A Treasurer's Survival Guide: Moving Past Covid-19
By Eleanor Hill, Editor
With the coronavirus pandemic impacting economies, businesses and individuals, TMI asks what treasurers can do to help their organisation weather the storm. In this no-nonsense guide, we take a pragmatic look at best practice during times of crisis, ranging from contingent funding facilities to proactive communication with rating agencies and tackling elevated FX risks and cybercrime.
As a treasurer battling the fallout from Covid-19, the last thing you need is to be told that “a crisis is an opportunity riding the dangerous wind”. Yes, Chinese proverbs have their place, but for most practitioners, the moment for viewing the crisis as a turning point for treasury is a little further down the line. That’s not to say it won’t come, or that some lucky treasurers aren’t already using the current situation to future-proof their operations and drive digital agendas, but for those firefighting on the frontline, practical help is what’s needed most.
This is a time for pooling collective knowledge. For sharing best practice and experience. For relying on business partners to pull out all the stops. One industry expert using his spare time to support others is Paul Byrne, Group Treasurer, Crisis Restructuring/Management, Strategic Advisor & Interim Executive. “Over the last few weeks, I have been contacted for assistance by two CFOs – one from a regional airline and one from a specialist lender – and treasurers from nine different firms, all public companies,” he notes.
Looking after cash and liquidity
When asked about the most pressing short-term concerns for these individuals, Byrne says that liquidity is inevitably top of mind. “Eight out of the 11 people I spoke to had sized their liquidity buffers based on the output of their board-approved ‘severe liquidity extreme scenarios’ and were already breaching these. In six instances their cash inflows had all but stopped, as a direct result of the shuttering of non-essential businesses, closing of international borders, debt moratoriums, unemployment spiking and so forth.”
He adds that, for five of the 11 companies, the situation was amplified, as they had material short-term outflows such as aircraft lease payments, significant IPDs, bond maturities, or drawn credit facilities that needed to be repaid. Of course, their working assumption was that they would refinance within the same quarter or fund from cash flow – but then the crisis hit.
Also worrying, says Byrne, is that “in four cases they did not have a playbook or contingency funding plan on the shelf to act as a roadmap of how to navigate the crisis. And in two instances, it was the first crisis for the CEO/CFO or the treasurer and there was a concern around decision-making based on a lack of prior experience.”
Byrne is far from alone in these observations. A TMI poll of readers found that cash and liquidity issues are top of mind for 64% of treasurers right now. And as David Shinkins, Global Head of Cash Management Sales, Corporate Banking, Barclays, notes: “The core focus for treasurers should be on maintaining liquidity and effective cash flow to ensure each of their respective entities are funded adequately to ensure continuity of their businesses.”
Lisa Robins, Global Head, Transaction Banking, Standard Chartered, agrees: “Arguably the biggest threat is cash flow, with some industries more impacted than others. For industries such as travel and hospitality where revenues have contracted drastically but fixed costs remain largely unchanged, the threat is existential. Access to cash/liquidity becomes paramount in such instances. As an example, Boeing Co announced on 11 March 2020 its plan to draw a $13.8bn loan to address this imbalance.
“Similarly, companies with positive working capital but also high volume of accounts receivables and inventories need to be concerned about potential late payments and/or cancelled orders impacting their ability to fund short-term liabilities as they fall due. In both cases, achieving positive operating cash flow should be the target for such companies, with the aim of increasing liquid assets as a buffer against future shocks and continued market distress,” she says.
And as the pandemic situation changes rapidly, treasurers play an even more critical role in managing liquidity and leading the organisation through to the other side of the crisis. John Laurens, Group Head of Global Transaction Services, DBS notes: “The silver lining amidst this uncertainty lies in the opportunity for organisations to take advantage of digitisation to address disruptions to their supply chains, treasury processes and information flows, access to liquidity etc. The adoption of digital solutions, including cloud and API technologies, helps organisations move quickly to non-physical, contactless operations and online engagement with customers, suppliers and employees”.
What, then, can treasurers do to help beat their cash and liquidity worries – when they have limited resources, are stressed to the max, and are working from home? (See box 1 for more information on remote-working).
Box 1: Treasury from home: best practice
In many cases, treasurers are being asked to plan for temporary and continued work-from-home scenarios. And while many treasury teams already have some degree of business continuity planning (BCP) for short disruptions, today’s crisis may demand longer-term planning, meaning that treasury’s business continuity plan must incorporate security, IT support and controls.
According to Simon Shorthose, Managing Director Northern Europe, Kyriba, the first priority for teams working remotely is to ensure that data and/or workflows are secure, and that working remotely does not create more risk for the organisation. “If there are any concerns over log-in procedures, e.g. requiring only user ID and password to access your TMS, you shouldn’t be working from home until your information security team can ensure remotely accessing treasury systems does not create unnecessary risk. However, a SaaS system is designed to be accessed securely from anywhere at any time.”
Ideally, no IT support is required to utilise all treasury systems while working from home. “Unfortunately, emergency work-from-home scenarios can yield many surprises – and some treasury teams find out too late that their TMS requires accompanying software, access to local networks for import of data, e.g. from ERP, separate custom reporting software or other IT requirements. To be effective, your treasury systems should not require additional IT support just because you are working from home – and they should be device independent so you can use your phone or tablet without losing key features,” Shorthose adds.
He believes that treasury team members must have all the same capabilities and tools available regardless of their location so that the team is just as productive remotely as it is in the office. Especially in times of crisis, information demands from the CFO, CEO and the board will come in real time, making it critical for treasury to operate at full capacity even when working from home.
A challenge many treasury teams have is that procedures may change when treasury employs business continuity plans. For example, some treasury teams’ backup plan is to initiate and approve payments in bank portals, instead of the TMS or ERP, when working remotely. “This can be especially troublesome as payments wouldn’t be centralised, meaning that treasury gives up global visibility into payments and has no way to run fraud detection screening,” Shorthose comments.
Further, physical security keys may be required if a system is not SaaS. Approval procedure workflow could be difficult to change remotely and will differ when using multiple payment systems and/or bank portals, meaning that backup documentation would not be centrally stored, also making global policy and approval limits difficult to track. “This not only drives inefficiency, but also creates an opportunity for policy non-compliance and potentially payments fraud. Unfortunately, anyone that knows of these procedural inconsistencies – or uncovers them through social engineering – is in a good position to exploit those exposures to their advantage,” he cautions.
See the ‘Beating Cybercrime and Fraud’ section of this article for more information (p5).