Managing Treasury as a Global Business

In today’s globalized economy, managing treasury across multiple countries and currencies presents numerous challenges. Businesses must implement robust strategies to handle cash flow in diverse environments.

A report by Bank of America Merrill Lynch reveals that 54% of companies operate in foreign markets, with 75% operating in two or more regions.

Expanding abroad brings new risks, such as exchange rate volatility and customer payment preferences. These risks must be effectively managed to achieve business success.

Tips for managing treasury like a global business

1. Centralize Treasury Function: Establishing a centralized treasury function ensures coordinated activities across countries and effective risk management. MNCs often adopt this approach to strengthen internal controls, enhance cash management efficiency, and utilize internal sources of liquidity.
2. Utilize Technology: Technology is vital in supporting financial data and reporting. It enables real-time access to reports across geographically dispersed locations. As key members of the strategic management team, treasurers use technology to grasp the link between financial markets and organizational operations. Streamline processes, improve efficiency, and make data-driven decisions by adopting treasury management systems and other technological tools. Integration of artificial intelligence, machine learning, and data analytics enhances cash flow forecasting, risk management, and decision-making.
3. Maintain Strong Banking Relationships: Building and nurturing relationships with banks in each operating country proves essential. These relationships facilitate the negotiation of favourable terms and conditions for banking services, ensure adequate credit facilities, and manage foreign exchange risks. Banks provide valuable resources, and their partnership with treasurers is expected to evolve further as technology advances. Strong bank relationships enable businesses to access liquidity and effectively manage currency risk.
4. Manage Risk: Fraud and mismanagement pose risks whenever funds move around. Treasury departments dealing with real-time transactions and complex financial instruments must be extra cautious. This challenge intensifies when expanding into developing markets with weak governance. Strengthening treasury governance involves comprehensive reviews of policies and processes, rigorous testing, and thorough training to ensure practical effectiveness.
5. Manage Working Capital in Developing Markets: To manage working capital effectively in developing markets, one must navigate through complex business culture and handle varying payment terms. These payment terms, which range from 30 days in developed markets to as much as 360 days in some South American and African countries, further complicate the task. The need for automated systems for processing accounts payable and receivable adds to the complexity. In these markets, it is crucial to take a proactive approach to managing working capital. This includes negotiating favourable payment terms with suppliers, implementing efficient cash conversion cycles, and optimizing inventory levels.

Globalization and digitalization have blurred time and space boundaries, facilitating the efficient pooling and processing of vast amounts of data. Centralizing treasury functions has emerged as a cost-saving measure for multinational companies. It strengthens internal controls, reduces reliance on external counterparts, and positions treasury as a key driver of the company’s strategic direction.

By implementing these strategies, businesses can manage treasury as a global business, navigate the challenges of operating across countries and currencies, and ensure long-term success in today’s interconnected world.