Centralisation of Treasury Operations with Patrick Kunz

Interested in scanning your processes to improve the efficiency of Treasury operations? Let's ask treasury guru and expert interim treasurer Patrick Kunz to discover why scanning your treasury operations is important and the benefits of centralisation.

In our recent episode of CurrencyCast, our guest Patrick Kunz, interim treasurer and owner of Pecunia Treasury & Finance, gave us his views on treasury operations, an insight into the first days of an interim treasurer, how to build an efficient treasury function thanks to centralisation of FX risk management and more. Read on to find out how to improve your treasury operations processes.

First days as interim treasurer

AM: As an interim treasurer, what are the things that you look at first when you assess a company from the perspective of Treasury? And are there some quick wins?

PK: In Treasury, there are several quick wins. I've developed a Treasury scan to help clients identify them. Treasury is all about managing money, the CFO or group Treasury typically knows their current cash position. However, the challenge arises when projecting cash in six months as profits don't necessarily cover all expenses.

Treasury has two core pillars: cash management and risk mitigation. And Treasury is not a profit centre, it's a cost centre. So the goal it's not about maximizing profits but minimizing risks, primarily currency and interest rate risks. In some cases, there's also a focus on corporate finance and occasionally commodity price risk.

Shortcomings of TMS solutions

AM: I know your work also focuses on Treasury management Systems or TMS. Tell us a little bit more of that about that.
PK: Treasury Management System (TMS) has become a wonderful part of Treasury, because it's going to help automate all the boring tasks and get rid of these huge massive Excel sheets. Even though we Treasury professionals are Excel-savvy.

TMS solutions have become more affordable for medium-sized companies, allowing them to build a compelling business case, and make more informed decisions. TMS enhances cash management and minimizes risks, especially in currency and interest rate management. However, when it comes to foreign exchange (FX) management, some TMS might lack real-time FX rate feeds for pricing.

I would say TMS mainly serve administrative functions in the FX process, whereas end-to-end exposure management is complex due to data discrepancies. Combining forecasted exposures with actual transactions poses challenges, but it's crucial for hedging programs.

Benefits of FX Risk Management Centralisation

AM: Patrick what would you say are the main benefits of full FX risk management centralisation? Would you say it's about saving on trading costs, as now all of the trading could be so concentrated on HQ? Or is it maybe to accumulate more FX expertise at the group level?

PK: Higher trading volumes translate to stronger bargaining power with banks, leading to improved pricing. Additionally, centralisation offers insights into transaction patterns, allowing strategic optimisation. For instance, aligning value dates can reduce bid-ask spreads, saving substantial sums over time. However, centralisation necessitates efficient data management and end-to-end traceability for seamless internal and external trade execution.

Cash management as the top Treasury priority

AM: What is your view there on those surveys, that keep telling us that cash management is the top priority?

PK: In the world of treasury, cash is emperor, but forecasting cash flow is a perpetual challenge. The future is uncertain, but short-term forecasts are constantly outdated, so usually achieving 70-90% accuracy in forecasting is considered excellent.

The uncertainty in cash flow affects investment decisions and hedging strategies. Some exposures are certain, while others are less so, leading to a risk management puzzle. Many opt for the 'bandwidth' approach, hedging a portion of their uncertain exposures.

However, exploring options and other methods could be beneficial in volatile markets, albeit more complex. Change is daunting, but it's crucial to challenge the status quo and continuously improve.

As you can see, even though Treasury management can be quite a complex process, having centralised Treasury operations can simplify the FX risk management process. With the help of currency management automation solutions, treasurers and CFOs can easily manage foreign currencies with full traceability and achieve more growth opportunities.

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