The coronavirus crisis has had myriad impacts on society as a whole. In addition to the obvious impact on people’s health, our health care infrastructure and social norms, economic disruption from interrupted supply chains, staff shortages and skeleton operating models have all been significant.
Though the treasurer’s job and business functions may not change because of the pandemic, some practices have, and should, remain changed for the better.
Paper and hardware have been traditional elements in the processing of payments and receivables. Despite a slow and steady decline in the use of checks over the past two decades, the principal value of checks still comprises 26.6% of the total value of payments made in the U.S.
At the onset of the pandemic, collecting receivables was among one of the processes most directly affected, given that a fair amount of a business’s cash flow is denominated in paper instruments such as checks. Therein lies one of the most immediate challenges to cash flow posed by lockdowns and stay-at-home advisories. How might businesses go about collecting on the checks if someone isn’t physically present to process them?
Banks have made great strides in applying digital technology to the world of checks, but companies that receive checks still have to physically receive them in order to digitize them. Thanks to mobile and portable technology, however, the answer boiled down to creativity. Provisioning clients with small check scanners that can be set up in a home office was a key first step. This also required companies to arrange for alternate address mail delivery or carefully scheduled, socially distanced trips to the company mailroom.
It’s worth noting that corporate treasury functions themselves, and the core principles of cash management and working capital optimization, are not expected to materially change by virtue of the pandemic or current trends. Nevertheless, the COVID-19 crisis has accentuated and underscored the value of going digital.
For example, leveraging a virtual corporate card solution and automated clearing house transfer (ACH) to pay and/or collect immediately removes the dependency on physical instruments, thus enabling a company to be more nimble in its treasury management operations. No longer does a function have to be tied to a specific location with these types of solutions.
These digital banking methods also significantly improve cash flow by accelerating collections. In fact, the pandemic, and more specifically, the economic impacts thereof, have underscored the importance of paying and receiving even faster. Whether a company is looking to collect quickly on outstanding invoices or pay suppliers upon whom they depend, speed has become a key expectation throughout the transition to remote work.
The industry was already working toward this objective with the development and introduction of real-time payments (RTP) in late 2017. Initial growth in RTP was slow at first, but began to accelerate in 2019, with 54% of U.S. demand deposit accounts (DDA) — checking accounts — now enabled for RTP. This year’s crisis has drawn increased attention to its value proposition and as a result, we may see more companies seeking RTP solutions and banks working quickly to meet these demands.
From a risk perspective, COVID-19 has heightened the importance of comprehensive business continuity planning (BCP). According to a 2020 AFP survey, only 38% of 1,000 companies surveyed had a documented BCP in place prior to the pandemic. The coronavirus crisis has changed this statistic, and we should see a significant push toward not only implementing BCP, but also stress-testing them for a variety of scenarios.
Sadly, many crises tend to increase fraud, as criminals seek to exploit the disruption that often results. Because of this, we are seeing companies step up their efforts to manage fraud risk, through internal process changes such as dual/triple control over payment approvals, which can often introduce increased expense and process inefficiencies. A better option, for example, may be to employ bank-provided safeguards such as positive pay, which mitigates risk through payment data matching and debit/credit filters or blocks, reducing the risk of unauthorized activity against a client’s accounts.
To that end, it is incumbent upon CFOs and treasurers to consider the following three action steps to bolster treasury resiliency amid this critical juncture in the global public health crisis:
Speak with bank providers to ensure they have the relevant technology they need, such as online/mobile access to key cash management functions and hardware to support paper-based processes that can help prepare them for any current in-office or work-remote situation.
Accelerate plans to move from legacy processes to digital solutions to streamline the payment or collection process, improve risk management and deliver a better experience for all parties in the payment chain.
Place a priority on business continuity planning and develop the necessary arrangements for workforce, procedures, security and technology to help preempt future crises.
The trends we’ve witnessed, especially the transition to digital, have gained traction amid COVID-19. The pandemic has and will continue to serve as a catalyst for change. While CFOs’ and treasurers’ company business models won’t likely change as a result of COVID-19, the operating practices and related tools they employ to weather the next storm will most likely need to evolve.
