By any measure, 2023 is shaping up to be a challenging year for businesses both in the U.S. and across the world.

Markets remain volatile. Interest rates are expected to continue to increase, although the timing and level of the final increases remain uncertain. FX rates and commodity prices continue to experience heightened volatility, driven by the threat of recession and ongoing supply chain problems.

Each of these factors facing the global economy will have company-specific implications for every treasury practitioner. That said, when planning for 2023, treasury practitioners will be focused on a series of general challenges including:

• Boosting resilience to ensure their companies have access to sufficient cash at all times, irrespective of the state of the economy.
• Managing counterparty risk by using their skills and understanding of their businesses, honed during the height of the pandemic, to focus on managing cash flow and trying to strengthen the wider supply chain.
• Protecting the budget, in an environment of volatile prices, by managing any financial risks, particularly with respect to cash flow.
• Expecting the unexpected by preparing for unforeseeable events including a sudden reversal in interest rate movements, the impact of supply chain problems or another black swan event.

To help reduce their organizations’ vulnerabilities to various external threats, treasurers can take the following three actions:

1. Achieve efficiency

The more a company can automate treasury tasks, the more accurate and timely forecasts and positions will be, allowing better decisions to be made. At a time when companies’ working capital and liquidity will be under pressure, all efficiency gains will help build operational resilience.

2. Maintain liquidity

Adopting strategies to streamline the use of liquidity internally (e.g., better use of pooling opportunities, introduction of a virtual account network) will reduce net borrowing requirements, protecting the company against the adverse effect of rising interest rates.

Managing working capital more effectively, potentially in partnership with key suppliers and/or customers, can help to manage risk, thereby reducing costs to boost sales and profitability. Investing surplus cash appropriately, using a bucketing strategy where relevant, will help to ensure cash remains available to the business when needed.

3. Manage vulnerabilities

A clear financial risk management policy, endorsed by leadership, will help manage the effects of market volatility and limit the impact on business costs. Treasurers can work with the wider business to adopt strategies that enhance the use of working capital and liquidity (e.g., a supply chain finance solution) in a way that will strengthen the supply chain as a whole.

Finally, treasurers will also want to prepare for coming market changes including the introduction of FedNow and ISO 20022, possible money market reform, and the end of USD Libor.

In a sense, these objectives for 2023 are no different than in any other year. What makes them more important than in other years is the uncertainty of the future.

Build resilience in your organization. Check out the 2022 AFP Treasury in Practice Guide: What’s Next? A Practical Guide to Prepare for Changes in 2023.