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A New Era of Treasury Centralisation

Author: Gunnar Berger, Head of Cash Management Solutions,


Nordea
The concept, role and profile of treasury have evolved
immeasurably over recent years. Many treasurers have transformed
their profile from a relatively isolated function within the business to
a leading role in devising and delivering on the companys strategic
plans. Many large multinational corporations (MNCs) centralised
core functions such as liquidity and risk management some years
ago, and are now looking at new ways of adding value. Others,
particularly smaller companies, have embarked on centralisation
initiatives more recently.
While the 2008-09 financial crisis has been a trigger for more recent
centralisation projects, centralisation has been a trend for a number
of years. There are several objectives for the centralisation of
treasury, such as:

Visibility and control: Achieving visibility and control over


liquidity and risk are typically the treasurers primary
centralisation objectives. A single, consistent view over
balances, flows, exposures and future financial obligations
makes it possible for the treasurer to manage the companys
liquidity requirements and mitigate risk exposures.
Cost savings: Centralisation can also bring cost savings.
Multiple systems can be replaced by a single treasury
technology infrastructure. It can streamline bank relationships,
create greater economies of scale, reduce bank charges,
simplify bank connectivity and lower the cost of managing
bank relationships.
Control and compliance: By centralising the treasury
function processes can be standardised across the business,
allowing for more consistent controls and greater efficiency.

An Evolving Trend
Treasury centralisation is now a proven means of enhancing both
financial and operational efficiency, adopted by a wide spectrum of
early adopters of large MNCs across all industry sectors. The trend
has not stopped at liquidity and risk management, or at large MNCs.
Treasurers and finance managers, who have already demonstrated
the benefits of centralisation, are now seeking to extend these
advantages to financial activities such as payables and receivables
in order to optimise working capital.
Smaller companies treasury needs are becoming more complex as
they expand their geographic footprint through organic growth,
mergers and acquisitions. These companies are now seeking to

centralise liquidity and risk in order to leverage the same benefits as


their larger peers.
Enablers of Treasury Centralisation
Technology is a vital enabler, both for companies seeking to
centralise cash, treasury and risk management activities for the first
time, and those seeking to extend the benefits of centralisation
further. The challenge for smaller companies is that the technology
tools on which larger companies have relied are often out of reach,
with lower budgets and access to fewer resources. Consequently,
there is growing demand for lower-cost plug and play and selfservice models, which newer technology is facilitating.
It is not only smaller companies that are benefitting from these
emerging technologies. Treasurers from all sizes of company, who
are extending centralisation into working capital functions such as
payables and receivables, also seek to do so more easily and costeffectively. Technology innovation and simplified deployment models
mean that treasurers are able to focus on managing business-critical
financial decision-making rather than the processes and
transactions that underpin them.
Diverse Stakeholder Objectives
Different stakeholders will have varying objectives and constraints,
and will often be concerned about a loss of autonomy, influence or
resources. This complexity and diversity becomes even more
apparent as centralisation projects extend further into the working
capital cycle.
For example, while payment factories have become prevalent
amongst larger MNCs in particular, centralising collections is more
challenging. In the past, technical and legal issues have hindered
centralisation efforts, but in Europe these have been largely
addressed through the introduction of the single euro payments
area (SEPA) and the Payment Services Directive (PSD) that
underpins it through a harmonised legal framework for payments
and collections.
Looking more broadly, closer alignment of clearing systems and
formats, such as ISO standard 20022, also helps create synergies
regionally and globally. However internal issues often still remain particularly commercial sensitivities about customer engagement
and relationships, which need to be navigated carefully.
A Partner in Centralisation and Transformation
In many cases, centralisation has transformed treasurys role into
becoming a trusted business partner for the group, and a key
contributor and enabler of business strategy. Banks such as Nordea
are highly experienced in supporting this transformation, through

the first steps towards treasury centralisation through to mature, for


highly experienced treasuries that are extending their influence into
the working capital cycle.
By working closely with treasury technology providers that are at
the forefront of a new era of solutions and services delivery, banks
can also enable their customers to leverage the benefits of
centralisation both in treasury and beyond, achieve visibility and
control over cash and risk, and deliver on strategic financial and
operational efficiency objectives.

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