Treasury Performance Optimization Strategies (2024)

A Strategic Treasury Focus Boosts Cash Flow and Minimizes Risks

Treasury operations manage the lifeblood of their companies: cash liquidity. CFOs know that their treasury teams are critically important, handling everything from cash flow forecasts to optimizing working capital, along with foreign exchange currency risk and investing and borrowing. The team’s performance has a direct impact on the bottom line. Yet, 22% of CFOs and senior finance executives say they don’t see their treasury team as a profit center, according to a recent survey by CFO Research and Kyriba. And only a quarter of the executives say their treasury operations are operating at a high level with a strategic approach. This report examines what the survey says about the links between treasury and overall performance, the obstacles that treasury teams face and how CFOs can boost their treasury performance to improve overall profitability.

Table of Contents

  • Which of the Following Best Describes Your Role?
  • KEY POINTS
  • WHY TREASURY PERFORMANCE SHOULD DEMAND YOUR ATTENTION
  • What Are Your Current Priorities Related to Treasury?
  • THE CURRENT STATE OF TREASURY
  • How Do You See Your Treasury Team Contributing as a Profit Center?
  • HOW TO GET BETTER
  • In Which of the Following Areas Does the Treasury Organization Need to Imporve Its Technology and/or Process to Match Industry Best Practices?
  • What Are Your Top Three Treasury Concerns for 2020 and Beyond?
  • CONCLUSION

Which of the Following Best Describes Your Role?

Treasury Performance Optimization Strategies (1)

KEY POINTS

  • Senior finance executives expect treasury teams to manage critical tasks linked to cash flow and risk, according to a survey.
  • That three-quarters of finance executives view their treasury operations as strategically lacking.
  • Obstacles faced by treasury teams include complex financial structures and siloed systems, and a lack of technology investments, real-time business intelligence, expertise and process automation.
  • A lack of spending on treasury and a focus on everyday tasks over strategic objectives block progress for treasury teams.
  • Working capital optimization is the top treasury concern of financial executives moving forward.
  • The surveyed finance executives also acknowledge that their treasury organizations need to make technology and process improvements to meet industry best practices.
  • Predictive analytics, payments automation and cash management are the top three technology and process improvements that treasury teams need to make, according to the survey respondents.

WHY TREASURY PERFORMANCE SHOULD DEMAND YOUR ATTENTION

There is widespread agreement among CFOs and other senior finance executives: Treasury performance is critical to the health of their organizations, and they expect their treasury teams to manage a range of critical tasks.

According to a 2020 CFO Research/Kyriba survey, senior finance executives give similar weighting to a range of treasury department priorities: accurately forecasting cash flow, operational efficiency, fraud prevention, compliance, optimizing working capital and FX risk management are somewhat evenly matched. Rather than singling out one or a few of the priorities, the 156 surveyed executives indicate that all are nearly equally important.

The survey also reveals another theme: finance executives tie treasury performance directly to cash and liquidity management.

The surveyed executives measure treasury performance based primarily on free cash flow, cash used for working capital, productivity and efficiency, investing and borrowing performance, and reduced risk exposure. These are all important, of course — liquidity drives business performance, CEOs often give guidance to the investment community about meeting free cash flow targets and cash is needed for working capital.

What Are Your Current Priorities Related to Treasury?

Treasury Performance Optimization Strategies (2)

But whether or not the finance executives formally track these factors as key performance indicators for their treasury teams, nearly all of the executives have the same expectations. They want better returns from cash, more optimized investment and borrowing, best practices executed for liquidity and cash management, and protection against fraud.

On the topic of the best ways for treasury teams to optimize liquidity, the survey respondents again see almost-equal priorities rather than one or two favorites, giving nearly the same importance to reducing borrowing costs, increasing returns on excess cash, generating free cash flow, mobilizing global cash more efficiently and implementing supplier financing programs. They also give similar weights to each of eight areas where their treasury teams could make a better contribution to overall business performance. Increasing cash flow is the favorite at 41%, followed by increasing interest earned on excess cash, protecting against payments fraud, improving treasury team productivity, centralizing treasury data and processes, reducing currency volatility impacts, providing secure and efficient global payments, and providing business continuity planning for global treasury. Finance executives expect their treasury teams to meet all of these cgoals, and if they aren’t done right, it costs their organizations in financial losses or missed opportunities.

