Making treasury great again: Covid-19 will put cashflows into the boardroom

Corporate treasuries, which were already evolving before the coronavirus crisis struck companies around the world, are set for a quicker shake-up as the providers of goods and services realise that central visibility on cashflow and credit will be vital in a disrupted world.

For years, the treasurer role has been becoming more strategic, with company boards paying more attention to medium- and long-term funding.

However, the demand and supply shock dealt by the Covid-19 pandemic will push more operations into the orbit of the treasurer and other senior executives.

A survey conducted in March by the European Association of Corporate Treasurers (EACT), with responses dispersed either side of the full onset of the coronavirus crisis in the region, found that 55% of treasurers considered cashflow forecasting to be their top priority during the next 12 to 24 months.

Treasury, even in large corporations, can be a surprisingly antiquated affair. While digital options for secure operations, such as signing documents, have long been available, take-up of many remains patchy.

“The tracking and tracing of incoming payments becomes much more important when there is a shortage of liquidity”

– Jan Dirk van Beusekom, BNP Paribas

The first reaction at some large corporates when offices were hurriedly closed as European economies entered lockdown in March was panic around the simplest of processes. Can I still make payments from home? Can I still receive money? How can I sign?

As the financial industry has also found this year, corporate business continuity plans tend to envisage remote working from alternative locations that are equipped with backup facilities – not entire workforces rebuilding complex systems and processes in their living rooms.

As the crisis hit, some companies asked their transaction banks to switch to using faxes. That got short shrift at the banks, which have spent years trying to do away with paper-based procedures as they grapple with poor returns that are pushing them to find efficiencies in every corner.

In that regard, the crisis has encouraged change. At BNP Paribas, for example, adoption of the use of electronic tokens by large corporate clients on its e-banking platform has leapt from 13% in February to 70% in May.

There are perception challenges to overcome in such transitions, but banks argue that it provides a more efficient and more secure process than relying on wet-signature documents being scanned and circulated.

As with much else in the digitalization arena, the difficulty is often not technical – a typical e-signature solution would involve the installation of an app by two counterparties. What often holds adoption back is the need for trust.

Where APIs help

The equally urgent need for cash is likely to convince reluctant adopters that they cannot hold back the tide.

Jan Dirk van Beusekom, BNP Paribas

Wider use of e-signature and similar methods of digital approval will be one lasting consequence of remote-working disruption caused by the pandemic. Another will be an expansion of the number of people who can assume responsibility for such approvals.

“People being ill was the nature of this crisis,” notes Jan Dirk van Beusekom, head of strategic marketing for cash management and trade solutions at BNP Paribas, and a veteran of the transaction services business.

“Many of the relevant departments are fairly lean. If specific people cannot work because they are ill, or if entire teams are hit by the disease, then who will be able to make payments?”

Digital solutions can only do so much. APIs can’t conjure up liquidity out of the cloud. It took credit lines and government-guaranteed loans to do that.

“But APIs did help with visibility when it came to making accurate cashflow forecasts,” says van Beusekom. “The tracking and tracing of incoming payments becomes much more important when there is a shortage of liquidity.”

Wrapped up in that is concern over supply chains.

Predictions of the abandonment of global supply chains are overblown: there is little indication that most companies will make such a move, although the number of repeated border crossings during product manufacture has plenty of scope to be trimmed.

What is more likely is that there will be a far greater effort by large corporates within long chains to take care of firms that make up the smaller links.

Bankers have seen an uptick in interest in supply chain finance programmes since the start of the crisis, as big companies look to make their suppliers less bank-dependent. Some call it a move towards more solidarity in the supply chain.

More centralization

Companies were already in the throes of a decades-long trend towards centralization of finance operations. That will surely accelerate as head offices realise that they need more clarity on the movement of cash around affiliates.

The group treasury at a large corporate where subsidiaries have their own banking structure might only get an overview of local liquidity once a week. The least centralized might see it just once a month.

Swathes of innovations in recent years have been aimed at reducing this lack of regular information flow. Pooling, virtual accounts, payments- and collections-on-behalf-of (Pobos and Cobos) are all moves towards the centralization of treasury functions.

Many functions would traditionally have sat at junior levels within treasury or even outside its purview altogether. Data on collections and receivables would typically not make its way much beyond credit departments, but this is now the kind of information that banks are adding to treasurer dashboards.

Bankers talk of how corporates are already reviewing their credit lines in light of the crisis – many will add more backup facilities; some will routinely hold more cash than they have been used to.

However, the biggest lasting change may be a shift in priorities, with more regular oversight of working capital and cashflow moving from back offices and into the boardroom. The pandemic has put a renewed emphasis on the most essential of commodities that a business can have.

“No company goes bankrupt because of a lack of profits,” says van Beusekom. “It’s always a lack of cash.”