It’s hardly groundbreaking to say that the last few years have well and truly kept treasury and finance teams on their toes. There has been a constant stream of ‘once in a generation’ events, and it’s tested the mettle of even the most experienced operators.
The outlook for the year ahead could bring plenty of the same. Hopefully that’s not the case. Hopefully, the breaking out of Auld Lang Syne at midnight on December 31st will bring in a year of stability, consistent demand and bumper profits.
But of course, as treasurers, you know that hoping for the best is fine, as long as you’re planning for the worst too. Fortunately, the treasury management trends for 2024 seem to be pointing towards businesses investing in treasury to prepare for any economic environment.
The reality is, there are a huge number of macroeconomic and geopolitical factors at play right now, from the ongoing war and conflict between Russia and Ukraine and Israel and Palestine, interest rates which continue to be at their highest level in years, tensions between the US and China, and of course, the ever present threat of climate change. Oh, and let’s not forget that it’s an election year.
That all sounds a bit downbeat, but there’s plenty of good news too. Treasurers have never had better tools to deal with a changing landscape than they do now, providing new opportunities for growth in a competitive market.
Modern cash management software goes beyond simply tallying up a company’s cash position, and tech like cloud-native applications, open banking APIs and AI can now be used to make better plans for an uncertain future, and iterate almost instantly if a new challenge arises.
Recommended: To learn more about how these emerging technologies can empower you to navigate an unpredictable market, check out our recent episode of FinTech Corner as Jeff Macke, founder and President of Macke Asset Management, interviews Brett Turner, Founder & CEO of Trovata, and Joseph Drambarean, CPO & CTO of Trovata, about the impact of recent market forces and how cutting-edge technology is empowering finance teams to respond.
The truth is that there have always been challenges and crises, and modern treasurers can be better prepared than ever to deal with them. So in this article we’re going to be covering what we see as the biggest trends, challenges and opportunities in 2024, and how tech solutions can help make the best of them.
Prolonged High Interest Rates
This is a trend that has been a driving force in treasury since the Fed began drastically hiking rates in March 2022. Based on the recent decisions to keep the base rate at its current level, inflation continuing to hover just above the Fed’s target, and many comments made by chairman Jerome Powell, it’s looking highly likely that higher rates are here to stay.
That sentiment is echoed by The Economist Intelligence Unit’s (EIU) 2024 Industry Outlook white paper, which states that, “High interest rates will persist into 2024 in most key global markets, with the exception of China and Japan.”
Treasurers will have already implemented strategies to deal with this, but the key now will be to ensure that those strategies are sustainable. Cost of debt will be a continued area for focus, but could potentially be partially offset by higher interest on cash reserves.
A likely bigger impact will be on consumer demand, which could suffer the longer that rates remain elevated. It’s also worth considering the potential scenario that the rates we are seeing now are the new baseline. Historically speaking the current levels are around average, with the last decade of low rates an anomaly.
The Impact of Geopolitical Factors
Some of the biggest factors which caused the spike in inflation in the post-Covid period was the disruption of supply chains stemming from lockdowns and quarantine procedures. Substantial pent up demand and a lack of supply sent prices soaring, and there are still backlogs being worked through in certain industries today.
At the same time, geopolitical factors have exacerbated this problem. Ukraine and Russia, for example, provide 30% of the global supply of wheat, and substantial amounts of oil and gas. With that war ongoing and tensions between Israel and Hamas reaching boiling point, there have been spillover effects to various parts of the global economy.
Whether impacting an industry directly, such as airlines having to divert flights around conflict zones or global commodity prices rising, or indirectly through a rise in uncertainty slowing consumer spending, these macro issues can’t be ignored by treasurers.
Realistically though, the nature of geopolitical issues is that they are highly unpredictable. As such, treasurers are likely going to find greater potential benefit from bolstering their ability to react quickly to new scenarios, rather than trying to predict what those scenarios might be.
This one might have caught you a little off guard. Obviously it’s well understood that climate change needs to be taken into account in many ways by treasury and a company broadly (more on that next), but here we’re talking specifically about the impact of the seasonal weather pattern El Niño.
Without turning this into an environment science lesson, El Niño is a phenomenon that occurs at irregular intervals going back thousands of years, caused by a band of warm water developing in the Pacific Ocean. There’s no specific pattern to when this happens, but occurrences tend to happen every 2 to 7 years, and can cause disruptive weather events such as intense storms, droughts and even cyclones.
Just like a war or a pandemic can disrupt global supply chains, so too can changes to weather patterns, impacting crops, damaging factories and playing havoc with mining operations.
The level of impact that this might have on a company will vary dramatically depending on the industry they operate in, but for treasurers whose business is closely tied to sectors which could be impacted by adverse weather, it’s worth considering alternatives should supply chains or production be disrupted.
Climate Change and the Growing Importance of ESG
There is some debate over the link between El Niño and climate change, however the treasury response to both of these events can be similar. And while naming climate change as a trend for 2024 is hardly anything new, the reality is that we are seeing some real changes in the corporate governance issues surrounding it.
Unfortunately, it’s the same industries most likely to be impacted by El Niño that will also feel the biggest effects of climate change. According to the EIU white paper, 2024 is forecast to be the hottest year on record, which combined with adverse weather effects from El Niño could result in significant disruptions to industries which rely heavily on commodities.
Outside of the specific impacts that could be felt this year, treasurers need to be aware of the increasing demand for environmental, social, and governance (ESG) reporting. Senior executives are being asked increasingly challenging questions by shareholders, regulators and governments on their approach to ESG, and treasury teams need to ensure the data is available to answer those questions.
