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Centralising the Treasury Operations Essay

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Updated: Apr 3rd, 2019

The treasury in a business environment is the unit in charge of the management of the funds’ flow. Usually, the treasury fulfils its roles through cash flow and liquidity management. In addition, it controls the management of all the financial risks in an institution.

Globally, treasury managers in international banks encounter immense challenges concerning the overseeing of transactions across vast geographical locations and different time zones (Bragg 2010, P.34). Centralisation enhances an organisation’s management, assessment, and transparency.

By 1990, the redevelopment of the first sharing services had occurred in the US. The centers’ obligations were to increase and maximise the American corporations’ investment returns by employing project-planning solutions.

Afterwards, the multinational organisations and banks realised the outcome and importance of consolidating their treasury. In this regard, these organisations could merge and process numerous tasks and information in one central location.

Moreover, the organisations realised that centralisation enabled them to deliver efficient and transparent services while attracting qualified expertise.

Apart from its financial advantages, centralisation offers a chance for organisations to streamline their control and administrative procedures at the treasury level.

Likewise, the reengineering and rebuilding of an organisation’s processes enhances effective control. Therefore, multinational firms must redesign their structure to benefit from centralisation.

Methods of treasury centralisation

Banks and organisations must consider several factors before settling on the centralisation of their treasuries. As a bank expands, its treasury expands too. This creates the need for the selection of an appropriate model of operation.

Therefore, banks must consider the major aspects affecting their operations. These include the scale of the broadened operations and intricacy of the treasury desired. These aspects correlate to form a basic decision matrix tool for any treasury model.

The process of centralisation should reflect the growth and nature of the treasury’s tasks. Additionally, it is crucial to reflect the disparity in the execution of corporate finances as well as the cash flow activities.

With the technological advancements and improved financial markets, the financial support and prevarication management from a central location has become a possibility (Hudson 1994, 256). With cheap and efficient management practices, multinational banks and companies can utilise highly trained personnel to execute and manage their transactions.

Centralised treasury management

Banks and organisations should centralise their treasury as per the cultural and geographical setup of their business tasks. Organisations employ appropriate database systems to run their management activities in different parts of the world.

In this regard, the organisations gain economies of scale as well as reduced operational costs, which result in improved returns and the creation of a favorable environment for business growth.

Additionally, the treasury’s centralisation allows affiliate companies to demonstrate their value adding processes to an organisation. Therefore, in this regard, banks achieve reduced costs and financial risks, increased investment returns, and the acquisition of qualified expertise.


For the international banks to attain additional economic gains, they must embrace outsourcing and through centralisation. Banks’ treasuries often encounter numerous challenges such as the need to globalise treasuries and the attainment of efficient cash flow management systems in the ever-changing markets.

A combination of these forces and the limited resources and infrastructure has compelled treasuries to adopt outsourcing. Working with several outsourcing partners, banks can provide their workforce and clients with flexible and efficient services.

More so, through outsourcing, banks can allow their treasuries to tackle domestic and regional challenges. Currently international banks and organisations setups require treasuries that are more dynamic. Thus, several middle level companies have resorted to outsourcing part of their treasury to the international banks.

Similarly, companies with regional treasury can exploit the benefits of outsourcing when setting up new branches in new territories without investing more on their treasury budget.

This approach enables the treasury units to allow the treasury administration to focus on the vital aspects of its work while letting the service providers handle the operational related issues.

The impacts of globalisation on centralisation

With more corporations and international banks increasing their operations worldwide, ethics, principles and payment procedures in the international market need regulation and standardisation. The centralisation of the international banks’ treasuries tackles these challenges as the banks have the capability to cater for both the domestic and regional treasury issues.

Regional treasury centers

When deciding on the location for a new treasury organisation, the selected location should be central and its legal and tax policies should concur with the companies’ tax policies. By so doing, a company will significantly minimise its cost while expanding its investments.

For instance, Nokia chose Singapore over Australia, Malaysia, and Hong Kong in setting up its centralised treasury because Singapore’s tax systems were more favorable (Greuning 2009, P. 234). In this regard, it is important that banks do not solely major on returns and corporate tax, but also focus on their revenue contribution to the state.

