Published: January 01, 2000
Since the financial crisis, there has been a fundamental shift in the role of the corporate treasurer in Latin America. Where historically treasury was viewed as a support function to the business, taking more of an administrative role focused on day-to-day tasks such as facilitating payments and collections and generating reports, in recent years, that role has transformed from an evolutionary to a much more revolutionary one. Senior management is no longer just looking for reports, but rather looking for an advisory function that can deliver both operational and strategic advantages that are in line with corporate priorities.
A more strategic treasury function within the company is welcome news. By taking a holistic view of the organisation, treasury is improving efficiency and supporting growth while helping reduce risk across the company. But it must be noted that with added responsibility and an increased remit also comes one of the greatest challenges that today’s treasurers’ face: the ability to do more with less from both a human capital and budget resource perspective. So, the ability to generate efficiency wherever possible has become an absolute priority that corporate treasury must balance.
To achieve this, many companies in Latin America are turning to their banks for advice, support, and solutions that enable treasury to embrace the evolution of the function while helping the company achieve its strategic goals.
As we see economies emerge from the post-crisis period and growth begin to increase, many companies have refined their focus and are targeting the regions and countries that are offering the greatest opportunities for their business. For most companies, a key component of the growth strategy has been focused on geographic expansion with a continued emphasis on emerging markets, such as Latin America. Corporate treasury has become a linchpin in supporting a company’s growth strategy in an increasingly complex global environment.
A critical part of being able to take advantage of these opportunities is a real understanding of the regional nuances and what it means to do business in these countries. When it comes to doing business in Latin America, there is far more to consider than simply what tapping into a new market will add to the company’s bottom line. Treasury plays a key role in helping the company understand the intricacies of doing business in a new region/country ranging from the establishment of local bank accounts to the need to pay new vendors and suppliers often times with markedly different payment and collections practices.
As an example, a US company may be used to paying with cheques. However, in Brazil cheques are rarely used with the vast majority of payments being electronic. Similarly on the collections side, as much as 85% of collections are made using the Boleto, an advanced automated collections and reconciliation instrument that allows for the electronic reconcilement of the payment with the outstanding client receivable. While the Boleto may be unfamiliar to non-Brazilian companies, it offers enormous efficiencies. A company entering Brazil with upfront knowledge of the local payment and collections landscape will be poised to operate much more efficiently from day one.
Because of the intricacies of local market practices, corporate treasurers are increasingly turning to their banking partners who bring subject matter expertise that can help treasury navigate the challenges that exist in the region while also bringing both the experience and solutions to help overcome them.
Corporate treasurers face tough challenges in an uncertain environment. Risk management has become a key focus for the function as treasury manages a much broader set of risks than ever before, including counterparty, liquidity and operational risks. For firms expanding into emerging markets, such as those in Latin America, additional risks to monitor are introduced including market volatility and FX risks.
But as the strategic role of treasury evolves, there are also often overlooked risks that should be considered particularly when expanding geographically. One of these is cultural risk. It’s important to recognise that a region like Latin America is not a homogeneous region. There are different cultures and languages and as treasury evolves there has to be an allowance for managing diversity. A corporate treasurer may find, for example, that they want to do things one way while regional or local practices may dictate a completely different way of doing things. Today’s treasurer does truly need to think globally but act locally.
As companies execute their growth strategies, these have had a profound impact on the need for more robust information capabilities, providing greater visibility and control. Real-time access to information for a holistic view of the franchise is the goal but for most that’s easier said than done. Technology plays a critical role in providing the end-to-end visibility over flows that business require in a 24x7 environment.[[[PAGE]]]
However, with funding and resource constraints in most corporate treasuries, the extent to which new technologies and systems can be deployed is being challenged. As a result, corporate treasurers are increasingly leveraging the technology and infrastructure investments being made by their banking partners to meet their needs. Bank solutions such as cash flow forecasting capabilities and enhanced real-time data access are helping corporate treasurers make more rapid, informed decisions while leveraging industry standards, such as ISO XML and SWIFT, is also helping to create greater efficiency and reducing costs.
As treasurers seek greater visibility and control, there has been a desire to centralise processes for a single view into the organisation. But while a corporate treasurer may ultimately desire a centralised view across the function and organisation, in Latin America, treasurers also need to take into account local regulations and market practices which can put some bumps in the road towards true centralisation.
While newer technologies are admittedly making treasury centralisation easier, many firms, and particularly those doing business in Latin America, are starting to take more of a hybrid or ‘best of breed’ approach. Many treasury functions are centralising what can be centralised to allow a holistic picture for treasury while at the same time regionalising, or localising, processes where appropriate. As an example, many companies want account signatories to be centralised at the headquarters, but in Latin America some countries require signatories to be local. In general, things like collections and FX are also done at the local level due to regulations and market practice within the region. Consequently, we are seeing some give- and-take happening to create the optimal structure so that treasury can be as efficient as possible while also complying with local regulations and allowing autonomy of the local staff to carry out the day-to-day remit of treasury.
It is clear that the environment in which treasury is operating today is a very complex one. For corporate treasurers doing business in Latin America the key to success is to be well-informed. Working with the right banking partner can help treasuries navigate the intricacies of the region and meet their strategic objectives. Latin America is extraordinarily diverse and complex. Corporate treasurers need to have an understanding of local market practices so that they can effectively mitigate risks, optimise working capital and ensure that the business can achieve its strategic objectives.
In an ideal world, a company would work with a single bank across the region but in Latin America this is rarely possible. Instead, a best practice is to work with a global provider who can help centralise information and provide the required visibility and control while working with local banks for local services such as collections, in countries where such arrangements are necessary. Selecting a banking partner that not only provides the necessary products and services but also takes an advisory role and is able to share best practices is an essential part of the process. Every company’s vision, strategy and priorities will be different. Above all, a bank partner should offer a company the flexibility it needs to adapt as change occurs both internally and externally.
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