Leading Practices in Treasury: Process Mindset

Speaker A: Hello and a warm welcome to the open Treasury Podcast. Your go to source for the latest news and analysis in corporate cash and treasury management. This show is brought to you by ctmfile.com and the Treasury News Network where Treasury professionals learn and share the information that matters most. Welcome to the fourth episode of the six part Leading Practices in Treasury Podcast series. This six part series is based on the second ebook in the professional development series, also titled Leading Practices in Treasury. Produced by Strategic Treasurer, a uh, reputed treasury consulting company, and CTM File, a prominent corporate treasury news site, the ebook provides pragmatic recommendations into some of the most crucial areas of the treasury function. I encourage our audience to download the ebook or listen to the audiobook version by visiting StrategicTreasurer.com through this six part podcast series we are exploring the most essential topics covered in the ebook Leading Practices in Treasury. In this episode, I, Pushpendra Mehta, your host, am joined by Paul Galloway, Senior Director of Advisory Services at Strategic Treasurer, to discuss the fourth topic in the series, Process Mindset. Welcome Paul. It's great to have you join us. Thank you for taking the time to share your informed viewpoint.

Speaker B: Thanks for having me again. Push Always fun to do.

Speaker A: Paul Delivering a, uh, superior experience is a key part of what a process mindset is all about. Process discussions often seem uninteresting and operational in nature. However, given the fact that treasurers need to be strategic and effective, it is important to understand the value of financial processes and to inculcate a process mindset. Paul so to begin, how should a treasurer approach processes?

Speaker B: Yeah, push. Uh, treasurer should have a comprehensive view or holistic view from front end to back end of all the processes that are happening. Having this broader view gives a better end result in terms of what you're trying to accomplish. So processes are made up of group of tasks. You have tasks to accomplish a particular process along the way. They tend to be sequential. They have an order. Ah, if something is out of order, you might not get the uh, end result you're expecting. So you need to understand how it impacts other areas because what you do isn't necessarily in silo, even if within your organization. Some organizations are very siloed in what they do. Departments focus on just what they do and they may not consider what's going on outside their department. It happens quite often. So you need to take into consideration how it will impact other areas within the organization because ultimately all these processes together are designed to meet the organizational missions, the needs, the strategy. And so when we think about other areas that could be impacted by processes, Working capital, liquidity, APAR compliance, uh, suppliers, vendors, sales teams are all areas that could be impacted by processes. So think about working capital. This is what's needed for day to day operations of the organization. If uh, you don't have the right balance of working capital in a company, that can really harm the organization. So you need to have cash available at the right times. Managing working capital Requires understanding your AP&AR process because what happens there impacts working capital. Just looking at the definition, not the accounting definition, but the uh, cash definition of working capital, AP and AR definitely have an impact on working capital. If your payables are being paid out quicker than you receiving cash in the door, you may not have enough cash for operations. So you want to manage that closely, you want to be able to optimize that liquidity within the organization. Having the ability to access cash when there's a spike in demand, there's a call for something in the organization on uh, cash, you need to have access to it when it's outside the bounds of what you forecast. So having relationships with, I'm going to uh, come back to compliance. But having relationships with suppliers and vendors is really important. Understanding what the needs are in terms of organizational demand on supplies to manufacture something you need to have good relationships, need to understand how you can finance that. Uh, maintaining close relationship with your suppliers means you're paying them on time. If you're paying them on time consistently, you know you're going to maintain a really good relationship with them. If you're consistently late, that's going to be problematic. So you got to be able to pay your suppliers and have the cash to do it. Likewise your vendors as well, these are third party partners that provide a service or product for your organization so that you can exist and do the things that you do. So likewise, those relationships are important. Having cash to pay them, you gotta do it. An area that is probably less thought upon in terms of impacts is compliance. Compliance is tied to, normally tied to regulation, but it can also be tied to other things like agreements that you have where you have areas within the agreements that say that you can't do something or, or you have to do something. This is largely around from a Treasury perspective. It's largely tied to either regulatory ties which I, uh, kind of mentioned at the beginning. But also think about debt covenants. You issue debt or you have a revolver or a line of credit. You have to comply with what the agreement says and it says you have to provide financials or certain documentation or you have to do something or not do something in order to have access to that capital when you need it. So compliance is really important. Also helps mitigate risk, so it impacts other areas of the organization. So you can't just ignore compliance. It has to be done. The other area is around sales. Your sales team is really important to the company because they're the ones going out selling your product or your service. Now if they are out there selling and as they sell, you're not able to meet the demand that they create through sales. That can be a real big problem because you got people that are expecting to get a product and they aren't able to get it because you have the cash to build it or you're not able to deliver on your service because you don't have the cash to have a large enough team to meet the demand. So it impacts other people within the organization, especially around uh, sales as well. So having that broader view, identifying those risks and opportunities, leads to better optimization across the organization.

