COVID-19 and the Future of Treasury Departments
-
bookmark
-
print
- Keywords:
- covid-19
The AFP survey “Impact of the COVID-19 Pandemic” gathered responses from more than 400 corporate treasurers on how they’re reacting to coronavirus-related challenges. BMO’s Sharon Haward-Laird sat down with Tom Hunt, AFP’s Director of Treasury Services, and Lee-Ann Perkins, Assistant Treasurer at ION Geophysical, to delve deeper into the findings and offer some insights on how treasurers can adapt and evolve.
Listen to the full conversation here, or read the content below that describes what is in the podcast.
What Actions Have Treasurers Implemented?
In the initial stages of the response to the pandemic, the AFP survey found that 61% of respondents had or were planning to implement a hiring freeze, while 60% had delayed or planned to delay capital expenditures.
It’s a sign that organizations are going to be pushed to do more with less. When you think about the anxiety and uncertainty among the people who work in treasury departments, it’s important to ask a few questions about your operations:
- Did you adapt your internal processes? Should you make further changes to your internal processes?
- What mobile and digital tools offered by your bank did you utilize and are there more efficient longer-term solutions you should consider?
- Are you prioritizing tasks that focus on moving your company forward through this period of uncertainty and deprioritizing other tasks?
- Can you cross-train employees to provide more flexibility and support for your critical operations?
Treasury Gets a Seat at the Table
Unlike the 2008-2009 financial crisis, treasury departments are playing a bigger role in the pandemic response. The AFP found 78% of organizations’ treasury departments were involved in COVID-19-related meetings and task forces.
In 2008, instability in the banking sector led to an economic crisis. This time, we’re dealing with a health crisis, which is leading to economic turbulence. When you consider that all aspects of people’s lives are being impacted at the same time, along with the scope of industries impacted across the globe, we’re dealing with an unprecedented situation that will continue to unfold.
During this situation, regulators and central banks around the world have been able to respond extremely quickly. This has enabled treasury teams to become involved much earlier in the process to help plan and mitigate risk to their businesses.
One of the key challenges treasurers are facing is the uncertainty around how long the economic downturn will last. Will it be a classic V-shaped recovery, or a more elongated U-shaped recovery? That’s why longer-term cash forecasting—for example, thinking three quarters out, not just one—and liquidity management are at the forefront.
Business Continuity Plans Were Stressed at many Businesses
Many businesses had a BCP plan that involved moving at least some employees from one location to another. The fact that the other location was also not available was unexpected for many businesses. I was slightly surprised that 38% of AFP respondents indicated their company didn’t have a formal BCP plan. However, I expect the BCP plan may not have been formalized, but most organizations will have figured out a way to continue business to the extent they were allowed based on location specific restrictions.
Most treasury departments should be able to adapt to a work-from-home setup. It’s important not to lose track of any learnings from this period, so ask yourself questions like this:
- What’s working well and what could be corrected?
- If your BCP wasn’t previously formally documented, should it be now?
- If you have a BCP, have you updated it and documented what you’ve learned in the last couple months?
- How often should you review your BCP?
Moving to Electronic Payments
Given the disruption to how nearly all business operations are functioning, including treasury departments, we’re seeing more companies replacing paper cheques with electronic payments. According to the AFP survey, 65% of respondents have moved or are planning to move from paper to electronic formats, with ACH/EFT being the most widely adopted or considered method. That makes sense, as ACH/EFT is a fairly simple option for replacing cheque payments.
Even though electronic payments have the benefits of fraud mitigation, convenience and cost, a lot of companies never prioritized making the transition. The current crisis seems to have sparked action on this front. Necessity has removed a lot of the barriers to adopting electronic payments, such as:
- Convincing customers to pay electronically
- Lack of IT resources
- Costs involved in changing internal processes
When the crisis is over, however, I would encourage organizations to make sure they’re set up with the right electronic payment options for the long term. What works in an emergency may not be the most optimal permanent solution.
What we also don’t know is how many organizations will move back to paper cheques once more employees return back to working in the office. But when you think about how organizations will operate in a post-COVID-19 world, it’s not sustainable to have so much paper in the system. Physical distancing will likely be the new normal, which means fewer people in the office at any given time. Setting up redundant payment solutions will help you adapt to what will likely be a more flexible business environment.
What I did find surprising was that 30% of respondents said they weren’t considering working with their bank or vendor on fraud mitigation. That seems alarming, especially when you think about how the pandemic has created even more opportunities for fraudsters. On the other hand, it could mean that those 30% already have prudent procedures in place and that they’re actively re-evaluating those procedures for their current circumstances. Regardless, the fraud landscape it constantly changing and companies need to be constantly assessing their fraud mitigation strategies.
Liquidity In the Forefront
As noted, this is one of the key issues that treasurers are being asked to help solve for at the decision-making table. There was an initial assumption that this would be a short-term problem. The reality has set in that the impacts of this situation will last for some time. It requires conversations with your executive team and with your bank about your options for preserving liquidity and generating yield and the trade-offs between the two.
