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Global Treasury Management: How to Achieve Financial Excellence

Global treasures are for pirates; global treasury is for payroll. In this blog post, learn all about how to create the perfect global treasury strategy.

Table of contents

Key Takeaways

  1. A proper global treasury strategy is an absolute must for achieving financial excellence.
  2. Plus, you need to know what challenges to expect. Some aren’t that obvious.
  3. Cybersecurity risks, unnecessary costs and complexities are all obstacles to consider.
  4. Lead-in: Global treasures are for pirates; global treasury is for payroll. In this blog post, learn all about how to create the perfect global treasury strategy.

The role of global treasury continues to evolve, with digitization, globalization, and AI all creating a shift in treasurers’ mindset and strategy,

In this blog post, we explore the elements that make for the perfect global treasury plan, as well as the challenges that come with building one.

What is global treasury management?

Global treasury management refers to a businesses’ strategy to achieve complete control and autonomy of their financial activities – whether it’s to do with cashflow, risk, banking, or foreign currency exchange conversion.

As the world becomes more globalized, technology becomes more advanced, and financial markets become more integrated, global treasury plays a more important role than ever before in businesses’ operations.

What is the difference between domestic and global treasury management?

If you’re an international corporation, your treasury management strategy will have two components – domestic and global.

While both components are crucial for accurate financial planning of an organization, they differ significantly in scope, complexity, objectives, and risk factors.

Scope

As the name suggests, while domestic treasury management focuses on financial operations within a specific country, global treasury management deals with all the business’s financial operations across the globe.

Complexity

As a rule, domestic treasury management will be simpler and more straightforward, often involving single currency and only one country’s regulations.

On a global scale, though, treasury management becomes more complex, involves more moving parts, cross-border payments, and multiple countries’ regulations and tax treaties.

Objectives

When it comes to differences in objectives, domestic treasury management will define and approach treasury goals within a local context. Within global treasury management, objectives may involve more global factors, whether it’s centralizing cash and liquidity management across borders, or mitigating geopolitical risks.

Risk factors

Risks may be more straightforward on a domestic scale, involving local economic conditions and domestic market risks. On a global scale, things get a bit trickier, involving geopolitical factors across multiple countries and extensive cross-border payment fluctuations. Additionally, noncompliance becomese more of a risk when you’re dealing with more than one country’s regulations.

The key elements of a global treasury management

Efficient Cash Flow Management:

Efficient cash flow management essentially concerns centralizing cash activities and ensuring no funds remain idle or go to waste. Almost 60% of respondents in one survey rated centralization and standardization of funds a top priority for the next one to two years. Efficient cashflow management helps organizations centralize cash balances, reducing idle cash, and improving liquidity management.

Risk Mitigation:

Risk mitigation is a crucial component of any global treasury strategy. And with global operations, this becomes extra important. Proper risk mitigating processes include possible regulatory changes, geopolitical factors, and market fluctuations related to industry matters.

“In turbulent times, it is more difficult to attain heightened risk mitigation, control, and visibility over cash,” says one industry insider. But with heightened risk comes heightened priority for risk mitigation.

Cost Reduction

As a business scales, costs rise. Reducing unnecessary costs, therefore, is a major building block of any strong global treasury strategy.

Cost reduction often relates to optimizing financial processes like payments and cash management, outsourcing, and analytics.

Compliance and Regulatory Adherence

A business with global operations will need to pay a whole lot more attention to regulations and compliance when forming their treasury strategy.

Any breaches or noncompliance can lead to fees, penalties and other heavy costs that can completely mutate the rest of your treasury initiatives. And these blunders are more common than you think, affecting literally every industry – from clowning to trucking and even payroll.

Enhanced Visibility

Building a successful global treasury strategy is contingent on the right level of data visibility. And, in fact, was rated a top concern by almost half of the treasurers surveyed in a recent PWC report. For this very reason, many businesses are putting more emphasis on adopting API-driven technology to ensure total visibility of their spending.

Cash Flow forecasting

Over 40% of financial professionals in one study cited cash flow forecasting as their top priority for the coming months. Scenario analysis, geopolitical factors and macroeconomics all come into consideration here. For this reason, both the use of advanced tools and local expertise play a role in ensuring accurate forecasting.

Automation

Automation is the final point we want to mention. It’s the last ingredient you need to make sure you have, to ensure efficiency, minimal errors, decreased spending, and basically all the aforementioned points we have brought up so far.

Smart treasurers are well aware of this, which is why more resources than ever are being invested in achieving full automation.

How to optimize your global treasury management strategy

Once you’ve set up your strategy for global treasury management, you’ll want to start thinking about how to optimize. Here are just some of the steps to keep in mind as you do so:

Centralize treasury operations

For better visibility and control over cashflows, we recommend centralizing your treasury operations, whether its to do with bank accounts or cash management activities.

