Global Challenges in Corporate Finance and Treasury Management - Centralization and Internationalization

Treasury managers in many multinational corporations currently face huge challenges in managing transactions across multiple locations and time zones while working with many outside banks due to the fact that the greater the geographic stretch of a company, the more difficult it is to access and track accurate and timely cash flow information. Centralization of treasury activities then offers companies the ability to achieve higher efficiencies, greater transparency and access to real time information across an extensive geographic area with different time zones, and entities. Shared Service Centre’s (SSCs) offer companies the ability to simplify control and management processes in treasury. They play a key part in increasing visibility over all cash flows, and processes in order to maintain and increase efficiency and control. This control and transparency in turn supports risk management procedures in terms of financial and compliance risk.

The process of centralization reflects the differences in executing corporate finance and cash management activities. By centralizing Cash Management procedures, a company is able to effectively manage internal cash flows, and trim its operating costs, among other things. In-house banks provide the best level of cash centralization since they oversee and control the operations of the internal accounts of individual companies. They are the only entity allowed to transact with outside banks, so it requires the whole company to consolidate its financial requirements internally and obtain the greatest economies of scale for external transactions.

There are different phases in the centralization of treasury management. Many firms start with the centralization of foreign exchange and interest rate risk management as the first step towards centralization of treasury activities. This step encompasses the creation of one central treasury department to manage interest rate and foreign currency risk. The second step if cash and liquidity management by creating domestic, cross-border and multicurrency cash pools, and by replacing local bank accounts with international accounts. This process is called cash concentration. The

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