Speaker A: Well, thank you Paul for your valuable and holistic perspective. To my mind, your explanation emphasizes how a strong process foundation can help treasury deliver strategic value. Paul, common convention holds that processes, ah, are the primary drivers or overall improvements in efficiency for corporations. What impacts do efficiencies have on an organization and does this help in optimizing an organization's working capital?

Speaker B: Yeah, it absolutely does. So uh, I mean efficiencies are typically a really good thing for an organization. So when it comes to the working capital process, treasury really kind of sits in the middle or at the front end of working capital or managing working capital for an organization. So as an example, we can think about the payment process with AP or collections of customer uh, receipts. We talked about working capital just a little bit ago. And so those two items right there from a cash perspective are two of three components to working capital. And uh, they're really important component. So managing those efficiently, making sure that you're paying on time and that you're able to get collections in the door quickly, the quicker the better. Right? You want to get in the receipts as quick as you can and you want to extend the payables to the point where it still satisfies your vendors and suppliers. There are tools to do that. Being uh, able to manage both of those together and keeping that tight will make the process one, efficient. But two, it optimizes it and ensures that you have cash available to operate or your organization. So we tend to think of the treasurer as the superintendent of uh, payments. And so as a superintendent they should promote an End to end payment process. So what kind of approach should you consider in that kind of process? Well, there's internal areas of finance that you have to consider. It's not just treasury, it's your accounting teams, your payable teams, teams of people that are tied into the payment process. It's more than just treasury alone. You need to think about the liquidity needs of the organization. Do you understand the forecast? Near term or short term? Midterm, longer term? Do you understand the strategic objectives? Are you talking with your FP and a team? Do you understand the budget of the company? Do you understand the demands of what the outside is doing in terms of sales, selling your products, selling your services, what kind of demand do you have? Do you understand what kind of products are being done? Uh, do you know what kind of strategy there is between organic growth and acquisition? Do you have the right liquidity available for the right times? Is that optimized? Your supply chain needs really important for manufacturers. We talked about supply chain just a little bit ago, supply chain financing. Do you have that in place? Are you able to have favorable terms with your supplier and pay them, um, in a timely manner? Super important for manufacturers that rely on supplies from another organization. We've seen disruption before in the past. The Pandemic was a great example of that. We've seen other disruptions recently through tariffs. So there are disruptions to supply chains, but the better relationship you have with your supplier and maybe some diversification there, the better off you're going to be. So we often recommend for organizations to have a Working Capital Council. So what this council does is it brings representatives from areas within the organization that impact or have an impact on working capital. And so it's various people within the company that uh, come together. And what this does is it allows them to discuss issues and potential solutions to those challenges or uh, issues. It also helps them uh, identify competing KPIs. Oftentimes organizations that start talking to each other like this find that they do have competing KPIs. They may be doing something that's similar or touches each other. They just don't realize it. What this does is it allows them to set new KPIs and objectives. So kind of important if you understand what the other areas are doing so that you're working together, creates that win win situation. Then you can think about in terms of who typically chairs the Working Capital Council. It's typically your treasurer typically resides as chair of the Working Capital Council. Makes sense as superintendent of payment processes or superintendent of, in this case working Capital, they're overseeing what's going on. They have a huge part to play in it, but so do other people in the organization. This helps foster more integrated process and mindset within the company. It gets them thinking differently. Oh, it's not just me. Tears down the walls, breaks down the silos. I think this is really important, creates efficiencies that way in ways other than, you know, I'm going to go and get a system to help me do this. This is a different way of creating efficiencies. You're not taking a manual process and automating it. Uh, you are getting people within the organization, across departments to come together and talk about these things. So the treasurer needs to remind people or others within the company that there are upstream and downstream activities that have an impact on processes and get them together so that they can talk through things that are issues or challenges. It'll make things way more efficient and huh, it's going to help optimize working capital a little better.

