Evolving Role of Corporate Treasurers in the Digital Age

Introduction

With the dynamic financial landscape resulting in ever-evolving responsibilities, corporate treasury functions have been redefined like never before. Once defined by computer calculations and management of capital transfers, corporate treasurer responsibilities are now broadening in scope, fueled by cutting-edge technology and the AI revolution.

In the era of digital transformation, corporate treasurers must rethink how they can leverage large volumes of financial data to maximize business outcomes. Despite technology making it easier for corporate treasurers to monitor cash flows and manage finances efficiently, emerging changes led by technologies such as and new payment platforms often make it challenging to keep up with the evolving regulations.

In this environment, how can corporate treasurers elevate and enhance their treasury operations? What are the key challenges in treasury management that need to be addressed? And lastly, what role does treasury automation play? Read this blog to explore all the answers in great detail.

What Is Corporate Treasury, Its Functions, And Importance?

Corporate treasury is a finance process that optimizes a business’s capital to manage liquidity, security, revenues, and returns to improve the bottom line. It also ensures that businesses have sufficient reserves to meet daily operational expenses while streamlining long-term financial goals. 

Apart from managing cash flows and aligning financial strategies, corporate treasury identifies and analyzes financial risks and implements required mitigation measures. The expectations of a corporate treasurer depend on the nature of business activities and responsibilities decided by the top management. For example, a manufacturing company with numerous product lines and global operations would need its corporate treasurer to have deep expertise in foreign exchange, optimize cash flow from operating activities and leverage cash management for faster collection of invoices.

Functions of corporate treasury

The main function of corporate treasury is to ensure that a business has sufficient funds to meet its daily operational needs. This is achieved by providing financial resources, raising finance and capital to support corporate activities, and managing the risk and liquidity portfolio dynamically. Effective corporate treasury management calls for expertise in financial analysis, market knowledge, and an in-depth understanding of the business’s operational and financial goals. The core functions of corporate treasury include:

• Monitors and optimizes cash flows to ensure a company has enough cash to settle its financial obligations.
• Manages debt instruments and their issuances, and arranges and negotiates credit facilities.
• Invest surplus cash to generate returns while reducing risks, demonstrating expertise in financial markets, investment instruments, and risk mitigation strategies.

Importance of corporate treasury in a company

Corporate treasury in a company is important because it helps streamline resource management, strengthen liquidity, and avert financial risks. By efficiently managing and monitoring cash flows, businesses can meet their short-term debts, invest in expansion activities, and capitalize on growth opportunities more effectively.

A corporate treasurer also plays a critical role in mitigating financial risks and securing a business’s profitability and financial position against volatility and market fluctuations. Additionally, they help businesses unlock better returns while optimizing borrowing costs, enhancing their overall financial health and ensuring long-term viability.

5 Key Responsibilities Of A Corporate Treasurer

Corporate treasurer responsibilities include managing a business’s financial risks and overseeing the organization’s financial operations, such as cash management, debt management, risk management, and investment management. A corporate treasurer actively engages with public markets, enterprises, investors, and regulators to raise profit. 

A corporate treasurer’s role revolves around efficient cash flow forecasting, low-cost funding, and effective risk management. They are crucial decision-makers and strategic partners for the corporation and are often in charge of debt management, capital management, and regulatory reporting as well. Some of the primary responsibilities of a corporate treasurer include: 

• Asset-liability management 

  This involves matching cash inflows and outflows and ensuring timely payments of all liabilities. Current assets include accounts receivable and inventory that can be quickly converted into cash. Cash inflow from current assets is utilized to pay short-term debts and accounts payable. Corporate treasurers here facilitate planning to ensure smooth operations and adequate allocation of resources for operational activities.

• Cash management 

  Corporate treasurers monitor cash flows and balances across bank accounts. They forecast the amounts and timing of surplus cash and analyze if they can be invested, which is critical for efficient working capital management. Some common cash management activities included in the corporate treasurer’s responsibilities are: 

  • Cash pooling 

    This is a treasury strategy used to consolidate cash from various accounts into one. For instance, an MNC may pool or sweep surplus cash from different bank accounts or worldwide subsidiaries into one account as a single source of truth and optimize overall liquidity. 

  • Cash forecasting

    Cash forecasting involves anticipating and analyzing future cash flows and streamlining liquidity based on insights derived from forecasting. For instance, a corporate treasurer in a manufacturing company can predict revenues and expenses for the next quarter, predict cash shortfalls, and strategize accordingly. 

  • Cash optimization

    This involves identifying which bank account has excess funds and moving the surplus to one centralized account for better visibility. In addition, corporate treasurers must also ensure the correct target balances are maintained in each bank account by setting minimum and maximum limits for balance transfers and automatically creating sweep transactions to move money between accounts. For example, if a company’s Bank of America account in New York is low on balance and needs to be funded to ensure interest payments are made on time.

