Centralized Multinational Treasury Management to Enhance Liquidity Risk Management

Written by Sergio Garcia
March 8, 2024

Every high-growth company eventually hits a tipping point. The scrappy, “make-it-work” financial processes that propelled the organization to $200 million ARR just won’t cut it at $2 billion.

Whether grown has been organic or through M&A, it’s important to re-evaluate the treasury function to keep pace with the organization’s new expanded footprint.

For treasurers aiming to achieve centralized treasury management, it’s important to consider that a one-size-fits-all approach doesn’t always work.

In some cases, local regulations, business needs, or customer demands might call for a decentralized model. A hybrid approach, where centralized and decentralized functions work together, could also be the perfect fit.

Centralizing treasury management provides value for organizations seeking to:

  • Enhance visibility into cash flows
  • Optimize liquidity across the organization
  • Increase efficiency by reducing redundancies
  • Leverage scale to reduce cost and ratios
  • Manage risk more effectively

This article will guide you through the transformative benefits of centralizing your treasury functions, and outline key tools in achieving these goals.

Discover how to transform global treasury management for your organization and secure a more efficient, risk-averse approach to global operations.

Recommended: Check out our recent episode of Fintech Corner. Our very own Brett Turner engages in a captivating conversation with Lisa Davis and Ray Nazloomian from J.P. Morgan, delving into how emerging tech, like APIs and generative AI, is revolutionizing TMS capabilities and ushering in a new era of flexibility, agility, and strategic insight for finance teams.

The Evolution of Treasury Management

The landscape of treasury management has undergone a significant transformation, evolving from traditional, manual processes to sophisticated, technology-driven operations.

This shift is marked by the adoption of Enterprise Resource Planning (ERP) systems, Treasury Management Systems (TMS), and Application Programming Interfaces (APIs), which have revolutionized how companies manage their financial assets, liabilities, and risks.

ERP systems integrate various financial operations, providing a unified view of the enterprise’s financial health. TMS, on the other hand, offers specialized tools for managing cash flow, liquidity, and financial risks efficiently.

TMS software has become a staple solution for treasury teams, however these systems have seen little innovation in 20 years resulting in some common pain points for treasurers:

  • It takes six months to one year minimum to set up a standard TMS suite and requires hundreds of thousands of dollars in investment upfront.
  • The newest TMS on the market was originally built over 20 years ago, which makes it difficult for them to compete with emerging solutions with better tech infrastructure.
  • Difficult to consolidate and normalize transaction data from multiple banks, which leads to treasurers having to consolidate their bank data manually, inviting the potential for human error and data inaccuracies. 
  • Core TMS functionalities are not equipped with the scalable computing resources needed to analyze big data sets and provide visibility into a company’s global cash transactions.

These challenges make it difficult to obtain concise visibility into liquidity and also contributes to incorrect data. The role of treasury has evolved to being a strategic partner to the CFO.

Yet, 40% of CFOs around the world do not completely trust the accuracy of their organization’s financial data (Blackline). Additionally, CFO’s lack confidence in cash flow visibility making it difficult for organizations to respond to unexpected market changes 

This is why bank APIs have become a trending tech solution in treasury management. They facilitate seamless data exchange of transaction across multiple banks and integrate with ERP systems. This level of connectivity and integration enhances real-time visibility and operational agility.

centralized treasury management

Centralized treasury management represents a strategic pivot from the fragmented, decentralized approaches of the past. It centralizes financial operations under a single umbrella, enabling multinational corporations to streamline their treasury functions across all subsidiaries and global operations, while maintaining control and security.

centralized treasury management

This approach not only improves operational efficiency and liquidity management but also strengthens risk management and regulatory compliance.

By consolidating treasury activities, companies can achieve a holistic view of their financial status, optimize cash management, and make informed decisions swiftly.

Centralized treasury management has become indispensable for corporate treasury departments in multinational corporations, seeking to navigate the complexities of global finance with precision and agility.

