Ready to centralize? Start your treasury transformation journey with these first steps

Centralizing cash management improves visibility, control, and efficiency

With rates rising and the cost of funds increasing, there’s a new sense of urgency for companies to improve efficiency, reduce expenses, and maximize liquidity. Centralizing some or all treasury management functions, such as cash management, helps achieve this goal. 

Transforming treasury operations is not a new concept. However, it’s become more critical as treasury management’s role in the organization grows more strategic. 

A centralized treasury structure provides greater visibility, improves control, and automates and streamlines processes. It arms senior leaders with the information and systems needed to make insightful decisions and act quickly.

Centralizing cash management yields many benefits

Cash management is one of the best places to centralize because the benefits will be immediate and tangible. It enables you to access your daily cash position quickly and easily, then make strategic decisions about excess funds and idle cash with speed and agility. 

Numerous other benefits are possible with a centralized structure. Treasury can take advantage of:

  • Standard processes, controls, and metrics across the entire organization that streamline daily work, reduce risk, and improve treasury’s line of sight. 
  • A single entity managing risk, which simplifies counterparty relationships and lets global organizations take greater advantage of natural hedging for foreign exchange (FX).
  • Stronger working capital and liquidity management which can minimize external borrowing requirements and increase return on equity (ROE).
  • Increased operational efficiencies, made possible with fewer bank accounts to manage, optimal FTE staffing, and for more sophisticated companies, shared service centers for payables, receivables, and other transactions.

Move toward centralization with these fundamental first steps

Moving away from a decentralized structure can seem overwhelming. But, like many journeys, the hardest part is often figuring out where to begin. 

First, establish your company’s long-term vision for centralization. Use your bank as a resource at this stage—they can help you compare options, share best practices, and provide insight into how similar companies handle their cash management and liquidity.

Next, identify discrete short-term projects that are manageable in scope and can deliver measurable results.

Consider these key elements:

Get buy-in from stakeholders. No strategic project works well without top-down support. Enlist C-suite and line of business leaders for sponsorship and input, then keep them up-to-date on progress and early wins.

Rationalize your bank accounts. Start with an inventory of banks and accounts across the organization. Identify the type and purpose of each, along with ownership and signatory capabilities. Look at currencies as well. This exercise will help you standardize across entities, ensure the right controls are in place, and as needed, consolidate for more efficient banking relationships and liquidity management. 

Evaluate local versus central control. Centralizing cash management and other treasury management functions doesn’t have to be “all or nothing.” Hybrid options can give ownership to local entities while simultaneously automating processes, strengthening oversight, and improving cash management. Work with your bank to understand your options, then match strategies to your desired level of control. 

Review technology options. In the past, centralizing meant arduous IT integrations and lengthy timeframes. Today, even in-house banks require very little IT effort, thanks to cloud-based solutions, real-time connectivity with APIs, and automated ledger entries. Achieving your goals may be faster and more cost-effective than you think, with banks, fintechs, and ERP providers all delivering “plug and play” solutions. 

Take advantage of early wins

Just as the journey image implies, change and centralization won’t happen overnight. But, every decision that standardizes a process, automates a workflow, or centralizes access to cash will help treasury operate more effectively. Set appropriate expectations with stakeholders, then work with your bank to find early wins you can measure, celebrate, and build from.