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• Debt and financing management

  Corporate treasury is also responsible for negotiating lines of credit and making vendors agree on favorable terms of payments when the business runs short of capital. It also ensures that the business is aligned with debt agreements and that payments are released on time to avoid penalties like shortfall interest charges. 

• Investment management 

  While businesses must aim for sufficient reserves, too much idle cash is not a good sign for business. It indicates that businesses are unable to utilize the cash to improve returns by leveraging effective investment opportunities. Corporate treasury is responsible for identifying good investment or reinvestment areas to increase returns on surplus while reducing the risk of loss. It will also evaluate time horizons for investments and trade-offs between better returns and longer maturities. 

• Risk management 

  An important function of the corporate treasury team is proactively identifying and managing financial risks. Corporate treasury teams also ensure compliance with regulatory requirements and internal financial transaction and reporting policies. They do this in several ways, including:

  • Developing and implementing risk management policies 

    This involves framing and implementing policies and procedures to handle financial risks. These also include policies related to cash, debt, investment, insurance, and foreign exchange risk management.

  • Track and analyze market conditions 

    Corporate treasurers closely track market conditions and trends, including interest rates, forex rates, and commodity prices, to identify the associated risks and opportunities.. Treasurers can use this data to make informed decisions and manage and mitigate risks. 

  • Strategies for currency hedging and forex risks 

    This involves using hedging strategies like forward contracts, swaps, and options to handle exposures to financial risks. For instance, corporate treasurers can use hedging to control the impact of currency fluctuations and remove anomalies in the financial statements due to changes in values. 

  • Ensure regulatory compliance 

    Corporate treasurer responsibilities also include ensuring compliance with regulatory requirements relating to financial reporting and transactions. Treasury teams will also have to check compliance with accounting standards, banking regulations, and tax provisions. 

  • Manage banking risks 

    This includes identifying, managing and evaluating the risks that come with banking operations. Treasurers negotiate credit facilities and ensure compliance with regulatory requirements for banking and financial services. They are also required to ensure robust internal controls and processes for seamless banking transactions and track transactional activities for fraud and errors. 

Key Challenges In Treasury Management

With the ever-changing landscape of corporate treasurer requirements and responsibilities, corporate treasurers face numerous challenges, like: 

• Lack of global cash visibility
• Lack of accuracy
• Insufficient funds for technology adoption
• Dependence on spreadsheets
• Currency exchange rate risk
• Frauds and anomalies 

• Lack of global cash visibility

  Global cash visibility is critical to making timely business decisions. Visibility is often hampered since data is dispersed across multiple systems, such as treasury management systems, ERPs, bank portals and sales order systems. Low visibility can also be caused by non-standard processes, which result in erroneous forecasts. Corporate treasury can face many challenges due to a lack of global cash visibility, such as:

  • Insufficient cash return
  • Unmet KPIs that and a lack of trust in corporate treasurers
  • Higher borrowing expenses 
  • Unnecessarily high bank fees and expenditures 
  • Poor hedging
  • Lack of reserve funds for unexpected costs

• Lack of accuracy

  Lack of accuracy lowers confidence in making decisions. Owing to unreliable data, CFOs are unable to make informed decisions which impacts effectiveness. Accuracy suffers as a result of:

  • Process inefficiencies such as:
  • Top-down forecasting
  • AR and AP unpredictability
  • Multiple data sources
  • Dynamic elements such as:
  • Changing foreign exchange rates
  • Business cycles/seasonality
  • Variations in the macroeconomy

• Insufficient technology adoption

  Technology is already applicable and in use in a variety of fields, primarily in risk reduction and process automation. Treasury management system (TMS) is a software that aids in the automation of repetitive and manual treasury processes. 

  A treasury management system is the ideal solution for dedicated treasury support as it supports complex treasury demands, such as:

  • High-level risk management analytics
  • Complex product coverage
  • Compliance with federal finance standards

• Dependence on spreadsheets

  While spreadsheets provide flexibility, treasurers may not have enough time to implement frequent changes in cash balances to assure spreadsheet accuracy. Using spreadsheets to manually analyze cash flows has certain limitations, such as:

  • Manual time-taking process
  • Error-prone
  • Inability to compare differences
  • Frequent need for manual updates and human interventions
  • Difficulty in acquiring and aggregating the relevant datasets frequently

• Detection of frauds and payment anomalies 

  Do you know that businesses lose around $5 trillion from their revenues every year to frauds and breaches? Payment fraud can occur internally through collaborations, digital breaches, or a lack of firewalls, two-factor authentication and ethical policies.. Unfortunately, most organizations and their treasury teams tend to fortify their detective controls only after anomalies have occurred.

