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A RENAISSANCE FOR TREASURY AND WORKING CAPITAL OPTIMISATION: THE EFFECT OF REGULATORY COMPLIANCE


The financial turbulence of the past years is finally settling thereby bringing a form of stability to the world’s economic climate, the regulatory landscape and consumer confidence affecting the corporate and banking attitude towards liquidity and risk management.

Recently, central banks and regulators have focused their efforts on rebalancing the economy, they have injected large volumes of liquidity supplies into the market and liberalize borrowing thereby pushing down interest rate to low levels in other to create a participatory economy. The banking sector has experienced massive changes and many of the assumptions that the industry was based on have turned out to be lacking. This has led to government support and the central bank support for credit downgrades and a fundamental shift in the approach to funding, liquidity ratios and key performance indicators.

The impact on corporate entities are apparent in all industries and at every stage of the supply chain, while some companies have made major readjustments to survive and there have been casualties in terms of job loss and right sizing. The general outlook now is that managing liquidity and risk is now recognized as core to companies strategy, not only as financial best practices. Companies are now better placed in a premium position to resist economic turmoil and attitudes towards liquidity and risk have changed fundamentally.

All companies, including those that have not experienced difficulties during the past crises, recognize the need for greater discipline in inventory levels, a strong balance sheet and an efficient working capital cycle. Companies that have focused on working capital optimization and supply efficiency have been able to withstand the financial crisis. They are in a better position to flex production amidst changing customers’ preferences and choice.

Another development is a change in the relationship between corporations and their banks, there is the need to focus on developing and maintaining close, long-term relationships helping the banks to understand the customers’ business, strategies, direction, opportunities, constraints and priorities. This would enable the banks to develop solutions and deploy models and products that treasurers could adopt easily to deliver financial and operational efficiency.

Financial regulations would continue to play an important role in preventing crisis in the financial and manufacture environment, the corporate sector have learnt to live and act in more fragile financial environment, long gone is extravagant bonuses and insane payoffs. This led to a renaissance for treasury and working capital optimization.

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