
Asked by the business to open a customer bank account, treasury proposes a better approach, a win for everyone.
Bringing a better idea to a product team responding to a customer’s request served as a powerful demonstration of one treasury team’s strategic value and ability to enable business partners to succeed. This example of treasury using its expert insights on financial transactions and processes emerged during a conversation at the NeuGroup for Tech Treasurers 2024 Tech Summit.
- And while the company’s industry—financial services—may explain some of treasury’s success in showcasing its value, the point is that the practice of bringing superior ideas, approaches and methods to the business should be replicated by other leaders committed to proving that treasury is not a reactive or passive function dedicated to liquidity and risk management. Instead, it’s engaged, proactive and has a growth mindset.
The beginning: a bank account. Here’s the story, in broad strokes; the details are less important than how treasury’s actions ultimately paid off for the product group, the customer and treasury itself.
- A product team at the company asked treasury to set up a new bank account for a customer that wanted to lower its counterparty credit risk.
- After digging into the details, treasury realized that as part of the financial product/service provided to the customer, the bank account on a given day would see cash flows from the customer; the following day, the corporate would pay what it owed the customer.
The problem and solution. Treasury’s analysis determined that the suggested structure would actually create counterparty risk, require daily wires, and mean the customer lost the use of the funds sent to the corporate.
- The better setup, treasury concluded, would be net settlement of the flows, eliminating the need for payments by both the customer and the corporate. Net settlement would also make a new bank account unnecessary.
- Instead of the dual cash flows, the corporate would move a small amount on the day it owed the customer funds—if it owed anything. Often, the treasurer said, no funds need to move.
- As for additional work, the product would only require setting up new reporting of the net settlement amount.
Using diagrams to overcome resistance. The product team was initially reluctant to push back on the customer’s request for a separate bank account given the length of time it had taken to negotiate a contract. Treasury overcame that resistance; its tactics may prove useful to other finance teams trying to influence business decisions.
- To make its case, treasury detailed with diagrams the operational risk and burden of opening a new account just for one customer and product flow. One reason: the company’s systems rely on pooled account management for its global funds flows; not every product get its own bank account given the complexity it would create.
- Opening a new account would also lead to increased reconciliation and bank fee costs. One diagram showed the unnecessary movement of funds between accounts that would result in more work for both the customer and the company.
- Another diagram illustrated benefits that both the business and the customer would enjoy under treasury’s proposal of simplified fund flows.
- The upshot: “We convinced them to at least let us speak with the customer about our proposal since we thought it was much better,” the treasurer said.
Success: a happy customer. Treasury laid out its alternative proposal to the customer. “They saw it and thought it made a ton of sense and were very pleased,” the treasurer said. “It simplified things for them, reduced their risk and improved working capital.”
- As you might expect, this outcome—a happy customer—excited and pleased the product team, the treasurer said. Wins like this go a long way toward treasury developing closer relationships with the business—essential for enhancing the function’s stature.
Not one and done. This was not a one-off success story for treasury and its business colleagues. The treasurer said the product team is “rebuilding the product around our idea” and pitching this as a feature for many other customers.
- The treasurer said although this specific example may apply to a narrow group of companies, “there are many places where netting makes sense,” including accounts payable (AP), accounts receivable (AR) and other areas.