Fast-track treasury

Focus on digital customer connectivity has increased sharply over recent months. So, how can Treasury can play a strategic role in building a corporate’s digital business model? We explore what is possible.

Reaching customers through digital channels has become a priority for organisations during global lockdown. But reaping the benefits of a digital business model requires treasury to be fully connected to the company’s overall digital strategy. 

Srinivas Kasturi, Head of Mass Payments and Country Product Management, Corporate Banking, Barclays, and Daniela Eder, Head of Payments & Cash Management Europe, Barclays, explain how treasurers can plug in to the potential upsides of digital business models – through tools such as instant payments – while outlining how to manage risks, including increased collection costs and greater foreign exchange (FX) exposures.

A digital explosion

It’s no secret that Covid-19 has accelerated the adoption and evolution of digital business models – across almost every industry sector. Supermarkets have seen an explosion in online ordering. Healthcare providers have embraced video consultations. Virtual gyms and classrooms have become the norm for many. And the list goes on.

Perhaps more surprising than the range of digital services now available is the speed at which they have been rolled out. Data from consultancy firm McKinsey suggests that – in the space of just eight weeks – the world has jumped forward five years in terms of consumer and business digital adoption^ .

With this rapid rise in e-commerce, and reduced footfall in retail establishments, many companies have begun complementing their wholesale models with direct-to-consumer (D2C) sales. Heinz Kraft, for example, is now selling bundles of its most popular products straight to consumers^  via its website.

The benefits for customers are clear: convenience, a superior shopping experience, better service and more instant access to the products they want. For the C-suite, margins can be improved by cutting out the middlemen, revenue sources can be grown, and new markets can be entered without a physical presence.

But what does this shift towards digital business models mean for corporate treasurers? And how can they harness the opportunities on offer, while managing the inherent risks?

Striking the right balance

Examining the D2C trend is a great way to understand the treasury impact of the wider shift towards digital channels, in both B2C and B2B segments.

Daniela Eder

Head of Payments & Cash Management Europe at Barclays

The first and perhaps most obvious treasury ramification in the D2C space, according to Eder, is the dramatic shortening of the order-to-cash (O2C) cycle.

“By settling the transaction direct with the end consumer, the treasurer no longer has to wait an average of 60 days for their cash – it could be in their account within 24-48 hours, or even a few minutes, if instant payments are used.” Reducing days sales outstanding (DSO) in this way has obvious working capital benefits, since treasurers will have more cash on hand. Nevertheless, this will “require an increasingly proactive approach to short-term investing – and expedited reporting,” she notes.

D2C cash flows also differ in terms of volume and value. “With wholesale customers, cash flows tend to be low volume, high value. They also have a certain level of predictability, as orders are often regular. For retail customers, the opposite is true. D2C sellers receive a very high volume of typically low value payments, and there is little predictability – these purchases may even be one-offs.”

For the treasurer, this shift brings several challenges, believes Kasturi. “A much greater number of incoming payments can significantly increase the cost of collections. As such, treasury will require robust, automated, high-volume connectivity, to process all of the receipts from direct sales. Clients may wish to look at establishing a receivables factory, and leveraging technology such as robotic process automation [RPA], to assist with those high volume receipts. Without significant efficiency on the collections side, the working capital benefits of the model could be negated,” he highlights.

Making smart choices

Naturally, the choice of payment method(s) offered to consumers can also affect the cost of collections. “Consumers’ use of debit or credit cards, or solutions such as PayPal, can significantly ramp up costs when transacting digitally. Bank APIs (application programming interfaces) and fintech led-solutions integrated into e-commerce sites are a more cost effective alternative, while still offering an excellent customer experience.

Another challenge with the shift to D2C is the increased range of currencies treasurers may encounter. 

Digital business models enable companies to rapidly expand across borders.

Srinivas Kasturi

Head of Mass Payments and Country Product Management at Barclays Corporate Banking

“Inevitably, this brings new currencies into the cash management mix – ones that the company might not traditionally deal with,” Kasturi continues. “Leaving FX conversion to card providers can be costly, as wholesale rates are unlikely to be applied, and fluctuating prices can be confusing for the end customer. It is therefore important for treasurers to be on top of their transactional FX costs and deliver clarity of pricing for consumers at all times.”

