Tackling Treasury Inefficiency

Solutions to impact the balance sheet and bottom line

Companies are focusing on cost reduction to counteract anemic earnings in a prolonged period of slower global economic growth. Driving efficiency presents a tremendous opportunity for treasury professionals looking to contribute to this effort. The challenge is how to marry efficiency with sound treasury management as organizations become increasingly diversified globally.

Many treasury professionals are overcoming this challenge by providing their companies with strategies and solutions that provide the benefits of centralized cash management—which supports objectives such as cash visibility and the facilitation of business at the local level—but don’t require changes to the corporate structure.

Forces of Inefficiency

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Global expansion introduces complexity and fragmentation, which can easily lead to inefficiency that negatively affects the balance sheet and income statement. Costs increase across bank accounts, payment and foreign exchange (FX) fees become bloated and funding costs rise. Suboptimal management of liquidity and working capital also cost companies. Drivers of inefficiency include:

Solutions for Efficiency

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So how are companies gaining efficiency without a major organizational overhaul? Many treasuries are working to effect change on three levels: 1) accounts and liquidity, 2) efficient transaction execution, and 3) solutions that balance strategic and tactical requirements.

Accounts and liquidity

As companies expand their geographic footprint, local entities open acounts in operating and non-operating currencies. This creates the first layer of fragmentation. As an offset, treasuries are optimizing currency flows and liquidity across their organizations by:

Efficient transaction execution

It costs €20 billion annually to fix business-to-business payment errors in Europe alone, not including the price of investigating delayed or missing payments1. Cost contributors include payment methods (e.g., wire versus low value) and lifting fees imposed by intermediary banks. Slower payments, disassociated information flows and lack of payments visibility impede the management of cash, liquidity and working capital.

Strategies and solutions to lower payment costs and improve timing include:

Balancing strategic and tactical execution

Solutions that balance corporate treasuries’ concern for strategic execution with the requirements of legal entities for tactical execution are a key area of focus. At the tactical level, these solutions provide standardization and automation that simplify and facilitate business flow. At the strategic level, they enable enterprise-wide cash visibility, risk transparency, control and liquidity optimization. This allows corporate treasuries to manage cash more efficiently as a whole than its parts would be able to do.

Cash Flow Efficiency

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FX management is an area where the bridging of strategic and tactical execution is imperative to financial performance. S&P 500 companies generate 60% of their earnings from international sources2. These companies are falling short of earnings estimates when overseas operations are tied to a strong U.S. dollar, which underscores the effect of currency exposure on profitability.

Corporate treasury professionals are bringing together strategic and tactical execution for FX by:

Immediate Opportunities

Corporate treasury professionals are working with their banks to tackle the complexity associated with global treasury management. Readily available solutions can enhance efficiency operationally and on the balance sheet. Balancing strategic and tactical execution is critical to success, so you may want to work with your banking partner to find opportunities to improve the bottom line.

1. New Euro Rules Expose Business to €20 Billion Payment Bill, Experian.com October 2, 2012
2. Bloomberg, FactSet, October 2013

J.P. Morgan is a marketing name for the Treasury Services businesses of JPMorgan Chase Bank, N.A. and its affiliates worldwide. J.P. Morgan is licensed under U.S. Patent Numbers 5,910,988 and 6,032,137.


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