Cash & Liquidity Management

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Changing Times for Corporate Cash Management The ongoing economic turmoil has led to rapid developments in treasury and cash management. Banks and their corporate clients need to stay abreast of developments to ensure they emerge from the crisis unscathed, says Marilyn Spearing, Deutsche Bank’s Head of Cash Management Corporates.

Changing times for corporate cash management

The ongoing economic turmoil has led to rapid developments in treasury and cash management. Banks and their corporate clients need to stay abreast of developments to ensure they emerge from the crisis unscathed, says Marilyn Spearing, Deutsche Bank’s Head of Cash Management Corporates.

The past year has presented some unprecedented challenges for both banks and their corporate clients. Difficulties in obtaining short-term liquidity following the start of a global downturn have painted a very bleak picture indeed. However, the changing – and at times unpredictable – conditions have taught some important lessons to banks and corporates. And those that come out of the current crisis unscathed should find that they emerge well-placed to make the best of improved conditions.

Corporate concerns

Of course, one of the main areas for corporate concern during a period such as this will be efficient cash management. As short-term liquidity funding becomes difficult to obtain and the broader economic climate impacts turnover, making best use of cash balances and minimising external borrowing may make a life or death difference for some corporates. As a result, we have observed a “back to basics” approach in many corporate treasuries.

Key themes here have been a focus on maintaining day-to-day liquidity – ensuring, at the most basic level that corporates can continue to transact – and squeezing efficiencies from the most essential of processes. Unfortunately, one downside of an extended run of favourable conditions is that there may have been a lack of impetus to address processes and structures where small efficiencies could be yielded.

Another repercussion of the events of the past year has been an increased focus of the role of the treasurer. As short-term liquidity has become a pressing concern, the treasurer’s voice is increasingly becoming heard at board level. As a consequence, transaction banking practitioners are also making their voices heard at this level, allowing advice to be delivered to an audience that may have only recently had their attention drawn to the minutiae of this field. A related side-effect has been that relationships between banks and corporate clients have become closer and more open than ever before. Due to the turmoil in banking circles, corporates are understandably seeking reassurance by taking a greater interest in the business models of their banking partners.

In terms of the specific products, services and solutions demanded by clients, we have seen some notable shifts in emphasis, as well as the continuation of several themes that were apparent before the current crisis struck. Of course, efficient day-to-day cash management has become one of the priorities and this has led to a surge in demand for solutions – such as cash concentration, sweeping and pooling – that make the best use of internal liquidity within a group and minimise reliance on external borrowing. And in addition to the focus on liquidity and working capital, addressing the risks inherent in trading and making transactions is also at the top of the agenda.

An increasing awareness that growth and stability also depend upon the financial health of trading partners, coupled with the continued shift away from traditional forms of trade risk mitigation, have spurred the growth of interest in solutions that recognise these interdependences and take a partnership approach towards the financial supply chain. For example, supplier finance, where buying and supplying corporates share information and lever competitive advantage in order to extend payment terms and keep funding costs to a minimum, is an area continuing to show strong growth. 

Financial supply chain management is an area that cuts across the traditional divides between cash management and trade finance. Indeed, the move away from these silos within banks had been driven by the needs of corporate clients seeking integrated solutions that add value in terms of liquidity management, risk mitigation and process efficiency. And it would be foolish for banks to maintain a divide between two aspects of their provision where – from the client’s point of view – they form part of a single integrated requirement.

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