COVID-19Treasury Management

A Coronavirus Crisis Treasury Playbook

By March 17, 2020April 16th, 2020No Comments

Treasurers probably haven’t seen crises like this before. Here’s what they can learn from past events.
The COVID-19 pandemic has presented the modern world with an almost unprecedented crisis. And the daily onslaught of worrying headlines—cancelled sports seasons and parades, Tom Hanks and wife infected, travel bans—seems to be triggering, mystifying actions by panicked consumers, like the run on toilet paper. But despite COVID-19’s unprecedented nature, for treasurers there actually is precedent, so there should be no mystery about what needs to be done (and certainly, Microsoft is not going to run out of Excel spreadsheets).
During the eurozone crisis that began in 2009 and stretched into 2013, treasurers were guided by time-tested cash management principles honed in the US financial crisis of 2008 (and perhaps other crises like Argentina in the early 2000s). But they were also forced to create more comprehensive contingency playbooks addressing all aspects of business risk.
And although treasurers were caught off guard like everyone else by the speed of the current COVID-19 crisis, they can still check to make sure playbooks are up to date for whatever lies ahead. Generally speaking, these playbooks should include a range of risks and mitigation steps to ensure minimal disruption for clients and employees and are typically incorporated into a larger corporate-wide strategy that addresses all aspects of the business.  
The list below is culled from a late 2012 article, in which NeuGroup Insights’ predecessor, iTreasurer, asked members to list the important aspects that should be considered in the creation of their playbooks. We think it has aged well enough to be included in what now can be called the Coronavirus Crisis Playbook. Take a look:

Show me the money. Liquidity fears are one of the most prominent issues faced by members and are the subject of a variety of stress-testing scenarios and contingency planning strategies. It is important to understand how our organization will manage through extreme levels of volatility making sure that your cash is safe and accessible as needed. Extreme contingency plans have gone as far as holding levels of cash on hand in vaults and other secure locations in the event that banks are closed, and funds are unavailable for an extended period of time.

  • Making sure that the business can function after a significant event or during ongoing ones like now is of a primary focus for treasurers and their teams. It is possible that banks would close for a period of time and would impose capital controls or other reporting requirements or lifting fees, so it is critical that treasurers identify ways to keep the local office running as smoothly as possible. These important step-by-step details should be included in the overall contingency strategy.

2020 refresh: Ed Scott, retired treasurer of Caterpillar, recommends treasurers “pressure test their business plan” and suggests they “revise projections” to assume a one, two or three-month decline in revenue.

People management. All members agreed that it is important to ensure you have accurate updated employee contact information as well as a documented communication plan (call tree) so that you can quickly contact all appropriate stakeholders in the event it becomes necessary. Each member of the crisis team should understand their individual roles and responsibilities, and the business dependencies, in the event of market disruption.

  • This plan should be tested with sporadic “surprise drills” so that everyone can be sure the pieces are in place and are working as expected. It is always best to test contingency plans well before they are executed in real-time.

2020 refresh: Does your company have the technology in place for employees to work and meet remotely?

Payment and collections. Contingency planning for a disruption in your payment or collections activity should include a full understanding of your key customers, including their ownership and business location. You should know where your largest customers source their revenue so that you can determine potential downstream effects and plan accordingly. It is also important to understand the business details of your key suppliers; where they are headquartered and where they source their raw materials, so that you can plan for potential disruptions in the delivery of your raw materials to ensure production is not disrupted. 

  • It is important to identify a communication plan for large key clients and vendors so that you are ready to address payment terms if necessary. Some members have implemented supply chain finance programs in the event their key clients are unable to access bank funding. 

2020 refresh: Many companies now use suppliers from different regions as a redundancy measure. Are these other suppliers up to date on your business plans?

Trigger events. Each organization will need to address relevant trigger events that are specific to their individual organization. It is important to understand what trigger events you will monitor to ensure an early warning of potential disruption. Try not to predict what might happen, but instead use it as a contingency-planning tool. Understand where your cash is and how you can access it. Identify what key stressors exist in your supply chain and how can you contain risk to prevent significant business disruption.

  • Crisis management teams should meet periodically to address any changes to the status of the crisis and make necessary changes based on specific trigger events that may have occurred.

2020 refresh: “Each company should then determine what they can do to manage their variable expenses and cashflow,” Mr. Scott says.

Operations and technology. Have you stress-tested existing systems and procedures to manage changes in volume? Are you confident in the readiness plans of any third party providers? How soon will software providers be ready to accept new payment instructions or new currency codes? These questions should be carefully considered as part of the overall contingency strategy. The smallest detail can trip up a treasury team if it was not considered ahead of time. Some members have gone as far as to create new accounts with banks outside the “danger zone” to be opened upon the announcement of a country exit or bank closures.

2020 refresh: All TMS functions should be in the cloud.

Ted Howard

Author Ted Howard

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