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Core Benefits of Centralized Treasury Management for MNC’s

Centralized treasury management is not just a trend; it’s a strategic shift that brings substantial benefits. Let’s explore these core advantages:

Streamlining Cash and Liquidity Management

Centralization plays a pivotal role in achieving real-time visibility of cash positions and liquidity across the entire organization. By consolidating cash management and liquidity under a centralized system, companies can access accurate, up-to-date information, enabling them to make informed decisions quickly.

This comprehensive view supports effective cash flow forecasting and working capital management, ensuring that funds are available when and where they’re needed, thereby enhancing the company’s financial flexibility and operational efficiency.

Enhancing Risk Management and Compliance

In the complex world of global finance, managing financial risks such as foreign exchange risk, interest rate volatility, and ensuring regulatory compliance are paramount. Centralized treasury management systems equip companies with the tools and data necessary for effective risk assessment and mitigation.

Through centralized control, companies can implement consistent risk management strategies, like hedging, across all operations. This unified approach not only mitigates risks more effectively but also streamlines compliance with global financial regulations, reducing the potential for costly penalties and reputational damage.

Optimizing Treasury Operations and Connectivity

A centralized treasury function improves operational efficiency through automation and enhanced connectivity with banking partners. By centralizing the management of bank accounts and subsidiaries, companies can reduce transaction costs, minimize banking fees, and optimize their banking structures.

Enhanced connectivity ensures seamless data exchange between the company, its banks, and financial institutions, leading to faster, more accurate financial operations. This optimization of treasury operations frees up valuable resources, allowing companies to focus on strategic initiatives rather than day-to-day financial transactions.

Strategic Decision-Making and Forecasting

The consolidation of financial data under a centralized treasury management system provides a foundation for advanced analytics and forecasting. This centralized data pool enables treasury teams to perform in-depth analyses, identify trends, and forecast future financial positions with greater accuracy.

As a result, companies can make strategic decisions based on comprehensive, data-driven insights, facilitating better long-term financial planning and investment strategies. This forward-looking approach helps companies anticipate market changes, seize opportunities, and navigate challenges more effectively.

In summary, centralized treasury management transforms the way companies handle their financial operations, offering unparalleled benefits in terms of efficiency, risk management, and strategic decision-making.

By adopting a centralized approach, enterprises can not only navigate the complexities of the global financial landscape more effectively but also position themselves for sustained growth and success.

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Implementing Centralized Treasury Management

Implementing centralized treasury management is a strategic move that requires careful planning, the right technology, and effective change management. Here’s how organizations can navigate this transition:

Technology and Infrastructure

The backbone of an efficient centralized treasury management system lies in its technology and infrastructure. Key components include:

  • Next-Gen Treasury Software: Evolving beyond legacy TMS platforms to cloud-native, API-based treasury technology is crucial for automating and streamlining treasury operations, offering tools for cash management, investments, and forecasting.
  • ERP Integration: Integrating cash management software with Enterprise Resource Planning (ERP) systems ensures that financial data flows seamlessly across all business functions, providing a unified view of the company’s financial health.
  • APIs: Application Programming Interfaces (APIs) facilitates real-time cash visibility from your global bank mix, and facilitates data exchange with your ERP system. This connectivity is essential for achieving real-time visibility of cash positions and enabling swift, informed decision-making.
centralized treasury management

Adopting these technologies creates a robust, centralized infrastructure that supports streamlined workflows, efficient banking communication, and access to real-time financial data across your global operations.

Change Management and Stakeholder Engagement

The transition to a centralized treasury management system involves significant organizational change, requiring careful management and active stakeholder engagement:

  • Senior Management Buy-in: Gaining the support of senior management is crucial for securing the necessary resources and ensuring organizational alignment with the change.
  • Engaging Treasury Teams: Treasury teams should be involved early in the process to understand their needs and concerns, ensuring the solution meets their requirements.
  • Communicating with Stakeholders: Regular, transparent communication with all stakeholders, including subsidiaries and banking partners, helps manage expectations and foster collaboration.