It’s a subject you’ll need to revisit frequently.
The Future
Down the road, we’re facing a redefinition of “business as usual.” Organizations will likely see a greater percentage of their employees working from home. With that in mind, treasury departments will have to adopt workarounds for when physical access to the office is not possible, including the adoption of digital tools. Among the questions treasury departments may need to consider are:
- Are you setup for alternative payment options that allow you to be more flexible, such as same-day ACH/EFT?
- Have you discovered business cases for automation?
- Of the steps you have taken to date, what would you have done differently and what did you do well?
- Are your fraud mitigation processes optimal for your current work environment?
- How should your BCP be updated given your recent learnings?
This is a good opportunity to document what you’ve learned, so that the changes you’ve made to adapt to this unprecedented situation can help make your department more flexible and efficient in the long run.
The AFP survey “Impact of the COVID-19 Pandemic” gathered responses from more than 400 corporate treasurers on how they’re reacting to coronavirus-related challenges. BMO’s Sharon Haward-Laird sat down with Tom Hunt, AFP’s Director of Treasury Services, and Lee-Ann Perkins, Assistant Treasurer at ION Geophysical, to delve deeper into the findings and offer some insights on how treasurers can adapt and evolve.
Listen to the full conversation here, or read the content below that describes what is in the podcast.
What Actions Have Treasurers Implemented?
In the initial stages of the response to the pandemic, the AFP survey found that 61% of respondents had or were planning to implement a hiring freeze, while 60% had delayed or planned to delay capital expenditures.
It’s a sign that organizations are going to be pushed to do more with less. When you think about the anxiety and uncertainty among the people who work in treasury departments, it’s important to ask a few questions about your operations:
- Did you adapt your internal processes? Should you make further changes to your internal processes?
- What mobile and digital tools offered by your bank did you utilize and are there more efficient longer-term solutions you should consider?
- Are you prioritizing tasks that focus on moving your company forward through this period of uncertainty and deprioritizing other tasks?
- Can you cross-train employees to provide more flexibility and support for your critical operations?
Treasury Gets a Seat at the Table
Unlike the 2008-2009 financial crisis, treasury departments are playing a bigger role in the pandemic response. The AFP found 78% of organizations’ treasury departments were involved in COVID-19-related meetings and task forces.
In 2008, instability in the banking sector led to an economic crisis. This time, we’re dealing with a health crisis, which is leading to economic turbulence. When you consider that all aspects of people’s lives are being impacted at the same time, along with the scope of industries impacted across the globe, we’re dealing with an unprecedented situation that will continue to unfold.
During this situation, regulators and central banks around the world have been able to respond extremely quickly. This has enabled treasury teams to become involved much earlier in the process to help plan and mitigate risk to their businesses.
One of the key challenges treasurers are facing is the uncertainty around how long the economic downturn will last. Will it be a classic V-shaped recovery, or a more elongated U-shaped recovery? That’s why longer-term cash forecasting—for example, thinking three quarters out, not just one—and liquidity management are at the forefront.
Business Continuity Plans Were Stressed at many Businesses
Many businesses had a BCP plan that involved moving at least some employees from one location to another. The fact that the other location was also not available was unexpected for many businesses. I was slightly surprised that 38% of AFP respondents indicated their company didn’t have a formal BCP plan. However, I expect the BCP plan may not have been formalized, but most organizations will have figured out a way to continue business to the extent they were allowed based on location specific restrictions.
Most treasury departments should be able to adapt to a work-from-home setup. It’s important not to lose track of any learnings from this period, so ask yourself questions like this:
- What’s working well and what could be corrected?
- If your BCP wasn’t previously formally documented, should it be now?
- If you have a BCP, have you updated it and documented what you’ve learned in the last couple months?
- How often should you review your BCP?
Moving to Electronic Payments
Given the disruption to how nearly all business operations are functioning, including treasury departments, we’re seeing more companies replacing paper cheques with electronic payments. According to the AFP survey, 65% of respondents have moved or are planning to move from paper to electronic formats, with ACH/EFT being the most widely adopted or considered method. That makes sense, as ACH/EFT is a fairly simple option for replacing cheque payments.
Even though electronic payments have the benefits of fraud mitigation, convenience and cost, a lot of companies never prioritized making the transition. The current crisis seems to have sparked action on this front. Necessity has removed a lot of the barriers to adopting electronic payments, such as:
- Convincing customers to pay electronically
- Lack of IT resources
- Costs involved in changing internal processes
When the crisis is over, however, I would encourage organizations to make sure they’re set up with the right electronic payment options for the long term. What works in an emergency may not be the most optimal permanent solution.
