FUNDING AND INVESTMENT
Why Investing in Treasury Will Help Everyone Sleep Better
April 17, 2008
Lionel Smith, JPMorgan Chase Treasury Services

More and more Asia-based companies are successfully making the transition to become true multinational companies (MNC), with international subsidiaries supporting a global product supply, sales and distribution base. This success has dramatically changed the role of treasury from being a provider of finance to being custodian of, in some cases, very significant cash surpluses. The companies that have focused on growing their business are now recognising the need to add the development of their treasury operations to their list of the key performance indicators (KPIs).

International Best Practices Take the Lead

Successful companies that have undergone quick expansion often find themselves still relying on manual, paper-based transaction processes, which depend on high levels of supervision and oversight by busy senior managers. As the cash mountain grows, senior managers become concerned by a lack of visibility, long and complex approval processes, management of risk, the way to build staff's skills and experience, and the general control environment surrounding the management of such a large amount of cash. That is why leading Asian companies are now looking to move forward and adopt international best practices throughout their treasury operations. In some cases this is being driven by the need to meet the Sarbanes-Oxley (SOX) requirements.

More often there is also a growing recognition that an efficient treasury is a major asset to the business. While each client has its own specific priorities, developing best treasury practices brings benefits across the board. Increasingly, CFOs have to meet the demands of international investors and are looking for significant progress in:

• Operational efficiency with improved system performance, faster processing times, and high straight through processing (STP) rates.
• Strong control environment that meets international standards.
• Understanding and actively managing risk to a clearly defined and agreed risk profile.
• Building the bottom line through improved yields and lower costs.

Many CFOs are currently concerned that their organisations do not have the background or experience to implement major changes to develop an effective treasury function.

Best Practice For Corporates

Policy statements
Leading companies in Asia are now implementing policy statements for the management of surplus cash. The policy statement defines the investments that can be made and how risk is to be managed. A policy-based approach effectively limits risk to an acceptable level.

Organisational structure
The MNCs should structure their treasury organisation around the front office, middle office and back office model. This gives a clear segregation of duties between people buying assets, settlement, managing risk and reporting results. Clear, logical and consistent approval and transaction processes facilitate automation and strengthen compliance to controls.

Employing a third party supplier
A good treasury system from a third party supplier is an important key to improve controls, as it can transform risk management, and also provide the detailed analysis needed to maximise yield.

Following these three key best practices, a CFO will ensure an efficient and secure treasury operation, which will support future business growth and will enable everybody to sleep better.

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