Verifying purchase and sales forecasts and monitoring actuals diligently is more important than ever to safely navigate our new business ‘normal’ of on-going disruption due to COVID-19. The potential impacts on a business extend well beyond the in-house position: how have suppliers been hit by COVID changes to their own supply chains? What changes are being witnessed through customer behaviour – and how has their ability to pay been affected?
A simple ‘change date’ to rolling forecasts is unlikely to be appropriate in this new environment, questions should continue to be asked on a ‘whole of business’ basis. At Bancorp, we have seen businesses change not only volumes in recent times but also contractual arrangements.
From a governance and control perspective, this should trigger a treasury policy review to align parameters with the new ‘normal’ and update areas such as categorisation of exposures, hedging product use, and approved counterparties.
Is your treasury policy a safety net or an anchor?
Here are a few ‘real world’ scenarios where changes in the business should trigger a treasury policy review:
Case A: A medium sized tech company has experienced significant growth due to an increased market demand for online payment and apps. In order to safeguard growth and mitigate any associated risks, the business needs robust new treasury parameters around funding, cash management and liquidity – and a clear understanding of its bank’s altered requirements for forecasting plus the proof of a strong pre-COVID balance sheet to access any funding extensions.
Case B: A family business has restructured to enable new growth. Resistance to change has meant that some legacy processes have not yet been updated, with the CFO still signing off cheques. The restructure needs to be reflected in new treasury processes and procedures, captured in an updated treasury policy, to strengthen business governance and reduce risk.
Case C: A new Board member with a treasury background is appointed and wants to revisit governance controls to complete their own due diligence. As part of this review, they find that the existing treasury policy has not kept pace with the organisation’s current reality and future goals. This triggered a policy review and Bancorp Treasury has helped the business to re-align its policy with business goals and the economic environment. Without this action, the policy would have failed to operate as the risk management tool that it was designed to be.
With focus across business firmly centred on cost control, funding structures or investment returns, the time is now for ensuring the treasury policy and associated reporting are in alignment with actual practice.