As Corporate Treasury Gets Lean, Good Policies Become Critical

Companies are finding ways to run their treasury functions with fewer employees than they had last year, according to a report released by the Association for Financial Professionals (AFP), the professional society that represents finance executives globally.


The 2013 AFP Treasury Benchmarking Program Survey, now in its sixth year, found that a typical organisation has 4.00 full-time equivalents (FTEs) in its treasury operation for every $1 billion of annual revenue that the organization generates, down from 4.35 FTEs reported in 2012.


The benchmark or 80th percentile organisation has 1.36 FTEs in its treasury operation for $1 billion of annual revenue, down from 1.46 in the previous survey.


When comparing operational costs of corporate treasury departments, personnel expenses account for three-fifths of the total annual costs for corporate treasury operations.


Variances in personnel costs can mean the difference between a good and an excellent or benchmark organization, since many companies are similar in their treasury structure and sophistication of systems.


For cash management activities, the typical organisation uses 1.17 FTEs for every $1 billion of annual revenue while the benchmark organisation uses 0.39. In 2012, the figures were 1.20 and 0.42 FTEs, respectively.


To manage debt and investments, the typical organisation uses 0.71 FTEs for every $1 billion of annual revenue, less than the number of FTEs reported in 2012.  The benchmark organisation uses 0.25 FTEs for every $1 billion of annual revenue in serving the function compared to the 0.24 FTEs reported in 2012.


“Companies no longer have the luxury of managerial layers,” said Jim Kaitz, AFP’s president and CEO.  “With an ongoing focus on cost-containment, the right policies and procedures are essential when operating a lean treasury.”


The 2013 survey also focused on the importance of treasury policies and their impact on risk mitigation, financial performance, regulatory compliance, business continuity and other outcomes. 


Cash concentration and forecasting
For an overwhelming majority of organisations, having a formal (written) cash concentration and forecasting policy is vital for monitoring and optimizing financial performance.


Nearly three quarters of organisations have a policy for this reason. Risk mitigation is also an important factor in a company’s cash and forecasting policy.


Almost half of organisations review their policies once a year.


Most organisations have a written customer/vendor credit evaluation and approval policy, with 82 percent citing risk mitigation as the main objective.


Almost four out of ten indicate the policy is to ensure regulatory compliance. In two-thirds of organisations, the CFO or an executive management team/committee oversees and reviews credit evaluation policies.


Foreign exchange and interest rate management
Of those organisations with a formal, written FX and interest rate management policy, 68 percent feel the policy is critically important, particularly in how it mitigates risk.


Almost half of organisations review their FX policy on an annual basis, with the CFO and/or the board of directors having the greatest oversight.


Meanwhile, three quarters of financial professionals feel that having a written investment management policy is critically important to their organisations. In more than half of organisations with such a policy, the board of directors has oversight/approval authority and policies are reviewed on an annual basis.

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