Treasury Survey: Advancing toward scalable financial infrastructure
Companies with growth outside the borders of Denmark are facing a new level of complexity. In the dynamic landscape of corporate finance, treasury management plays a crucial role in optimizing liquidity, managing financial risks, and ensuring efficient cash flow.
This article delves into the maturity level of treasury functions within the middle market segment in Denmark. By analyzing survey data from selected firms, we explore key findings, benchmark against Best-in-Class practices, and offer recommendations for improvement with the goal to achieve scalable financial infrastructure.
On a positive note |
Challenging areas |
|
Bank & Cash Management |
Approximately 70% of respondents believe that their cash position is well documented and standardized. This is a positive sign, as efficient cash management is crucial for financial stability. Additionally, 90% express satisfaction with their payments and collections process. Streamlined payment workflows contribute to smoother operations. |
Despite the positive aspects, 75% of respondents find cash flow forecasting challenging. Accurate forecasting is essential for effective financial planning and resource allocation.
28% of the companies only work with one bank and have not implemented a process for bank switching. A process for bank exchange can ensure better prices and banking services.
Furthermore, 70% mention that their liquidity policies lack clarity and focus on trapped cash. Clear liquidity policies are essential for managing working capital effectively.
|
Financial Risk Management |
60% are stated that they have satisfactory overview of FX and Interest rate risk exposure as well as effective process over hedging strategy. |
60% of the respondents feel that they lack tools for active counterparty risk management. Addressing this gap is crucial for risk mitigation. Among those lacking tools, 50% specifically highlight the absence of structured processes around counterparty risk management. |
Debt, Financing & Investments |
72% work with more than one bank to support the needs for external financing. |
65% indicate a lack of firm processes for managing capital structure. Well-defined capital management strategies are essential for sustainable growth. Additionally, 67% state that processes related to external financing are inadequately documented and standardized. |
System, Organization & Reporting |
Treasury policies, guidelines, and processes are primarily consolidated under the finance organization for 74% of respondents. |
Surprisingly, 85% of respondents operate without a dedicated treasury system, relying primarily on manual processes and MsExcel. Implementing specialized treasury systems can enhance efficiency and accuracy. |
The survey highlights the need for better-defined processes and tools across various areas, including risk management, liquidity, and capital structure. Organizations should consider investing in optimizing and automizing processes as well as systems to streamline operations and improve reporting to minimize manual workload and focus data management through ETL (Extract-Transform-Load).
A treasury focus plays a crucial role in assessing and mitigating risks related to liquidity, market fluctuations, and operational processes. By implementing effective strategies, organizations can safeguard their financial health and ensure sustainable growth
Survey results
Benchmarking
The survey responses span a wide range of scores from 1 to 4 within each category compared to the Benchmark. The overall Benchmark score is 2,47 which represents the average of the scores. The benchmark is represented as a grey line.
The majority of responses fall within the score range of 2 to 3, with some outliers at both ends.
59 % of the firms have a high liquidity percentage according to financial reports whereas 75 % of the respondents are not satisfied with their cash flow forecasting.
Focus on compliance, risk management and treasury processes
Questions regarding compliance, risk management and treasury processes are scored high which implies that companies:
- Have high focus on compliance and risk management, and developed effective cash management processes
- Have very efficient processes around payments and collections
Challenges
However, when it comes to questions related to bank setup compatibility, counterparty risk, standardization of external financing, system support, forecasting, and reporting processes, the scores are relatively low. This suggests the following issues:
- Lack of Proper Bank Selection Process
- Counterparty risk management practices are not well-organized
- Processes and guidelines around financing and cash forecasting appear to be incomplete and lacking structure
- Companies heavily rely on manual processes, with minimal or no system support
Overall we see a lack in the understanding of the drivers for the costs in financial risk management, as a whole including FX, commodities and interest but also the actual management of the financial risk in itself. Planning of future financing needs and structuring of debt to support business plan, activities and strategy is trailing to secure proper diversitification in financing sources and capital structure optimization.
A continuous adjustment of the setup to avoid legacy complexity from the growth journey is needed.
How do you secure financial stability and growth?
Assessing and improving treasury processes is crucial for financial stability and growth. Here are some steps you might consider where we can support:
- Benchmarking: Compare your survey results against industry benchmarks and best-in-class practices. Identify gaps and areas for improvement.
- Customization: Tailor your approach based on your company’s unique needs and future growth plans.
- Risk Management: Strengthen risk management processes, including liquidity management policies and counterparty risk management.
