Treasurer’s Checklist for Navigating the Russian-Ukrainian Conflict

A career in corporate treasury is not for the faint of heart. Following Russia’s invasion of Ukraine this week, stock markets around the world are reeling, currencies fluctuate, commodity prices soar, inflation fears rise and the potential ramifications of supply chain are settling in for what could be a long period of uncertainty. The very real human costs – and the resulting trade implications – are at the forefront of global concerns over Russia’s actions.

These circumstances have once again propelled corporate treasurers into the spotlight as the CFO’s most valuable player. Each geopolitical crisis presents its own unique and unexpected challenges for the treasury team, stretching imagination and adaptability, and often exacerbating pre-existing issues within the organization. Yet today’s treasury professionals have already faced many geopolitical crises in their careers, and many of the lessons learned from past events are relevant to the war in Ukraine.

How can a treasury team ensure they have all the bases covered to mitigate risk in today’s fast-paced environment?

Crisis management checklist

Two things matter most in any crisis: speed and accuracy. Approaching a crisis situation too slowly leads to increased damage; however, sacrificing accuracy for speed can have equally destructive consequences. So, global treasury and finance teams need to strike the right balance between speed and accuracy while taking the following steps.

1. Assess the current cash position of the business. Over the past 48 hours, countless treasurers have received an urgent message from their CFO asking for clarification on the company’s exposure to Ukraine and Russia. Those who haven’t faced this question yet probably will soon. They must immediately:

  • Prepare an up-to-date overall cash position and a means of updating as often as necessary.
  • Recalculate short-term global forecasts, at the company level and perhaps also by entity, with a plan for frequent updates.
  • Identify how much money the company currently has in rubles and other currencies that may be destabilized.
  • Evaluate alternatives to holding physical currency in Russia, Ukraine and other relevant countries.
  • Check if any partner banks are currently subject to sanctions.
  • Recalculate counterparty risk for customers, suppliers, financial institutions and other business partners worldwide.
  • Review the credit facilities available around the world.
  • Determine how the dispute might affect the pay of all employees in the affected regions.

For treasurers who don’t have answers immediately available in any of these areas, now is the time to gather this information.

2. Separate risks into short-term, short-term and long-term categories. Leveraging current state analysis, identify issues that require immediate attention. What can wait?

When prioritizing near-term risks, consider the potential for:

  • Shortage of materials. Over the past few decades, many companies have come to rely for key materials on suppliers located in both developed and developing markets around the world. As seen on a small scale with chip shortages during the global pandemic, a disruption in the supply of an entire production component can spell big trouble for businesses, especially manufacturers. Russia is one of the world’s largest suppliers of goods, especially natural resources, while Ukraine is a major supplier of wheat and minerals to the world. The Russian invasion poses a significant supply chain risk to businesses across a myriad of industries and regions.
  • Logistic disruptions. Disruptions to railways, roads and shipping routes in affected regions will cause delays and capacity constraints as businesses seek to reroute their goods and materials.
  • Monetary instability. Increasing exchange rate volatility could increase transactional and operational exposures for the Russian Ruble, Ukrainian Hryvnia and other currencies around the world. When currencies are devalued, hyperinflation may not be far behind.

With these considerations in mind, recalculate your company’s current debt to current assets ratio and assess the organization’s total exposure to the war in Ukraine. If the business requires significant current borrowings, and particularly if you are in an industry likely to be significantly affected by war, you may need to move to longer-term debt to bolster liquidity in the event of a tightening of the loan market.

3. Take action to mitigate the risks you have identified as requiring immediate action. After assessing the current state of the business and prioritizing areas of risk exposure, your treasury team is ready to act. Take steps to:

  • Minimize exposure, using your revised near-term forecasts to ensure your organization will have the necessary liquidity in the affected regions.
  • Reach out to suppliers to discuss new payment terms, leveraging less volatile currencies and financial institutions located in non-sanctioned countries where possible.
  • Work cross-functionally, using financial forecasts to identify at-risk suppliers and arrange for increased inventory or alternate suppliers as needed to ensure business continuity.
  • Communicate frequently with banking partners; alert them if you plan to draw on lines of credit and assess whether lines of credit need to be extended or renewed.
  • Address any concerns about your organization’s credit rating to guard against a downgrade, especially if you work in an industry where the war in Ukraine is having, or is perceived to be having, a particularly acute impact on your business.
  • Consider any policy or procedural changes needed to support these actions.

