IGTA Journal - Summer 2020

continuity and expansive connectivity with other systems can help identify and ll gaps, as well as facilitating disaster recovery and enhance visibility into cash, liquidity and nancial exposures. Liquidity instability In times of economic crisis, companies often have to deal with delayed cash collection and uncertain revenue. Customers may pay late or renegotiate payment terms to bu er cash reserves and stay solvent, or they may defer purchasing decisions until conditions stabilise. So how can companies stabilise their liquidity? By forecasting liquidity and setting limits. Forecasting liquidity with scenarios and internationally helps companies better understand their liquidity needs. Additionally, undergoing stress testing to determine what happens if customers pay late, don’t pay at all or if expected revenues don’t materialise, and automating limit managements for counterparties can help mitigate liquidity instability. Fraud When normal processes are disrupted due to a crisis, there is often an increased risk of fraud, especially if approval processes are being bypassed in order to continue operations. In fact, there was a 667% increase in the number of phishing emails reported from February to March of this year as fraudsters looked to exploit the global disruption resulting from the COVID-19 pandemic. Disruption to business as usual (BAU) presents ideal conditions for fraudsters, and if a company is reliant on spreadsheets, there is an increased risk of nancial fraud, not just to treasury, but to the entire organisation. One of the simplest ways to improve controls and combat fraud and cybercrime is to digitise payment work ows and automate fraud protection and detection. Doing so standardises payment controls to comply with internal payment policies, approval procedures and limits so that only authorised payments are executed. And real-time fraud detection screens payments against government sanction lists, corporate payment policies and historical data patterns to automatically quarantine suspicious and non-compliant payments for threat assessment. FX and interest rates Fiscal strength of individual countries and their recovery timelines can greatly a ect currency rates. Hedges may be skewed/incompliant and uctuations in currency valuations can cause unforeseen losses. Additionally, forecast inaccuracy can shift the hedging focus away from cash ows and towards balance sheet protection. The best way to manage FX risk is to have insight into all company currency exposures, from which the exposures can then be mitigated via hedging or internal exposure elimination. And having insight into how currencies are impacting nancial results at all times is imperative to cost-e ectively managing FX exposure and risk, and avoiding unnecessary impacts to the company’s bottom line. treasurers.org/thetreasurer June/July 2020 35 Debt and counterparty risk An increase in debt and counterparty risk is common when BAU is interrupted. Debt may be increased or managed di erently, potentially increasing unplanned costs. In regard to counterparty risk, some banks in certain regions may have an increased risk of insolvency, creating concern among the C-suite and board. To decrease debt and counterparty risk, it is necessary to manage debt and counterparty limits. Companies need to demonstrate their capacity to responsibly increase leverage, re nance debt where appropriate, rea rm covenant compliance and automatically manage board compliance limits for all counterparties. Revenue volatility Revenue volatility can irreparably impact a xed-cost structure. But adapting to the cost structure can save a business. Reducing costs is the key to managing revenue volatility. This can be done by reducing bank fees, and companies can save up to 80% on bank connectivity, allowing them to repurpose headcount for better uses. Additionally, forecasting of cash enables companies to align to revenue and associated accounts receivable, and ensures shortfalls are covered and surpluses are concentrated to earn some yield on excess cash. Supply chain disruption Supply chain bottlenecks and supplier bankruptcy are common concerns, especially in a time of crisis. And in order to stay a oat, suppliers may request early payment to bu er cash reserves and stay solvent. In cases like this, treasury needs to explore supply chain alternatives and working capital solutions. By implementing working capital optimisation programmes like supply chain nance and dynamic discounting, companies can reduce the cash conversion cycle/supply cash ow, provide nancial support for suppliers with internal or external funding, gain preferred buyer status, and support alternate supply chain sourcing and diversi cation. While the current crisis will hopefully end as quickly as it began, treasury teams can improve their preparedness for temporary and longer-lasting scenarios by practising BCPs, implementing an active liquidity strategy and pre-emptively managing the aforementioned risks. Treasurers who excel in each of these areas will not only support their management teams, but also emerge as valued strategic advisers, creating further opportunities to in uence and drive success. SaaS-based solutions support treasury and nance with rapidly deployed solutions for cash management, risk management, payments and working capital, ensuring CEOs and CFOs can answer the board and analysts con dently when it comes to the amount of cash the company holds, what their FX exposure is, how they can sustain supply chain disruptions, how they are preventing fraud and more. These solutions can deliver automation, mitigate human competency risk and decrease costs, create a unique control and risk o ering for crisis management, build best-in- class business intelligence and guaranteed business continuity. This is so that treasury and nance will always be armed with the tools they need to weather any crisis. IKON IMAGES Simon Shorthose is managing director, northern Europe, at Kyriba Supply chain bottlenecks and supplier bankruptcy are common concerns, especially in a time of crisis SPONSORED CONTENT MANAGING RISK IGTA eJournal | Summer 2020 | 36