As digital transformation climbs the corporate agenda, treasuries are under increasing pressure to fund their company’s investment in new technologies. Many IT systems require a substantial upfront investment, and the integration process can be long and expensive — especially if you’re overhauling legacy systems. Even more costs can be incurred by training and operational downtime.
Treasuries must also understand which new technologies are being deployed, so they can be sure they’re investing wisely and to avoid losing strategic influence within the wider business. “Technology is changing fast and it’s very disruptive,” says Richard Hayes, Global Head of Working Capital Advisory and Working Capital Sales at Nordea. “One of the major pressures a treasury faces is staying up to speed with which solutions are available, who the major players in the market are, and how new solutions can help the company with its strategic objectives.”
The challenge is exacerbated by the fact that digital transformation is never complete. Many of the costs and expenses incurred will be ongoing; and this means that effective working capital management is more important than ever. Here’s how treasuries can free up the funds and resources to keep their businesses at the forefront of innovation.
Free up cash with receivables finance
An effective receivables finance solution can help treasuries to save money and produce additional liquidity. With receivables financing, businesses can use their pending customer payments for an advance of funds from a bank, minus a transaction fee.
There are many benefits to be gained from this solution. The first is that your business is paid right away, rather than waiting weeks or months for future payments. And these funds can be used for any purpose; such as investing in digitalisation or new technologies. The solution can even mitigate risk, as treasuries don’t have to pursue late-paying customers — the lender assumes the cost of collections or non-payments.
“Receivables finance both generates liquidity and helps to mitigate risks,” says Hayes. “That can put the treasury in a better position to fund new initiatives, such as investing in new technologies, or the digital transformation of the wider business.”
Receivables finance both generates liquidity and helps to mitigate risks. That can put the treasury in a better position to fund new initiatives, such as investing in new technologies, or the digital transformation of the wider business.
Save money with dynamic discounting
Another way for treasuries to free up funds is by adopting dynamic discounting. Dynamic discounting is effective when you’re dealing with large numbers of smaller suppliers that are too small to be onboarded to a traditional supply chain finance programme. This could include IT vendors or technology suppliers.
With dynamic discounting, buyers receive a discount for paying these suppliers faster — ultimately improving their bottom line. “In a market like the Nordics, where interest rates tend to be extremely low, dynamic discounting is a very strategic approach to working capital,” says Hayes. “If you have excess liquidity, you can pay earlier and realise a reduction in the total invoice. This can generate greater returns than if your money was sitting in an investment scheme or savings account.”
In a market like the Nordics, where interest rates tend to be extremely low, dynamic discounting is a very strategic approach to working capital.
Dynamic discounting has the additional benefit of saving treasuries time and resources. “Irrespective of their size, suppliers want to know when they’re getting paid. Often they’ll call or email the treasury to chase invoices. And it can take the same amount of time to answer a question about a $10,000 invoice as with a $10 million invoice,” Hayes points out. “Dynamic discounting can significantly reduce the time you have to spend on invoice queries and day-to-day management, because the data exists on an integrated platform and you can quickly see the status of invoices.”
Integrate your treasury systems
The digitalisation of the treasury itself is also an important step in improving working capital management. Not only are treasuries under pressure to free up funds for transformation; they’re also time-poor. Hayes says that moving towards a more streamlined treasury management system can help. “This is a major trend we’re seeing in the US, and other countries are starting to follow. There’s a big shift towards integration with the latest e-platforms for treasury management.”
By transitioning towards a solution that allows seamless integration with its enterprise resource planning (ERP) software, the treasury can give its suppliers and buyers access to real-time data. “This can reduce the time the treasury has to spend on answering routine queries about payments or invoices. And it allows treasury employees to spend more time on strategically managing their working capital,” Hayes explains.
An integrated, platform-based approach to treasury management can also help to unlock the immense value of data. “Treasuries, their suppliers and their banks already possess immensely valuable data,” Hayes says. “You might already have a strong relationship with your Tier 1 suppliers and good visibility of their processes. But with advanced data analytics, you can gain visibility across your entire supply chain — helping you identify further opportunities for working capital optimisation.”
With advanced data analytics, you can gain visibility across your entire supply chain — helping you identify further opportunities for working capital optimisation.
Get the right support
Understanding how to improve your working capital and liquidity can put you in a much stronger position to reap the benefits of digital transformation. “Treasuries are under pressure from the business to fund digitalisation. At the same time, many treasuries are shrinking in size,” says Hayes. “It’s very important that a treasury looking at its digital transformation agenda stays in close dialogue with its bank.”
Nordea’s Working Capital Advisory team takes a holistic and solution-agnostic approach to working capital strategy. “We’ll start by discussing your treasury’s pain points on a strategic level. We’ll then show you the metrics and help you identify opportunities to free up time, optimise your internal operations, and improve your working capital through receivables finance,” Hayes explains. “By leveraging the latest solutions you’ll be in a much stronger position to support your company’s digital transformation.”