manage the impacts of interest rates on its operations. ERPs enable treasury to comprehensively manage financial data and processes for its business. Leading ERP providers in the market, such as SAP and Oracle, offer robust solutions that integrate with TMS platforms, enabling synchronized management of general ledgers and financial confirmations. A holistic approach supports strategic decision-making and operational efficiency. ERP and TMS vendors are incentivized to provide comprehensive, integrated solutions supporting the evolving, complex requirements of a modern treasury that’s managing a volatile interest rate environment.