4. Dealing with short and long term risks. Once you’ve dealt with the immediate risks, move on to the short- and long-term risks. It is important to prioritize them so that your organization can assess potential operational and business impacts with a cool head. Dealing with short-term and long-term risks generally requires more of a strategic approach than a tactical plan.

Among other issues, consider the following when working to mitigate long-term risk:

  • Prepare for additional penalties. The world reacted quickly to the Russian invasion by imposing sanctions on companies and individuals, freezing assets, etc. One of the most severe sanctions that has not yet been adopted is the withdrawal of Russia from the SWIFT network. While it is impossible to predict what future sanctions might be put in place, companies can prepare for those that are most likely to be implemented.
  • Eliminate sanctioned banks from your pre-authorized bank transfer platforms, including those you use as intermediary banks to other non-sanctioned countries. Failure to do so can result in fines or worse.
  • Examine investments linked to floating rates, to determine if a drop in interest rates would mean that the funds would be better placed in an FDIC-backed account or similar.
  • Review covenants and credit agreements, in case they are tied to stock price or debt-to-equity ratio.
  • Anticipate and plan for an increase in cybersecurity attacks.
  • Modify policies and procedures as necessary to adapt to the changing geopolitical landscape.

5. Establish an ongoing monitoring plan. What areas of the business need to be monitored to detect the impacts of changing circumstances? How often should they be monitored, only when additional information or sanctions change, or on a regular basis? When tackling a developing crisis, regular monitoring of risk mitigation is usually one of the most important activities a business can undertake.

Leverage lessons learned for future resilience

High pressure situations expose deficient processes and exacerbate known pain points. Geopolitical disruptions weigh heavily on treasury teams. Yet, as Winston Churchill once advised, “Never let a good crisis go to waste. As the war in Ukraine reveals areas where inadequate information flow is hampering the agility of your treasury and risk management functions, seize the opportunity to offer solutions that would mitigate these issues.

For example, going through the cash checklist above, you might find that building up a cash position by tinkering with spreadsheets from banking portals is too cumbersome to update as regularly as needed. during a crisis. And limited visibility into cash balances can hinder your organization’s accurate and timely decision-making. If the Ukraine-Russia crisis highlights your need for more dynamic and agile treasury management practices, this experience may support an upgrade to new treasury technologies that can connect through an application programming interface (API) to your company’s bank accounts worldwide.

Likewise, you may be able to leverage short-term concerns that payments may inadvertently be routed through a sanctioned bank to create payment processes that provide end-to-end traceability. Or you may find that confusing forecasting metrics prevent a clear assessment of the supply chain risk inherent in doing business with companies located in sanctioned areas.

Despite many negative ramifications, crises can draw attention to the need to improve key treasury processes. Modernizing the treasury function can now increase the quality, speed and accuracy of treasury operations, improving decisions by reducing the drag of inefficient manual activities.

Russia’s invasion of Ukraine is troublesome for businesses around the world. But treasury professionals need reassurance: the storms you’ve weathered in the past, the tools that help you perform at your best, and the strength of your collective teams mean that your organization’s financial health is in safe hands. .

And as we respond to the Russian invasion and bolster our treasury teams for the instability that war brings, our thoughts remain with the people of Ukraine.

Michael Thomas is the Head of Business Consulting at FinLync. After more than 10 years advising the largest multinational corporations around the world, Mitch now brings his expertise to forward-thinking treasury teams looking to advance core treasury processes in cash management, cash and payments through FinLync’s banking API-powered suite of tools.

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