Centralized Treasury

Centralized treasury_HEADER
Martin Bellin author pictureAuthor: Martin Bellin

The trend is back. A few years ago, the notion of centralizing treasury activities as a whole led to the establishment of a number of shared service centers, financial hubs and coordination centers. However, efforts seemed to die down again after a while. These costly units – both in terms of finances and administration – remained reserved to large multinational groups whose substantial turnovers could justify investments of this scale. But while many tasks are now managed centrally, information as such has remained decentralized, and both impact and increased efficiency kept lagging behind the enormous expectations. This is why the majority of corporates never joined the trend.

Nevertheless, 2015 is witnessing a renewed centralization movement. Interest levels are at an all-time low, proprietary trading has been limited in light of compliance standards and a new focus on security, and topics have been gaining importance that relate to the classic disciplines of funding and FX management. Banks’ independence, in particular in terms of financing, is often the driving force behind this. And once again, the term centralization keeps coming up – but this time from a different angle.

While the movement used to be about organizational centralization, i.e. managing tasks centrally as well as groupwide responsibility, the current centralization movement is about the need for complete data, even from the most remote corners of a group. Let’s start with the most basic disciplines, with the account balances of all accounts worldwide – and by this I really mean all accounts. Reporting once a month is no longer enough – you’ve got to make your figures known daily, even several times a day, in order to have a sound basis for groupwide liquidity planning. And this does not only concern the “multis.” Medium-sized companies in particular are very eager to improve their efficiency in this context. Once people are aware of balances, they can initiate further steps and actually access the money and have control over balance sheet developments. However, Brazil is far away, China remains highly regulated and Australia is in a really unhandy time zone when your treasury is placed in Western Europe.

This is why centralization has changed. What used to require a physical organizational structure can now be achieved virtually. Systems allow for any form of timely and unlimited access to information without the need to previously establish elaborate reporting structures – all under the premise that everyone is part of the same architecture and can profit from the same pool of information. In this case, systems are not limited to data management but primarily support day-to-day treasury business. Data and information for group and headquarters becomes a by-product, with process efficiency taking center stage. Virtual cooperation enables any company to implement processes wherever this is easiest. Organizational centralization is possible but so is completely decentralized processing. It is the information as such which is available at all times and anywhere in real time, making it possible to make funding and hedging decisions, to trade with operative units or to finance them at short notice and efficiently.

This shows that centralization is not a new phenomenon. It has always been driven by a need for efficient processes. And while systems don’t offer completely new possibilities, the way in which they offer them has changed. One prominent example are the by now fully integrated direct SWIFT connections. They’ve become so inexpensive that it’s no longer a question of being able to afford them but of being able to afford going without them. Permanently up-to-date information has become increasingly important and at the same time more readily available and affordable. It is high time to tap into this potential and to rethink risk management and funding in order to organize them more efficiently. This makes implementation a question of individual goals and a company’s strategy, rather than a question of resources.

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