CFOs recognize that cash is the lifeblood of their organizations. When treasury can manage cash and liquidity well—if it can provide visibility to cash and deploy it effectively, optimize investment and borrowing, and protect cash from fraud and currency risks—then it sets itself up to optimize how cash is made available and deployed, such as for cash operations, stock dividends or company growth in other parts of the world.

THE CURRENT STATE OF TREASURY

Despite the consensus that treasury operations are integral to company success, the survey also shows that treasury operations are lagging considerably behind the vision that the CFOs and other finance executives have for them.

Surprisingly, 22% of the surveyed executives say they don’t see their treasury team as a profit center. On behalf of those who don’t share that view, 53% of the surveyed executives say their treasury teams contribute as a profit center by earning greater returns on cash and 34% say they contribute by unlocking supplier discounts for early payments. Rounding out the profit-center views, 28% see contributions from treasury’s FX intercompany management and 24% from viewing treasury as an in-house bank. On the bright side, 78% of the CFOs and other senior finance executives in the survey view the role of treasury as actively contributing to the bottom line. And most are earning greater returns on cash from areas such as investment income on the large cash balances that companies frequently hold in today’s economy. They also value cash management and see cash as something that can help create profitability and improve margins.

The glass-half-empty view? The executives in the 22% contingent probably are not aware of the potential links of treasury to value creation, and are likely not investing in things like cash forecasting or technology that will help their treasury teams contribute in strategic roles, viewing cash merely as a means to pay bills, and not much more.

How Do You See Your Treasury Team Contributing as a Profit Center?

Treasury Performance Optimization Strategies (3)

When asked about their current state, only one quarter of surveyed finance executives describe their treasury operations as “strategic,” the highest level, meaning that treasury “creates value through enterprise-level insight and intelligence.” Three out of every 20 finance executives surveyed say treasury is operating at an “ad-hoc” level, or the lowest level, which is primarily reactive.

Anything below strategic is suboptimal.

But why are treasury teams being placed in the not-strategic category? The surveyed finance executives report several internal obstacles that restrict the CFO’s ability to support organizational growth and bottom-line value, with a fairly even distribution between those obstacles: complex financial structures, siloed or disparate financial systems, lack of resources, insufficient technology investments, lack of real-time business intelligence, lack of expertise and lack of process automation. All of these obstacles point to a mindset that the company hasn’t invested the time and money necessary to improve treasury processes and the systems that support them. They also signal a lack of collaboration and coordination in the way the financial structure is set up.

A lack of spending on treasury and a tactical focus, where time is spent on completing everyday tasks at the expense of forward-looking achievements, translates to lower productivity for treasury teams, especially for the range of critical tasks and high expectations that CFOs have set out for them. Companies are getting in their own way when they fail to prioritize treasury operations and don’t invest in the capabilities and tools that treaury needs.

HOW TO GET BETTER

CFOs value the importance of treasury operations, and most of them recognize that their treasury teams haven’t reached a strategic level yet. So how do they set up treasury to achieve its full potential?

The key barrier is that treasury teams often get so bogged down in reactive tasks that they don’t create opportunities to work on strategic tasks. If treasury can get around its mountain of tactical work, it can be more proactive with insights and analysis.

One way that CFOs appear to be attacking this issue is through technology. The survey shows that more than one-third of the respondents use connectivity middleware/payment hub software, data visualization/business intelligence software and mobile devices for multifactor authentication with their finance teams. A slightly lower percentage of the surveyed finance executives employ application programming interfaces to banks and trading partners, as well as machine learning and robotic process automation. All of these technologies help harness data and can make treasury teams more effective and analytical, which helps them make better decisions about managing cash and liquidity. Fostering more analysis of data and information creates an opportunity for treasury and finance to become more strategic.

TREASURY ORGANIZATIONS NEED TO MAKE TECHNOLOGY AND PROCESS IMPROVEMENTS TO MEET INDUSTRY BEST PRACTICES. PREDICTIVE ANALYTICS ARE AT THE TOP OF THE LIST, CITED BY 45% OF THE RESPONDENTS AS AN AREA OF INTEREST, FOLLOWED BY PAYMENTS AUTOMATION AT 32% AND CASH MANAGEMENT AT 31%.

