What CFOs Expect from Treasury in 2023

What do CFOs expect from their treasury leaders in the current volatile and uncertain economic outlook?

During a panel session at KyribaLive 2023 moderated by Dory Malouf, Kyriba Director Value Engineering North America, treasury experts discussed CFOs’ priorities in 2023, the current economic state and what CFOs expect from their treasury and finance leaders.

The panel, made up of Fred Shacknies, VP & Treasurer TechnipFMC, Lee-Ann Perkins, Assistant Treasurer Specialized Bicycles and Ashwin Ramji, Global Assistant Treasurer World Vision International, discussed their outlook on the topics.

It’s the Economy, Stupid

From the second quarter of 2022 forward the economic outlook deteriorated, with a decline in the GDP forecast and weakening business confidence. The business confidence score declined steadily over the same timeframe, bottoming out in December 2022 and slightly higher in the first quarter of 2023. Falling business confidence usually foreshadows a contraction in investment activity. This was supported by a Gartner Inflation Response Survey, which indicated investment in M&A and Investment in ESG plans topped the list of initiatives that CEOs and CFOs would cut first.

While inflation has declined from its 20-year high in September 2022, it is still well above the Federal Reserve’s target of 2%. Continued increases in the lending rate by the Fed will continue to have a negative impact on economic growth, add volatility to interest rates and directly impact foreign exchange rates and volatility. The panel cited the continued supply chain disruptions, high inflation, interest rates and exchange rate volatility are having an impact on their business outlook.

A survey of CEOs conducted by Deloitte in late 2022 found the key CFO priorities in 2023 include: enhance liquidity management, improve cash forecasting capability and optimize capital structure. From a technology standpoint, the benefits CFOs seek include risk mitigation, automation and real-time performance, as well as speed, quality and efficiency gains. Again, this was also mirrored in the Gartner survey, where the top two strategic investments that CEOs and CFOs would cut last were investments in workforce and talent development and investments in technology for improved performance and scalability.

The panel agreed that the priorities in the Deloitte and Gartner surveys echo the concerns of their executives, creating a challenging time for Treasurers.

Delivering on the CFOs’ Objectives

Several panel members raised the negative impact of rising interest rates. With constantly changing expectations of how long rates will rise, the eventual decline in rates means that there will be a need for better insight into enterprise cash flow. This means on-demand visibility and dynamic scenario planning are critical to be able to pivot as the market shifts.

Having the tools available to manage liquidity was therefore seen as critical to create the agility to tap various sources. With its ability to provide enterprise-wide visibility to cash and create scenarios on the fly to visualize impact on enterprise liquidity, the Kyriba Enterprise Liquidity Management solution was mentioned by several panel members as an exciting tool to meet demands.

In addition to cash, working capital programs such as supply chain financing, dynamic discounting and AR factoring can provide liquidity at competitive rates to short-term. An automated and integrated solution such as Kyriba’s Working Capital Solution can offer better visibility and more efficiency than bank or point solutions.

For companies with significant FX exposure such as TechnipFMC and World Vision International, rising interest rates lead to rising currency volatility, which leads to higher hedging costs. With CFOs focusing on cost reduction, rising hedging costs have a significant impact on trying to manage currency exposure.

A modernized hedging approach can help reduce hedging costs by identifying and exploiting natural hedges, organically reducing the net exposures that require external derivative contracts. Further, rather than just identifying all the currency pairs and reducing to zero or a policy target, utilization of Value at Risk (VaR) and multilateral netting can identify more efficient strategies to obtain desired reduction earnings volatility with a lower volume (and cost) of hedging.

Ignore Business Continuity Planning at Your Own Risk!

Several panelists indicated that they now have leaner organizations in comparison to the time before the pandemic. Part of this was by design, but there has been considerable literature about the ‘Great Resignation’.

And, the panel agreed that most treasury organizations were already lean in 2019. Indications are that lower and mid-level treasury staff are still very much in demand, so there has been an expectation to add headcount in 2023, but the continued economic uncertainty may mean continuing to do more with less.

There was consensus among the panel that standardization and automation are seen as not only improving efficiency to do more with less, but there is an expectation that turnover will continue to remain high. To support this, many market studies suggest people will continue to change jobs more frequently than in the past.

Thus, the need for automation is ever present to help enforce policy and procedures with systematic controls. The hope being that these controls will:

• Not easily enable deviation from policy and process
• Expedite onboarding of new personnel
• Ensure that the departure of staff does not jeopardize the operational continuity or core treasury processes

CFO Priorities for Treasury

While all panelists had differing opinions on how 2023 would turn out, they all expressed the need for robust technology to support the growth and digitalization priorities of their CFOs and CEOs. It is critical for treasury leaders to take one step forward and provide reliable insights and constantly model and monitor the health of the company’s enterprise liquidity. Welcome to the new normal.