Most of the strategic treasury initiatives are implemented through technology.

Treasury process improvements are therefore putting a focus on the TMS and other treasury applications and how well they are integrated in the group’s operations.

Modern treasury solutions provide huge opportunities for optimising processes, centralising cash and control, and for reducing working capital and costs. They therefore become very able tools for leading the consolidation of group operations.

Conclusions of this reasoning are firstly that the ability for technical integration of the treasury applications and the scalability of the IT infrastructure is crucial to achieve results.

This is also the reason why the Oracle and SAP treasury and cash management modules are gaining attention and increasing the installed base.

Secondly group consolidations is an ample opportunity for the treasury to prove value add for the core business organisation.

The level of decentralisation your company has is part of its DNA and consolidations are therefore usually hard to perform. But getting control of the group’s cash is the tool treasury can use.

When treasury gains that control the group management has the means of controlling the group. The guy with the wallet decides.

I have studied the work by the EU commission on regulation of OTC derivatives . What strikes me is that regulating separate areas independently seems to be easier than putting the new regulatory framework into context. I am particularly struck by the limited perspective of the discussion. It mainly revolves around banks and other financial institutions when it actually affects the whole society. The corporates are only involved in the periphery of the regulatory discussions.

The key, I believe, for sound financial regulation is to increase the transparency of the banks’ financial accounts. For many years the accounts have been impossible to decipher because the regulators have been keen on not forcing banks to disclose information to the market with regards to competition. But the fact is that banks do not compete in the general sense of the word.

Competition means having the risk of going bankrupt because your competitors take your market share. No bank risks that. The banks go bankrupt when they take too much risk, have insufficient controls and bad management. I feel compelled to question if the regulators and bank supervisors know what competition really is.

Compare the transparency of corporate accounts with that of financial institutions. Why can corporates have transparent accounts when the banks can’t? Because the banks are more exposed to competition than corporates?

A more holistic perspective on regulation would be to force the banks to become transparent and enable us to understand what risk their business model and balance sheet entails. Force the banks to become as transparent as the corporates so we all can make our analysis. Now the only parties having sufficient information to evaluate a bank’s risk position are the supervisors. And what can they do about a bank taking too much risk? What can they do about systemic risk? Basically nothing.

However if everyone would have sufficient information of each bank’s positions everyone would price the bank’s shares and choose to transact with the bank based on their own judgment. This is how we usually organize society and free markets. Why shall we not do the same in the financial markets?

This is no longer true. Today, the trend is not your friend, instead you need to be prepared for the unexpected.

The Corporate Plans for 2010 survey, performed by the European Treasurers’ Peer Group, and sponsored by NFS Group, clearly indicated that financial forecasts no longer come easy.

This forces mitigation through making the cost base and capex programs much more flexible and it raises the question of how we hedge without reliable forecasts.

Anyway hedging of forecasts only postpones the effect of market rate changes. An alternative is to increase the price elasticity transferring the FX effects to the customers and vendors earlier.

This would be an effective hedge but require that we adjust our business model. An alternative is to stop hedging except for confirmed transactions or hedge unreliable forecasts. But these options raise more questions than answers.

However there is seldom something bad that does not give birth to something good. The crisis has forced corporates into being much more agile, fast moving and flexible, and thus throwing out a reliance on the trend.

This represents a major improvement and it also forces the corporate management to treat financial risks as business risks and adjust the business model to cater for them.

Previously they regarded factoring as a means to take control over some of the collateral, decreasing the security for the other financiers, but lately there has been a shift towards regarding the cash generated through factoring as early payments from the customers.

This perspective means that the cash flow is improved and therefore the default risk is reduced. Through the grape vine I hear the CRA (Credit Rating Agencies) are reviewing their previous opinion and might even improve the rating dependent on the terms of the factoring program of course.

One critical issue is obviously recourse.

Implemented on a broader scale this would mean that factoring companies could substantially increase the amount of available funding for corporates.

This does not happen every day and could be a counter action to manage the negative effects of Basel II.

The window for change has disappeared with the improving economy, which opens up for less drama.

Rigorous change does not make any political sense any longer and probably the far fetching regulation of the non regulated markets will therefore not happen.

And I’m not sure that is a bad thing.

Regulatory change might only come down to fighting for global taxes on financial transactions and limiting bonus schemes. The former will definitely lead to higher costs of financing for consumers and corporates and I therefore suspect it will not happen. The latter is only populism and has no real impact.

