Cash Management

Memo to Treasurers: Do More, and Do It Faster

Corporate treasurers are expanding their roles but at the same time are laser-focused on belt-tightening and speed, a new benchmarking survey shows.
Vincent RyanOctober 16, 2012

MIAMI–Freed up somewhat from the liquidity-management stresses of the past few years, treasury departments in North America and Europe are again focusing on efficiency and costs. At the same time, however, there are factors making traditional success metrics around speed and costs a poor judge of treasury’s performance.

Those were findings of the Association for Financial Professionals’ benchmarking program survey, released Monday. At more than half the 715 organizations surveyed, treasurers are touching more functional areas than five years ago, going as far as having a role in leasing, pension management, investor relations, and employee-benefit management.

“Treasury is reaching farther from its traditional center of competence to provide decision support and advice to business operations,” said the AFP in its report on the survey.

But treasury departments are also expected to keep a lid on costs and perform their traditional functions with even more efficiency. The three most common ways companies are measuring their treasury department are by reduced banking expenses (79% of organizations), greater efficiency (71%), and reduced borrowing costs (65%).

“Four years ago, liquidity management was number one, but now organizations are looking within the department to minimize spend while improving throughput and being cleaner in their banking structures,” says Tom Hunter, director of treasury services at the AFP.

Some firms may indeed find inefficiency in the treasury department, the survey suggests. For example, while the average company has 4.35 full-time-equivalent (FTE) employees in treasury for every $1 billion in annual revenue, the most cost-efficient had just 1.46.

In other concrete points of measurement, respondents said on average that it takes their treasury department two days to resolve bank-account discrepancies, while the best do it in a day. And on average, treasury departments take four hours to develop a short-term cash forecast; the best do it in an hour.

Finance chiefs may find costs to cut, too. The total cost of treasury operations for respondents was $0.98 per $1,000 of annual revenue, on average, or about $98,000 for a company with $100 million in revenue. But some firms are able to get that down to $0.24 per $1,000.

Increasingly, though, measuring minutiae like the time it takes to develop a cash-flow forecast may become less useful. Treasury’s broadening role means that “measuring cost and process efficiencies alone does not capture the broader value treasury departments now contribute to their organizations,” the AFP report said.

Finance chiefs may also find that their benchmark targets require adjusting. Growth in overseas sales is pushing treasury budgets higher. For companies generating international revenue in the AFP survey, the median percentage of revenue from international sales was 33%. Companies that have had a significant change in international revenue in the past five years also have a higher median number of FTE employees per $1 billion in revenue.

In addition, companies that generate more than 10% of their sales outside their home country have treasury-operations costs that are nearly 60% higher than those for which an overwhelming majority of revenue comes domestically, the AFP survey found.