Project Description

3-way interdependence

On average, only about one-third of employees involved in treasury processes are employed in treasury departments.i In most companies, treasury, accounts receivable, and accounts payable operate independently when they are, in fact, interdependent. Treasury is responsible for corporate cash flows; AR and AP control the timing of those cash flows.

Each department has its own objective. Typically, treasury wants to speed cash flows, AR wants to decrease days sales outstanding (DSO), and AP wants cheaper ways to pay. Yet they should share two common objectives: to contribute to the company’s working capital and to enhance the customer experience.

The perils of silos

Disconnects arise in organizations of all sizes in all industries when they are structured in silos.

The CFO of a major construction materials corporation challenged the treasurer to increase the company’s working capital. The treasurer recognized that he would need to work with accounts payable and accounts receivable, even though they were outside his chain of command.

In meeting with accounts payable management, the treasurer learned that AP had contracted for a virtual card program with a non-strategic, third-party vendor. Virtual card programs are designed to improve working capital availability by allowing you to pay B2B invoices on their due dates and fund those payments 30 or more days later. But the contract the payables group had signed required them to fund the payments they charged every day. This defeated the purpose of the program by depleting rather than augmenting working capital. And, sadly, the contract had three more years to run.

Breaking the barriers

When the barriers between treasury, receivables, and payables come down, these departments can help rather than hinder the achievement of their individual objectives and work together toward their common objectives. In the example above, had treasury known AP was interested in a virtual card program, they surely could have advised a more strategic vendor and more advantageous contract terms.

The barriers break when people connect. When someone – whether from treasury, AR, or AP – steps up and invites the leaders and key personnel from each group to get together. Regularly-scheduled meetings, such as lunch-and-learns, offer an open forum for people to talk about their projects, plans, and pain points. Ideally these will be face-to-face meetings, but if geography makes that unworkable, virtual meetings will do.

Smarter payments for all

Approximately two-thirds of CFOs name working capital as a treasury priority.ii When treasury, accounts receivable, and accounts payable connect to view payments holistically, the potential is tremendous. Payables cannot only implement cheaper, easier ways to pay but, in doing so, enhance vendor relations and become a profit center. Receivables can speed cash application to the point that some FTEs can be redeployed, cutting the department’s costs. Treasury can more accurately forecast cash flow and continue to expand its strategic scope beyond traditional responsibilities. All three groups can contribute to the company’s working capital availability and the customer experience. In the payments realm, collaboration leads to smarter payments.

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i The ‘virtual reality’ of treasury Global Treasury Benchmark Survey 2017, ©2017 PricewaterhouseCoopers LLP
ii Ibid