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February 01 , 2018

Chase Cash Out of Hiding! And Other Key Benefits of a Centralized Treasury

by Finance centralization, Working Capital Optimization, Cash Management, In-House Banking

The amount of cash that is hiding in decentralized, complex cash management processes, trapped in local functions and bank accounts, can take a corporate finance organization by surprise.

The key benefits of a centralized treasury for cash management

Did you know that by increasing visibility and control through centralized treasury and cash management, the share of working capital tied to your operations can be reduced from 10% down to 1% of your net sales? For a company generating for example EUR 300 million in revenue, in practice this would mean up to EUR 27 million of working capital freed for more effective use.

Previously, we discussed the headaches of global cash management and explored the root causes of sub-optimal cash management. This time, let’s take a closer look at the key benefits of centralized treasury for cash management.

Visibility is a powerful tool

Centralized management of cash flows drives obvious operational benefits that result from cost and process efficiency and harmonization. But in most cases, I have seen that corporate finance managers increasingly value the strategic benefits that are drawn from full transparency and visibility over group-level cash.

Efficient cash flows enable optimal liquidity management and better cash forecasting, which can be a powerful tool, when you are looking to make the most of your organization’s working capital.

Clear cash visibility also allows you to support business operations and decision-making with more valuable insight and analysis.

A close eye on payment abuse

The fact that international cybercriminals are increasingly targeting corporate payment processes is old news – after all, that is where the cash flows out of the company. In group treasury, you need to have a good overview of all your organization’s cash flows to be able to effectively combat fraudsters and keep a close eye on payment abuse. Centralizing outgoing payments in a payment factory or an in-house bank, and harmonizing all related processes at group level improves cash flow transparency and enables you to take a holistic approach to managing the risks.

Streamline cash flows

Local operations and processes and lack of integration can easily lead to suboptimization. One of the key benefits of centralized treasury and cash management is that it opens up the possibility to streamline and automate cash flow processes.

Utilizing cash pooling, netting, or payment factory structures, for instance, can significantly speed up and rationalize cash-related processes both internally and externally.

Ultimately, the question you should be asking is do you want to spend time and effort gathering the information needed for efficient liquidity and working capital management – or would you rather spend that time analyzing and taking action based on the information?

Boost negotiating power and eliminate overlaps

Wouldn’t you like to have extra leverage when negotiating with banks? When both cash flows and banking relationship management are centralized, the treasury can improve their bargaining position on pricing, for example, with the commercial banks. Short-term investments can also be negotiated profitably using economies of scale. It helps to eliminate work if management of the agreements has previously been carried out in several subsidiaries instead of one centralized treasury.

The first thing to do is determine the level of centralization desired in your organization. Take a look at this infographic explaining the key benefits of centralized treasury for cash management at each stage.

And next time, let’s discuss the in-house bank as an ultimate solution to your cash management challenges and explore how it offers you both operational and strategic benefits.

 

Jaakko Kilpinen OpusCapita

Jaakko Kilpinen
Jaakko Kilpinen has over 15 years of experience in corporate cash management and has deep expertise in cash forecasting, netting, and in-house banking. Jaakko has previously held e.g. a position as Group Treasurer in a publicly listed Finnish company. Currently Jaakko works as a Solution Manager at OpusCapita.

 

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