AFP Guide to Treasury as a Strategic Ally to the Business

The treasury department serves a prominent role, well aligned with overall company strategy. In times of stress and uncertainty, like the Financial Crisis of 2008 and the ongoing coronavirus outbreak, companies typically look to treasury to support all areas of the business, by forging a path forward.

In this Treasury in Practice Guide, we’ll be looking at the ways in which treasury is a strategic ally to the CFO, the entire C-suite, and the business as a whole. Establishing trust, investing in technology and defining accurate measurements of success help treasury in its role as a vital partner across the organization.

You want to have that seat at the table when those strategic decisions are being made, and if you don’t have that trust, you most likely won’t be invited to the table to make those decisions.”

Building Trust

During the Financial Crisis, treasury departments emerged as beacons to guide their organizations through a volatile and uncertain time. Since then, many treasury functions have earned that coveted “seat at the table” with senior leadership, contributing to company strategy. Treasury is well-suited for this role because it touches all areas of the company, and because it is—or should be—seen as a trusted partner.

“You want to have that seat at the table when those strategic decisions are being made, and if you don’t have that trust, you most likely won’t be invited to the table to make those decisions,” said Bruno Fernandes, deputy CFO and treasurer for the Government of Washington, D.C.

You need to understand what’s going on in the business so that you can bring that back, and bake it into your forecast and your process. There’s a trust that has to come on both sides. Not every business case is crystal clear; a lot of judgment has to go into decisionmaking, so trust is the foundation to get things agreed upon.”

Good communication is often the key to that trust. The more that treasury and the finance chief are on the same page, the better that relationship will be. “You have to make sure that you have alignment between treasury and the CFO,” said Bob Stark, vice president of strategy for Kyriba. “They need to know what to expect from you and you obviously know what to expect from them.”

A good leader in treasury also needs the trust of his or her team. Niklas Bergentoft, treasury leader for Deloitte, stressed that having a good team around you in treasury can often be the key to success. He advises treasurers and treasury managers to find their ‘‘wing woman” or “wing man” on the team that can help them get the things done that they need to get done. And it’s important to cultivate that relationship to make sure you have that support, just like the relationship and support of executive stakeholders are critical to mission success.

Dana Laidhold, treasurer for Peloton, added that trust and transparency are essential for treasury to contribute strategically across the organization. “You need to understand what’s going on in the business so that you can bring that back, and bake it into your forecast and your process,” she said. “There’s a trust that has to come on both sides. Not every business case is crystal clear; a lot of judgment has to go into decision-making, so trust is the foundation to get things agreed upon.”

Establishing Yourself
An essential way to obtain trust from the CFO and across the organization is simply to doing your job well. In treasury, that’s often a bit more complicated than in sounds because treasury departments tend to be small and cross-functional. But amid that often-chaotic environment, treasury also needs to be consistent with its core deliverables.

You can’t just bring somebody in and expect them to know everything in a relatively short period of time. This is a complicated world that we live in, and understanding treasury’s role is overwhelming for a lot of people, especially if they get turned over in a position quickly.”

For enterprise software company Infor, the key driver is managing cash and liquidity, explained Susan Lee, vice president of treasury. “Our cash is seasonal. Every fiscal year, we go through a short period where liquidity is thin. It is critical for treasury to understand working capital by entity and repatriate funds efficiently,” she said. “The CFO relies on treasury to get through that seasonality without having to borrow from the revolver.” Deloitte’s Bergentoft has observed treasury functions branching out more and focusing on business growth, looking at transactions from the due diligence stage through post-transaction synergy realization. He noted that many treasury departments are partnering with finance on working capital improvements and reduced cost of finance infrastructure through advising the organization on opportunities like payment hubs and payment modernization. “If you are able to free up hundreds of millions of dollars, that has a lot of value for your organization,” he said.

When Fernandes first moved from the private sector to the public sector, he focused heavily on working capital, as there was a common goal of streamlining the organization. “We spent a lot of time focusing on liquidity and working capital so that we could be nimble with our investments, as well as our debt issuances,” he said. “That actually saved us millions of dollars in debt service. So the fact that we focused on some of these areas, helped us gain that trust of the CFO.”