Effective change management ensures a smooth transition, minimizes disruption, and builds a solid foundation for centralized treasury operations.

Overcoming Challenges

Implementing centralized treasury management is not without its challenges. Organizations may encounter obstacles including:

  • Managing Banking Relationships: Centralization can affect existing banking relationships. Companies need to carefully manage these changes, ensuring they maintain beneficial terms and effective communication.
  • Handling Legal Entities Across Jurisdictions: Different legal and regulatory requirements across jurisdictions can complicate the centralization process. A detailed understanding of these requirements and careful planning is essential to navigate these complexities.
  • Adapting Management Processes: Transitioning to a centralized model requires adjustments to existing management processes. Organizations must be willing to adapt and re-engineer processes for improved efficiency and compliance.

Overcoming these challenges requires a strategic approach, leveraging technology, engaging with stakeholders, and adapting processes to ensure the successful implementation of a centralized treasury management system.

Achieving Operational Efficiency through Centralization

Centralized treasury management not only streamlines operations but also unlocks significant efficiencies and cost savings. Here’s how enterprises can achieve these benefits:

Best Practices in Cash and Payment Management

Centralized treasury management revolutionizes how businesses handle their cash and payments, leading to improved financial health and operational agility. Key practices include:

  • Efficient Management of Receivables and Payables: Centralizing control over receivables and payables enables quicker processing, better terms negotiation, and improved cash flow management. It reduces the time cash sits idle and enhances working capital efficiency.
  • In-House Banking Functions: By acting as an in-house bank, centralized treasury can manage internal funding needs, reducing external borrowing costs and optimizing interest income across the organization. This includes managing intercompany loans and streamlining payment structures, ensuring funds are allocated efficiently across the business.

Leveraging Economies of Scale for Cost Savings

Centralizing treasury functions brings economies of scale that can significantly reduce costs and enhance operational efficiency:

  • Reduced Banking Fees and Transaction Costs: By consolidating bank accounts and transactions, companies can negotiate better rates and lower fees with financial institutions.
  • Streamlined Processes and Reduced Redundancies: Centralization eliminates duplicate processes and systems across the organization, leading to cost savings in treasury operations and beyond. This streamlined approach enhances the overall efficiency and responsiveness of the treasury function.

Connectivity and Integration with Financial Institutions

A key component of successful centralized treasury management is the ability to connect and integrate seamlessly with external financial institutions:

  • Strong Banking Relationships: Centralized treasury management relies on robust relationships with banks and financial institutions. These partnerships are crucial for accessing better services, negotiating favorable terms, and gaining insights into financial markets.
  • Technology for Enhanced Connectivity: Utilizing advanced technologies, such as APIs, allows for real-time data exchange and integration with banking platforms. This connectivity ensures that treasury managers have timely and accurate information for decision-making, risk management, and compliance reporting.

Achieving operational efficiency through centralization is not just about consolidating functions; it’s about transforming the treasury department into a strategic hub for financial management.

By adopting best practices in cash and payment management, leveraging economies of scale, and enhancing connectivity with financial institutions, companies can realize significant benefits, including cost savings, improved liquidity, and stronger financial controls.

Optimize Your Treasury Management with Trovata

Centralized treasury management dramatically enhances liquidity, operational efficiency, and risk management for multinational corporations.

Trovata has combined the power of open banking APIs and cloud technology to create a data lake environment that gives finance teams access to all of their financial data in one place.

Not only is it accurate and up to date, but Trovata also provides treasurers with a wide range of powerful tools to analyze that data. Sophisticated forecasting and scenario modeling tools allow projections to be conducted for all of your entities, and Trovata AI adds generative AI functionality, making it possible to interact directly with your financial information, as if you were speaking to a highly qualified analyst.

centralized treasury management

Trovata’s platform offers an innovative solution, providing real-time visibility and strategic decision-making capabilities. To find out more about how Trovata can help to centralize treasury management for your global operations, book a demo today!

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