Planning for a successful future in treasury: what we learned at AFP Orlando 2016

The 2016 annual AFP conference in Orlando, Florida was all about breaking boundaries.  For those of us who attended and who have practiced treasury, we were reminded of just how treasury continues to evolve. Treasury continues to be asked to provide more, high-level analyses to guide our organization through the torrential shifts in economies, adapt to regulatory shifts that affect even basic cash management practices, and continued vigilance in our fight against fraud and cybercrime.  We were also exposed to great case studies on how technology can enable us to achieve more with less, driving us to simultaneously create and protect value in treasury. Below are five themes that popped out from AFP 2016 and which will continue to be treasury priorities throughout 2017:

1)    Treasurers are Risk Managers

Everything we manage in treasury is driven by mitigating risks. Good cash management and forecasting practices prevent liquidity risk. Hedging may soften the effects of currency and interest rate risk. Eliminating spreadsheets to manage treasury reduces operational risk, as does improving fraud prevention and detection.

The more treasury thinks in terms of what risks they are mitigating, the more valuable they will be perceived within the organization and the more likely treasury projects will be prioritized in the budget.

Additional reading: Making strides with the help of technology

2)    Cash Forecasting is always No. 1

Every year at AFP and other conferences, attendees flock to sessions discussing cash forecasting. A good, accurate forecast seems to be like the end of a rainbow – always sought after, never found. But here’s a hint – if you want to be a treasury leprechaun that finds the forecasting pot of gold, then focus on these three steps:

• Collaboratewith the right people to find the best data for each line item. Collaboration is key as people own data.
• Measurethe accuracy of forecasting and feed those variances back to your extended team.
• Review this webinar on forecasting:Perfecting the Cash Forecast: How to Add Business Value to Your Organization.

3)    Fraud and Cybercrime

We are tired of hearing about fraud and cybercrime. Unfortunately fraudsters are relentless, so letting our guard down is the worst possible scenario. Fraud prevention in treasury can be reduced to these three simple steps:

• Application security– protect your treasury applications with more than a UserID and Password.
• Data security– make sure 100 percent of data is encrypted and safe from internal and external fraudsters. Remember, the majority of CIOs mandate the use of cloud applications to improve data security. The right cloud provider – i.e. those that align with your organization’s information security policy – will make your treasury data more secure.
• Standardize workflows– there shouldn’t be any exceptions from a global, standardized payment policy or bank account management procedure. Fraudsters prey on exceptions, so don’t make it easy for them to gain access to your accounts.

4)    Regulatory Compliance

In the past couple weeks alone, two regulations were again vaulted to the forefront:

• Section 385– while carve outs were offered for cash pooling and in-house banking, there remains a need to properly document intercompany transactions including payments related to intercompany balances. Operating on Excel or using a TMS that doesn’t offer these compliance checks and balances means a significant amount of work to satisfy auditors’ requests for information. Those with a more modern TMS don’t have this worry.
• Money Market Fund reforms– particularly floating net asset value as well as the threat of redemption fees and gates has pushed most cash managers to seek the safe havens of government funds and time deposits. However, this large shift into “govvies” has increased the relative yield possible through investment in prime funds, which continue to be a composition of low risk money market securities. Those with the right treasury management systems benefit from automation of floating NAV calculations, making the reforms minimally impactful. And in return, they get a greater return on excess cash.

5)    Payment Aggregation

At this month’s AFP Conference, a significant discussion point was increasing the efficiency and reducing the cost of payments. While in the US much of that discussion involves migrating from checks to ACH, many conversations also focus on aggregating corporate payments across treasury, accounts payables, and other teams into a single payment hub – sometimes called a payment factory. While payment factories can also be linked with shared services, in-house banks, and even multi-lateral netting – at its core the proposition to centralize corporate payments through a single technology portal is driven by three things:

• Minimizing costs– multiple systems sending payments to the bank means duplicate costs, much of which is absorbed by internal IT to connect the ERP to bank.
• Increasing visibility– Treasurers struggle with transparency into upcoming vendor payments, meaning that liquidity decisions are too short term. Centralizing payments increases visibility, which improves working capital.
• Reducing risk– there are two big risks that can be mitigated through payments centralization. Messaging standardization transfers the risk of generating the correct payment formats for each payment type, bank, and geography from internal IT to a payments provider, who have payment format libraries. Standardizing payment workflows also helps reduce the threat of fraud and cybercrime, which is becoming as big a threat as anything Treasurers have faced in the past decade.

In summary, it’s an exciting time to be in treasury. The challenges continue to mount, and yet the opportunity to provide strategic value to the organization is increasing. Technology will enable that success so I hope you are armed with the right technology to take advantage of this great opportunity to be successful.