The EACT Treasury Survey 2023: Another Look at the Numbers

The EACT Treasury Survey 2023 is out. It consists of a series of questions to 250 group treasurers of multinational companies across Europe regarding their priorities over the next 12 to 24 months. Unsurprisingly, cash flow forecasting is seenas priority #1 by 43.8% of treasurers.

Another perspective from the Treasury Survey 2023

The fact that treasurers are putting considerable effort into forecasting and monitoring cash flow comes as no surprise. In a world where pandemics, inflation and war seem to be the norm, cash is king. Commenting on the results, François Masquelier, Chair of EACT, writes:

“Crises have crystallised the need to digitise and accelerate the ongoing transformation.”

We couldn’t agree more. Top 8 priorities — EACT Treasury Survey 2023

Risk management and treasury priorities

One major advantage of the EACT Treasury Survey is that it provides continuity, year after year. This allows users to make comparisons over time. From that perspective, it is worthwhile noting that 2023 is the fourth year in a row that cash flow forecasting comes ahead as priority # 1 for treasurers.A quick look at the remaining results shows that risk management —where currency risk management is bundled together with interest rate and commodity price risk management— is relegated to priority #5, two positions below where it ranked in 2021. Does that mean that risk management is seen as a less urgent concern?Not necessarily. Consider the case of a firm that uses automated FX hedging solutions to protect its budget rate with conditional FX orders, delaying the execution of hedges while monitoring markets 24/7. This setup occurs quite frequently in our day-to-day interactions with corporate clients and prospects.What unfolds in this type of currency hedging strategy is particularly illustrative—it impacts many areas of financial management:

• Cash flow forecasts. The treasury teams obtains more flexibility to update cash flow forecasts by leveraging information from all the incoming sales/purchases orders that are automatically hedged.
• Collateral management. As hedge execution is delayed, there are more netting opportunities. With unfavourable forward points, delayed hedging execution reduces both the negative forward points impact and the need to set aside cash as collateral.
• Working capital management. With FX risk under control, the firm confidently sells in more currencies, lowering the credit risk in its accounts receivable in the event of a sharp local currency devaluation.
• Working capital management. By the same token, as the firm buys in more currencies, it puts more suppliers in competition with one another, avoiding FX markups and getting extended payment terms.

So there you have it. From this ‘tech-enabled’ perspective, currency risk management (which is part of priority # 5 in the EACT survey) is inextricably linked to cash flow forecasting (priority # 1) and to working capital management (priority # 2).What’s more, the need for automation takes us straight to the Survey’s priority # 3: treasury technology infrastructure. The tech-savvy treasurer, in other words, does not act as if risk management was neatly separated from other top priorities.

Cash flow forecasting: new developments

Let us briefly go back to the main concern expressed by European treasurers in the EACT Treasury Survey 2023: cash flow forecasting. Recent developments show the degree to which technology is being harnessed to address this concern. These developments include:

• Tools to assess a wider range of scenarios. Developments in Artificial Intelligence (AI) in pricing, forecasting and simulation will soon allow business managers to assess a vast array of potential scenarios with more precision than ever before.
• Emphasis on rolling forecasts. Rolling forecasts, where estimations are continuously adapted to recent trends, are emphasised by consultants as a possible way ahead in terms of forecasting accuracy (see: “The digitalisation of treasury operations”).
• Automated FX hedging programs. Finally, automated currency hedging programs are configured in a way that lessens the need for super-accurate forecasts (see: “The myth of forecasting accuracy”).

One thing is sure: at this time of the year in 2024, we will be eagerly awaiting the extremely informative EACT Treasury Survey. It is a fair bet that cash flow forecasting will remain a top priority — and that risk management will be seen as inextricably linked to that most important concern.