Treasurers eye digital silver lining in crisis planning

Executive summary

There is a pressing need for Asia Pacific’s corporates to find more effective ways to manage their treasury operations – both in managing liquidity amid today’s economic landscape and, more notably, in preparing for the next crisis.

This is clearly easier said than done, judging by the significant disparity between sectors and geographies in how companies have handled challenges stemming from the pandemic and from reviewing the extent of their adoption of technology within the business. Further, there is also a marked difference in sophistication across the region, in terms of utilising data and other tools to support strategic decisions.

These were some of the insights from around 125 respondents to an in-depth survey conducted by Westpac and CorporateTreasurer in June and July 2020. The key findings from treasurers, finance directors and other relevant executives included:

• Over 80% of corporates have adjusted their risk profiles to manage liquidity issues stemming from Covid-19
• While the availability of relevant, real-time data hasn’t been problematic for many respondents, nearly half have struggled to make effective use of data
• The value of data management in helping to manage the economic and pandemic risks has been mixed – with 30% of corporates finding it of little to no help
• Only 20% of corporates use technology to influence the strategic role of their treasury function
• Needing to do more with less is the dominant driver of technological uptake, with decision-making support and forecasting the key beneficiaries of technology in future proofing treasuries
• 88% of corporate treasury and finance processes will see at least some improvement over the next three to five years in how they leverage technology to prepare for future shocks

“Despite lessons from the GFC [global financial crisis in 2008], the poll shows that corporates in Asia Pacific still have more work to do in responding to these types of crises and being prepared for the next shock,” says Brent Stephens, head of liquidity management, global transaction services, Westpac Institutional Bank.

In short, there is a transformation imperative. Having more automated processes, as well as being able to access, store and use more data, are essential goals in the bid by treasurers and finance directors to become less reliant on human input. In turn, they will make more strategic decisions.

For many of the region’s corporates, however, getting to where they want to be in three to five years’ time relies on them improving various aspects of their operations and processes.

“This is all about quality of data, in terms of how you access it to turn it into actionable insights,” explains Jeff Byrne, head of sales and service within the global transaction services team at Westpac Institutional Bank.

Managing  through the crisis

While the lessons from the global financial crisis in 2008 have proven to be different from what corporates found in the wake of Covid-19, the pandemic is another stark reminder for treasurers of the need to continuously assess their level of preparedness.

Noteworthy is the need for treasury teams to proactively plan for different challenges and how to address them. For example, adds Stephens, the current pandemic created a cash crunch due to supply chain disruption, which is fundamentally a different type of challenge to what the GFC presented. Corporates initially focused on the strategic liquidity response and disruption readiness plans based on those lessons learnt from the GFC. The fulsome response required more.

For instance, bricks-and-mortar dominated businesses faced the potential of zero cash inflows during the initial lockdown as they never previously prioritised a digital receivables strategy. “They had to change their businesses overnight, not just prepare their balance sheet for turbulent times ahead,” he explains.

However, the poll showed there is reason for optimism in terms of corporates adapting and evolving in their response to unpredictable and far-reaching negative events.

For example, in adjusting risk profiles accordingly, only 16% said they were “surprised by the crisis impact”.

At the same time, in striving to manage their overarching capital during the pandemic, only 14% said they struggled to maintain ratings and adequate cashflow over this period.

By contrast, the rest of the respondents either defined the optimal capital allocation across business units based on real capital requirements, or determined real investment headroom to stabilise investor risk and ratings. This has been more difficult for a relatively high number of firms in the banking and finance sector, which acknowledged their struggle to maintain ratings and adequate cashflow during the crisis.

Making effective use of data

The availability of relevant, real-time data is, however, where the challenge starts. “The findings show there is a lot to be done, especially to plug the shortage identified,” says Stephens.

For example, around 30% of respondents revealed they have barely – if at all – used their data to help manage the economic and pandemic related risks.

“Too many corporates haven’t done enough yet to centralise data management to enable quicker decision-making, nor use to data to unlock sources of value to the organisation,” adds Stephens.

On the flipside, 70% of respondents have been a lot more proactive in these areas, especially those working within food, beverage and agriculture industries. These sectors have had to rely on data as an essential risk management tool to deal with the current crisis.

Yet an appetite for more data is only one element. Treasury teams must also have the capacity, experience and expertise to analyse the data so that it can be used to make decisions amid an uncertain outlook, adds Byrne.

For those treasurers and finance directors who did use their data to help them navigate the crisis, meanwhile, this was mostly to either manage the supply chain or electronic bank accounts.

This was an area where the sector within which each respondent works influences the role of data – as to be expected, it helped most in supply chain management for firms working in food, beverage and agriculture, as well as those in industrial and manufacturing sectors. At the same time, electronic bank account management and FX management were the priorities for firms within the banking and finance, energy, and property sectors

An evolving role for technology in strategic planning

The findings also shed light on the potential for technology and automation to support treasury operations and decision-making processes going forward.

While some use technology to influence the strategic role of the treasury, a lot more needs to be done to leverage its capabilities and functionality to create capacity.

Automation doesn’t even seem to become more common among larger organisations; only a quarter of those firms  with a market cap of over $10 billion described their use of technology in driving a more strategic treasury as “considerable”, with around 30% saying they make no use of it.

Among the main incentive for technological uptake, meanwhile, the majority are motivated by a need to “do more with less”. Other popular drivers include a technologically savvy board, and adherence to global best practice.

This also highlights the potential for banks and treasury management service (TMS) providers to play a greater role going forward in driving how technology and data are adopted and used, says Stephens.

Yet organisation size impacts the influences on technology-led decision making. For instance, as companies get bigger, global best practice becomes more important, whereas a forward-looking and technologically savvy board is, in general, a more significant driver of how firms of a lower market cap use tech.

More specifically, the majority of treasurers and finance directors expect technology to make the biggest impact in future-proofing the treasury function from black swan events via treasury decision support and forecasting.

Forecasting is one of the biggest challenges, explains Byrne. “Treasurers often lack the access they want to real-time information in terms of what is due and what is coming in at a certain point in time.”

Inevitably, almost all respondents indicated they will change their company’s treasury and finance processes over the next few years. Their primary goal is to better leverage technology to prepare for future shocks.

In line with this, says Stephens, banks and TMS providers need to prioritise how they develop their offerings in line with the expectations and requirements of treasury functions.

Ultimately, while those corporates which have spent the most time since 2008 planning for disruption will emerge from the current crisis in better shape to handle future black swan events, there is always more to be done. “Those companies who have already been bold and proactive in their enterprise resource planning consolidation, TMS implementation and rationalisation of banking partners just took a large leap in front of their competition,” explains Stephens.

For corporates that are not as far on this journey, meanwhile, more data will enable strategic decisions as well as the ability to do more with less, adds Byrne.