Finding Opportunities
Often when a company is in transition, treasury has an opportunity to distinguish itself and be seen as a relevant group that brings new insights to the table. About a decade ago, Infor transitioned from offering traditional, on-premise software to its customers to delivering a cloud-based subscription model. At the time, treasury knew the shift would have a material impact on its cash trends. “Being able to capture that impact, understand it, tweak and redesign our forecasting models, has enabled us to highlight the new, emerging trends,” Lee said.

When Laidhold joined Peloton about a year and a half ago, the company was in the midst of its transformation from a small fitness technology company to a global phenomenon. Prior to her hire, there wasn’t a treasury department and she applied what she calls a “treasury in a box” approach to every area of the organization.

“We had just launched in our first non-U.S. markets, so we had to build and develop FX policies,” she said. “We had to think about how we wanted to approach hedging. Additionally, we had just completed a capital raise and we’re planning to head into an IPO, so cash investing was, for the first time, very relevant and important.”

Laidhold added that, the CFO was relying on her to provide expertise on how to craft treasury policies and procedures. Laidhold was able to articulate, from her years of experience, what the company needed. A cornerstone to success was working with a CFO, who was willing to give her enough autonomy to take some risks and try new things in order to build out a modern, robust treasury function.

Stark noted that having that leeway can go a long way towards helping treasury become involved in strategy. “You have to do the job extremely well, but if you have a little bit more latitude, you can further prove how strategic treasury can be,” he said.

Leveraging Technology

Though the advantages to adopting new technology may be obvious to treasury, it’s not uncommon to receive pushback from senior leadership. Convincing the CFO to approve an investment in essential treasury technology—even something as commonplace as a treasury management system (TMS)—can often be a tall order. Therefore, the onus is on treasury to sell the CFO on why a technology upgrade is necessary.

Organizations may see an increase in fraudulent attempts around processdriven areas. Treasury typically has the relationships with the banks and the TMS vendors that have the latest fraud prevention tools, so it is important for us to bring that to the organization and be part of that conversation.”

Building the Business Case
When it comes to selling the CFO on adopting a TMS, the time component is perhaps the easiest case to make. A treasury system is an incredible tool to free up time for treasury departments as a whole, allowing staff members to spend more time catalyzing change or developing strategy for the organization, Bergentoft noted.

In the current environment, navigating the COVID-19 pandemic, time is especially critical for treasury. Having the time to answer questions around cash and liquidity; model cash forecasts for various dynamic scenarios; and understand the levers the organization has around financing and risk management can make a huge difference.

But perhaps more important are the capabilities that a TMS provides, particularly when it comes to safeguarding financial assets. When treasury departments rely too much on manual processes, they leave themselves open to fraud. And that’s something any good CFO wants to avoid.

“One thing that my CFO and I talk about on a regular basis, is payments fraud,” Fernandes said. “And one of the things that we looked at when we were in the process of implementing the TMS was how it can help us with those issues that we’re experiencing. Because the last thing I want and the last thing our CFO wants is to be in the Washington Post. So being the District government, that’s something that we’re very cognizant of. And we have had fraud incidents, but one of the things that we focus on is how we can avoid them. And a lot of it is transitioning those manual processes or spreadsheets into more of a streamlined process.”

Lee agreed, noting that treasury is essentially the custodian of the company’s bank account, with a directive to safeguard cash. Therefore, as fraud attempts continue to become more and more sophisticated, it’s critical to leverage new technology and tools that are available to improve your treasury controls.

She recommends not only looking within your own treasury processes, but also at other departments that touch cash, such as AP, billing and payroll. “Organizations may see an increase in fraudulent attempts around process-driven areas,” she said. “Treasury typically has the relationships with the banks and the TMS vendors that have the latest fraud prevention tools, so it is important for us to bring that to the organization and be part of that conversation.”

We make sure that we impress upon our colleagues that you just can’t take wire instructions over the phone.”

Adopting New Technologies
Earning trust with the C-suite and across the organization often requires treasury to come up with a formal, detailed plan. Fortunately, there are new tools available that can help treasury in its efforts.

