Cash management and forecasting top priority for CFOs

By:
Duncan Kerr
Published on:

Chief financial officers, treasurers and finance professionals of more than 200 companies across industries consider cash management and forecasting to be their top priority over the next couple of years, according to new research.

In an annual corporate treasury survey conducted by the Association for Financial Professionals (AFP) in partnership with consultant Oliver Wyman, some 62% of finance professionals who responded said cash management and forecasting is their main focus through to 2016, followed by financing and capital allocation, and serving as a "more strategic resource" in their company.

Less of a top priority for finance professionals is banking relationship rationalization, mergers and acquisitions, and credit syndicate renewal, each of which ranked outside of the top five 'key areas of focus’ in the survey.

Only 20% of total respondents said cutting back their banking relationships was a key focus, while 16% said M&A and investment banking was a priority and 11% said credit syndicate renewal was in the next couple of years.

AFP Key Areas of Focus


Cash management and forecasting – essentially managing the money flowing in and out of a company, and anticipating changes in that flow – is a critical function in any corporate treasury, but in the past few years its importance has been reinforced by financial market volatility and economic uncertainty.

Combine that with the impact of new global financial regulation and geopolitical risk rising to its highest in arguably a decade, and this has all enhanced the corporate treasurers’ need to ensure that they have the best possible cash management and forecasting processes and systems in place.

These factors have also expanded the treasurer’s role and responsibilities with any given company, in turn increasing their strategic importance and the attention with which they now receive from senior executive management.

"In a time of increased uncertainty and or volatility, making the right decisions regarding the use of cash is even more important," stated the AFP in the survey report. 

"Sixty-three per cent of financial professionals explain treasury’s expanded role is the result of the close attention being paid to the company’s liquidity and risk exposure by senior management and the board. Half of financial professionals report that their companies are making a concerted effort to be innovative in leveraging the skills that reside in treasury."

Enhanced role

However, while the role and responsibilities of corporate treasurers has expanded, the AFP says the traditional metrics used to judge their success or failure need to be re-aligned to reflect their enhanced role and contribution.

"Not surprisingly, revenue and or profit generation are major components determining treasury’s effectiveness," stated the AFP. "But executive management employs other metrics in evaluating treasury’s contributions to an organization. Several of these metrics are linked to reduced costs."

According to the survey, some 58% of respondents said their companies measure treasury’s success by its ability to reduce borrowing costs, while 55% said their companies gauge their treasury’s success by its ability to achieve liquidity targets. About half of respondents said the treasury’s success is based on its effectiveness in reducing banking expenses and in managing risk.

"It is interesting to note that most of the current measures of a treasury department’s performance relate to the 'traditional' core functions, and thus may not effectively capture the success or failure of treasury’s strategic contributions," said the AFP.

"The measures also do not reflect treasury’s leadership roles in areas such as FP&A [financial planning and analysis], ERM [enterprise risk management], insurance or M&A."

The AFP added that as treasury’s role evolves, it is important for it to redefine how its success is judged to ensure its assessment is aligned with its most important contributions – and that it educates the rest of the organization about that contribution.

"For instance, while cost management is important, in the new world of increased risk management and working capital management, managing effective banking relationships may be more important than 'cheap’ banking relationships," stated the AFP.

"Metrics should reflect how the treasury function provides value to the organization."