"Cash is King" is both a common expression and a universal truth. Irrespective of industry, executive management and finance leadership teams are laser-focused on optimizing liquidity and working capital. Lingering inflation and rising interest rates have resulted in higher working capital needs and expensive debt. Simultaneously, the geopolitical environment has exacerbated the complexity of managing international banking relationships, foreign exchange, and supply chains. As a result, board members and sponsors are pounding the tables for well-defined strategies to generate cash flow and manage debt with improved efficiency.
Enter the treasurer!
The treasurer, whose responsibilities are intertwined with the most significant organizational priorities, has an opportunity to step into the spotlight and change the game. As internal and external stakeholders pile on the pressure to move faster, it is vital that the treasurer develops and implements an execution plan with speed and passion.
However, substantial management expectations, along with a scarcity of talent to deliver, requires a treasurer to assess different focus areas and decide on how to best drive sustainable impact immediately. To facilitate this process, the treasurer should conduct a rapid diagnostic to quickly identify opportunities, prioritize them, and map out initiative implementation. In-demand focus areas include:
- Liquidity Forecasting: 13-week and 52-week
cash flow forecasts have become critical tools when managing
working capital, informing strategic decisions, and operating the
business. These forecasts arm leadership teams with forward-looking
insights and enable them to manage cash with confidence. Proactive
liquidity management is a requirement to assure stakeholders that
organizations are meeting their financial obligations and
mitigating risks.
- Scenario Planning: Due to continued economic
uncertainty, leadership must be nimble and prepared to adapt.
Evaluating the impact of volatility of key business drivers on
forecasted results will enable sustained operational and financial
performance. Organizations with mature planning processes can push
the innovation agenda even further by leveraging generative
artificial intelligence (AI) for sensitivity and predictive
analysis.
- Working Capital Optimization: To establish a
"cash culture," accountability needs to come from the
top, and cash discipline must be reinforced through managed
metrics. The use of dynamic dashboards is an effective tactic to
instill accountability and incent the right behaviors. With
information at the fingertips, a treasurer can bolster their role
as a business partner by proactively pinpointing opportunities and
advising stakeholders with a data-driven action plan. The treasurer
can steer a holistic approach to improve the cash conversion cycle
by engaging with vendors to extend payment terms, with customers to
accelerate collections, and with management to optimize inventory
levels.
- Capital Allocation:As mentioned in Gartner Research's 2023 Gartner CEO and
Senior Business Executive Survey, it is no surprise that
the CEO's top strategic priority is profitable growth. This
ambition becomes exceedingly difficult to achieve as rising
inflation increases pricing and negatively impacts returns. With
heavy scrutiny over the allocation of more expensive capital, a
treasurer must operate with an activist mindset. This mentality
requires tight collaboration with financial planning and analysis
(FP&A) and the Chief Financial Officer (CFO) in order to be
responsive to funding requirements and manage the portfolio with
agility. Analytics are a necessary tool to determine where and when
to deploy capital and how to understand trade-offs, risks, and
rewards to dictate allocation decisions.
- Debt Management: In an environment with higher
rates, leadership needs real-time visibility into leverage to avoid
exorbitant interest expense. Debt covenants need to be well
understood to properly navigate strategic options, inform
forecasts, and manage compliance. The costs of borrowing against
other alternatives and the evaluation of where and when to draw on
available credit should be clear and transparent.
- Bank Account Management: The recent collapse of several large commercial banks has heightened awareness around banking, lending, and liquidity availability. Finance teams are scrambling to open and close accounts to create greater accessibility and visibility into cash. The banks have also responded with tighter restrictions and more cumbersome compliance, causing delays and bottlenecks for companies attempting to rationalize accounts or secure financing. Leveraging technology and ensuring trusted relationships with banking partners can remove some of these obstacles.
On top of juggling these priorities, managing stakeholder requirements, and attracting top talent, treasury is focused on training its people to deliver this high-value work. While this responsibility may seem daunting, especially for teams that are lean or understaffed, the treasurer's ability to institute the right support model anchored to clear objectives is the key to empowering the organization to drive free cash flow and working capital improvement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