Phases of the treasury centralisation

Normally, there are three phases of centralising the treasury (Greuning 2009, P. 254). The initial phase is the creation of a central treasury unit. The unit aims at dealing with the risk management and interest rates of an organisation.

The central treasury units can further be sub-divided into multicurrency cores and in-house banks. In-house banks provide organisations with the needed banking services in the subsidiary levels. Within the In-house banks, the central treasury can obtain information regarding the cash level.

The second phase of the treasury centralisation comprises the centralisation of money and liquidity administration. The creation of a regional multicurrency pooling system within the local banks enables the achievement of this cause.

This process is referred to as cash concentration. International banks are required to have several cash balances on diverse bank accounts in different currencies across different banks worldwide.

This enables the banks’ treasury management to concentrate their extra cash balances on a single account in one location facilitating the maximum control of the liquidity position as oppose to the case of a global spread (Greuning 2009, P. 255).

Thus, multinational banks have established complex strategies to concentrate their offsets and renovate their cash scales to achieve a single balance stand through the year.

The third phase of centralisation comprises the centralising of all the transaction processes within an organisation. This achieved by centralising the incoming, outgoing, and documentary payments.

By establishing new consolidated entities referred to as payment factories, banks and other organisations can achieve this objective. With these payment factories in place, an international bank can centralise the standard accounts from its subsidiaries enabling a single payment distribution to banks (Greuning 2009, P. 157).

The risk of treasury decentralisation

In a decentralised setup, banks allow their subsidiaries to control and manage their own payment procedures. Each bank relies on its own staff and infrastructure to run its operations. In this regard, flexibility is achieved.

However, the system results in a weak visibility of monetary and high interest rate risks due to the absence of pooling methods. Consequently, the lack of standardisation and automation in the banks’ treasury can present transaction risks caused by the erroneous outgoings and data dismissals.

Decentralised banks can only benefit from their ability to manage all the factors within their business setups. Thus, the managers of such banks should be convinced to adopt centralisation to improve on their tax returns and attain effective treasuries.

In the end, such banks will benefit from the improved profits and a highly qualified workforce upon the adoption of centralisation.

Near shoring

In Europe, this term refers to all the shared services between various companies. The system has thrived in Hungary and Czech Republic because both countries have no legal restrictions on the treasury centralisation leading to advanced skills within their banks’ workforce (Greuning 2009, P. 257).

In addition, the location of these countries has significantly benefited them since they are nearer to the manufacturing facilities, which provide them with a large market.


Currently, multinational banks are encountering significant challenges concerning the creation of firm and effective treasury infrastructures to cater for the ever-evolving market demands. To achieve this objective, they should focus on the reduction of their operational costs and develop viable operations that enhance their growth in the market.

Furthermore, the banks should remain conscious of the international payments standards that are subject to change (Hostetler 1989, P.123). Despite the benefits of the treasury centralisation, many organisations’ treasuries encounter several setbacks due to their incomplete control and utilisation of centralisation.

Furthermore, small banks and organisations lack the proper infrastructure and technology to implement this system. These setbacks affect the treasury departments negatively.

Although there is immense pressurisation on several multinational companies to adopt the appropriate treasury structures such as centralisation, the treasury discipline as a whole is still immature compared to other financial and accounting disciplines.

Therefore, to optimize on this system, increased research and academic attention need to be directed on the treasury management in order to realise effective treasury operations in the international banks.


Bragg, S. M. (2010). Treasury management the practitioner’s guide. John Wiley: Hoboken, N.J.

Greuning, H. v., & Bratanovic, S. (2009). Analyzing banking risk: a framework forassessing corporate governance and risk management (3rd ed.).World Bank: Washington, D.C.

Hudson, R. (1994). Treasury management (2. ed.). Blackwell: Oxford [u.a.

Hostetler, J. A. (1989). Amish roots: a treasury of history, wisdom, and lore. Johns Hopkins University Press: Baltimore.

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