Use a Proven Treasury Management Strategy to Overcome Worrisome Economic Trends

Written by Keegan Chamberlin
July 8, 2022

Rising inflation, interest rates, and geopolitical risks can cause uneasiness. These factors have made treasury management a major challenge for all businesses.

Fortunately, market challenges also bring about growth opportunities.

Your treasury needs to dig deeper to find opportunities that strengthen your treasury management strategy within the uncertainty.

Economic Trend #1: Rising Interest Rates Due To Inflation

As the economy grows, businesses and consumers spend more money on goods and services. The pandemic brought many industries to a halt due to the multitude of shutdowns around the country. Demand for goods diminished, leading organizations to correct supply.

In May 2022, inflation hit a high of 8.6%, the highest it has been since 1981. With the pandemic on a decline, demand soared for energy, housing, and food, which drove up prices. To combat inflation, the Federal Reserve has increased interest rates to make borrowing costly. Many are hopeful that slowing economic growth a bit will provide time for prices to level out. 

What Does Rising Inflation Mean For Your Treasury Management Strategy?

Borrowing from banks is going to be more expensive. In response to the federal reserve’s interest rate bump, all banks are also increasing their rates.

To minimize the effects of this bump, accurate cash forecasting is necessary. Prime-day loans will be more expensive. So, you need to predict your organization’s required liquidity to get the best deal from banks.

Economic Trend #2: Rising Supply Chain Costs 

The pandemic had a huge impact on global supply chains. Many businesses had to cut supplies to stay open. With many countries’ increased vaccine efficacy rates, companies are attempting to reset operations to pre-pandemic levels. These companies are facing challenges in bringing production and logistics up to normal levels.

According to the American Trucking Association, the U.S. suffered a record deficit of 80,000 truck drivers in 2021. Given that trucks move 72% of American freight, a lack of drivers has led to a large disruption. With the increased production, demand for drivers and fuel also increased, causing logistics costs to skyrocket.

What Does Increasing Logistic Costs Mean For Your Treasury Management Strategy?

Similar to rising interest rates, when logistics costs increase, it is essential to focus on forecast accuracy.

Another critical step is ensuring invoices are entered into your ERP on time.

Some vendors will provide a discount if you pay off your invoice early, and some won’t impose late fees. You can pay off invoices at optimal times by tracking your account receivables.

Economic Trend #3: Geopolitical Risks

ukraine exports

Geopolitical risks, like the war in Ukraine, also raise production and logistic costs.

According to Trading Economics, Ukraine exports mainly steel, coal, fuel, and petroleum products. They also export chemicals, machinery, and transport equipment, as well as grains, like barley, corn, and wheat. Monthly Exports in Ukraine from the end of the year to April 2022 have decreased by over 60%. The war has decreased the supply and increased the price of these commodities. 

What Do Geopolitical Risks Mean For Your Treasury Management Strategy?

In uncertain economic conditions, liquidity is king. You need a treasury management strategy that addresses increases in demand and decreases in supply. This way, you can ensure you have the cash you need to keep operations running efficiently.

Crafting a Proven Treasury Management Strategy

A proven treasury management strategy will enable you to grow in prosperous and bear markets. When transforming your treasury management strategy, it’s critical that you base it on financial best practices, such as the following:

  1. Automation Is a Must. As your business scales, automation becomes a must so you can access accurate, aggregated bank data. Banking APIs enable organizations to connect to their banks to aggregate cash data in a single cash management platform. 

  1. Maintain a Forecast Baseline to Increase Cash Forecasting Accuracy. Automated cash management platforms, empower treasuries with a baseline forecast. With variance analysis tools, you can determine your forecasts’ accuracy for any period. This tool makes it easier to make more informed, strategic decisions.

  1. Augment Historical Data With External Data Sources. What often prevents treasurers from performing meaningful analysis is manually aggregating data sources. Speak to leaders throughout your organization to understand all sources that need aggregating. This way, you can prepare your treasury management strategy for any uncertainty. 

By using these treasury management strategies, you’ll have the needed liquidity to maintain efficient operations.

Transform Your Treasury Into a Strategic Cash Advisory with Trovata

Today’s economic conditions present opportunities to fortify your cash management strategy:

  • Safeguard your company amidst rising inflation. Make sure to have the tech to easily predict your organization’s required liquidity to get the best deal from banks.
  • Focus on improving forecast accuracy. To deal with rising logistics costs that impact your bottom line, make sure to enter invoices into your ERP on time. 
  • Have the cash on hand that you need to keep operations going. With the unpredictability of geopolitical conflicts and their impact on the global economy, you will need it.

Trovata helps you gain a deeper understanding of cash flow by helping you forecast accurately. Transform your treasury into a cash advisory by communicating the quarter-close cash forecast in advance.

Automate the aggregation of your bank data with Trovata. You’ll end tedious workflows and enhance visibility into your cash reports and forecasts.

Sign up for Trovata today to empower your team to make data-driven decisions with a strong cash management strategy – for free.

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