In an Uncertain Environment, It Pays to Take a Fresh Look at Your Operations
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In a recent report, BMO Economist Robert Kavcic identified a timeline for a potential recession based on what financial markets have been signalling. Most notably, he wrote, an inverted yield curve has a long history of accurately foreshadowing downturns.
“Looking historically at the 10-year minus fed funds curve, we can see that inversion first occurs, on average, just over 14 months before the start of recession. Peak inversion occurs roughly six months before the onset of recession. Given that the curve first inverted in November 2022, and if the May depths hold, that would place the crosshairs of recession somewhere around the end of the year—later than many initially expected.”
With elevated interest rates and in light of the recent instability in the U.S. banking sector, it’s as important as ever for companies to ensure they have the right banking partnerships, and that they are leveraging these relationships to optimize their treasury operations. When it comes to evaluating your banking partners, it’s important to look beyond pricing and products and consider a bank’s asset quality, leverage ratio and overall soundness. After all, you want to make sure your bank will be with you for the long haul and that they won’t need to make portfolio adjustments in order to stabilize their own operations.
Just as you do with the other advisers you work with, such as accounting and law firms, it’s a good idea to leverage all the expertise your bank can provide. Have them take a fresh look at your entire operation, from your day-to-day needs to whether you’re positioned to achieve your longer-term objectives.
Maximize Operational Efficiency
Leave no stone unturned when evaluating your current operation. There may be ways to improve even some of your more basic functions. Work with your bank to understand the following:
- Do you have the right types of accounts open for your day-to-day banking requirements?
- Are your transactional turnaround times as fast as you and your suppliers and customers need them to be?
- Is your fee structure in line with the value you’re receiving?
- Are you using the right products to achieve the right outcomes? Are there alternative products to manage your incoming and outcoming payments that offer reporting details, are less costly and easier to use for your internal processes?
- Do you have ready access to information and reporting to help you make sound decisions?
Simplify Where You Can
With low unemployment, many companies can’t afford to have their employees spend time on tasks that don’t add value to the organization. Analyze the effort required to accomplish certain functions and see if they can be simplified. Are there digital platforms that can make conducting transactions more efficient? Are there ways to automate your cash management activities, such as consolidated accounts payable or receivable reports? Make sure you’re not only using the right tools, but that your employees understand how to use them to their full capabilities.
Make Sure You’re Protected
Test all of your fraud risk management protocols. Your bank should be keeping up with the latest fraud threats, including social engineering. Mitigating fraud risk isn’t just your bank’s responsibility; establish fraud-mitigation processes so that your employees are also vigilant against fraudsters.
Optimize the Use of Excess Cash
Revisit the yield you are receiving on your excess cash. Do you have the right investment policies in place? Is your cash working as hard as it can for you? With a higher cost for capital in the current interest rate environment, you may be able to make strategic investments in your business without having to borrow.
We constantly have conversations with clients who are trying to navigate this environment. While we know there are many external variables beyond their control that impact their businesses, addressing the issues outlined here can help ensure that their financial position isn’t one of them.
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Oscar Johnson
U.S. Head of Commercial Sales for Treasury and Payment Solutions
Oscar is the U.S. Head of Commercial Sales for Treasury and Payment Solutions for BMO Commercial Bank. His group is responsible for providing cash management, …(..)
View Full Profile >In a recent report, BMO Economist Robert Kavcic identified a timeline for a potential recession based on what financial markets have been signalling. Most notably, he wrote, an inverted yield curve has a long history of accurately foreshadowing downturns.
“Looking historically at the 10-year minus fed funds curve, we can see that inversion first occurs, on average, just over 14 months before the start of recession. Peak inversion occurs roughly six months before the onset of recession. Given that the curve first inverted in November 2022, and if the May depths hold, that would place the crosshairs of recession somewhere around the end of the year—later than many initially expected.”
With elevated interest rates and in light of the recent instability in the U.S. banking sector, it’s as important as ever for companies to ensure they have the right banking partnerships, and that they are leveraging these relationships to optimize their treasury operations. When it comes to evaluating your banking partners, it’s important to look beyond pricing and products and consider a bank’s asset quality, leverage ratio and overall soundness. After all, you want to make sure your bank will be with you for the long haul and that they won’t need to make portfolio adjustments in order to stabilize their own operations.
Just as you do with the other advisers you work with, such as accounting and law firms, it’s a good idea to leverage all the expertise your bank can provide. Have them take a fresh look at your entire operation, from your day-to-day needs to whether you’re positioned to achieve your longer-term objectives.
Maximize Operational Efficiency
Leave no stone unturned when evaluating your current operation. There may be ways to improve even some of your more basic functions. Work with your bank to understand the following:
- Do you have the right types of accounts open for your day-to-day banking requirements?
- Are your transactional turnaround times as fast as you and your suppliers and customers need them to be?
- Is your fee structure in line with the value you’re receiving?
- Are you using the right products to achieve the right outcomes? Are there alternative products to manage your incoming and outcoming payments that offer reporting details, are less costly and easier to use for your internal processes?
- Do you have ready access to information and reporting to help you make sound decisions?
Simplify Where You Can
With low unemployment, many companies can’t afford to have their employees spend time on tasks that don’t add value to the organization. Analyze the effort required to accomplish certain functions and see if they can be simplified. Are there digital platforms that can make conducting transactions more efficient? Are there ways to automate your cash management activities, such as consolidated accounts payable or receivable reports? Make sure you’re not only using the right tools, but that your employees understand how to use them to their full capabilities.
Make Sure You’re Protected
Test all of your fraud risk management protocols. Your bank should be keeping up with the latest fraud threats, including social engineering. Mitigating fraud risk isn’t just your bank’s responsibility; establish fraud-mitigation processes so that your employees are also vigilant against fraudsters.
Optimize the Use of Excess Cash
Revisit the yield you are receiving on your excess cash. Do you have the right investment policies in place? Is your cash working as hard as it can for you? With a higher cost for capital in the current interest rate environment, you may be able to make strategic investments in your business without having to borrow.
We constantly have conversations with clients who are trying to navigate this environment. While we know there are many external variables beyond their control that impact their businesses, addressing the issues outlined here can help ensure that their financial position isn’t one of them.
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