  Organizations need solutions like AI-based smart fraud detection, rule-based controls, and payment sanction screenings to eliminate the risk of frauds and ensure sanction compliance. 

  

• Currency exchange rate risks 

  This is a common challenge for businesses dealing with international operations that are prone to the volatility of foreign currency. The volatility in foreign exchange rates often leads to ambiguity in profits and lower or higher revenues margins on paper, impacting a business’s ability to borrow or finance their operations. 

  To navigate the impact of currency fluctuations, treasurers can hedge currency. It will allow them to adjust their cash flow projections, thereby optimizing hedging effectiveness and reducing the impact of unfavorable currency changes. 

Evolution Of Corporate Treasury In The Digital Age

The traditional approach to treasury management is no longer efficient enough to support operations in today’s dynamic business environment. Manual processes, fragmented or decentralized systems, and data silos hinder efficiency and effectiveness. It’s high time for corporate treasury management to leverage AI and custom-built ML models to redefine treasury operations, gain actionable insights, and streamline decision-making. 

Moreover, AI-powered treasury management like Natural Language Processing (NLP) and machine learning (ML) helps automate routine tasks, improve data accuracy, and boost risk management. Furthermore, a corporate treasurer must learn to leverage real-time data analytics, scenario analysis, and cash projections to implement strategic initiatives, cash flow optimization, financial risk mitigation, and liquidity management. 

The traditional way of forecasting

The traditional way of forecasting is dependent on subjective judgements and the instincts of treasurers. In this approach :

• Data gathering is done manually by a treasury analyst from accounts payable, accounts receivable, and accounting teams.
• Data entry is done in spreadsheets, making it prone to human errors.
•  Manual adjustments are made to the forecast based on limited data visibility and accuracy.

New KPIs of the treasury department

KPIs help management measure the performance of corporate treasury and its contribution to the company’s bottom line. Here are some key changes in corporate treasurer responsibilities: 

• Integrating mainstream finance

  Treasury management is longer just about long-term strategies. It has been broadening its horizons by merging all critical finance operations like receivables, payables, and working capital management. 

• Data-driven decision-making 

  Corporate treasury management now emphasizes more on real-time data to boost informed decision-making. This shift highlights the move towards more agile and responsive ways to handle corporate treasury. 

• Evolving organizational structure

  The evolving organizational hierarchy is impacting the alignment of treasury functions like never before. In larger organizations, corporate treasurers now hold a seat on the board, indicating a significant, distinct, and a parallel role to the CFO. However, in smaller organizations, corporate treasurers usually report to the CFO to maintain a more integrated structure of treasury and finance functions. 

  

What is driving the evolving role of corporate treasurers? 

Numerous factors are responsible for the evolving role of corporate treasurers, including: 

• Standards and regulations

  Regulatory requirements and accounting standards like GAAP or IFRS call for more transparent and nuanced financial reporting. This calls for more sophisticated treasury functions that can handle complex financial instruments seamlessly. 

• More emphasis on risk management and financial crisis mitigation 

  The modern financial crisis and risk management have transitioned from mere forecasts, projections, and the detection of gaps. It now includes mission-critical tasks like bank counterparty risks, complex and illiquid financial derivative risks, and payment sanction risks to pave the way for a more cautious approach to treasury management. 

• Internet of Things (IoT) 

  Advances in technology and a wider global reach are changing the ways treasury works. IoT has helped treasurers not only redefine financial challenges and opportunities but also streamline foreign exchange risk management and manage a diverse customer base. 

How Can A Corporate Treasurer Adopt Automation?

Implementing AI is crucial to catering to corporate treasurer responsibilities today. Corporate treasury needs AI-driven automation to effectively manage all parts of treasury functions, from cash forecasting to risk management, financial reporting, cash management, while removing errors from manual processes. Automation will also help corporate treasurers with communication and collaboration, along with fortifying data security. 

• Forward-looking treasury

  Corporate treasurers must adopt forward-looking treasury practices that are AI-driven, provide a real-time flow of information and help with accurate cash flow planning and forecasting. With the increasing number of hybrid or remote working instances, it becomes difficult for treasurers to detect cyber risks and mitigate them. Here are a few ways corporate treasurers can adopt to prevent cyber risks: 

  • Anticipate cash needs
  • Improve capital allocation
  • Understand interest rates and commodity price movements
  • Manage credit and counterparty risks
  • Control FX risks through confident hedging and repatriation decisions

• AI-driven cash forecasting 

  One of the crucial tasks for a corporate treasurer is to build accurate and effective cash forecasts. Traditional cash forecasting methods only rely on manual data entry, historical data analysis, and subjective assumptions, resulting in inaccuracies and delays. Here’s how AI-driven automation helps: 

  • Auto-ML forecast

    Machine learning forecasting systems are often trained on historical transaction data that helps treasurers create cash forecasts and select the best-fit model for accurate forecasts. 