In Which of the Following Areas Does the Treasury Organization Need to Imporve Its Technology and/or Process to Match Industry Best Practices?

Treasury Performance Optimization Strategies (4)

The surveyed finance executives also acknowledge that their treasury organizations need to make technology and process improvements to meet industry best practices. Predictive analytics are at the top of the list, cited by 45% of the respondents as an area of interest, followed by payments automation at 32% and cash management at 31%.

The number of organizations utilizing technology that still acknowledge the need for improvement show a level of aspiration. CFOs and their organizations are recognizing they need to make changes to achieve the performance standards they’ve set for their treasury teams based on free cash flow and other factors.

What Are Your Top Three Treasury Concerns for 2020 and Beyond?

Treasury Performance Optimization Strategies (5)

Looking ahead, the top three treasury concerns for 2020 and beyond are working capital optimization, according to 41% of the surveyed executives, followed by payments fraud for 29% and low interest rates for 28%. The other items on the treasury concerns list include treasury operating costs, treasury productivity, currency volatility and business continuity. The diverse pattern of responses indicate that other than with working capital optimization, every organization will have its own individual set of priorities for fortifying its treasury operations. Also, with no consensus about treasury deficiencies, each organization will have to carefully examine and gain a better understanding of its own treasury team, which could lead to visibility that hasn’t previously existed.

The bottom line is that CFOs and other finance executives value their treasury teams, and they have a good understanding of all the vital benefits that their teams can deliver—a point made repeatedly through the survey results. Although there may not be a simple fix, they’ve identified a list of internal obstacles that they must overcome to improve treasury. They also recognize the opportunity at hand: to bring their treasury operations up to a strategic level where they can fulfill their potential. To make that happen, they need to arm their treasury teams with the right tools to understand and analyze data, and to make better decisions. Starting with some simple investments in technology, CFOs can improve the efficiency and effectiveness of treasury. And as that efficiency and effectiveness grows, it increases the probability of good outcomes like increased profitability.

CONCLUSION

Treasury performance is tied directly to cash and liquidity management. CFOs know that accurately forecasting cash flow, operational efficiency, fraud prevention, compliance, optimizing working capital and FX risk management are all critical tasks that their treasury teams must manage to sustain the health of their companies. Most of them also recognize that their treasury teams need work. Most treasury operations fail to achieve their full potential because they get bogged down in tactical, reactive work. Treasury teams need investments in predictive analytics, payments automation and cash management. As technology and process improvements help treasury teams to harness more data and employ more analytics, those teams will become more strategic and capable of meeting their CFOs’ expectations. And companies will enjoy improvements in free cash flow, cash usage for working capital, productivity and efficiency, investing and borrowing performance, and reduced risk exposure.

Check out this on-demand webinar and learn how 2021 AFP Pinnacle Award Winner HCSC transformed into a data-driven treasury with 1000+ hours of productivity improvement and 90% reduction in working capital requirements.

Treasury Performance Optimization Strategies (2024)

FAQs

Treasury Performance Optimization Strategies? ›

Technology and Automation:

What are strategies in treasury management? ›

A strategic treasurer should be able to support the corporate strategy by:
  • Outlining efficient treasury policies.
  • Ensuring permanent visibility and access to cash.
  • Delivering accurate cash forecasting.
  • Defining optimal hedging strategies.
  • Monitoring financial markets.
  • Creating working capital culture.
Jun 2, 2016

How can treasury operations be improved? ›

Standardise. Standardising treasury operations involves establishing uniform processes, policies, and data standards across different business units and geographical regions. This promotes consistency and simplifies operations.

What strategies would you employ as a treasury manager to optimize cash flow within a company? ›

Utilize cash flow forecasting, working capital optimization, and maintaining adequate cash reserves to ensure financial stability and cover unforeseen expenses. Establish credit facilities for additional liquidity and seek opportunities to enhance cash flow through cost-cutting measures and revenue optimization.