After Fernandes took over the treasury team in the D.C. government, he began an overhaul that would move the department from a transactional function to more of a strategic one. This required revisiting treasury’s technology, implementing best-in-class systems and processes.

Throughout this process, the treasury team revisited its strategy to see if it aligned with the goals of the CFO and the business overall. They ultimately adopted a business strategy tool by ESM Software to build their roadmap. “It helps you create a balanced scorecard by looking at your strategy and aligning it with employee performance,” Fernandes said. “By formalizing that process, what we found is that we are in a better position to be able to support the CFO from a strategic perspective, as well as the rest of the organization.”

Fernandes noted that, in many city governments, the software systems are antiquated and no longer supported. That creates a lot of issues because when the people who supported those systems leave, the organization is left with platforms that don’t work.

“So we are making sure that we take all of the software systems right out of the box,” he said. “That means an extensive amount of work done with process reengineering, policies and procedures. A lot of people are going to be doing different jobs in the future. But we are already starting to see the transition occur.”

Many treasury systems now have automation capabilities that can also help free up treasury to focus on strategy. Going back to the time component, Bergentoft noted that one of the biggest challenge for many treasurers is simply finding the time to participate in strategy. “On the timing side, a big enabler there is obviously the technology,” he said. “So how do you free up the time not just for yourself, but also for the people around you?”

He added that the typical treasury department spends about 50% of its time performing manual, operational activity. “So if you’re able to reduce that, you can shift more of the time spent to strategic activities; it becomes a greater part of the day,” he said.

As demand has grown across finance for automation, data transparency and advanced analytics, a modern TMS can provide the tools for treasury to be successful in those areas. Following a series of acquisitions, Infor’s treasury department was committed to install a TMS. “At one point, we had close to 700 bank accounts across 45 different countries, so the TMS allowed us to automate that daily reporting and essentially made it real time,” Lee said.

Treasury also implemented a control process to organize the data. As bank files came in every morning, the department reviewed each debit and credit and then categorized them into a detailed budget codes. “Several years later, we now have a single database of really good historical cashflow trends,” Lee said. “And with that information, we have been able to highlight working capital across each entity, understand cash seasonality, and measure currency exposures. The data from the TMS is the foundation for all our heavy analytics.”

Laidhold believes that the more automation comes into play, the more essential application programming interfaces (APIs) will become for treasury. Systems’ ability to talk to each other and to outside parties will only grow in importance the more connectivity increases. “You can either go deep with a ‘one size fits all’ solution, or you can pool a ‘best of breed’ product that does very specific functions wonderfully,” she said. “And I think APIs are really what’s going to enable the next generation of all financial technologies to be able to take shape.”

I have tripled the size of our treasury operations team even after putting automation in. And everybody is working on things that are completely value added to the company’s bottom line. And I just think that’s beautiful.”

Impact on Treasury Staff
While an organization’s greatest resource should always be its employees, they need to be utilized in the right way if treasury wants to be effective. A good TMS can help with that; you can have a team of highly-skilled treasury professionals at your disposal, but if they’re just manually keying in data day-in and day-out, then you’re clearly not taking advantage of their abilities.

Laidhold explained that over the past year, Peloton’s treasury team has fully automated its payment process. “We can take things now end-to-end without anybody on the team touching them,” she said. “So being able to pull all of that key entry out has the team working on really exciting projects to maximize our working capital.”

She added that not only are these projects value added, but they’re also actually fun for the team. It’s a win-win all around, because Peloton is getting the most out of its employees and the team is enjoying the work that it’s doing.

Fernandes agreed, adding that making the transition from a transactional treasury team to a more strategic group does a lot to boost employee morale. The changes to processes and procedures can be immense, but if the team is working towards a strategic goal that has an impact across the organization, it can really people engaged.

Of course, whenever the topic of automation comes up, there tends to be a question of whether that ultimately means treasury will reduce headcount. Indeed, when automation first arrived on the scene, some treasury teams built the business case for adoption around how many jobs could be cut.

However, Laidhold thinks that was always a misconception. “I have tripled the size of our treasury operations team even after putting automation in,” she said. “And everybody is working on things that are completely value added to the company’s bottom line. And I just think that’s beautiful.”

