Why cash optimization is the critical first stage in effective treasury management

By Kyriba October 21, 2013

As we mentioned in the last blog post, companies have been exposed to a deepening risk over the past few years. In fact, a survey from the AFP this year showed that 59 percent CFOs feel more exposed to a variety of risk factors than they were prior to the Great Recession1.

So, how are companies reacting to this increased risk? Many are, in fact, investing in several areas. Over half of CFOs surveyed are investing in areas such as IT systems, as well as growing the number of geographies in which they operate. M&A activity, whether to diversify revenues, remove competitors, or acquire customers, is also a high priority, at 43 percent. None of these endeavors is cheap, and they all require significant amounts of free cash to execute successfully.

Additionally, treasury centralization is also a major focus, to both reduce costs and increase internal controls and compliance. A recent survey showed that by 2014, 40 percent of organizations will have a global cash concentration structure, up from 28 percent in 2012.

However, one irony of this is that, although sensitivity to risk is high, many finance executives still use spreadsheets – an inherently risky solution – to manage their cash balances and provide accurate forecasts.

A new approach – convergence is key

As a response to the “new normal” business environment, we are increasingly seeing that our clients are converging their systems and tools, bringing together payments, risk, investments, compliance and  many other areas under a single umbrella.

This new approach falls into three categories: optimize your cash; manage your risk; and work your capital. We’ll discuss the first of these in this post.

Optimize your cash

The number one role of a treasury professional is to maximize the treasury and payment operations of the organization. This may seem like rather a straightforward, even obvious statement, but for many organizations, the lack of both suitable processes and platforms leads to many companies being unable to make reliable and accurate forecasts for their cash. So, what does optimizing your cash entail?

  • Establish cash certainty: Most importantly, cash optimization means no more “best-guess” forecasts based on questionable data, taken from error-strewn spreadsheets. Companies need to know exactly what cash they have, and where they hold it. Treasury teams need to be able to make accurate, long-range cash balance forecasts, confident in the knowledge that their predictions will hold firm.
  • Make effective financial decisions: With full confidence in the cash position and forecast, treasury teams can be decisive in their decision-making. Instead of leaving cash reserves sitting idle in bank accounts, by having detailed knowledge of the organization’s current and future balance, treasury teams have the power to put the organization’s cash to work in the most efficient manner.
  • Enable payments: Organizations make countless payments each day, often from multiple banks around the country or even globally. Whether it’s ensuring the organization has enough liquidity to make its payments in a timely manner, or setting up a payment factory to streamline processes and minimize banking fees, optimizing their cash enables organizations to manage their payments processes in an efficient, worry-free manner.

Once you have the visibility of your cash balances and forecasts, your team’s ability to perform these three key tasks with confidence increases significantly. However, this is only the first step in running a successful treasury department. Next, we’ll look at the second phase – managing your risk.


1. 2012 AFP / Oliver Wyman Risk Survey

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