The next set of KPIs relevant for the majority of companies are related to monitoring the defined treasury policy around hedging and payment terms.
Vesa continues: “Many companies should have an FX and interest rate hedging policy in place as part of their common treasury policy. For example, deciding the percentage of their income in a particular currency that should be hedged. Once they have created this policy, KPIs should be in place to measure how well they are executing that policy.”
“Also, in some cases it is the treasury’s job to create the payment terms policy and define whether this is 30 days, 90 days, etc. The treasury should set the specific payment terms for each customer and then follow how they are being executed,” adds Vesa.
Taru says: “This KPI is especially interesting as its connected with working capital management. It’s possible to be really effective with the utilisation of capital by putting the right KPI in place. Measuring payment terms can have a great impact and really influence overall working capital effectiveness.”
Another common KPI used by companies in numerous settings is related to cash forecasting and monitoring the accuracy of the cash forecast.
Vesa says: “Although cash forecasts are often made by the various sales teams across different business units, we think it is the treasury that should be monitored overall with regards to how well they match up to reality. By giving feedback to the sales teams making the forecasts, the treasury can create a culture of learning and increase the focus on developing the capabilities across the organisation to make highly effective cash forecasts.”