‘L word’, a hot topic for today’s treasurers

To borrow a sports metaphor, for businesses, liquidity is the “name of the game”.

Without it, most businesses are forced to shut down or, at best, take drastic, usually costly, measures that often lead to a similar outcome anyway. That’s why the “L-word” was emphasized in so many sessions at the Association for Financial Professionals (AFP) annual conference in Philadelphia this week.

This theme has only gained strength amid recent crises like the pandemic and earlier financial upheavals like the one the world experienced in 2008-09. And now, with interest rates rising rapidly thanks to continued Federal Reserve hikes – and the growing strength of the US dollar as a perceived safe haven for investors – a difficult, often multi-faceted question arises. across treasury departments: what can companies do to determine, let alone forecast, how much money they have to finance their operations, to spend on capital projects or acquisitions, or, ultimately, for their allow you to stay in business?

Kyriba’s Bob Stark shared some responses on what he and his colleagues are hearing and seeing on this topic, including from CFOs and Treasurers at large corporations and mid-market companies where the financing solutions provider and San Diego-based cloud cash plies its trade. . And it’s all about money… “How much do we have? Where is he ? How fast can we get it? And how much will we have next quarter, next month, next week or tomorrow? »

Stark is the Global Head of Market Strategy for Kyriba. Finextra sat down with him at the conference to dive a bit deeper into the points he shared in a previous AFP session, one of three he attended at the event – ​​Modernizing Liquidity and Investments for resilient cash flow. Stark was on a panel comprised of experts from the American Honda Motor Company, MetLife and ICD.

To begin our conversation, he pointed to the facts and reality of the current economic environment with a tongue-in-cheek understatement. “Forecasting in a low interest rate environment is done at different levels of emphasis than what we see now.”

“I [wouldn’t] I mean it’s the same as in 2008/2009. But there were some similarities in terms of what the Treasury was asked to do [back then vs. now.]“When asked to give some examples, Stark continued.

“The Chief Financial Officer and the Board of Directors [were and are] looking for how much cash do we have left? How many survival days do we have? This sounds very serious, but you know, two and a half years ago there were concerns about what “the sequel” looked like.

“And so those are the kinds of metrics and data that came through pretty quickly to the Treasury team, say, what does our cash balance look like right now? Right. What does our cash look like? What leverage can we we take action to increase our cash flow?

It’s easier said than done. Stark pointed out that it is really difficult to forecast liquidity in any environment. But there’s good news: While he noted that their clients and prospects face different challenges now in a world where rates are rising than during the pandemic or in previous crises, those hurdles in the road may still be dealt with much more efficiently with new and powerful tools that his company and other vendors have developed for finance teams to use in cash flow forecasting.

We know the drill. Suppliers want their money; they want to be paid. Businesses rely on their customers to pay them too. Sometimes simultaneously. “Exactly,” Stark said, and he said they were considering all scenarios, but really needed the data to help them make smart decisions. And that’s exactly what treasurers can do with the right tools.

“It comes down to that level of detail, where operationally the treasurer has to push up. Say, “Here’s our balance, here’s our (cash flow) projections, here’s the assumptions we’re working with.” And to feel confident that they can get answers.'”

Although circumstances have changed since the middle of the pandemic, best practices using advanced cash forecasting methods, like Kyriba’s enterprise cash planning and modeling tools, are here to stay. Stark says many treasurers can’t and wouldn’t want to go back to the earlier days when these dashboards and templates weren’t yet available. “They [and their CFOs] say “Wow, that’s a really good overview […] yes, we would really like to continue to see that,” proving the enduring value, crisis or not, of new data and detailed reporting for the business.

And international business brings another whole level, or two, or three, of complexity for treasury.

“There’s a global component where all of a sudden the dollar has been so strong that even when their forecast reports are in constant currency, they still like it. [to be available.]

“And the other part that they have to disclose is getting bigger and bigger.” Referencing the liquidity session he attended, Stark said, “We talked about different ways to manage currency volatility, not necessarily just US dollar strength, but volatility.” He said it was shocking to see a chart comparing recent annual currency hedging exposures, showing huge swings in the costs for treasurers to use these tools at various times over the past few years.

Stark says companies operating overseas often find that unknown financial factors are involved. And those triggers often don’t move in concert. “The Fed is raising rates, but the ECB isn’t necessarily doing it at this time. [This results in a] gap. So you just get that ping pong effect. Which, he pointed out, leaves treasurers searching for information and solutions and CFOs asking plenty of questions about liquidity. More data is always useful, better data even more, for planning immediate actions and other potential steps in such situations.

In fact, Stark says, when treasurers answer these cash flow questions for their managers, they invariably get asked a lot of “what about” questions afterwards, like “What about that ? And what about that? referring to other related row totals in liquidity reports and, more importantly, how to identify the data used to support them. He noted that it is more essential than ever for financial managers to be able to prove the sources of the figures reported on liquidity and cash flow projections, because over time being able to show them clearly and consistently as part of the “picture” to senior executives and staff gain top-down and front-line credibility and feel comfortable with finance team forecasts. Automated cash forecasting helps treasurers do a better job, which means, according to Stark, “they can change their time [to other more productive pursuits] trying to figure out how to create the report or dashboard they need – and [the numbers] start to make sense.

Another thing that makes a lot of sense, Stark pointed out, is adding faster and more useful decision-making tools, such as cloud-based, modular subscription-based liquidity forecasting, to existing payments, risk management and other functions used by Treasury departments.

Summarizing what he believes to be the key advantages of today’s offsite treasury and cash management offerings over their onsite ancestors, Stark said the pandemic and ever-improving technology have played a pivotal role in the accelerating the pace of conversion to new and better [and cheaper] software platforms, offering much more for the treasury or cash manager. And not just for multinationals either.

“These issues around forecasting are not unique to large companies. And in fact, the ability to run things in the cloud much more economically and efficiently means that the total cost of ownership [for any organisation] is much lower than it was before.

Finextra recently launched the first Financial Cloud Summit, which will be held on March 2, 2023. For more information and to register for this event, please visit the event page here.

Jessica C. Bell