  • No-Code forecast modeling

    AI often helps treasurers build no-code forecasting models using spreadsheet-like easy functions and interfaces. This further helps unlock connected forecasting units with hierarchical consolidation 

  • Advanced AR-AP forecasts

    Treasurers, with the help of automation, can help improve forecast accuracy with AI-enabled AR and AP cash flows by using data from ERP. It leverages customer invoices, sales orders, promises to pay for AR forecast, and vendor invoices and purchase orders for AP forecast.

  • Build scenarios

    AI-built cash forecast solutions often come with robust scenario builders that help treasurers easily create and tweak what-if scenarios over base forecasts and compare multiple scenarios with one another.

  • Variance analysis 

    Treasures can track variances or fluctuations between forecasts vs. actuals. 

    

• Automation for routine tasks

  Routine cash functions like cash positioning, reconciliation, and payment processing are not only time-consuming but also error-prone processes. Here’s how automation helps: 

  • Streamlining cash reconciliation and positioning

    Automation helps treasurers manage liquidity and optimize working capital. Automated cash management tools for cash positioning and cash reconciliation will not only help ensure accuracy but also ensure complete visibility of balances across global banks and identify unmatched items in bank statements or cash transactions.

  • Analyze unstructured data 

    Larger data sets can be processed by AI. This allows it to recognize difficult-to-find patterns and present a consolidated view that would take a human analyst substantial time and effort to create.. It can integrate with ERPs and get a holistic view of transactions. AI can also help in long-term cash flow forecasting to detect potential risks early by identifying patterns, non-compliant behavior, and anomalies. 

  • Real-time data access

    Real-time data generated with the help of automation helps a corporate treasurer make confident decisions around borrowing, investing, quarter-ending cash, mergers and acquisition, and working capital. With the help of AI, treasurers can build an unlimited number of custom dashboards, visualize data using interactive analysis tools, track performance, and share detailed insights with stakeholders. 

Leveraging Highradius’ Treasury Suite To For Effective Corporate Treasury Management 

To meet the evolving role in this digital age, corporate treasurers need robust solutions that not only help them take decision-making to the next level but also undertake critical actions to elevate business performance and outcomes. With this in mind, HighRadius brings a cutting-edge, thoughtfully designed treasury and risk management suite that offers agile and scalable features to facilitate functions within finance and accounting departments while seamlessly integrating with multiple systems, internal teams, banks, customer accounts, currencies, compliance and tax laws, and suppliers and partners, ensuring simplified and streamlined processes.

• Our automated cash management system generates fully automated global daily cash visibility across all your banks, countries, and currencies to make timely investment and borrowing decisions. It comes with out-of-the-box support for all major banks, lets a corporate treasurer view all bank balances across all accounts in a central location, and helps ensure all their accounts are covered all around the world, so they’re not overdrawn, missing payments, or incurring additional bank fees. 
• Second, our cash forecasting offers a bank statement integration module that enables rapid access to detailed bank statement data and automatically classifies transactions into cash inflow and outflow categories to get a rapid understanding of historical cash flows and current actuals. Treasurers can also leverage features like auto-ML forecasts for AR/AP management ensuring timely payments to vendors and collection from customers, variance analysis to analyze numbers for forecasts vs actuals, and build “what-if” scenarios using scenario builders and compare scenarios for more accurate forecasts.
• Lastly, our treasury payments bring features like payment anomalies and multichannel payments to minimize the risk of financial fraud with a centrally controlled system that supports automated and manual payments, thereby reducing bank fees by 30%.

The result? 70% increase in forecasting and cash management productivity along with efficient detection and mitigation of frauds and errors.

FAQs

1) What is the difference between corporate finance and corporate treasury?

The key difference between corporate finance and treasury is that the former focuses more on borrowing and investment strategies to fund a business’s long-term financial goals, while corporate treasury helps effectively manage risk, liquidity, and cash within a business’s broader financial framework.

2) Can treasury be automated?

Yes, treasury can be easily automated using a treasury management solution. It should not only streamline finance and accounting functions but also help leverage AI-driven functions for detecting frauds and anomalies, integrating with ERPs and banks, ensuring accurate cash forecasting, and more. 

3) What technologies are used in treasury management?

Various technologies like generative AI, AI ML for predictive analytics, , cloud- based treasury management systems, no-code, blockchain and distributed ledger technology and APIs are used in treasury management.