Speaker A: Well Paul, those are excellent insights. I'd like to explore the role of technology with effective process based management. Technology as you know Paul is becoming increasingly important part of treasury and is seen as consequential for an effective process based management. It is said that when approaching technological selection, implementation and use questions, treasury should maintain a process mindset. So how should treasury approach the selection, implementation and use of technology?

Speaker B: Yeah, that's a good question. This is an area that we've done podcasts before just on this subject alone. There's a lot to unpack here but I'm going to try to keep it real, concise and tight. Technology is a great tool for treasury teams to complete daily tasks, oftentimes with a level of automation. The elimination of manual processes really makes it a lot more efficient, puts controls in place to mitigate risk, it helps with organizational efficiency and ah, has a direct impact on liquidity. So when you're selecting or implementing a uh, technology to help you do these things, it's important for them to maintain that mindset. We've been talking about process mindset. Okay, what are the processes? Front end to back end to get to what we want to achieve. Understanding those steps and what the needs of the organization are is going to help them reach the desired outcome with whatever technology they desire to select. One size doesn't fit all. We often talk to companies either approach us or we see them at events, uh, and so forth where we speak afp, wherever we talk to a lot of people we tend to get this question a lot. They Say hey, what's the best TMS to get out there or best technology to get out there? And we approach it the same way every time and we say, well it depends. This one size doesn't fit all. So some organizations don't need technology at all because they're just not big enough. Maybe they have one bank, not a lot of accounts, they're not very complex. You know, bank portal is fine for them. You know, they don't have a lot of activity. If you have somebody that's growing, growing fast, that's mid sized, maybe large and complex, diverse in terms of number of banks, they have relationships, volume of transactions are high. It could be anything from a Treasury aggregator, payment hub to a TMS light or a full on tms. And it just depends on the organization. So we never have a quick answer for them. It's not what they want to hear, but it's the thing they need to hear. You just don't go out and just buy something, you know, why do you buy a Cadillac when you're not going to use everything a Cadillac offers? It doesn't make a lot of sense, you know. And this technology has a direct impact on other areas in the department, you know, in other areas in the organization. So you got to be mindful of areas outside treasury alone. So it's having those conversations with other people in the organization. I did that when I implemented TMS at an uh, insurance company and they outgrew their processes a long time before I came in. But you know, I talk to other people in the organization as part of the selection process because I need to understand, okay, how's it going to impact them, what are their needs, what will help the organization do things more efficiently, how can we enhance how we manage our cash? So it should be one of those things where it provides information, it provides visibility, it allows for more effective cash management, better decision making, eliminates those manual processes. And it's in one, one location where it can all be housed with controls, dual controls, segregation duties, really important. And you have this concept of straight through processing which is the ability financial processes continue without manual intervention. And this is a real good thing for organization where in the past, you know, it's probably one of those things where lots of manual interventions to get something completed that doesn't do anybody any good, requires a lot of monitoring, requires a lot of touches. Anytime you have lots of touches, always room for error. A narrow view of uh, processes will lead to no automation or trying to automate something without understanding what the impacts are upstream or downstream doesn't do you any good. So having that process mindset leads to measurable improvements in a company's performance. So you want to foster this mindset, make sure that aligns with the company objectives, the mission, the strategy. You want to get support from your executive team. This encourages measurement friendly practices. It motivates productivity of, uh, people that are tied to the processes from front end to back end. It also enhances innovation because it opens up the opportunity for others in the organization to provide feedback that could be really valuable to the selection of whatever technology it is that you need to do things more effectively.

Speaker A: Well said, Paul. That's a powerful reminder, uh, that a process view mindset should be a priority for corporate treasurers when approaching the selection, implementation and use of technology so that by shaping and nurturing process thinking, treasurers can establish more appropriate controls and metrics and have far greater success in making changes that benefit both the balance sheet and income statement of their organizations. That brings us to the close of this episode. Paul, thank you for your valuable perspectives and discerning analysis. And to our listeners, thank you for joining us. If you found this discussion helpful, we invite you to subscribe and share this episode with your network. We'll return soon with more meaningful conversations on the evolving world of corporate treasury. Until next time, stay focused and stay strategic. Thank you so much and have a wonderful week. This podcast is provided for information purposes only, and statements made by CTM File or guests on this podcast are not intended as legal, business, or consulting advice. For more information, visit ctmfile.com.