Business-to-Treasury (B2T) concept

B2T - or business-to-treasury refers to the processes and transmission of data between business
units and treasury. These processes usually include cash flow forecasting, currency exposure
reporting and internal transactions, such as currency hedges, loans, guarantees and payments. By
offering business units better resources for managing their treasury processes, treasury can
improve the level of understanding of risk management in the company. In return, treasury risks
can be reduced while the accuracy and timeliness of related forecasts and reports increases.
The components of a comprehensive B2T process are:

Clear treasury policy and rules.

Treasury's work instructions.

A B2T application that supports business units in their treasury-related activities.

Treasury's work instructions form the backbone of an efficient B2T environment, formalising
treasury policy and explaining the organisation's financial strategy to business units. The B2T
application supports the policy statements, helps the organisation to meet business and legal
requirements, and also enables straight-through processing (STP) of treasury information.
A B2T application focuses on the management of treasury risks arising from the organisation's
operative business transactions. The basic idea behind such applications is to provide easy-to-use
tools for people who are close to the source of those risks and who possess the best knowledge
about them: the business units. The goal of the B2T concept is to help business units manage
their treasury-interfacing tasks and better understand treasury processes and risks. Meanwhile, a
traditional treasury application (e.g. treasury management system/TMS) aims at providing tools
to help treasury control financial instruments. In traditional treasury applications, it is assumed
that the exposures are separately gathered via spreadsheets, for example, or that the application
includes an additional interface designed for business unit reporting. B2T processes, however,
are usually not part of the core expertise of such application providers.
B2T Focus: Driving Factors

In recent years, increasingly demanding pressures have been placed on corporate treasury with
ever growing responsibilities. Legal requirements, such as Sarbanes-Oxley (SOX) and
International Accounting Standard (IAS) 39/Financial Accounting Standard (FAS) 133, and
internal working capital management projects have added to the treasurer's work load, while the
efficiency demands made by management have contributed to treasury facing a constant shortage
of resources.

Information about the organisation's cash flows and treasury exposures, which is the raw material
for all treasury functions, should always be as accurate and readily available as possible. Yet in
the majority of organisations, subsidiary reporting lacks both quality and reliability. Treasury can
be easily tempted to blame the business units for their low motivation to report accurately but the
truth, however, is that it is treasury's responsibility to build a concept that enables high-quality
B2T processes.
In order to succeed in building such a concept, treasury must put itself in the position of the
subsidiary. The true expertise of treasury is measured in how well it can use its expertise for the
benefit of the whole organisation. It must translate their workflows and objectives into simple
terms and concepts that even people without subject matter expertise can understand and follow subsidiary correspondents are rarely treasury professionals! This series describes how the
efficiency of processes and transmission of data between business units and treasury can be
optimised.
How Do You Recognise an Inefficient B2T Process?

An inefficient B2T process is characterised by rules and regulations that are open to
interpretation and the lack of efficient communication and supporting systems. Treasury
language is often incomprehensible for non-treasury specialists, and even active communication
can be seen as poor from the subsidiary's perspective. Complicated terminology and nonintuitive guidelines lead to misunderstandings and a decrease in motivation if subsidiaries cannot
grasp why it is important to do things in a specific way. All too often, treasury uses terms, such
as duration and forward points, which makes perfect sense to them but may be complete
gibberish to the people working within the subsidiary. If there are 150 people working within the
organisation's financial processes on the subsidiary side and five people working with them on
the treasury side, it should be quite obvious which side will learn the other's terminology faster.
The rules and regulations concerning treasury activities are encapsulated in the corporate's
treasury policy. The policy may have been tweaked and honed for months on end in treasury risk
committee meetings with each committee member leaving their individual stamp on it. This type
of document will no doubt be comprehensive from a risk management point of view but it can
also be extremely complicated - even for the people who wrote it, never mind the people
working in the subsidiaries who are not treasury professionals. But it is those people who should
be able to understand and follow the policy's rules and regulations effortlessly.
The technology that treasuries offer subsidiaries tends to be based on the needs of treasury alone.
Spreadsheets and TMS web interfaces meet the needs of treasury but offer subsidiaries a
complicated interface for handling simple tasks.
How Do You Recognise an Efficient B2T Process?

The characteristic of an efficient B2T process is that the corporation's treasury processes have
been productised as concepts. The policies and work instructions are clear and easy to understand
and the systems designed for process management support both the needs of the business units
and treasury.
By using efficient B2T processes, the corporations could avoid problems if:

The corporation's treasury manual had clear role-based instructions for practical
situations in treasury related transactions whereby a substitute or stand-in could handle
various tasks effortlessly in case of absence;

In the corporation's B2T system, all hedges were made against the risks of the business
unit, where reverse deals could not occur; and

The corporation's B2T system enabled constant availability of the information

needed by management.

Conclusion

Getting reliable and timely forecasts and reports from business units is essential for efficient
treasury management in all corporations. In the majority of organisations, however, these
processes lack both quality and reliability. The reason for this is the combination of unnecessarily
complicated treasury policy, the lack of clear treasury work instructions and a poor internal
treasury processing system.
The true expertise of treasury is measured in how well it can use its expertise for the benefit of
the whole organisation by creating a treasury concept that all business units can understand and
follow.

Emerging Role of Corporate Treasury Management on the Internet

Professor Johan van Rooyen - 4 Nov 2008
The Internet has introduced new ways for corporates to do business. It can link different entities
in a vast network, create a pool of information that is accessible from any location in the world
and allow online trading or e-commerce. This article provides a South African perspective of
online corporate treasury management.
South African corporate treasuries realise the benefits of the e-business environment but need to
take note of the changes and requirements necessary to fully exploit these benefits and to enable
them to better manage the overall treasury function and the increased exposure to financial risk
which may come about owing to mismanagement, fraud, inefficient systems or the use of
modern financial instruments allowing dramatic losses through leverage.
Recent Developments in Information Technology

Contrary to some 10-15 years ago, when spending money on IT was fashionable, investment in
information technology today must be justified. It must add value to the business processes. Over
recent years the treasury department was also affected and had to change due to the need for
corporate downsizing and the need for an ever-leaner cost basis and shared service centres, better
management of risk and to reduce errors and timely delays, and the need for integrated systems.
The business environment is undergoing major changes that are driven to a large extent by the
Internet and the web. This environment is changing how we do business, intensifying
competition, increasing the pace of business, transforming businesses into extended businesses
and drives the effectiveness of the use of information and the strategic importance of
information.
The Internet and e-business (doing business through the web) is linking many systems and
participants in the market place, creating new mechanisms for movement of funds and thereby
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creating new benefits but also new problems or risks. More benefits that e-business will bring is
e-finance, helping clients to help themselves. E-business leads to a reduction in overheads or
increased productivity as resources can be reallocated to critical areas. Modern information
technology in general helps us accumulate a lot more information that may be used for
management purposes. In this regard, e-business is a valuable new way of doing business in an
easy-to-access environment.
Web-based treasury management and financial services will lead to a broader and more global
client base for e-finance service providers. Better integration of cash flow into back-office
operations will come about. Better access to information from any location, which improves and
shortens the management cycle and efficiency. Various types of management information,
including economic forecasts, sales and purchase forecasts and information on cash flow, data on
corporate planning and market rates will be available, for many types of financial transactions.
Electronic bill presentment and payment open new marketing and communication channels with
clients. Browsers are used universally, and development in this area tends to be cheaper than
development with dedicated treasury management software. Owing to the lower cost of
development and the use of browser-based technology, small companies can also participate in
electronic data interchange. Owing to the fact that web-based software resides in one location,
less time is spent on maintenance, updating and adjustment.
Disadvantages of integration of systems and development may give rise to greater exposure to
financial risk. This emphasises the need for better risk management that may, on the other hand,
improve with better integration of treasury systems as risk can then be better managed at
corporate level. Security becomes an issue as integrated systems give access to much more data,
increasing the risk of loss of valuable data. Lack of security tends to prevent some companies
from moving their financial activities to the Internet. The speed and reliability of web-based
delivery channels are sometimes suspect.
To survive in the new economy, there has to be convergence of technology. Sound conventional
business sense and an attempt to understand and assist customers should prevail. Businesses have
to make use of technology - in this case the Internet - to add functionality or to improve or
extend existing business processes internally and outwards.
According to Holton, there are three fundamental elements that should comprise any risk
management strategy, namely corporate culture, procedures and technology. It is logical that
technology should feature in this list as it certainly has become an important strategic tool that
the corporate treasurer cannot ignore.
New Emerging Role and Position of the Corporate Treasury Department

In view of the issues highlighted in the previous sections, the following important points should
be highlighted:
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Data warehousing
This concept refers to the construction of containers of information gathered from all over the
enterprise, available for a wide variety of uses on group or individual level. The centralised data
warehouse should contain all the information needed for management purposes - this implies that
in the first place, systems should be capable of supplying the information. If this is not possible,
systems will have to be redesigned or re-engineered to supply in the data warehousing and
eventual management needs.
Apart from the data warehouse, on-line analytical processing support is needed to retrieve
meaningful information for management purposes from the data warehouse.
Traditional treasury role
Certain functions will start playing a much more important role in the future treasury. Funding
management, corporate finance and risk management will become more prominent. Support by
treasury staff to other departments that affect the risk and general effectiveness of the use of
available resources, will become vital. One example here would be where treasury staff help
improve the cash conversion cycle to free funds which can be pushed into growth opportunities
and other financial investments, thereby improving the bottom line.
Complex financial management services
Recent corporate management problems in the US underline the need for a more holistic
approach rather than concentrating mostly on the management of cash and the management of
financial risk at departmental level. If risk is managed effectively at corporate level, the
enterprise can possibly take on more risk, which may result in more profit.
Enterprise-wide risk management
Risk management should take the whole organization into account and evaluate the interaction of
the various types of financial risk in the enterprise. All risks to which the enterprise is exposed
should be considered when managing risk. The risk exposure of the subparts of the enterprise is
not similar to the risks that the total enterprise is exposed to. As was mentioned before, sources
of risk are different today and much more of the capital of an enterprise can easily be placed at
risk with single (derivative) transactions.
Owing to the volatility and risk inherent in the business environment and the additional power
that technology brings, enterprise wide risk management (ERM) is becoming increasingly
important. In this context, the importance of the data warehouse is underlined in that it will help
avoid double counting or duplication of financial risks, and interrelationships will be more
clearly observed. Information will also be more readily available.

