Treasury Basics for an Effective Overseas Presence

According to McKinsey & Company, the rapid shift of economic activity from established markets in Europe and North America to developing ones in Africa, Asia, and Latin America has many CFOs asking treasurers to improve their performance. In an effort to help corporate treasurers improve their performance in core activities, 120 treasurers were surveyed and an additional 50 in-person interviews were conducted. Those sources, as well as experience working with treasurers, has led to the conclusion that companies should focus on five moves to improve their global treasury function, as noted by this report that has the following recommendations:

1. Centralize The Treasury Function Globally

The ideal model would centralize policy setting, decision making, and execution—though not necessarily personnel. Consolidating the treasury function under the global treasurer can help by giving managers an aggregate view of their cash flow and risk positions.

One caveat: a centralized treasury organization does come with trade-offs; for instance, it might leave a company with less information about local banking and country-specific regulations.

2. Strengthen Governance

Strengthening treasury governance requires a thorough review of policies and processes for core activities, followed by testing to ensure that they work well in practice and by comprehensive training. One way to start is to test how processes work under stress.

3. Enhance Treasury Management Systems

The rapid pace of software development over the past 20 years has brought to market a range of sophisticated tools that facilitate the treasury function. In our survey, we found that nearly half of the companies with less than $10 billion in revenue still used spreadsheets as their primary treasury system.

4. Increase the Accuracy of Cash Flow Forecasting

The treasury function should aggressively analyze cash flow forecasts and different cash-flow scenarios, and consult with the company’s businesses in all global regions on how they might best utilize cash economically.

5. Manage Working Capital In Developing Markets

Managing working capital globally is a challenge, especially in developing markets, where the task can be complicated by differences in business culture. Managing working capital is complicated because it requires spending a lot of time with business units in their various regions to understand how they pay their suppliers and figure out customer behavior.

Overseas Treasury Expansion

The Journal of Accountancy goes on to recognize that understanding regulatory requirements and standard operating procedures in international locations is essential for domestic corporations expanding into overseas markets. The following tips are just a few out of a larger list compiled by Wells Fargo’s international banking division that can help companies establish an effective global treasury policy:

1. Consult With Key Advisers Early.

Draft the overall scope and plan for international expansion with the help of tax advisers, bankers, legal consultants, and IT experts.

2. Assess the Risks. 

Unstable currency markets that pose devaluation risks must be taken into consideration. Corporations should understand the laws and economic and regulatory risks that exist in the markets where they are expanding.

3. Set Policies For Capital Management. 

A framework for treasury, foreign exchange, liquidity, and investment management practices must be established and communicated throughout the organization. Decide on protocol as you would for your U.S.-based treasury system.

As companies migrate to a global viewpoint they need to recognize that the degree of complexity entailed in achieving a streamlined treasury function is many times more complex than just a purely domestic scenario.