Portrait of a Modern Treasury:
Digitisation meets Sustainability at Pernod Ricard India
As one of the oldest industries in the world, the wine and spirits sector has historically been paper-intensive. India, too, is a country that has long favoured paper-based payment instruments. Keen to future-proof its treasury function, Pernod Ricard India (PRI) has undergone an impressive digital transformation that has led to significant efficiency gains and delivered important sustainability benefits. Here, Mr. Rajesh Mishra, Chief Financial Officer, Mr. Sunil Duggal, Head of Corporate Affairs, and Hans van den Bosch, Managing Director, Global Sector Head, Consumer Brands, Retail and Healthcare, HSBC share highlights from PRI's transformation journey and explain why treasurers must pay attention to corporate social responsibility (CSR).
Although digitisation has become something of a zeitgeist in recent years, it has long been a focus for PRI's treasury team. Back in 2010, before the era of digital treasury began in earnest, PRI decided to embark on a journey towards digitisation, with an emphasis on reducing paper-based transactions in payables and receivables.
As Mr. Mishra and Mr. Duggal explain: "Just because workflows have historically been paper-based within our sector, doesn't mean they should stay that way. Even eight years ago, we were very conscious of a rising tide of digital solutions and a shift towards electronic payment methods.
"We saw huge opportunities to reduce the manual workload in treasury by taking paper out of the equation and enhancing automation. The idea was that this would also help us to optimise our internal resources and free up treasury personnel to work on more strategic tasks. Although, at the time, environmental benefits were not a direct consideration for our digital transformation, the end result has yielded sustainability benefits that we are extremely proud of – especially since Pernod Ricard is highly engaged in CSR, and treasury is keen to support the company's wider goals, as well as its financial needs."
Making the leap
With the business case for treasury digitisation approved, it was time for the hard work to begin. Over the last eight years, through collaboration with external and internal partners, a number of key digital milestones have been achieved – and PRI's treasury hasn't looked back since.
"One of the big wins came from the migration of a major part of our receivables from cheques to Real Time Gross Settlement (RTGS) and India's National Electronic Funds Transfer System (NEFT). For anyone not familiar with NEFT, it operates on a Deferred Net Settlement (DNS) basis, settling transactions in batches every half an hour. Previously, the majority of our customers paid us by cheque, as this is a commonly used B2B instrument in India, and in our sector,"Mr. Mishra notes.
The company has worked diligently to move buyers away from cheques towards a virtual accounts solution provided by PRI's main banking partner, HSBC. As Mr van den Bosch explains, "PRI receives payments from multiple counterparties, which can create delays in the reconciliation of collections. Virtual accounts help with faster identification of payors, thereby speeding up reconciliations."
Given Pernod Ricard's global standing and recognition on this front, there is a clear organisational focus on CSR.
Mr van den Bosch, adds: "The virtual accounts solution reduces the tracking effort by PRI's sales team and helps to automate posting of payor details against receipts. In turn, this leads to reduced reconciliation efforts and faster closing out of credit exposures, resulting in significant advantages for a company such as PRI with high volumes of collections."
In terms of implementing the virtual accounts solution and encouraging the shift towards electronic payments, Mr. Mishra says: "We have managed this through open dialogue and education of buyers. We also approached the migration in phases by piloting virtual accounts with a select set of receptive customers before extending the solution to all of our customers." Mr van den Bosch, elaborates: "HSBC has helped PRI streamline the transition towards virtual accounts with focus on certain states in West India. This was then extended to other geographies thereby helping with a smoother migration experience."
This phased roll-out has ensured that any customer feedback is incorporated into all future efforts towards this transition. "It's an ongoing journey and we will continue to work towards increasing the share of virtual accounts-based receivables with our buyers, operating hand-in-hand with our sales teams," Mr.Mishra notes.
But already virtual accounts have introduced greater automation into the company's electronic receivables reconciliation workflow, delivering process efficiency benefits for PRI and enabling faster cash application. "Digital solutions like virtual accounts are also leading to improved relationships with buyers, since the solution helps to avoid any mismatches and vastly reduces the number of queries relating to payments not received," observes Mr. Mishra.