Risk management process

The financial risk management process (identification of risks, evaluating or measuring,
determining the appropriate strategy to counter risk, implementation of the chosen strategy and
monitoring), will be reinforced by anticipated e-business changes.
Better planning and allocation of resources
Automated and integrated systems will free resources that will lead to increased returns on assets
employed.
Management control

ERM will make the management control/cycle more effective adding more value, allowing
remote management of portfolios, clients and systems. A more unified and less time consuming
way of looking at/interpreting information will be possible. More levels of customisable security
from any location are possible today. More complete information for risk management and
planning purposes will become more readily available, emphasising the enterprise (group) as
opposed to departments. Management focus will be on adding value via risk management and on
business processes as opposed to internal intricacies.
Extension of the treasury function
The treasury function will expand and will allow greater emphasis on external relationships and
links to other Web sites and clients and companies, services will be offered through e-business
facilities to clients, 'self-help' corporate finance, risk management, cash management and cash
management services.
More advanced systems and less human intervention
Straight-through processing (STP) will be implemented with less human intervention - systems
will make automatic adjustments to the risk exposure and movement of information and
documentation will be automated in the e-business environment. Remote control of the treasury
will be possible with more transparency from the point of view of the investor.
The treasury will become more important in terms of adding value due to automation freeing
resources, accumulation of more information with which to manage the business and (total)
exposure to risk. Online analysis of data with much better analytical tools with far greater visual
presentation will make it possible to draw more value from information.
It may be argued that treasury should make certain information available via the Internet to
investors regarding the overall risk policies and risk position of the enterprise to create a degree
of transparency and avoid some of the corporate governance problems as experienced in the US
in recent times.

These issues highlight one very important aspect that will materially affect the future position of
treasury departments - the management of the corporate treasury must ensure the total integration
of the overall long-term business strategy, the treasury strategy and the information technology
strategy.
Current Situation in South Africa
In discussion with outsourcing companies, it is clear that South African corporates seldom have
proper treasury policy documents. This is problematic as there then tends to be a general lack of
direction affecting treasury employees and the business.
One of the other major problems that most businesses in South Africa face is the fact that
information systems are often fragmented or incompatible. Older systems are incompatible with
newer technology. This is confirmed by a global survey done of financial institutions by Deloitte
in 2007. The result of this may apply to an even greater extent to corporate treasuries than
treasuries in financial institutions. Due to inefficiency and cost, it is often not worthwhile
adjusting older systems to talk to new systems.
Apart from integration, older systems were often not designed for integration. Data files also
often do not, for instance, have all information needed for risk management purposes. Part of the
inputs to systems are quite often from manual systems such as spreadsheets or other means
which is time consuming and leaves room for human errors, giving rise to increased operational
risk.
ERM remains elusive in financial institutions due to the non-integration of systems. This applies
even more so to corporate treasuries, as financial institutions are often more dynamic and
advanced in this regard. Central to everything that the enterprise does should be the
accumulation of meaningful and timely data in a data warehouse. Since few corporates are at the
fully integrated system stage supporting the latter principle, exposure to all risks cannot be
optimally managed. The realisation of this objective still seems a few years into the future for
South Africa.
The acquisition, change and implementation of e-treasury systems from foreign countries have
become very expensive for South African companies due to the depreciation of the value of the
rand against the US dollar, euro and the UK pound. As an emerging economy, our currency
exchange rate is subject to wild swings, negatively impacting on good project planning and
development budgets. Although outsourcing and in-house development also has its limitations in
terms of cost and control, some companies are doing their own developments.
E-business also has not found its rightful place in the South African business environment due to
the lack of cheap bandwidth. Although there are higher bandwidth alternatives available today,
they all seem less than optimal and relatively expensive to use.
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Although the direction of a company is dependent on what the board approves in terms of
policies and risk appetites, it is also influenced by what happens in the business environment.
Every enterprise is different but similar external forces often influence all of them. In this sense,
the corporate treasury will also be influenced by market changes. To adhere to good practice in
treasury management, a company will often have to change to bring its practice in line with other
treasuries. South African businesses do focus on corporate governance and here the treasury
department has its role to play.
There should be no doubt that the modern (extended) treasury department is a value-adding
department. In South Africa, some corporate treasurers still refuse to accept this principle.
Conclusion

Corporate treasurers must take note of developments and tendencies towards building a global
presence. Planning for this today is important, as it will ensure that the corporate treasury will
develop into a sophisticated operation that adds substantial value therefore helping to drive the
overall corporate strategy. Early planning will also ensure that an enterprise will be able to
benefit from vast Web developments expected in the future that may allow many new business
opportunities and much more flexibility.