Recent research highlighted that the finance team’s budget continues to shrink. From 1.5 percent of total revenues in 1994, the average 2014 finance budget among companies with revenues of between $500 million to $50 billion is just 0.99 percent of annual revenues.
The Wall Street Journal’s headline, “Finance Budgets Shrink,” spells it out for corporate finance professionals. Finance departments’ 2014 budgets were the smallest since the Great Recession, and finance jobs are being automated, outsourced or moved to low-wage countries. Oh dear. Someone pass round the Prozac.
Or not. In the case of treasury, the focus needs to be less on finding ways to reduce spend, and more on turning the department from a cost center to a value creator. This provides an excellent opportunity for the treasury team to become more efficient and effective.
While technology certainly delivers very tangible cost savings in areas such payment processing streamlining, when it comes to automation of previously manual tasks, such as keying bank position data into a spreadsheet, the actual cost reductions from time saving is minor in comparison to the value that this enables the treasury team to deliver (and as a further point, it’s incredibly rare for the introduction of treasury technology to lead to a reduction in headcount). With these manual tasks automated and data entered into a powerful treasury management tool, the treasury team will have not only the time to spend on more high-value tasks, but also the insight to provide strategic analysis to support major business decisions. A technology solution that can streamline and improve the accuracy of cash forecasting enables the treasury team to minimize idle cash, putting it to work to pay down debt or reduce the need for taking out loans or issuing debt.
Similarly, knowing how much free cash your organization has enables the establishment of a supply chain finance program, such as dynamic discounting. While technology is the enabler of such operations, it still needs the treasury team’s strategic insight and knowledge to turn data into actionable strategic insight.
Even outside of the specific confines of cash visibility and forecasting, the benefits of automation and technology can have a profound impact on the value that treasury provides to a business. Be it reducing fraud by creating rules and audit flows, and spotting anomalies in payment trends, or providing deep financial insight into M&A activities or corporate growth, an empowered treasury can have a hugely positive impact on the organization, and move away from a cost center to a value creator. However, none of this is possible without both the time-savings and the insight that automation and technology can deliver. It’s time for the treasury team to show the real benefits that it can deliver, and demonstrate why value creation is far more important than cost cutting.
Finance Budgets Shrink – Wall Street Journal / CFO Journal, November 18, 2014