As corporate treasuries face an increasingly competitive global market place, outsourcing some of their functions is becoming a hot topic, writes Jules Stewart.

There has been much talk about corporates outsourcing their treasury functions over the past couple of years. But it has been an uphill battle for global banks competing to obtain these mandates, and in particular to persuade companies to part with their treasury functions.

“One of the reasons is that in the corporate world, the role of the treasurer is increasing in importance,” says Norbert Wanninger, Deutsche Bank’s global head of cash management. “This has developed from reflecting and processing financial change into more of a data gathering centre driving all the various systems, not a mere reflection of the production value chain. Companies are acknowledging the increasing importance of the treasury function within the organisation. This is now considered core to the operation and it would be a very bold move on their part to outsource these services.”

Under pressure

But corporate treasuries that historically were reluctant to consider outsourcing various functions are faced with the pressure of having to do more with less. And in some cases, they are showing more interest in specific aspects of treasury that can be outsourced. These areas include risk management, liquidity management, netting and reporting for mid-cap corporates that do not want to incur the costs of implementing a treasury management system or having a full in-house treasury team.

“It’s quite a hot topic, in the sense that most companies recognise that in an increasingly competitive global marketplace – as they face new liquidity, credit and growth challenges – they will not be able to support the needs of the business without outsourcing non-core functions,” says Swati Mitra, managing director at Citigroup global transaction services.

There are basically two drivers that are encouraging a greater number of corporates to outsource their treasury functions. One of these is the cost of implementing or maintaining an in-house treasury management system. On the one hand, as the treasury world becomes more regulated and complex, a treasury system is becoming more of a necessity than a luxury. “The cost of that is significant, so what the outsourcing providers offer is the ability to tap into the scale and functionality of their systems in a cost-effective way,” explains David Guest, head of working capital sales in Ireland at ABN AMRO.

“Secondly, and partly related to that, is the move towards a more regulated treasury and accounting environment. This means that reporting requirements for derivatives and other treasury activities are becoming more stringent, and there are also corporate governance issues that come into play.”

Key advantages

Outsourcing enables companies to migrate their operational treasury activities to highly controlled environments with clear segregation between front and back offices and certified disaster recovery procedures.

Resourcing issues, such as the hiring of qualified treasury staff and providing adequate back-up, can also be solved by handing over the operational treasury function to an outsourcing provider. “This trend has been in evidence for some time, driven by the influx of US corporates into Europe in the mid to late-1990s,” says Mr Guest.

“These companies didn’t have a treasury in the European time zone and therefore we could offer them a black box regional treasury solution. The more recent trend is one of European companies outsourcing part or all of their treasury functions. They’re seeing that it makes sense, from a cost or controls point of view, to outsource some of their non-core treasury activities. Companies doing this vary from Eurotop 300 companies to mid-sized multinationals. Over the past three years, we’ve doubled our client base from around 25 to 50.”

Some banks are developing treasury outsource capabilities that are directly focused on corporate entities, says Ian Clark, senior manager at PricewaterhouseCoopers. “They will often include payables and receivables management, managing collection flows, the entire disbursement process and the treasury back office. In Dublin, a number of banks have provided outsourced treasury services for years, ranging from simply a booking shop for large international loans to genuine treasury and cash management outsourcing by medium-sized clients.”

Corporate targets

ABN AMRO, along with the handful of other global cash management providers, is targeting specific activities within the corporate customer’s treasury function. The spotlight is very much on cash flow management and the aligned business of managing regional trade transactions as part of the provider bank’s global trade and advisory services.

For those companies that decide to take the plunge, a key motivation for outsourcing is achieving economies of scale through centralised operational processes. Rather than building an in-house central or regional treasury, outsourcing can offer an opportunity to achieve consolidation of processes without start-up costs and continual investment to maintain best practice in treasury management. For others, outsourcing some or all treasury functions makes better use of an organisation’s physical resources, enabling in-house treasury staff to add greater value by focusing on strategic issues.

“Increasingly, treasurers are seeking to enhance concentrated assets with seamless access to a range of other bank services, foreign exchange, hedging and liquidity-enhancing investment products,” says Mr Guest.

“There are clear cost benefits to using third-party treasury systems and services, rather than building them in-house and having to invest in continual technological upgrades. Outsourcing can greatly improve control over working capital liquidity, reducing the cost of short-term liquidity management.”

Mr Guest argues that if businesses seek access to new regions, outsourcing the treasury function eliminates the costs of establishing a new regional treasury. Outsourced treasury management reduces the need to hire additional front and back-office professionals, eliminates a significant administrative burden and frees resources to concentrate on core activities.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter