A Swiss global market leader in the manufacture of spinning machines had lost a full-time member of its two-person treasury management team due to redundancy. The interim manager was hired to maintain day-to-day treasury management operations and overcome various challenges. The troubleshooter assignment planned for a few months developed into a multi-year collaboration with several projects to transform the treasury processes, including the introduction of SAP Treasury.
Many challenges identified in treasury management
When the interim manager took on the mandate, it quickly became clear that the company was facing numerous procedural and technical challenges. These included above all:
- Troubleshooting the existing treasury system "Reval"
- Introducing globally practiced hedge accounting in accordance with the IFRS 9 standard
- Expanding group netting
- Setting up a new cross-border cash pooling system with four pools for EUR, CHF, USD and offshore RMB
- Developing a new FX risk strategy and ensuring compliance with the regulatory requirements of EMIR, FATCA, AIA, CRS, MiFid, FinfaG and Dodd Frank
- Introduction of a SWIFT for Corporates solution with its own BIC
- Setting up a new global payment transaction system
- Switch from the Reval treasury system to the comprehensive treasury solution from SAP with the introduction of an in-house banking concept.
The biggest weakness of the current treasury was that the numerous processes were highly fragmented. In order to remedy these shortcomings, the interim manager first recorded the processes and developed the target image for a treasury management in line with the times. From this, he derived the roadmap for the necessary changes.
New liquidity planning creates the basis for process transformation
The basis for almost all treasury processes is meaningful, direct and currency-sensitive liquidity planning, which should be largely automated. Previously, the company used "Reval" as a liquidity planning tool. However, it had proven to be too complicated and inflexible in its design and did not meet all requirements. The interim manager therefore introduced a new liquidity planning tool with the specialized web software "TIPCO". Within just six months, he integrated all relevant data into the new tool (companies, banks, bank accounts, credit lines and all accounts affecting working capital) together with the team, which had since been expanded to two full-time employees. With the highly granular data now available, the company was able not only to produce a transparent liquidity forecast but also to analyse external and internal currency risks in summary form, establish the basis for new Group netting and centralize Group liquidity largely in cross-border cash pools.
Hedge accounting in accordance with IFRS 9 reduces the volatility of hedging transactions
In a further sub-project, the Group CFO tasked Group Treasury with significantly reducing the earnings volatility of hedging transactions. The Group prepares its accounts in accordance with IFRS. This required the introduction of IFRS 9 as the successor to IAS 39 - with all the complex and comprehensive details such as effective testing and audit-proof bookings.
For the changeover, the interim treasurer created an Excel test module in which he modeled the hedge accounting processes in order to find the perfect solution. In doing so, he overcame the challenge of accurately recording the constantly changing underlyings in terms of amount and time of maturity and ensuring that the derivatives were recycled. After completing the test phase, he was able to transfer the project to the permanent process.
At the time, Treasury IT was still in a transition phase from Reval and other systems to a uniform SAP standard. The interim manager therefore transferred the complex posting records to Group Accounting on a monthly basis using direct posting instructions including explanations.
High decentralized payment transaction costs identified and significantly reduced
In the course of the treasury management transformation, the interim treasurer also prepared a detailed evaluation of all payments in all currencies at all banks. The result was sobering. Each national company had its own decentralized processes and made payments as it saw fit. This often led to high visible and invisible costs. Visible were the direct bank charges, which were negotiated decentrally (if at all). What remained largely invisible were the sometimes extremely high exchange rate costs when, for example, a payment in US dollars was triggered from a euro account.
In order to create transparency and reduce costs, the interim treasurer largely standardized the payment processes with the external specialized provider "Fides Treasury Services". All possible payments are now standardized via a central hub and equipped with flat rates. This results in a significant increase in payment accuracy, a reduction in decentralized costs and a very high level of transparency for all physical payment flows.
Successful preparation for the issue of a SWIFT identification code
SWIFT is the world's largest banking communication system. It is open not only to banks, but also to large companies. Membership facilitates payment transactions. However, in order to be accepted into the SWIFT system, considerable preparatory work is required.
Since the client of the interim treasurer incurred high costs, particularly due to recurring know-your-customer processes (KYC processes), the company decided to join the SWIFT system. In a new sub-project, the interim manager was tasked with carrying out the complicated preparatory work for applying for the SWIFT identification code (BIC). With the SWIFT identification code, the company is now able to provide the information required by the banks on demand and without further verification.
Digital transformation: switching the treasury management system to SAP TR
After the interim manager had successfully harmonized the treasury processes with the internal teams and external service providers, the largest sub-project could be tackled: the migration of the old treasury management system and the new components to SAP TR. Working closely with a service provider specializing in such migrations, the interim manager was able to verify all individual processes once again and connect them to SAP Treasury step by step within just nine months.
Company has efficient and cost-effective treasury management
After more than five years with a constant stream of new projects, the company now has efficient and cost-effective treasury management and reliable liquidity planning worldwide. The savings in treasury management amount to a good 1.5 million Swiss francs per year. With relatively modest project investments, the project delivers an internal rate of return (IRR) of more than 100 percent.
The harmonization of processes and the joint work of the numerous stakeholders in the various areas of finance and IT management have also contributed significantly to improving global teamwork and breaking down the silo mentality of national companies and departments.
