The digitalization of Asia’s treasury operations
In part one of a five-part series, Asset Benchmark Research paints the daily frustrations of a treasurer in the region
IT'S Monday, 8:45am in the finance department of Apples Limited*. Wendy, newly promoted to the position of financial controller, is stressed. Month end is upon her, Excel’s eleven open workbooks collectively crashed and the annoying orange blinking icon at the bottom of her screen indicates the next conference call is only 15 minutes away. As she tries to recall with whom the call is, her pulse really starts to race: it’s time for the quarterly covenant review with her local lender.
The scenario will appear familiar to treasurers, controllers and CFOs. Drawing on results from the annual Treasury Review survey, and in association with DBS Bank, Asset Benchmark Research will be presenting episodes from the lives of corporate finance professionals based across Asia over the coming weeks. Names of characters and companies are fictitious but the stories told, challenges overcome and best practices presented are a cross-section of how Asian companies manage their finances. Today’s episode focuses on the everyday frustrations that our 1,141 survey respondents shared with us.
Wendy’s racing heartbeat ahead of a covenant review is not due to a fear of having breached them. The problem starts much earlier with the lack of clear information. 80% of respondents said that ‘ensuring liquidity’ is their most important objective, followed by ‘cash flow visibility and forecasting’ (65%) and ‘optimizing yields on financial assets’ (64%). These factors all point to the same objective: corporate treasurers and CFOs want real time information of incoming and outgoing payments and better ways to forecast the same.
38% of respondents in the Treasury Review work in manufacturing, industrials or retail industries, where managing cash and working capital is a complex task. Many Asian businesses that we interviewed deal with a variety of currencies and jurisdictions in their daily operations due to the integrated nature of their supply chains. This opens them up to foreign exchange risks and requires them to keep track of various payment terms. Incoterms will differ between buyers, making revenue recognition an almost academic exercise.
Wendy, who works for a large industrial company that sells servicing contracts to the buyers of its industrial goods, knows the challenge well. On her to-do list for today is a webinar on IFRS 15, the new revenue recognition accounting standard that will change the way longer term contracts are billed for. Her main worry is that the so-called “triggering events” prescribed by the new standard will make cash inflows even less predictable as the invoicing of clients for services will become more haphazard. If only there was a solution that allows for better working capital analysis, she figures.
Wendy’s dilemma also reflects a surprising and somewhat discomforting truth: one in five respondents to the Treasury Review said they still utilize MS Excel as one of the main tools to record financial transactions and track balance movements. In India, the percentage is as high as 41%.
But there is a silver lining for Wendy and many of her peers. 41% of companies responded that they have control over larger budgets for the treasury and finance function as compared to last year. Only 13% are having to endure cost cuts. The largest proportion of respondents indicating higher budgets is in Vietnam (69%), South Korea (60%), and China (44%). At the other end of the spectrum, around 70% of Taiwanese and Hong Kong companies said they are managing with stable or lower budgets.
Wendy is currently deliberating how to best make use of her enlarged budget. The thought of implementing a treasury management system crosses her mind, having been told that these systems can help manage and model foreign exchange risks more easily. Penetration of these systems is still low as compared to Western markets – as low as 6% in Taiwan and India, for instance. However, only 7% of respondents planned to implement one over the coming six months at the time of the survey.
A TMS is not topping Wendy’s wish list, either. She would much rather hire a new colleague to join her team. Many of her peers likely feel the same. More than one third (36%) of respondents have finance teams with a headcount of five or fewer. Among SMEs (which we define as companies with annual sales of US$250m or less), more than half (52%) responded that way. Even in large companies (defined as those with annual turnover of above US$1 billion), one in three manage their finances with teams of no more than 10 people.
Given the day-to-day challenges they face, coupled with a continuous stream of new complexities to manage, adding to the headcount may appear to be the most obvious method to move forward. But could Wendy and her peers put their budgets to better use, by deploying new solutions touted by technology evangelists across the world? Do corporates in Asia find artificial intelligence, blockchain and big data mining feasible answers to the problems they face?
Look out for the next article in our series on the Digitalization of Asia’s Treasury Operations, produced by Asset Benchmark Research in partnership with DBS Bank, to find out more.
About Asset Benchmark Research’s annual Treasury Review
Conducted since 2013, Asset Benchmark Research surveys corporates across Asia on an annual basis to understand the challenges corporate treasurers and CFOs face and the solutions they consider best suited to navigate financial markets. In 2018, a total of 1,141 corporate finance representatives participated in the survey, led by decision makers in Greater China, India and Singapore. Based on annual turnover, 50% of respondents are small and medium sized enterprises, 25% are mid-caps and 25% large corporations (>US$1bn turnover per annum).
Nearly 70% of respondents are C-level executives (finance directors, CFOs or above) or have managerial roles in the finance and treasury departments, while the remaining work in positions such as staff accountants.
*Names of characters and entities are fictitious.
17 Aug 2018