From a more positive standpoint, outstanding ESG credentials may be seen as a means to attract investments or gain access to credit. So as both a tool for growth and risk management, treasurers must establish the requisite tools and infrastructure for comprehensive reporting.
There’s also the potential for a heightened focus on sustainable energy, given the commitments made by global governments to transition away from fossil fuels made at the recent COP summit in the UAE.
Trends and Opportunities
Cash Visibility is Key to Capitalizing on Opportunities
All of these issues highlight the need for flexibility and agility. Companies need to be able to make decisions quickly and execute on those decisions just as fast. As treasurers know, that means cash visibility is more important than ever. Not just, ‘how much do we have,’ but knowing the impacts of using that cash, where to take it from, how best to move it and what impact those choices might have. Which is why it’s not surprising a recent survey of C-suite executives and finance professionals found that:
- 62% of executives and financial professionals said real-time visibility into cash flow is a “must-have” for their businesses’
- 59% of executives plan to invest in tech over the next 12 months
Any large commitments such as acquisitions need to be scrutinized not just on their ability to generate long term returns, but also on how they might impact short term liquidity. Sophisticated scenario planning is likely to be a highly valuable tool here.
Outside of ‘crisis’ events, the lukewarm economic outlook means that treasurers also need to be highly in tune with how cash reserves are being used. One benefit to elevated interest rates is the ability to earn higher interest on cash than we’ve seen in many years, but treasury teams need to be proactive in managing their positions to maximize this.
Automation Will Foster Simplification and Efficiency
With so much going on in the world, it can be easy to feel somewhat pessimistic. But actually, treasury is undergoing one of its most exciting transformations ever.
Remember that stat we shared earlier about executives are planning to invest in tech over the next year? There are tech solutions abound for the challenges we’ve listed. Yes, we’re talking about AI, but not in the buzzwordy, hype driven way. Automation is being embedded into existing treasury and cash management solutions in ways that make workflows faster and easier. It’s not about a whole new way of doing business, but shifting your employees’ time from data collection and organization, and into strategic advice and analysis.
Simplicity and user-friendliness are key attributes treasurers need to look for this year. The only way for new tech to become an ingrained part of a corporate culture is for it to fit seamlessly into the existing workflow. Without that, it can backfire and reduce efficiency rather than improve it.
2024 is likely to be the year where ‘digital transformation’ becomes a true reality, giving treasurers the ability to overhaul their operations to become more efficient and more strategic.
Financial Functions are Converging
Silos are becoming a thing of the past across all industries and sectors, as technology enables better integration. And it makes sense, Treasury, Accounting and Financial Planning and Analysis (FP&A) teams all feed into one another, and the more closely aligned they are, the better the data and the more informed the executive decision making.
In the past it’s been challenging to integrate these teams without causing significant additional administrative work. Now, with cloud-native platforms and AI assistance, teams can have access to the same data, without the need for manual consolidation or reporting. It means that all of these finance functions can operate more closely and collaborate better.
As technology continues to improve and develop, this trend will grow into 2024, and treasurers who embrace the collaborative approach will be putting themselves in a very good position.
AI is an Accelerant Technology for Real-Time Treasury
At the heart of all of this innovation is AI. Integrations like Trovata AI helps treasury teams analyze and interrogate their data like never before. Rather than spending hours digging into thousands of line items to find out the root cause of anomalies or trends, users can now simply ask an AI chatbot simple questions like “Why are our Q2 figures so much lower in Latin America than they were in Q1?”
AI can sift through the data and find those changes, reporting back to the user in seconds. That’s a massive time saver, and allows treasury teams to spend more time on working out how to deal with the issue, rather than trying to identify it.
It really is a quantum leap in efficiency, giving non-technical team members the ability to complete complex analysis without needing a PhD in Excel or Google Sheets. The time saving impact also allows treasury teams to be run lean, with the capabilities of a far larger team.
Treasurers that embrace AI in their workflow will have the potential for a tangible, dollar value advantage from day one.
Balancing People and Tech
With all of this talk on the exciting developments in technology, it’s easy to get carried away. But trying to implement 7 new SaaS platforms or overhaul your entire treasury workflow in one go is only going to cause problems.
Not only that, but it’s important to remember that tech can be a powerful enabler for your team, it won’t replace them. Getting buy-in from employees is vital to ensure you get the most out of any new software, and if you want that, then it’s important to make it abundantly clear that they aren’t putting themselves out of a job by embracing it!
And of course, simplicity is key. Overloading everyone with complexity is a recipe for disaster, and isn’t going to result in the efficiency gains you’re looking for. Above all, treasurers need to focus on being indispensable strategic partners and leaders within a company, driving innovation and improving collaboration.
How Trovata Drives Treasury Innovation
At Trovata, we pay very close attention to the trends in treasury. Not only do we aim to deliver the tech solutions that help address issues that treasurers are dealing with right now, but to also bring features and tools that they may not have even realized they need yet.
Right now we’re seeing the technical capabilities of finance software platforms finally catching up with the dream that they’ve had since the early days of the internet. The ability to access every single piece of a company’s financial data at the click of a button, but to also be able to manipulate and share that data in almost infinite ways.
As a cloud native platform, Trovata allows teams to collaborate from a single source of truth, without the concerns of spreadsheet versions and manual formula creation. Not only that, but because we connect directly to the source of your banking data through the use of highly secure open banking APIs, that is always available in real time, consolidated from all of your banking portals automatically, and always 100% accurate.
From there, we provide a sophisticated suite of tools to conduct complex forecasting and scenario planning, with a UX that makes it easy to iterate on the fly as the landscape changes. The cherry on top of all that is Trovata AI, which provides a natural language interface between your team and your financials, allowing even the most junior staff to create reports and models that were once the sole domain of the MBA’s and technical analysts.