Implement robust cash flow forecasting

Through historical data and scenario analysis, make sure you’re able to forecast cash flow, including both surpluses and shortfalls.

Build strong relationships with your banking partners

By solidifying your relationships with banking partners, you’ll be able to negotiate more favourable terms and optimize cost control.

Stay informed about global regulations

Regulations across the globe change constantly, whether its to do with reporting requirements, tax laws, or other matters. Keeping track of these shifts in real-time is essential.

Establish risk management policies

Make sure you’re constantly, identifying, assessing, and mitigating risks – whether it’s to do with operational, credit, or security matters.

Assess and benchmark performance

It’s important to constantly assess your treasury strategy’s performance through benchmarking against defined KPIs and other factors. This will help you continuously make sure you’re progressing.

Invest in the right treasury management software

Adopting the right technology plays a crucial role in global treasury management – allowing for better data visibility and risk management, and more informed decision-making.

A note about the role of automation in treasury management

With a global workforce come global complications. This is what makes automation so crucial at this stage. By adopting technology with the right capabilities that are able to automate the relevant processes, you’re able to decrease the risks that come with manual data input and ensure smoother treasury strategy, altogether.

Common Challenges in Global Treasury Management

Implementation Costs

Tech adoption and setting up new systems can get expensive. If the investment isn’t well calculated, it can end up being costly. Even if the investments are worth it – it may still put a financial strain in the short term.

Complexity

Regulatory considerations cross-currency matters and different banking systems are just some of the considerations and factors that make global treasury more complex than your average joe treasury strategy.

Cybersecurity risks

Cyber risk has been cited as a top challenge by almost a quarter of respondents in the aforementioned PWC study – especially in light of the advancement of technology.

Cyberattacks or data breaches can require some heavy damage control for an unoptimized global payroll treasury strategy.

Resistance to Change

It’s not just legacy systems that stop you from building the perfect treasury strategy – it’ legacy thinking. .Leadership teams that lack awareness of the potential of a strong treasury strategy will likely not be able to exercise full control of their funds – especially as they continue to scale.

Build the perfect global treasury strategy with Papaya’s Workforce payments

Streamlining many of the daily treasury challenges finance managers of international companies face is made simpler with Papaya Global’s unique Workforce Payments solution. At the heart of this paytech, the only one dedicated for paying salaries globally, is the Workfroce Wallet. Treasury, payroll, and other finance pros can fund their Papaya Workforce Wallets in their preferred currency from our growing list of major currencies – then disburse all their salary payments from one place. This makes the need to manage and balance multiple bank accounts in different countries a thing of the past.

And it’s just one of the benefits of Papaya’s dedicated workforce payments solution. The rest include:

  • Making instant payments on local rails, across 160+ countries
  • Ensuring 100% compliance in every country you operate in – with boots-on-the-ground expertise
  • The ability to pay your workers via direct deposit
  • And so much more.

Contact us to find out more.

FAQs

What are the two main areas of treasury management?

Treasury management primarily encompasses two main areas: cash management and risk management. Cash management involves optimizing cash flows, liquidity, and working capital to ensure efficient financial operations. Risk management, on the other hand, focuses on mitigating financial risks such as currency fluctuations, interest rate exposure, and credit risks to safeguard a company’s financial stability.

Why is treasury management important?

Treasury management is crucial for several reasons. It helps companies optimize their cash resources, ensuring they have sufficient funds to meet operational needs, invest, or pay off debt. Additionally, it allows organizations to proactively manage and mitigate financial risks, reducing exposure to market volatility and unforeseen challenges, thereby promoting financial stability and sustainability.

What companies can benefit from global treasury solutions?

Global treasury solutions are beneficial for a wide range of companies, especially those with international operations or ambitions. Multinational corporations, export-import businesses, and firms dealing with multiple currencies benefit from these solutions. They help streamline cash flows, manage currency risk, and ensure compliance with diverse financial regulations across borders.

How does global treasury management impact working capital management?

Global treasury management plays a critical role in working capital management by optimizing cash flows and liquidity. Efficient global treasury practices can reduce idle cash, improve cash forecasting accuracy, and minimize financing costs. This, in turn, enhances working capital efficiency, allowing companies to allocate resources more effectively and invest in growth opportunities.

How does global treasury management impact financial reporting?

Global treasury management has a significant impact on financial reporting by ensuring accurate and transparent financial data. It helps centralize financial information from various international subsidiaries, simplifying consolidation and reporting processes. Additionally, it assists in complying with global accounting standards, ensuring that financial statements reflect the true financial position of the organization across borders.

What is the role of cash management in treasury?

Cash management in treasury is responsible for efficiently managing an organization’s cash flows and liquidity. It involves optimizing the collection, disbursement, and investment of cash to ensure the company has enough funds for day-to-day operations while maximizing returns on idle cash. Ultimately, its role is to strike a balance between liquidity and profitability, ensuring smooth operations and efficient use of available cash resources.