Cash & Liquidity Management

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Payments Integration for Working Capital Optimisation and Process Efficiency The role of corporate treasurers has traditionally involved disciplines such as cash management, debt, investment and foreign exchange management. Today, accentuated by the global financial crisis, treasurers have become more actively engaged in the business of seeking financially sustainable business practices, sufficient access to liquidity, and appropriate risk management in line with stakeholder objectives. Anupam Sinha discusses the expanding role of the corporate treasurer and how an effective banking partner can help to provide holistic solutions from procurement through to payment.

Payments Integration for Working Capital Optimisation and Process Efficiency

by Anupam Sinha, Director, Head of Payments Market Management, EMEA, Citi

An important starting point for many companies in achieving financial process efficiency is to centralise processes in a shared services environment.

The role of corporate treasurers has traditionally involved disciplines such as cash management, debt, investment and foreign exchange management. Today, accentuated by the global financial crisis, treasurers have become more actively engaged in the business of seeking financially sustainable business practices, sufficient access to liquidity, and appropriate risk management in line with stakeholder objectives. As issues such as working capital and risk mitigation have been forced to the top of the CFO’s agenda, treasurers have been tasked not only to manage the results of financial processes that comprise the financial supply chain, but also to take an oversight role in the key factors that affect working capital, namely payments and collections.

To fulfil this expanding role, treasurers are increasingly working closely with other departments that support the various elements of the financial supply chain. This is not always easy, despite the benefits of an integrated approach. Inevitably, every department is accustomed to its own processes and technology, and it can be difficult to establish synergies and collaboration unless the advantages of doing so are clearly recognised and promoted at a senior level. To facilitate greater co-ordination, whilst recognising the individual efficiency goals in each department, at Citi, we are working closely with our customers to create holistic solutions from procurement through to payment

The working capital dilemma

An important starting point for many companies in achieving financial process efficiency is to centralise processes in a shared services environment. Consequently, payment factories and shared service centres (SSCs) have become increasingly prevalent amongst large multinationals over a number of years, with this trend now also extending to smaller companies. Early SSCs were established with the objective of reducing costs and increasing efficiency in the payments process. Today, with liquidity and risk key priorities for treasurers and CFOs, working capital is no longer simply a by-product of the payments and collections cycles but a key indicator of the financial health of the business.

With many companies seeking to optimise the amount of cash available for business investment, managing working capital metrics such as payment terms and days payable outstanding (DPO) has become a higher priority. In some companies, there is still a disconnect between the metrics on which the payment factory or SSC is measured, and the working capital impact of these measures. For example, in some cases, past successes in increasing processing efficiency have had a negative impact on working capital by shortening DPO, as invoices have been approved quickly and consequently paid before the due date. At the same time, however, it is not in companies’ interest to squeeze their suppliers that are themselves experiencing liquidity constraints, and risk the loss of key suppliers and resulting disruption to the supply chain. Consequently, effective payments management has to balance the need for process efficiency, managing key working capital metrics, and maintaining a robust supply chain.

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