By any measure, 2023 is shaping up to be a challenging year for businesses both in the U.S. and across the world. As the FOMC raises interest rates another 50 basis points in December 2022, expectations on continued rate increases persist. FX rates and commodity prices continue to experience heightened volatility, driven by the threat of recession and ongoing supply chain problems. Beneath these headlines, the treasurer’s environment continues to evolve, with ongoing innovations across treasury offering opportunities to improve treasury's role and effect on overall financial management
To help reduce their organizations’ vulnerabilities to the various external threats, treasurers can take action to achieve three objectives:
The more a company can automate treasury tasks, the more accurate and timely forecasts and positions will be, allowing better decisions to be made. At a time when companies’ working capital and liquidity will be under pressure, all efficiency gains will help build operational resilience.
Adopting strategies to streamline the use of liquidity internally (e.g., by better use of pooling opportunities or via the introduction of a virtual account network) will reduce net borrowing requirements, protecting the company against the adverse effect of rising interest rates. Managing working capital more effectively, potentially in partnership with key suppliers and/or customers, can help to manage risk, thereby reducing costs to boost sales and profitability. Investing surplus cash appropriately, using a bucketing strategy where relevant, will help to ensure cash remains available to the business when needed.
A clear financial risk management policy, endorsed by management, will help to manage the effects of market volatility and limit the impact on business costs. Treasurers can work with the wider business to adopt strategies that will enhance the use of working capital and liquidity (e.g., via a supply chain finance solution) in a way that will strengthen the supply chain as a whole. Finally, treasurers will also want to prepare for coming market changes including the introduction of FedNow and ISO 20022, possible money market reform, and the end of USD Libor.