Furthermore, Bergentoft pointed out that having “cool” technology in place can help attract the best talent in the marketplace. “It’s become an expectation,” he said. “If you want to be a destination for top talent, you need to have some of these solutions in place.”

From his perspective, investing in technology and in your people are equally important. Only then can treasury truly evolve. “Having the right skills and the investing in training those folks will be incredibly important, as technologies will not live on their own,” Bergentoft said.

Tracking Progress

Some CFOs are a little more hands-off, and many companies’ departments are siloed. In that kind of an environment, treasury may struggle to emerge as a strategic partner if there is a lack of visibility into the work that it’s doing. Thus it is often imperative to track treasury performance to show the work that the department is doing and the impact it is having.

Fernandes’ treasury team has worked extensively on implementing key performance indicators (KPIs) and aligning employee performance with them. Overall, the department sees it as critical to hold people accountable for what they are trying to accomplish.

His team has formalized those KPIs and put them into the aforementioned strategic tool that they used to build their roadmap. “It’s created a nice little dashboard for us to sit down with the CFO, at least on a quarterly basis, and show the progress that we have been making with our strategic initiatives,” he said.

He describes that process as a “two-way street” in which treasury shows the CFO what they’ve accomplished, what they need to accomplish, and what they need from senior leadership in order to accomplish strategic initiatives.

From speaking to clients, particularly those at larger treasury functions, Bergentoft has found that tying those KPIs to groups or individuals actually results in faster progress. “So whether that’s around your visibility into cash, your forecast accuracy, days of liquidity, or opportunities to improve working capital —whatever those measurements might be—I think that helps drive a very performance focused culture,” he said.

Since treasury wasn’t even a function before Laidhold joined Peloton, she made an effort to implement “a ton of infrastructure” so that she has visibility into all of her department’s processes and each of the core areas of treasury. She can then leverage that data when she does her quarterly business review with the CFO, going through each area, digging down into its KPIs.

However, Laidhold emphasized that for her organization, reviewing the KPIs isn’t so much about tracking employee performance but is instead a way to consider what those metrics mean for the future. “We talk about where we want to be,” she said. “What are the next projects we need to do to start to move the needle? And the conversation is much more productive and thoughtful than it would be if we were just looking at the measurements themselves.”

Stark noted that even though there is currently a trend towards treasury being more data driven, many organizations have struggled to extract and show necessary KPI data. Again, technology can go a long way. “Visualization really shows what you’re successful at,” he said. “It can show, ‘Here’s how people are forecasting, here is actually how we reduce their costs of payments or bank fees,’” he said. “So, I find that the data makes a difference. It simplifies it a little bit by having tools to be able to manage the data, and understand the real performance in treasury.”

Getting There

Ultimately, there are many factors that come into play as treasury seeks to establish itself as a trusted adviser to the CFO and the business. Technology is an essential tool, but treasury cannot rely on technology alone. The department also needs to find the right people who can maximize that technology to take the organization to the next level. Treasury teams have an abundance of data at their fingertips, but if they cannot connect and integrate that data, they won’t be efficient.

“How can you be an ally?” Stark asked. “Do your job incredibly well, have the right people on your team so you can trust them and hence be trustworthy yourself, and be incredibly resilient to threats like fraud. And have the right controls in place so when that emergency question comes up, you have all the data and visibility that you need to make important decisions.”

Key Takeaways
The following takeaways can help your treasury organization build trust with the CFO and business, ultimately helping you be seen as a strategic ally:

1. Establish good communication and transparency with the CFO, within your department and across the organization.
2. Even though treasury is often asked to perform tasks outside of its wheelhouse, it must stay consistent with its core deliverables.
3. When an organization is in transition, treasury typically has an opportunity to distinguish itself and be seen as a relevant group that brings new insights to the table.
4. Treasury management systems and automation are helpful tools that can help free up treasury from manual tasks. However, treasury needs to build a clear business case for adoption.
5. Modern technology can also help treasury utilize its employees in the most effective way, as well as attract new talent.
6. In more siloed organizations, it is often imperative to track treasury performance to show the work that the department is doing and the impact it is having.