Analyzing the maturity of treasury and cash operations with clarity

Many company treasurers are looking for ways to improve their treasury function to satisfy ever-changing internal and external needs as well as market changes. However, defining the next steps for the treasury’s strategic development might not be a straightforward task. Before deploying new technologies, it’s essential to understand the treasury department’s current approaches. The approaches in the cash forecasting maturity model are as follows:

• Laggards: The organization has some processes in place, but they are insufficient in that there are significant holes that impair the organization’s day-to-day operations.
• Proactive: The organization has process methods in place that are adequate for maintaining the firm under stable conditions and allowing it to grow, but they will not be sufficient in difficult times.
• Strategic: The organization has professional processes in place that allow it to cope effectively in difficult times, and it will identify certain areas where it may improve its performance.
• Best-in-class: The organization has cutting-edge processes and practices that enable it to anticipate both difficulties and major opportunities, allowing it to maximize its performance.

A maturity assessment compares an organization’s treasury activities to quality standards to see how advanced they are. It also allows the organization to compare itself to others and immediately identify areas of improvement.

The seven sections of maturity assessment are:

1. Strategy
   • Vision and strategy
   • Policies
   • Procedures and controls
2. People
   • People, skills, and training
   • Organization structure, roles, and responsibilities
3. Liquidity
   • Liquidity management
   • Banking
   • Payments and confirmations
   • Cash flow forecasting
4. Risk management
   • FX risk
   • Interest risk
   • Commodity risk
   • Counterparty risk
5. Financing
   • Funding
   • Interest risk
   • Working capital
6. Technology
   • Treasury technology
   • Commodity technology
   • Interfaces
   • Cyber and security risk
7. Reporting
   • External performance and reporting
   • Internal performance and reporting

Benefits of Maturity Assessment

Performing a maturity assessment has many benefits such as:

• Improved cash management and liquidity
• Cost reduction
• Improved risk management
• Greater certainty around Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
• Confident data-backed decision making

The ability to provide forecasts regularly to understand daily cash positions and take proactive measures for future financial circumstances relies heavily on automation. The following are some of the areas where automation can help you save money:

• Visibility: Local forecasts are built from entity-level data, such as locations, company codes, currencies, and cash flow categories, and then rolled up to global forecasts, which improves visibility.
• Accuracy: Following these best practices will improve the accuracy:
• Make use of appropriate models: Use specialized models for different types of cash flows, such as heuristic models for payroll, taxes, and other simple cash flows, and AI models for more complicated cash flows like A/R and A/P.
• Modify adjustments if necessary: Make modifications to predictions for one-time events like M&A, dividends, and so on.
• Examine variance: Monitor variance over several time horizons and make adjustments to the models as needed.
• Frequency: Since each organization has various sizes, systems, technology, and needs, forecast frequency is very subjective. But forecasting frequently helps treasurers take proactive measures in cases of uncertainties.

Take this treasury maturity assessment to determine where your business is in the cash forecasting maturity model.

Having a proper treasury solution in place makes climbing the maturity model ladder considerably easier. Schedule a demo to overcome the challenges to become the best-in-class in treasury.