Taking positive action

With these considerations in mind, how then can treasurers make the most of this increasingly digital environment? Eder and Kasturi share some useful tips:


Make sure treasury has a seat at the boardroom table.
According to Eder: “All too often, treasurers are not consulted around the organisation’s digital sales strategy – even though they are the ones ensuring that cash still flows through the organisation in a seamless manner. As such, treasurers must be vocal around the vital role they play in enabling a successful digital business model – and demonstrate their knowledge about the most appropriate ways of collecting cash from customers, especially if a D2C model is being rolled out.”


Review collection methods.
It makes sense, then, that another critical part of the digital journey is reviewing collection methods. Indeed, the results of a new research report published by TMI, in partnership with Barclays, which surveyed 300+ treasury professionals and CFOs on current European treasury trends, indicate that 59% of treasurers have already re-considered their collection methods in response to digitisation.

“The shift towards digital business models is an opportune moment to re-imagine the collections process. Legacy methods can be replaced by more efficient and even instant instruments. Reconciliations can also be improved through technologies such as RPA and artificial intelligence, to accelerate cash application,” she notes.


Review payment methods.
Likewise, considering new payment methods for suppliers is vital when implementing a digital business model – and 68% of survey respondents have already done so. Kasturi explains: “A payment that arrives too late can amplify the fragility of the supply chain, which is far from desirable in uncertain economic times. Embracing real-time payments, like SEPA instant, and initiatives such as SWIFT gpi, can help to improve a corporate’s own liquidity management and support strategic counterparties through this difficult time. Paying promptly is part of being a responsible, digital business.”


Embrace real-time treasury.
It is one thing implementing instant payments and collections, but to reap the full benefits, treasurers need to speed up the rest of their processes too – and move towards the broader definition of real-time treasury. Kasturi comments: “As Dani mentioned earlier, this means undertaking reporting in real- or near-real time. In turn, this should enable smarter, faster decision-making and help to make treasury more efficient – enhancing the department’s overall ‘fitness’ for the future.”


Don’t forget about data.
One of the major benefits of digital transactions is the data that accompanies them, especially now that the ISO 20022 standard is gaining traction. “The enriched data that is available with some of the newer payment methods, such as SEPA instant – which Barclays will soon be adopting – presents an opportunity to not only make processes such as reconciliation more efficient, but also to bolster intra-day liquidity monitoring and real-time decision-making,” says Eder.


Engage your banking partners.
Many of the headaches treasurers are likely to encounter when accommodating a digital business model can be eased by banks. “Take FX, for example,” says Kasturi. “Barclays provides a solution which helps retailers and D2C sellers to display consistent prices by protecting the rates linked to each transaction.” Eder adds that banks can also assist treasurers to “put in place the necessary API connectivity to aid the high volume flow of real-time information that digital business models bring”.

Thinking differently

When re-thinking fundamental treasury processes in light of digitisation, it is also worth considering how other potential business model changes might impact cash management. One such change is the growing consumer, and indeed business, trend towards sustainability.

“There are many different types of sustainable business models. We’ve seen the sharing economy take off with Airbnb, for example. We are also seeing more companies leasing products to consumers, rather than selling them outright,” says Kasturi. “While sustainable business models are not - yet - as well established as digital ones, treasurers might want to factor sustainability-driven changes into their future-proofing processes. And we can see from the survey results that 20% of companies are already witnessing shifts in this regard.”

Source: New Europe: Is Your Treasury Fit for the Challenge? PDF^


Eder picks up on this, saying: “If leasing grows, as we are seeing among car manufacturers in Germany, for example, this will inevitably impact cash flows – as higher value one-off receipts will be replaced by regular, smaller value receipts. Under IFRS 16, leases must also now appear on the balance sheet, which adds another dimension for treasurers to consider.”

Of course, sustainable business models will impact some sectors sooner, and more dramatically, than others. But, as Covid-19 has demonstrated, the business environment can shift rapidly and unexpectedly. Before the pandemic, digital business models were still seen by many organisations as ‘nice to have’. Now, they are a ‘must have’.

Eder concludes: “As a result, treasurers have an open invitation to re-imagine payment and collection methods, and embrace developments such as real-time treasury. In addition to helping fast-track their organisation’s digital growth, it makes absolute sense for treasurers to consider other business model changes such as sustainability, given their increasingly strategic role within the organisation.”

Hear from our experts

Daniela Eder, Head of Payments & Cash Management Europe, talks to Srini Kasturi, Head of Mass Payments and Country Product Management, about how treasurers can plug in to the new potential upsides of digital business models whilst managing the associated risks.

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