And in combination with virtual accounts, the growing use of other electronic collection methods mean that more than 80 per cent of PRI's receipts now come in through electronic channels.
In the payables space, the company has also centralised 90 per cent of its payables by implementing a shared service centre. Previously, all payments were decentralised – which diverted resources away from other value-added treasury tasks. Furthermore, PRI's tax payments have been migrated online, and in the trade space, the company has digitised both its import and export payments – both of which are typically paper-intensive in India.
Another significant digital shift has been the move to host-to-host (H2H) connectivity with HSBC to ensure a seamless flow of transactions from PRI's ERP to the bank's portal, eliminating the risk of manual intervention completely.
"H2H is a more secure form of connectivity between the bank and PRI, says HSBC spokesperson." This has helped ensure that data retrieved from PRI's ERP is sent directly to the bank without any risk of data upload errors or tampering. "H2H also removes the manual efforts of creating input files and automates the data upload step. H2H also works seamlessly for a smoother processing as well as reconciliation experience.
Moving on up
Thus far, PRI's treasury team has reduced paper-based transactions from 70-80 per cent to circa 20 per cent. But the project will not stop here, says Mr. Mishra.
Commenting on the continuous improvement mindset that is driving PRI's treasury transformation, he says: "Digitisation is very much a journey and we cannot stand still. We are achieving milestones today but we are also looking to the future."
As such, PRI will soon be working with HSBC to expand the existing virtual accounts solution to incorporate invoice-level reconciliation. Mr van den Bosch, notes: "HSBC is supporting PRI with a wider extension of the virtual accounts solution. This will allow PRI to transition to Automated Receivables Reconciliation (ARR) which will help with invoice level reconciliation from large buyers/distributors".
In conjunction with ARR, HSBC has proposed the Digital Accounts Receivables Tool (DART), which will help all distributors login to a designated portal and update invoice level information for payments being made. This will help PRI and the company's buyers to have a clear insight of invoices paid, with complete matching of information on both sides."
Mr. Mishra adds: "The hope is that this will aid us in reducing manual efforts required to identify multiple invoices that have been paid by buyers in one single transaction. This is a common challenge faced by treasurers in all sectors, and can be a significant resource drain, so we are looking forward to working with HSBC to get this implemented."
"We are also in the process of implementing MT940s and MT942s for reporting and reconciliation and this should also help to identify our payors more swiftly and track receivables more efficiently from a sales and reporting perspective," he says.
Elsewhere, PRI and HSBC will continue to work together on additional solutions to further improve the company's processes. "HSBC is committed to support PRI by implementing value-added solutions that reduce manual efforts and ensure a secure, error-free processing of collections and payments," comments Mr van den Bosch.
"Through HSBC's global footprint, focus and understanding of the industry and best practices related to digitisation and automation, the bank has ensured that we continue to receive customer focused solutions and service support – not just for our electronic transactions but for any residual paper-based collections as well. This has led to efficiencies and optimisation across our transaction processing, reporting and reconciliation, with the added benefit of aiding CSR," Mr. Duggal and Mr. Mishra note.
While some treasurers may question the extent to which they can contribute to CSR initiatives, for the treasury team at PRI, it is a natural extension of their role as strategic business partners. "Given Pernod Ricard's global standing and recognition on this front, there is a clear organisational focus on CSR. As a key part of the company, employees from PRI's treasury function actively participate in CSR activities and are always looking for new ways to support the company's sustainability goals.
"From a treasury perspective, the key to achieving this lies in improving underlying processes to manage transactions, reconciliation and reporting, thereby leading to the move towards paperless solutions through digitisation and automation," explains Mr. Duggal. "The beauty of this is that our CSR agenda dovetails perfectly with the needs of a modern treasury, so it also acts as a way to future-proof our operations. As such, we only see CSR playing a more important role in treasury going forward, and we will continue to deliver sustainability benefits as our digital transformation journey progresses, not least through the reduction of paper usage."
Disclosure and disclaimerMore, collapsed
Published: May 2019
For Professional Clients and Eligible Counterparties only. Not for Retail Customers.
Issued by HSBC Bank plc
8 Canada Square,
Authorised the by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority.