Treasury Management as a Crisis Tool

How treasury management helps companies prepare for the worst
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BELLIN author pictureAuthor: BELLIN

Martin Bellin author pictureAuthor: Martin Bellin

Treasury is all about preparing for the future: what might happen and what can be done to steer it in a positive direction? Yet there are some situations that go beyond any normal “be prepared” scenario. The current global Coronavirus situation is one of them.

In these unprecedented times, businesses all over the world are facing an uncertain future. We talk to Martin Bellin, CEO of BELLIN, to hear his take on the situation and find out more about the role of treasury management in times of crisis.

Martin, the whole world has been caught unaware by the speed and impact of the Coronavirus pandemic, and many businesses are in dire straits. As CEO of a treasury management provider and a former treasurer yourself, what is your take on the situation?

Martin Bellin: I’m in close contact with many of our clients. For a lot of them, this is less about the future than about the here and now. They don’t have the luxury to worry about what might be in four months, they’re struggling to survive from one day to the next. Many are impacted by disrupted supply chains and collapsing consumer demand. In business terms, this is a “life or death” situation.

We certainly feel for all companies who’re suffering and are doing everything we can to support them.

It is often said that treasurers are the strategic gatekeepers of their companies, and that it is their responsibility to prepare for the worst case. Is this the worst case and should treasurers have been prepared?

Martin Bellin: Yes and no. We need to be very differentiated here. Yes, as far as worst cases go, this is pretty high up there. That doesn’t necessarily mean anyone could have been fully prepared for it or even foreseen it. Either way, treasury management is without a doubt an important tool when it comes to preparing for and dealing with the future, and that does include disasters and emergency situations such as the one we’re witnessing at the moment.

While there are some scenarios no one can prepare for, the current situation clearly highlights the many ways in which treasurers CAN prepare and have done. In many ways, this is a throwback to the financial crisis of 2008 where the liquidity situation tripped up countless companies worldwide. In the aftermath, treasury management gained clout and treasurers graduated from “data collectors” to strategic advisors. Many learned from their oversights and invested in treasury technology and expertise to be better prepared next time.

Can you help us understand this better? In what ways have treasurers helped their businesses prepare for the future?

Martin Bellin: In very simple terms, treasurers help their businesses prepare for the future by getting on top of today. The more comprehensive their overview of the ongoing situation, including historic data, the better they can react to what’s coming their way – foreseen and unforeseen.

Take for example a company’s liquidity situation, something that in many businesses failed the stress test in 2008 and is under scrutiny again in light of COVID-19: If I don’t know exactly how much cash I have right now, how would I ever be able to predict changes in the future, let alone have any concept of how to respond to them?

Let’s take a closer look at the liquidity situation. How can treasurers have an influence on their company’s liquidity and make a positive difference?

Martin Bellin: Ultimately, this is all a question of visibility. As a treasurer, my ability to respond to any changes depends on how well I know the current situation. This may sound simple but in times of globalization and worldwide trade, it is anything but.

Take for example, a company with subsidiaries all around the world: Not only do I need to know how much liquidity is available, I also need to know where and how quickly it is accessible. There’s little point in me generally having the cash if I cannot access it where and when needed. What I therefore need is an overview of the financial status worldwide, broken down by countries, subsidiaries, accounts etc. This includes cash balances as well as knowledge of credit lines or any potential covenants. And it is difficult to have that overview without technological support.

Once I have a handle on the situation right now, I can start making predictions, i.e. cash forecasts. Based on the data and planned transactions I have, how are cash flows likely to evolve in the next 4 to 6 weeks? What scenarios are there and how would I deal with each one? Treasury management is actually much more unique to a specific company than people often assume. That said, gaining a complete overview and predicting outcomes for the future are two things every company can and should do – the best way to turn this data into action then depends on the respective company.

You mention liquidity risk. Can you tell us a bit more about risk management in general and what role it plays in readying companies for difficult times?

Martin Bellin: In times of crisis, treasurers need to be able to respond quickly. Long-term and strategic risk management is another matter altogether. While this is often kick-started as a “lesson learned” from difficult times, it needs to be thought through and implemented holistically. At the scene of a car crash, it’s all about saving lives and containing the situation – that’s where many companies are right now. But when it comes to buying a new car and getting back on the road, you’re well-advised to reconsider your setup, so you don’t simply end up in the same situation again.

That is not to say that risk management should take a backseat. It can be vitally important in readying a company for future scenarios. Again, this involves collecting, analyzing and acting upon data, for example to protect against market volatility, currency risk, interest rate volatility and other exposures.

In order to be able to do that, you need to have knowledge of the financial happenings throughout your group. In the best case, how is my financial situation going to evolve? And – to come back to the worst-case scenario – what will happen if things go catastrophically wrong? This is not an exact science but it can make all the difference in terms of your scope to take action and having contingency measures at the ready.

You mentioned that every company is different. Do you still have any recommendations on how to best deal with a unique situation like the present one?

Martin Bellin: I would advise every company to do the following “homework”, not just on a daily basis, but also right now in the midst of the crisis. Find out:

  1. How much cash is available and where?
  2. How fast am I able to access the cash and transfer it to where it is needed?
  3. What is the forecast for every single location on the cash requirements over the next week and the following weeks?
  4. What credit facilities do I have in place and how reliable are they, taking covenants and other factors into consideration?
  5. What is the cash value of my assets turned into cash at short notice?

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Technology can provide treasurers with these answers, today and every day moving forward, so management can act accordingly. When the skies clear again, a more long-term approach with proper rules and guidelines should be implemented to prepare for any situations with similar impact on the corporate’s business.

COVID-19 has changed the business world and will continue to dictate all our lives for a longer time to come. However, while some scenarios are impossible to plan for, we can see that good preparation will go a long way in heading off the worst. Treasury management and the corresponding technology certainly are important tools to deal with crises.