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Treasury Insights

Treasury Transformation Post-Close: Optimizing Treasury

After a merger, treasuries have many opportunities to transform their operations by reducing redundancies, taking advantage of scale, improving functionality and realigning to support the new corporate objectives.
Rhonda Kruman, Executive Director, Corporate Treasury Consulting, Commercial Banking
November 16, 2018

This is the fourth article in a series covering corporate actions. To read the previous article in the series, please view Treasury Integration Post-Close: An Opportunity for Improvement. To read the fourth article in a related series covering treasury transformation, please view The Centralized Treasury: Different Paths to Improved Control.

Acquisition integration is not the end of your journey—rather, it’s a step in the ongoing process of treasury transformation. Harness the recent momentum in organizational changes and direct that toward optimizing treasury technologies and processes. Not only does this facilitate better alignment with new corporate objectives, but it also may be a good time to apply learnings from your recent experiences so that future merger and acquisition (M&A) activity can be integrated more efficiently.

Treasury Improvement Projects

Take stock of your new organizational structure. Measure any gaps between where you are today and what a world-class treasury operation looks like: one that is financially stronger, operationally leaner and more cost-efficient. Begin your journey by defining your objectives and identifying what resources and activities are required.

Key areas to consider are:

  • Bank and account rationalization to enhance cash visibility and control
  • Payables and receivables process improvements to increase efficiency
  • Consolidation of treasury functions to improve cash management oversight and communication

Bank and Account Rationalization

M&A can lead to a proliferation of accounts and banking providers, thereby creating redundancies and inefficiencies. During due diligence for the transaction, you presumably would have already identified the accounts, cash flows and bank providers within scope. For example, each company previously may have had a separate service provider and account for payroll. You may be able to consolidate this service into a single account with one banking provider.

Bank and account rationalization is the foundation for achieving the following key treasury objectives:

  • Increased cash visibility and control
  • Enhanced counterparty risk controls
  • Integrated bank technology
  • Consolidated treasury activity

By rationalizing your accounts and reducing the number of bank counterparties, you will have fewer accounts to reconcile, fewer bank relationships to manage and more efficient access to your global cash balances, thus facilitating improved liquidity management for your company.

Upgrade Your Payables Processes

Your newly achieved scale can be very helpful when it comes to payables. Consider segmenting your supplier base and reviewing payment types and terms. Your banking provider can help analyze your company’s spending activity to define current payment methods, determine volumes and values and recommend optimal payment methods. You and your banking provider can work together to create a strategy for migrating to a more efficient payment environment. For example, if you are printing disbursement checks in-house, you may wish to consider an outsourced check print solution or electronic payment method instead.

Also, evaluate your current enterprise resource planning (ERP) setup to determine what additional automation and integration opportunities exist. Your ERP may be able to combine payment methods into a consolidated file transmission to your disbursement bank. If you're not doing that today, it's worth exploring. If you send a file to the bank, determine if you can accept transmissions back to you for reporting and reconciliation purposes. If your current ERP does not provide you with the level of functionality you require for future growth, you should consider implementing a more robust ERP system that meets your needs.

Optimize Receivables

As with payables processes, creating efficiencies and cost savings often begins with segmentation of your customer base. Incentivize customers to move away from paper payments while working internally to support more electronic receipt methods. Integrating receipts in a single transmission from your banking providers and including electronic addenda and payment details will further the cause.

Additionally, review manual steps in your receivables processes to determine the root causes of pain points. Determine if there is an opportunity to change your internal processes to eliminate or reduce these problem areas and reach out to your banking providers to discuss possible solutions. For example, if you are depositing checks in a branch, you may wish to consider implementing a remote deposit product solution to gain efficiency and save time.

Treasury Consolidation

Consolidating your treasury operations can introduce efficiencies within your organization. Review your existing treasury structures to determine if they meet your long-term needs. Structures including shared service centers (SSC), in-house banks and on-behalf-of (OBO) arrangements can further streamline operations and create efficiencies. Consult with your banking provider as well internal stakeholders—including legal, finance and tax—about best practices and efficient treasuries, and develop a path that works for your company.

Looking Ahead

The quest to drive efficiencies in treasury is a continual process. The post-integration period is an excellent time to make progress on your transformation journey. It provides you with an opportunity to evaluate your organization’s new realities and goals, assess your current platforms and make adjustments, and implement more process improvement initiatives. The efficiencies you are able to achieve along the transformation journey will position your treasury organization well for future growth.

 

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