Centralize treasury management to reduce risk, increase control.

Multinational corporations currently face huge challenges in managing transactions across multiple locations and time zones while working with many outside banks. The greater the geographic reach of a company, the more difficult it is to access and track accurate and timely cash flow information. At the same time, mid-cap companies that are growing in value and size must decide how to implement the right solution for managing an increasing volume of transactions.

Treasurers have pushed to gain more visibility and control over cash management by using technology tools that allow them to overcome the obstacles of time zones and geographical distance. These tools have helped to automate many processes, deliver cost reductions and facilitate 24/7 availability of information.

With the advent of Sarbanes-Oxley, companies now need technologies that provide not only visibility and control, but also regulatory reassurance. And, since the CEO and CFO must now sign off on quarterly financial statements, in order to trust the numbers they sign off on, they require instant and centralized visibility of their organization's cash position.

Thus, while it might have been optional in the past, in order to meet today's compliance requirements companies must now centralize cash management. A closer look at the pros and cons will help to illustrate the importance of centralizing treasury and cash management, and the steps to take to make it happen.

Sarbanes-Oxley is a primary consideration when making the move, but even without the Act a centralized approach to a treasury management system is still essential. Quite simply, centralization helps reduce costs and improve risk management by giving a better view of short-term assets and liabilities, and by providing an instant dashboard of cash positions across the business.

In 2004, Lucent Technologies adopted a centralized system and created an in-house bank. From a treasury perspective, the consolidation of individual businesses' exposures and cash flows has dramatically reduced its volume of transactions. Consolidated hedging capabilities have resulted in considerable cost savings and improved decision-making. This consolidation also resulted in a 25 percent decrease in the volume of external deals entered by the in-house banking group.

Managing foreign exchange across multiple locations is another advantage. With a single view of transactions in New York, Tokyo and London, multinationals can take advantage of foreign exchange differentials to make the most of international payments and transactions.

Avoiding the Pitfalls

Whatever the company size, three primary issues arise when implementing centralized treasury systems.

The first, getting support and buy-in from the information technology (IT) group--which will make the system work and train users--is critical.

The second issue confronts typical large multinational concerns that operate across geographies. Such issues as taxes, regulatory and time zone problems, and a lack of interoperability across diverse systems plague all multinationals.

Shifting operations to a centralized system will guarantee visibility and Sarbanes-Oxley compliance, but it requires managing intra-company politics carefully. The human element, always the messiest part of any change-management program, is the third challenge. This can be particularly acute in large companies due to local control of subsidiary operations, but mid-sized firms are affected as well.

Legacy systems may be managed by employees who find it hard to transition to a new technology or way of working. Also, these individuals may be concerned about ceding control to "corporate," or worried that new technology will threaten their jobs. The key to managing the people issue is communication. Companies that have made this transition well plan ahead, develop a phased rollout, communicate effectively and, most importantly, have an internal champion.

Centralized treasury management systems are more than IT wizardry or Sarbanes-Oxley pacifiers. Technologically sophisticated and providers of compliance assurance, they are also hard taskmasters, putting corporate cash to work and pooling it daily so that companies can pay off debts or effectively invest their cash. In the new centralized system, idle cash is obsolete.

Transparency and control also contribute to better risk management, both in terms of financial and compliance risk. Exposures can be hedged and unnecessary losses reduced; at the same time, red flags can be raised about transactions that may put the company at risk of Sarbanes-Oxley violations.

When assessing results, it's the numbers that tell this story best. Royal Philips Electronics saw a return of investment of 75 percent and a payback in just over two years after implementing its solution. With this kind of value for centralized treasury management, it's not a question of whether organizations will adopt these systems, but when.

Jeffery Struzenski ([e-mail]) is Executive Vice President for the Americas region for Trema (www.trema.com), a global provider of treasury and asset management solutions.