Little drives self-reflection more than a crisis. The recent financial turmoil has prompted corporate treasurers to reevaluate not just policies but such operational issues as how they measure available cash and the reliability of their liquidity, working capital and risk management practices.
Banks have long sought to advise corporate clients on how their treasury operations compare with competitors' and how to improve them, but mostly on an issue-by-issue basis. "Our clients were telling us there wasn't anything that did a deep-dive into treasury operations as an entire practice area," says Ron Chakravarti, managing director in Citibank's global liquidity and investments unit.
So Citibank's Global Transaction Services division began a six-month analysis of diagnostic methodologies and questions to ask corporate customers about their treasury operations, and created Citi Treasury Diagnostics. It piloted the service to 20 large clients and then another 150 in third quarter 2009. By year-end, Citibank anticipates another 500 will have taken the plunge.
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Chakravarti says the 45-minute online questionnaire covers six fundamental treasury disciplines: policy and governance, cash management, working capital, subsidiary funding and repatriation, risk management and systems and technology. The diagnostic runs on Globalpark's Enterprise Feedback Suite software, which captures feedback and tracks the behavior of organizations' customers and employees.
"Citi Diagnostics measures how a firm compares to others and where there are gaps," Chakravarti says. Citi staff also provide qualitative insight into why clients fall short of peers, as well as advice on how to catch up.
Citibank research shows that efficient treasury departments run with 60% less staff–a plus when justifying treasury costs to the CFO–than inefficient ones, Chakravarti says.
He adds that large multinationals using Citi Diagnostics have seen a 30% drop in their cash conversion cycle, or the time to convert a dollar invested in production and sales into cash, as well as their liquidity buffer, which ensures the cash in a company's banking accounts can cover expenses.
"The less efficient your treasury department, the bigger that buffer has to be," Chakravarti says, adding, "Treasury has become a partner with the CFO, weeding out poor capital market practices and planting the good ones that benefit the business."
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