It seems however likely that increased capital requirements will be implemented, although this will be done slowly and not the during present business cycle. We understand that capital requirements will be increased in periods of high economic activity and vice versa. This makes sense and could limit future bubbles.

There is no sign the central banks are paying any attention to the society outside the banking system. This is especially true in Europe where saving the banks means saving society from economic disasters. As us corporates know this is not true.

We will unfortunately have to live with a financial regulation with main focus to avoid bank defaults (Basel II). This means that established trends will continue:

Banks continue exiting the market of balance sheet commitments to corporates and focus more on the private market. One of the cornerstones to avoid bank defaults in the Basel framework was making the banks less exposed to corporate risk introducing the credit markets as buffer and high capital requirements on corporate risk.

Very little has been learnt from the crisis in this area and therefore the shift to arm’s-length from relationship banking and increased reliance on automated risk management will continue.

The only major lessons learnt by central banks from the crisis is that banks and financial institutions will default despite Basel II. Therefore they have implemented models to avoid another Lehman.

That’s a good but not a sufficient improvement.

One area where the central banks do not take any responsibility is improving the global payment system.

This could be an area where modern regulation could have provided substantial value for the non financial sector. The central banks expect the “markets” to improve payments infrastructure but it is obvious there are few incentives for the financial industry.

Instead governments and central banks should assist by prohibiting float by law and breaching institutions would have to pay a severe “fine” to payer and payee.

Then the incentives for change would be there.

I would actually expect that without this legislation payment systems would continue to be dysfunctional for many years to come. This would severely hurt the corporate sector by having to continue raising liquidity to provide it to the financial sector, indeed an irrational setup.

The prior relative ease of forecasting was replaced with a sense of prepare for the unexpected.

This situation put the limelight on:

•    counterparty risk management
•    liquidity and cash management
•    risk management and hedging strategies

As a consequence corporates have been more adjusted to plan for any eventualities, focus on cash generation and not expect availability of credits at all times.

The rigid strategy of following the trend is being replaced by a more agile and flexible preparedness to adjust with changing conditions. Service levels and relationships with your banks can suddenly change, management information is crucial, economic statistics is not reliable and the trend is not necessarily your friend.

The actions treasuries take as a response:

•    deleveraging
•    develop bank relations and new strategies
•    new hedging strategies
•    improve technical integration
•    improve reporting capabilities
•    be agile and do not take anything for granted
•    take advantage of the opportunities arising e.g. opportunistic financing

The actions corporate management takes as a response:

•    improved market and sales focus
•    flexible cost structures
•    flexible capital expenditure schemes where projects can be postponed or accelerated depending on conditions
•    take advantage of the opportunities arising e.g. acquisitions of corporates and markets

Treasury and corporate management now monitor macroeconomic developments more closely; this includes generic parameters (growth rates, inflation etc) and company specific (key currency crosses, commodity prices etc). and all the while cash generation metrics receive increased attention.

This report was sponsored by NFS Group.

Please contact johanna.lenner@nfs-group.com if you want to receive the complete survey report.

Understand the business model and the underlying need from the business areas. Business modeling has not before been on the agenda of the treasury but that’s changing. Already many treasurers have understood this by transferring distributor risk on to financial institutions or limiting the financial exposure of vendors as only two examples.

Broaden the scope of “markets” and make it include more than only the financial markets. The expectation is that the treasury also understands the markets your corporate is operating in. Follow the business area managers, visit customers and adapt a commercial mindset in your relations with them. Find ways in which the treasury can improve the customer experience and examine how your company adds value.

Act from a group perspective, and be an expert in your field. One typical area is working capital management. Do not blame the business units for not understanding and stating that they “own” the money, just implement good working capital practices. That is the responsibility of the treasury. Blaming others and limiting your area of responsibility is definitely a career limiting activity.

When communicating with the board and C-level give them the solutions not the problems. Do not overwhelm them with details. Do your homework and give them the conclusions first and propose what they should decide. Prepare to substantiate this with facts and analysis. Be precise. This means taking risks, but the opposite just creates confusion and an unfavourable impression.

Focus on activities leading to top line and bottom line growth – “earn your right to grow”. A treasurer who substantially assists bringing in business or reducing risk in the core business will be a star. Avoiding having a treasurer as a final position requires migrating to the core business and there has been no easier time than now.

Have your eyes on the future, not the past. There are few things CEOs and board members loath as much as discussing past quarter figures. That’s already history. The finance/treasury joining the executive management in focusing on the future is the winning formula.