It is in the global business environment that the treasury function can most clearly demonstrate its value added. Though realising the benefits of centralised treasury management has never been easy in practice, technology is making life simpler for the treasurer.

Even the most highly decentralised business can achieve major cost savings and improvements in control from centralising treasury management. Three examples of benefits include better control, more effective risk management and lower cost banking. Naturally treasury must be well controlled and having dealing mandates scattered around a group of companies is a recipe for disaster because small operations cannot conceivably have the number of staff necessary to ensure proper segregation of duties. Second, risks can only be properly assessed at a consolidated level, whereas at individual operating company level risks may be managed or even hedged when they are offset by transactions elsewhere in the group or are immaterial at group level and would therefore be best insured internally. The third example is banking, where rationalising bank accounts can produce massive savings by having, say, only one account for each major currency domiciled in the national clearing centre for that currency.

Converting this theoretical vision into a practical global treasury function is fraught with difficulties. The solution adopted will naturally depend on the company-specific factors, but gradually global businesses are evolving towards a workable international treasury model. This evolution is being fuelled by technology.

The first big influence is the ease with which the central treasury can enable regional branches to operate from the same system and database. One central treasury function cannot handle all of the global business risks, transactions, banking, etc, because of time-zone constraints, so some presence is needed in other zones. Typically a UK company may need a US and Asian presence to cover the world. In the traditional treasury structure, the regional operations would act as the in-house banks for the regions and would liaise actively with each other. Ideally this approach would migrate to one where each region managed the financial risks of the whole group while the region was open for business. Few multinationals completed this migration until recently; now technology has enabled truly central management, and with this have come large savings in transaction costs.

The benefits of such an organisational structure are numerous, but one is worthy of particular mention. This is the reengineering of payments. A major global company will be making millions of individual payments each year. While most of these will be domestic, in the sense that an individual company will be making a local currency payment to a local supplier, there will probably also be a large number of international payments. Such payments are expensive in many ways.

•   They may involve a currency conversion, which incurs a spread and a fee.

•   They involve a cross-border transfer through the banking system, which can easily involve four different banks (the remitter's bank, the beneficiary's bank and the correspondent bank of each) and fees at each stage.

•   They can rarely be obtained with same-day value, indeed in some cases it can take several days to obtain value, a delay that considerably benefits the banking industry, which at any point in time has the use of billions of dollars of customers' funds in transit.

When all these costs of processing such payments are added up, it is not unusual to find $100 spent on each, and rare for the cost to be much below $50.

Simple reengineering can reduce this to a few dollars and provide same-day value. The key is that the payments are centralised, even if the accounts payable functions are maintained at subsidiary company level. First, the payment should be picked up from the accounts payable system. Naturally the growing use of enterprise resource planning systems is making this easier and easier. Once identified as a cross-border cross-currency transaction, it is then converted into a local-currency local transaction by making the payment directly from the relevant domestic currency account to the beneficiary using the local equivalent of, say, Bankers' Automated Clearing Services. In the UK this clearing system (with two days notice) makes large volumes of same-day value payments into bank accounts with virtually perfect accuracy, high security and at a cost of a couple of pennies.

The obvious question is: with such a seemingly simple mechanism to reduce payment costs, why doesn't every major multinational operate this way? The answer is that in 10 years time they will, and with obvious implications for the banking industry, but meanwhile although the technology is available to support such reengineering there remain barriers. A key one is organisational.

In many multinational companies local independence is guarded jealously and some considerable care must be taken when centralising such functions. One of the catalysts for reengineering payments has indeed been the gradual implementation of ERP systems, which has generated the common platform necessary for such centralisation. A second constraint has been the need to implement interfaces, which implies common standards and open architectures. The greatest benefits are obtained when all the payment processes are automated. Identification of, say, a payment in yen from a UK company's US subsidiary to a supplier in Japan would generate automatic instructions via central treasury's yen account in Tokyo into the Japanese bank's payment gateway to credit the beneficiary. The other aspects of the transaction such as payment notification to beneficiary, cash book and intercompany account entries should ideally also flow automatically.

As anyone who has attempted to implement IT interfaces will attest, getting such systems to work is easier said than done, particularly where third parties are involved. Nonetheless, as more and more companies exploit this approach, more interfaces are being built and the global systems are becoming more reliable. A decade from now we will look back in disbelief at how we allowed such a simple transaction as paying someone else a different currency to be so hideously complex and expensive.

Derek A Ross is the partner responsible for treasury and financial markets at Deloitte & Touche, and is a past chairman of the Association of Corporate Treasurers.