Cash management tops treasury agendas for 2015: Treasury centralization has become a priority

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Centralizing group cash and liquidity was ranked as the top treasury priority for the next three years, when Nordea polled CFOs and group treasurers at 80 of Sweden’s largest enterprises.

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That’s testament to the growing trend within large multinational companies of centralising the treasury function.

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Typically, multinational corporations will have a group treasury role to oversee international operations. But many have also had functions, such as payables, receivables, risk and forecasting, managed in subsidiary business units by local treasury teams, procurement, finance or supply chain staff.

While a decentralized model may be very effective for some companies and business models, several key factors are driving centralization, including:

Globalization: Operating in multiple countries increases the number of company accounts, currencies used, customers and suppliers, which in turn creates complexity, exacerbates fragmentation and decreases transparency. Through treasury centralization, companies hope to gain better overview of their cash and liquidity positions.

Cost savings: The treasury, like every enterprise function, is expected to identify ways to save costs — in the case of the treasury, through reducing the costs of bank interest or inefficiencies in working capital. Centralization can drive technology consolidation, with multiple systems replaced by a single treasury technology platform or at least more integrated solutions. It can also simplify bank relationships, reducing bank charges and lowering the cost of managing bank relationships. Compliance costs can also be lowered through greater consistency of controls across treasury processes.

Technology: Technology innovations — such as mobile, cash pooling, web platforms and straight-through processing — improve a centralized treasury’s ability to handle large volumes of activity across the business. These technologies can also drive down treasury’s workload, creating opportunities to provide further business value.

Treasury taking a strategic role

Centralization gives treasury a complete view of the business and its financial position — and reduces the administrative burden by automating processes. Big data analysis gives it a complete view of business, providing insight into key metrics, such as risks or bank fees.

This puts it into a position to collaborate with other departments, providing meaningful insight and analysis that improve companies’ overall financial performance.

This is supported in the results of Nordea’s finance survey of large corporate treasuries at Swedish firms. The CFOs and group treasurers we spoke to confirmed the treasury’s growing influence.

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To support this change in role — and to meet internal support requirements, while keeping risks and costs low — treasurers require faster, better and more integrated access to data.

A journey not a destination

Given the scale of change needed — to people, process and technology — it’s unsurprising that many organizations take a phased approach to centralization. Tackling liquidity first, as reflected in the finance priority survey, ensures the business is better placed to react to opportunities or threats. Increasing payment efficiency, while useful, is necessarily less business critical.

Engineering consultancy Ramboll embarked on a phased transition for its centralization programme. A series of acquisitions had helped it grow, giving it operations in 22 countries — along with 140 bank accounts and transactions in multiple currencies. Its treasury centralization efforts centred on liquidity and cash flow, as well as instituting an internal bank, to give it a single view of its business.

Ramboll uses Nordea’s Global Cash Pool to give it instant visibility into liquidity across the entire organization, and increased the reliability of its three-month cash-flow forecasting. But for cultural reasons, it left individual business-unit teams with significant responsibilities.

Firms embarking on a treasury centralization strategy can smooth the process by understanding what timescales are realistic, where bottlenecks might occur, and the migration process for new solutions. At Nordea, we believe you can do this best through talking to those that have already been through the process. We’re happy to share our experience and even broker these mentoring relationships directly.

If you’d like to find out more about how Nordea can help your treasury centralization project, get in touch with us at nordea.com.