FACING the greatest health/economic crisis in more than 100 years, governments, companies and individuals are being put to the test. Unheard of just several months ago, words such as “social distancing” “lockdowns” and “masking up” have become the new conventional terms in this Covid-19 era. Yet, like most things in life, we need to do the best with what we have. The same goes for any proactive company’s CFO or treasurer who is now looking at operating in this new normal.
Though seemingly a daunting task at first, treasury professionals need to instill several basic concepts to maintain or even improve their treasury centres. One starting point of course should be digitalization. Since the boom of the internet almost two decades ago, banks have been encouraging companies to forgo paper and look at new concepts to enable better reconciliation and reduce the possibility of error or fraud.
In 2020, the drive towards adopting electronic forms of collections and payments couldn’t be stronger, with governments around the world urging societies to reduce close contact. Instead of physical documents being sent around waiting to be signed, companies can now opt for technology tools such as QR codes to facilitate the transfer of payments between a buyer and a supplier. In trade finance there is a growing list of case studies involving the electronic presentation of export documents reducing settlement times.
Data analysis can also be particularly useful, not only during the current global health crisis, but also when there are periods of volatility. The pandemic has revealed that companies need to have a better grasp of potential risks or shocks along their respective supply chains and avoid overreliance on certain geographic regions. This could mean having a better understanding of their relationship not only with tier 1 suppliers, but also tier 2 suppliers as well. In liquidity management, treasury data analysis could mean having a real-time liquidity position of the company and seeing where resources could be effectively deployed.
Finally, discussion, be it with banks or financial regulators, is key for CFOs and treasurers to manage in this difficult time. This is particularly important when it involves companies in industries severely affected by social distancing. Companies and banks both need to explore ways in which procedures could be adjusted to account for changing circumstances in the market. This could mean maturity extensions or examining principle repayment moratoriums to reduce the cashflow burden on companies.
As for financial regulators, there has to be an active discussion on wet signatures and the feasibility of signing documentation given the reduction of face-to-face interactions. In the UK, the Financial Conduct Authority recently announced that wet signature requirements were not explicitly required in agreements. Whether this approach will be followed in other jurisdictions is yet to be seen.
