For many organisations, regional treasury centres (RTCs) paired with shared service centres (SSCs) for operations support were once the Goldilocks of treasury structure. However, the limelight shifted away from the model as it became another point of fragmentation, instead of a steppingstone that integrates the headquarters (HQ) with local business units. The problem, inevitably, is not the outposts but the systems, processes, and underlying banking structure that led to poor cash visibility, inefficiency, and risk.
Today we are seeing a renewed focus on RTCs and SSCs. What is driving this change?
Resolving points of fragmentation between regional treasury and HQ
Companies are eliminating longstanding challenges that have impeded the integration of RTCs and SSCs with HQ and local business units. These challenges include: the fragmentation of cash balances, the complexity of internal systems, manual RTC processes, and shared access to standardised data sets.
1. Solving for the fragmentation of cash balances
Many multinational corporations struggle with cash balances held in numerous bank accounts across multiple banks. Fragmented cash balances leads to a fragmented view of cash. The challenge of cash visibility goes beyond the bank account balance. Regional treasurers need to understand cash inflows and outflows for each entity in order to understand where and how to add value.
Automated liquidity management solutions, in addition to enhancing cash visibility and cash movement, can assist with reducing interest costs by utilising idle cash sitting in business units to offset debt. MNCs are using in-house bank (IHB) account structures that integrate master accounts and sub-accounts, or virtual accounts. These account structures allow treasury centres to perform value-added services such as multilateral intra-group netting for liquidity, foreign exchange, and Pay on Behalf of (POBO) and Receive on Behalf of (ROBO).
2. Tackling the complexity of internal systems
Many corporates run multiple ERP instances. Some only use a treasury management system in HQ, leaving the regional hubs at a disadvantage. Without a streamlined global ERP and treasury management workstation, companies are at a disadvantage in their efforts to achieve visibility into cash and liquidity.
To support automated liquidity management, corporates are implementing treasury management systems both at the HQ and RTC levels. To achieve a higher degree of efficiency and automation of end-to-end processes between HQ and RTC, treasury management systems should also integrate with other relevant accounting, finance, procurement, and other systems within the organisation.
Governance is key to bridging the gap between HQ and RTC as they provide visibility and control to HQ even if cash cannot be pooled all the way to HQ due to regulatory restrictions in certain markets. During the implementation phase, a priority focus is on defining the roles and responsibilities between HQ, RTC, SSC, local business units, and other relevant parties for governance of cash pooling processes and intercompany lending. This holistic approach to transformation sets the foundation for optimising net interest cost for the organization.
3. Automating RTC processes
It is not uncommon for RTC staff to spend most of their time gathering account balances and other information across multiple banks to facilitate decision-making by their headquarters. The inefficient process also diverts regional treasury staff from focusing on adding value – both at the level of the local business unit and in its interactions with HQ.
Beyond integrating treasury systems internally, it is critically important for corporate treasury centres to establish systems integration and connectivity with their banking partners via host-to-host, SWIFT or API connectivity. This not only decreases errors and reduces fraud but also frees up treasury teams to redirect their focus from executing and reconciling treasury transactions to data analysis and strategic decision making.
As treasury centres focus on improving and automating processes, they can rely on their banking partners to support their journey from a purely operational focus to an enhanced strategic role. For example, Standard Chartered’s specialist treasury advisory team can assist clients with reviewing existing treasury structures and help to identify gaps in operating models and management systems. This end-to-end support includes co-creating comprehensive, bespoke treasury and shared services solutions.
4. Standardising data sets and gaining shared access
Both HQ and the RTC need access to the same standardised data sets. This is the basis for RTCs to be able to perform analysis and provide subject-matter expertise on the allocation of cash and the participation of business units in SSC and IHB structures. Banks are partnering with fintechs to provide solutions that address market gaps in capabilities for standardising data sets. One example is the ability to consolidate data on multi-bank balances from any format, including MT 940s, Excel, and PDF.
As MNCs replace manual treasury processes with automated solutions via fully integrated treasury management systems, they are gaining access to vast troves of data. As a result, they need people who can process, visualise, analyse, and interpret this data. In response, treasury centres are upskilling their staff with the requisite knowledge and skills. Additionally, they require project management skills to drive the implementation of change and coordinate between treasury, banks, IT, and other stakeholders.
From glancing back to looking forward
A key challenge on the path to cash optimisation is influencing change in how local businesses think about their place – and their contribution - to cash management. Regional treasury is often tasked with making use of technology and data to allocate cash and perform financing more optimally. However, their priorities may not be aligned with those of local business units, who may prefer to hold cash balances.
Changes in market dynamics have accelerated in recent years, and a constantly evolving business landscape demands a vigilant approach to cash management. Furthermore, with technology adoption accelerating during COVID-19, there is greater demand by end consumers for instant and digital everything – and this is something felt also by local business units. Now, instead of focusing efforts on convincing local business units to adopt new technology or unlock cash, RTCs can take the lead in maximising value to the business as a whole.
“Adopting a ‘Business Continuity Planning’ mindset is the new normal for treasurers. With supply chain disruptions, cost inflation and decreasing control over inventory, the management of cash at a regional level can benefit from swifter response to market demands and conditions,” says Ankur Kanwar, Global Head of Structured Solutions Development at Standard Chartered.
To achieve this, treasury must shift from looking backwards to a forward-looking view of the business.
Increasingly, treasury is at the table for a broader range of topics that reflect this shift. In tandem, treasurers are reaching out to their banking partners to find ways to resolve pressing challenges. Top-of-mind concerns where banks can help include: rising interest rates, the impact of a strong dollar and high commodity prices on product pricing, the preservation of profit margins, how to develop solutions that will help sell products or finance new or existing customers, and how to set up supply chain financing compliant with Environmental, Social and Governance (ESG) standards.
A renewed focus that bridges the gaps
Regionalisation strikes the Goldilocks “just right” balance between centralisation and decentralisation, with SSCs further supporting treasury operations. On one hand, this hybrid approach enables treasury to maintain close proximity to local business units in order to understand market nuances, provide advisory and value-added services and operate efficiently. On the other hand, RTCs interact with headquarters to support governance responsibilities. In balancing local and global requirements, the structure aims to optimise cash management.
As the pace of business accelerates towards real time, treasury needs real-time information reporting capabilities and solutions for accessing liquidity where and when needed. This must become effortless. Therefore, not only do treasurers seek to close the current gaps between HQ and the RTC but to move towards a real-time processing and communication environment to support an evolution towards real-time treasury.
The renewed focus is on building an agile and resilient, not just efficient, model. Rather than taking a patchwork approach to improvement, bridging these gaps will involve the design of a fit-for-purpose treasury. Instead of off-the-shelf banking products, treasurers are working with their banking partners to tailor solutions to their unique requirements.
Speak to us to find out how you can drive this change for your organisation.
Visibility, control, and optimisation are unwavering liquidity needs. Yet demand for efficiency is escalating. With automation central to our solutions, we can help you achieve it all.