Cash & Liquidity Management

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Driving Growth in the Industrials Sector The huge breadth of the industrials sector – it covers automotives, aviation and aerospace, shipping, logistics, paper and packaging, heavy machinery, cement, power technology and construction – means that at first glance the companies covered by it appear to have little in common. However, for CFOs and treasurers of companies from all the sectors contained within individuals, three themes stand out: the need for control, visibility, and efficiency of the system they use to manage cash. The authors discuss these three themes in relation to some of these industries, looking at the new challenges and how the financial and economic crisis has undoubtedly opened a new chapter in the world’s economic growth.

Driving Growth in the Industrials Sector

by Brent Flynn, Global Head of Transportation, North American Industrials Sector Head, Global Transaction Services, Citi and David Aldred, EMEA Industrials Sector Head for Treasury & Trade Solutions, Global Transaction Services, Citi

The huge breadth of the industrials sector — it covers automotives, aviation and aerospace, shipping, logistics, paper and packaging, heavy machinery, cement, power technology and construction — means that at first glance the companies covered by it appear to have little in common. However, for CFOs and treasurers of companies from all the sectors contained within industrials, three themes stand out: the need for control, visibility, and efficiency of the systems they use to manage cash.

Indeed, the experience of the financial crisis and tighter liquidity means that this back to basics approach on cash and how it is managed is now a board level concern: not only CFOs and treasurers, but also CEOs, want to know where their company’s cash is at any given time, who the company’s counterparties are, how their cash is collected, and the risks inherent in the company’s processes. There is a huge appetite for information and knowledge that can be used to improve liquidity.

Clear, accessible information — delivered in a timely way using a consistent format — is essential to be able to make informed decisions. As the world moves out of recession and into a new global growth environment dominated by emerging markets such as India, China, Brazil and the Middle East, information has become ever more important. These markets are often highly regulated and it is crucial to understand the implications of that in terms of moving cash.

Notwithstanding regulatory barriers and exchange controls, developments in technology mean there is now the potential to deliver control and visibility of cash positions located almost anywhere in the world. However, surprisingly many large multinationals still do not have structures in place — outside the developed banking markets of North America and Western Europe — to enable them to oversee and manage their cash globally. 

Necessarily the challenges associated with gaining control and visibility of cash in rapidly growing markets such as Asia, Latin America, the Middle East and Africa are greater than in developed markets with mature banking sectors. Moreover, it is important to understand that these markets are very different — not only from more developed markets where companies have operated centralised cash management structures for decades — but from one another.

New thinking for new markets

Working out what treasury model is most advantageous for a company can be a significant challenge. Often industrial companies are decentralised and have complex corporate structures. For example, in the auto sector, there may be multiple entities in a single country that are involved in manufacturing, sales, re-selling, franchising and finance. In addition, there may also be scores of companies operating as part of the manufacturing supply chain.

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