Cash management and forecasting became vital when the Dutch headquartered development organisation SNV became dependent on donor funding after a long lasting core subsidy cycle from the Dutch Ministry of Foreign Affairs ended. In an environment with increasing volatility, Harry Blok, Head of Finance, says the organisation needed to implement a new treasury target operating model to improve efficiency, liquidity planning and risk control to be ready for these dynamics.
SNV is an international not-for-profit development organisation, with a steady presence in 27 of the poorest countries in Asia, Africa and Latin America. SNV equips communities, businesses and organisations with tools to increase their income and gain access to basic services in Water, Sanitation and Hygiene (WASH), Energy and Agriculture.
In the current model, SNV receives project based funding from institutional donors and private foundations such as USAID, the World Bank, the Dutch Ministry of Foreign Affairs, and the Bill & Melinda Gates Foundation (BMGF). SNV’s new funding modalities make planning and enhanced control clear priorities.
Blok joined SNV in April 2016. As Head of Finance one of his objectives was to further professionalise SNV’s finance department, including its treasury function. After losing generic funding from the Dutch government, financial planning, enhanced control and treasury efficiency were essential.
Project funding, and specific donor requirements, often come with restrictions about what banks SNV can use, making an efficiency-focused bank rationalisation plan difficult to implement.
SNV necessarily has to deal in many different currencies in order to pay for its activities and local staff in the field. It uses a variety of payment instruments, so gaining further process efficiencies and centralisation to improve insight and control won’t be an easy process.
“We are a non-governmental organisation (NGO) where the profit motive and ultimately distribution of surpluses to shareholders isn’t our driver. Our primary function is to get a development project done and spend donor funds in the most effective way possible. It is this difference with the commercial sector that I have found most interesting since joining SNV last year. On the other hand the finance processes and technology are the same while focussing strongly on full transparency and oversight”.
Managing SNV’s financial risks, including foreign exchange (FX) risks, is only possible with full insight into our liquidity position at any given moment in time and with better overall financial and treasury control. Therefore, efficient planning of liquidity and understanding the dynamics of the FX risks SNV is facing in all its 27 countries, is one of the highest priorities.
A ‘Treasury roadmap’ has been designed, in conjunction with Orchard Finance, that sets out our optimisation plans until 2020 and the establishment of a dedicated treasury department.
After first assessing how the treasury function worked in the past and what changes are needed to staffing levels, finance roles, structures, procedures and information technology to be best in class we are now moving towards the implementation phase, says Blok. This is captured in our Treasury transformation project. The project aims are clear:
- Create better insight into and control over treasury information such as FX exposures and cash balances. Financial risk control and transparency are paramount project drivers.
- Fully support the 27 countries in which SNV operates in all treasury related matters. Establish a dedicated Treasury team within the finance department to act as an expertise centre and serve all local needs.
- Reduce treasury related cost.
Previously, key finance positions were hybrid positions and people did a little bit of everything but didn’t have the opportunity to specialise in key finance areas. We now have our team members focussing on one main responsibility, whether it’s accounting, business planning and control or treasury. This encourages a focus on efficiency.
Over the next 24 months until the start of 2020 we will sequentially tick off the ‘low hanging fruit’, setting up our dedicated treasury unit and introducing better liquidity planning and FX control, before moving on to a bank rationalisation programme that can begin once some projects, which link funding to bank usage, end.
The ambition is to automate as much as possible in order to execute processes more efficiently with less error prone manual processes. We want to free up quality time to focus on data analysis, risk oversight, hedging, optimisation and so forth. Treasury will then become a service to the organisation and not a cost centre.
A new enterprise resource planning (ERP) system that operates in the cloud was recently implemented. This is the first stage of the technology plan to improve management information, data control, accessibility and oversight. According to Blok, adding a treasury management system (TMS) on top of this might give SNV enhanced visibility and control. Our four-stage plan can be summarised as follows:
- Implement a risk and control policy framework
- Set up a dedicated treasury team
- Improve cash management using an optimised banking infrastructure
- Optimise Treasury technology to support all Treasury processes
Aligning the organisation, processes and technology within the timelines set remains the aim for our 2020 ‘roadmap’, developed in conjunction with Orchard Finance.
“On a personal level, it’s been a very intense period since I joined SNV”, says Blok. The set-up of a new finance function, including a dedicated treasury team, will ensure that efficiency and risk management become prioritised. I previously worked in the private sector in various tax, treasury and corporate finance roles, and I can tell you it is really exciting being part of this very challenging and demanding sector.
As we enter our first treasurer hiring procedure we need someone who conversely wants to run a steady ship, albeit with a focus on bringing value-added services to the business.
The full management board has been very supportive in the aim of transforming treasury towards a more strategic function in the business. Everyone has dedicated roles now and our treasury team can prioritise financial risk management, while actively hunting down further efficiency opportunities. All in support of our SNV mission”.