Treasuries Focused on Transformation

Late last year, IDC surveyed more than 800 corporate finance leaders and found that improving liquidity management is among their top priorities. This isn’t a shocking result, of course. The onset of the Covid-19 pandemic required treasury and finance professionals to shift focus, on a dime, from managing the business’s long-term strategic initiatives to ensuring corporate accounts hold enough cash to fund basic operations.

Yet many companies remain hobbled in their ability to understand the full landscape of liquidity across their complex businesses around the world. In the IDC survey, only one in eight respondents said they have real-time visibility into more than 90 percent of their company’s cash. Worse, fewer than 20 percent of respondents can reliably forecast the organization’s liquidity beyond one month. And fewer than 5 percent can reliably forecast past three months.

These visibility limitations are impacting treasurers’, CFOs’, and executive teams’ ability to make quick decisions around the movement of money, funding of internal projects, or merger and acquisition (M&A) activity. That’s why the IDC report recommends that companies develop a “unified liquidity management strategy,” a companywide approach to cash management that incorporates feedback from top finance leaders and even line-of-business managers.

The result of a unified liquidity management strategy is that decision-makers throughout the company are on the same page regarding cash flows. Decisions align, and funding issues are addressed in a coordinated fashion throughout the organization.

But for many treasury and finance groups, reaching a unified liquidity management strategy requires a floor-to-ceiling overhaul of treasury processes. The IDC study found that every single company it identified as a “leader” uses cash pooling and sweeps to optimize the efficiency of liquidity management. And very few companies it identified as “laggards” effectively use these tools. Meanwhile, nearly all leaders have implemented effective processes in the realms of business continuity and contingency planning, payment fraud protection, and hedging. Only 35 percent to 55 percent of laggards can say the same.

An initiative to fully revamp these core treasury functions may overwhelming, but the businesses that embrace dramatic change often find the effort to be well worthwhile. One organization that completed such a transformative project is Maryland-based telecom equipment provider Ciena Corporation.

Following rapid global expansion, “we anticipated that more change would be coming in the future, and a piecemeal approach to treasury improvements would not prepare us for what was going to happen,” says Thomas Liu, vice president and treasurer. “We viewed this as a good opportunity to build a world-class global treasury infrastructure so that we could continue to effectively support Ciena for years to come.”

To learn more about the projects of both Ciena Corporation and Turkish glass manufacturer Sisecam—and/or to ask questions of these projects’ leaders—don’t miss the live Treasury & Risk webcast recognizing our 2022 Alexander Hamilton Award winners in Treasury Transformation. Join us: March 16 • 2 p.m. ET • 11 a.m. PT. Register today!

Organizations that decide to move forward with projects similar to those at Ciena and Sisecam will likely achieve substantial benefits. The IDC study lists five key benefits of adopting a unified enterprise liquidity management strategy:

1. Improved visibility. The survey revealed that about half of companies require more than 24 hours to create a consolidated view of corporate cash and liquidity. That turnaround is too slow to achieve the agility companies need in today’s volatile market environment.

2. Better risk management. Slow information gathering reduces the treasury team’s effectiveness in managing currency, liquidity, and fraud risks.

3. More effective compliance. Treasury needs visibility into corporate liquidity in order to comply with all the nuances of the modern, global tax and regulatory environment.

4. Greater process efficiency. The IDC survey found that finance executives are under constant pressure to do more with less. Improving process efficiency is one way to achieve that goal.

5. Greater flexibility in financing. Businesses in which liquidity decisions incorporate information and ideas from across the company are in a better position to take advantage of nontraditional funding sources such as asset-backed borrowing.

The report suggests that Covid-sparked changes to liquidity management are here to stay. The question is whether corporate treasury professionals are ready to jump into a transformational initiative to bring their function up to speed.