Cash management in 2022: digital and real-time treasury

portion of the operating flows for corporates real-time, and further drive-up the working capital cycle velocity requiring treasuries to be truly digitised and real-time. However, not all payment flows and treasury processes need to move to real-time. There are several costs associated with real-time payments. Apart from the obvious technology-related costs in terms of bank connectivity, robotic processing, security and fraud controls, the liquidity buffer costs are expected to become significant with increased C2B and B2B adoption. The cost benefit analysis and justification for real-time payments and treasury processes is likely to be dependent largely on the business model and the share of real-time payments in a business’ overall working capital. Digitisation and data: enablers for a real-time, 24/7 treasury During the pandemic there has been heightened attention on liquidity risk management. Treasurers have transitioned from periodic liquidity checks and reporting to building direct connectivity between their enterprise resource planning (ERP), treasury management system (TMS), foreign exchange (FX) platforms and banking partners, vendors and suppliers. In 2022, the current batch-based weekday only connectivity with banks is expected to evolve to its logical next stage. The use cases for Application Programming Interface (API) based on-demand, near real-time balance visibility for all days in a week across multiple banks are expected to widen beyond insurance and payment intermediary companies. This will require treasuries to invest in and evolve their own technology stack and further digitise their day-to-day back office processes using DLT and artificial intelligence (AI) based technologies. Treasurers are finding it hard to manage the ebbs and flows in working capital velocity given the increase in miniature direct-to-consumer ecommerce flows. This is compelling them to graduate from Excel-based forecasting and cash position management. Treasurers are now focusing on building on-demand, near real-time data consumption and AI based forecasting models to support dynamic decision making. Without the evolution to a real-time treasury – in terms of visibility, predictable forecasting models and decisioning, the costs of liquidity buffers (actual and notional) to fund real-time payments will outweigh their benefits. Hidden yield: real-time liquidity and working capital management A shift in business strategy towards digital commerce, near-shoring and digitisation of the supply chain is having a significant impact on liquidity and working capital management. Treasurers are adapting their liquidity structures to manage this shift and seamlessly facilitate commercial success. Traditionally, corporates with a B2B business model have been comfortable with once-a-day inter- company sweeps to fund their group companies for their payments and short-term working capital requirements. However, with the increased direct-to-consumer flow share and working capital velocity, treasurers are now keen to reap the liquidity cost benefits of funding real-time payments on-demand or just-in time rather than building up intra-day, overnight and/or weekend buffers. Corporates focused on C2B growth and/or liquidity cost efficiency, are expected to graduate to balance triggered real-time sweeps to fund their group subsidiaries and their group subsidiary payments just-in-time. Deploying liquidity generated from real-time collections to support faster delivery, release merchant limits, fund group companies with their working capital requirements or make just-in time investments is becoming pivotal. 3 | treasurytoday © January 2022