What are the 5 key performance indicators in government? ›

Common examples of KPIs used in government and public agencies include:
  • Customer or citizen satisfaction scores.
  • Cost per service/program.
  • Processing times for applications or requests.
  • Wait times for services.
  • Website or call center traffic and resolution rates.
  • Program enrollment and participation rates.

What is effective treasury management? ›

Effective treasury management involves a delicate balance between these objectives, tailored to meet the specific needs and goals of the organization. It requires a keen understanding of financial markets, risk assessment, and adapting to changing economic conditions.

What are the best practices of treasury management? ›

Corporate treasury management best practices
  • Preparing for risks proactively: ...
  • Keeping a record: ...
  • Accurate cash flow forecasting: ...
  • Streamlining reporting process: ...
  • Centralizing treasury management: ...
  • Adopting automation and AI:
Jan 5, 2022

What are the three goals of corporate treasury? ›

Corporate treasury provides the resources to fund business operations, meet financial obligations, and support growth.

What is the treasury management model of a business? ›

The ultimate goal of treasury management is to optimise financial liquidity, minimise risk, and drive value creation. In a nutshell, treasury management is there to ensure that the business always has access to the cash required to operate, and uses surplus cash efficiently.

What are the three main functions of treasury management? ›

What are the key functions of the treasury management department? The key functions of the treasury management department include planning, organizing, and controlling the organization's financial resources.

What are the challenges in treasury management? ›

Common challenges in treasury management include volatile financial markets, regulatory compliance, technology advancements, and changing business environments.

How can I be a good treasury? ›

A good treasurer is able to analyse these needs and adapt to these different situations to ensure best practices are being implemented. A good treasurer is able to keep track of large amounts of information and manage multiple tasks simultaneously. A small mistake can have big consequences for the company's finances.

What is a treasury strategy? ›

This basically means that cash raised during the year will meet the cash spent. Part of the treasury management operation is to make sure that this cash flow is properly planned, with cash being available when it's needed.

What is the treasury cash management strategy? ›

Cash management is the strategic handling of an organization's cash flows to optimize liquidity and ensure financial stability. It encompasses activities such as monitoring cash balances, forecasting future cash needs, and having strategies to deploy surplus cash or obtain additional funds when necessary.

How to create more cash flow? ›

6 Strategies for Accelerating Cash Flow in Your Business
  1. Reduce your spending. Decreasing your spending is one of the more obvious ways to increase your cash flow. ...
  2. Create additional revenue streams. ...
  3. Offer discounts for fast payments. ...
  4. Watch your inventory. ...
  5. Consider raising your prices. ...
  6. Offer prepayment rewards.

What is treasury metrics? ›

Treasury metrics or treasury key performance indicators are metrics used to track and analyze the performance of treasury. Enterprises must establish the appropriate and latest treasury KPIs for liquidity, funding, financial risk management, and moreover making treasury a strategic role player in the CFO's office.

What is treasury performance management? ›

Treasury management is the process of managing an organization's financial resources in order to achieve its strategic and operational objectives. It encompasses a wide range of activities, including cash management, funding and investment management, trade finance, risk management, and working capital management.

What are KPIs in supply chain management? ›

Key performance indicators (KPIs) are a set of quantitative metrics that can help you gauge your business' performance over time. Specifically, they enable you to monitor how effectively your organization is achieving its target goals.

What is KPI for finance department? ›

A finance department Key Performance Indicator (KPI) or metric is a clearly defined quantifiable measure used to evaluate a company's financial performance. From an external perspective, investors compare the financial KPIs of different companies to determine which is a better investment.

Top Articles
Latest Posts
Article information

Author: Chrissy Homenick

Last Updated:

Views: 5488

Rating: 4.3 / 5 (74 voted)

Reviews: 89% of readers found this page helpful

Author information

Name: Chrissy Homenick

Birthday: 2001-10-22

Address: 611 Kuhn Oval, Feltonbury, NY 02783-3818

Phone: +96619177651654

Job: Mining Representative

Hobby: amateur radio, Sculling, Knife making, Gardening, Watching movies, Gunsmithing, Video gaming

Introduction: My name is Chrissy Homenick, I am a tender, funny, determined, tender, glorious, fancy, enthusiastic person who loves writing and wants to share my knowledge and understanding with you.