What we also don’t know is how many organizations will move back to paper cheques once more employees return back to working in the office. But when you think about how organizations will operate in a post-COVID-19 world, it’s not sustainable to have so much paper in the system. Physical distancing will likely be the new normal, which means fewer people in the office at any given time. Setting up redundant payment solutions will help you adapt to what will likely be a more flexible business environment.
What I did find surprising was that 30% of respondents said they weren’t considering working with their bank or vendor on fraud mitigation. That seems alarming, especially when you think about how the pandemic has created even more opportunities for fraudsters. On the other hand, it could mean that those 30% already have prudent procedures in place and that they’re actively re-evaluating those procedures for their current circumstances. Regardless, the fraud landscape it constantly changing and companies need to be constantly assessing their fraud mitigation strategies.
Liquidity In the Forefront
As noted, this is one of the key issues that treasurers are being asked to help solve for at the decision-making table. There was an initial assumption that this would be a short-term problem. The reality has set in that the impacts of this situation will last for some time. It requires conversations with your executive team and with your bank about your options for preserving liquidity and generating yield and the trade-offs between the two.
It’s a subject you’ll need to revisit frequently.
The Future
Down the road, we’re facing a redefinition of “business as usual.” Organizations will likely see a greater percentage of their employees working from home. With that in mind, treasury departments will have to adopt workarounds for when physical access to the office is not possible, including the adoption of digital tools. Among the questions treasury departments may need to consider are:
- Are you setup for alternative payment options that allow you to be more flexible, such as same-day ACH/EFT?
- Have you discovered business cases for automation?
- Of the steps you have taken to date, what would you have done differently and what did you do well?
- Are your fraud mitigation processes optimal for your current work environment?
- How should your BCP be updated given your recent learnings?
This is a good opportunity to document what you’ve learned, so that the changes you’ve made to adapt to this unprecedented situation can help make your department more flexible and efficient in the long run.
What to Read Next.
Fraudsters Today Part One: 6 of the Most Common Fraud Types
June 22, 2020 | Manage Cash Flow, Addressing Covid 19
It’s no surprise that fraudsters are actively trying to infiltrate networks at an alarming rate. It’s common for fraud and cybersecurity …
Continue Reading>Related Insights
Tell us three simple things to
customize your experience
Banking products are subject to approval and are provided in Canada by Bank of Montreal, a CDIC Member.
BMO Commercial Bank is a trade name used in Canada by Bank of Montreal, a CDIC member.
Please note important disclosures for content produced by BMO Capital Markets. BMO Capital Markets Regulatory | BMOCMC Fixed Income Commentary Disclosure | BMOCMC FICC Macro Strategy Commentary Disclosure | Research Disclosure Statements
BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Bank N.A. (member FDIC), Bank of Montreal Europe p.l.c., and Bank of Montreal (China) Co. Ltd, the institutional broker dealer business of BMO Capital Markets Corp. (Member FINRA and SIPC) and the agency broker dealer business of Clearpool Execution Services, LLC (Member FINRA and SIPC) in the U.S. , and the institutional broker dealer businesses of BMO Nesbitt Burns Inc. (Member Canadian Investment Regulatory Organization and Member Canadian Investor Protection Fund) in Canada and Asia, Bank of Montreal Europe p.l.c. (authorised and regulated by the Central Bank of Ireland) in Europe and BMO Capital Markets Limited (authorised and regulated by the Financial Conduct Authority) in the UK and Australia and carbon credit origination, sustainability advisory services and environmental solutions provided by Bank of Montreal, BMO Radicle Inc., and Carbon Farmers Australia Pty Ltd. (ACN 136 799 221 AFSL 430135) in Australia. "Nesbitt Burns" is a registered trademark of BMO Nesbitt Burns Inc, used under license. "BMO Capital Markets" is a trademark of Bank of Montreal, used under license. "BMO (M-Bar roundel symbol)" is a registered trademark of Bank of Montreal, used under license.
® Registered trademark of Bank of Montreal in the United States, Canada and elsewhere.
™ Trademark of Bank of Montreal in the United States and Canada.
The material contained in articles posted on this website is intended as a general market commentary. The opinions, estimates and projections, if any, contained in these articles are those of the authors and may differ from those of other BMO Commercial Bank employees and affiliates. BMO Commercial Bank endeavors to ensure that the contents have been compiled or derived from sources that it believes to be reliable and which it believes contain information and opinions which are accurate and complete. However, the authors and BMO Commercial Bank take no responsibility for any errors or omissions and do not guarantee their accuracy or completeness. These articles are for informational purposes only.
Bank of Montreal and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
Third party web sites may have privacy and security policies different from BMO. Links to other web sites do not imply the endorsement or approval of such web sites. Please review the privacy and security policies of web sites reached through links from BMO web sites.
Please note important disclosures for content produced by BMO Capital Markets. BMO Capital Markets Regulatory | BMOCMC Fixed Income Commentary Disclosure | BMOCMC FICC Macro Strategy Commentary Disclosure | Research Disclosure Statements