On the Path to Treasury 4.0: The Latest Trends in Working Capital Management

10/01/2013

Foremost in the minds of many treasury professionals today is the importance of adopting strategic working capital management practices. The road to Treasury 4.0 will be paved with innovative ways to look at three trends that have emerged as critical steps on that path – information management, financial supply chain management and cash processing.

When timely and accurate treasury information is not readily available, treasury professionals face considerable challenges in helping their organizations make fully informed business decisions. Another concern revolves around efforts to effectively manage the financial supply chain by deploying solutions that support cash conservation. There is an increased interest in finding ways to use financial supply chain management to better utilize working capital in order to support and stabilize the physical supply chain.

For retailers in particular, collecting currency also presents significant treasury challenges. These include mitigating the risk of loss of funds and ensuring employee safety, gaining much needed insight into cash positions and collecting and dispersing deposits more efficiently to maximize working capital.

These challenges point out the need for truly strategic thinking when it comes to achieving working capital management goals. By applying an intellectually curious approach, treasury can begin to address these key areas.

Information Management: Knowledge Leads to Payment Process Efficiency

Treasurers are learning that information is king, but many organizations find it difficult to obtain a holistic, integrated view of data because crucial information is segregated into silos. By uncovering and examining all payment processes, treasury can begin to address shortcomings that might exist in the information that’s available to them. It’s important to explore the current state of processes with the goal of revealing potential for improvements.

In order to develop an effective disbursement strategy, treasury must first gain a clear picture of all payment methods in use by the organization. This type of in-depth information is crucial in weighing various payment strategies such as commercial card, ACH and checks. It’s important to look at each method and evaluate the different cost components, along with their respective impacts on working capital. Ultimately, treasury needs to be able to optimize spend, which requires critical information regarding factors such as Days Payables Outstanding (DPO) and discounts on payables.

Access to the right information can enable treasury to more effectively manage and optimize collection and disbursement activities, which in turn can support efforts to maximize working capital management.

Financial Supply Chain Management: Taking a Holistic Approach

Treasury has a vital role to play in overseeing a closer relationship between cash management and managing suppliers, thereby bringing greater efficiency to the financial supply chain. By taking a holistic approach that relies on the latest treasury technologies, organizations can free up liquidity, enabling them to deploy working capital where it’s needed most.

Employing a supply chain finance solution can extend an organization’s Days Payables Outstanding (DPO) and shorten payment terms to suppliers, while providing faster payment to suppliers in exchange for discounts or access to lower cost financing. Taking the right approach offers the opportunity to strengthen the relationship with key suppliers and ensure greater reliability and stability in the supply chain.

Dynamic discount management, also known as payables discounting, leverages a company’s balance sheet, enabling treasury to utilize working capital to the benefit of the income statement through a reduction in costs to goods sold, and thereby driving an increase in net profit or net margin – increasing earnings per share. The latest tools are revolutionizing working capital strategy, providing a unified approach that links supply chain finance, dynamic discounting and purchasing cards to support working capital management in exciting, innovative new ways.

Cash Processing: Driving Operational Efficiency

For many organizations, cash processing presents a significant challenge, as well as an important working capital management opportunity. To address this challenge, treasury should begin by examining cash processing from an operational perspective in order to determine how best to improve cash handling from end-to-end. Rather than taking a piecemeal approach to currency management, savvy organizations are turning to managed solutions that coordinate all components of cash handling, from the hardware, to the armored courier, and back-end systems and reporting, greatly simplifying the receivables process.

With the right end-to-end solution in place, benefits can include freeing up personnel to focus on customer sales and service, loss prevention, consolidation of bank accounts and banking partners, streamlining of the reconciliation process, and critical insights into cash positions allowing more effective and efficient store management. Perhaps most importantly, provisional credit for deposits within 24 hours of cash being processed enables treasury to put critical working capital to work more quickly.

As treasury professionals increasingly look toward information management, financial supply chain management and cash processing to achieve critical working capital management efficiencies, it is equally important to work with your bank to put the right strategies in place to ensure optimum success.

The road to Treasury 4.0 begins today. Fifth Third Bank is ready to help your treasury organization explore options, acting as a trust advisor in assisting you to achieve your working capital management goals.

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