Cash & Liquidity Management

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The Importance of Visibility and Control: Managing Liquidity in Turbulent Times While the ongoing crises in the Eurozone are a concern for all, the situation need not be one of doom and gloom - increasing the visibility and control of liquidity and working capital can help Europe's corporate navigate turbulent times.

The Importance of Visibility and Control: Managing Liquidity in Turbulent Times

by Martin Runow, Head of Cash Management Corporates EMEA, Deutsche Bank

While the ongoing crises in the Eurozone are a concern for all, the situation need not be one of doom and gloom. Martin Runow, Head of Cash Management Corporates EMEA at Deutsche Bank, discusses how increasing the visibility and control of liquidity and working capital can help Europe’s corporates navigate turbulent times.

Against the backdrop of the global economic crisis of 2008, and the ongoing financial market turmoil in the Eurozone, the control and visibility of liquidity and working capital has emerged as a core theme for European corporates. Cash control is, certainly, of particular importance to the region’s corporate treasurers who, under increasing pressure to do more with fewer staff and less fiscal resources, need to make the best use of available resources. In doing so, treasurers should be able to reduce debt and free-up trapped capital for short-term funding requirements or to increase return on investment.

Effective cash concentration and pooling can allow corporates to address short-term funding needs internally.

Enhancing cash and liquidity management can also mean that corporates can independently address their working capital needs, thus decreasing dependency on external sources of funding. For example, effective cash concentration and pooling can allow corporates to address short-term funding needs internally, which means they can save money on expensive sources of stopgap liquidity, such as overdrafts.

Yet effectively managing and controlling liquidity in Europe can be a complex task. As a market, Europe - which is more than just the Eurozone - is often oversimplified, which can be a detriment to optimal treasury management. Different countries have different tax laws, accounting structures and reporting requirements, all of which means that pan-European cash pooling and concentration is not as simple as it seems.

Of course, there are initiatives designed to aid this process, such as SEPA (Single Euro Payments Area) – and indeed it would be impossible to discuss European liquidity management without bringing SEPA into play. While much has been said about SEPA, take-up has been painfully slow. Given the ongoing market turbulence, this is perhaps understandable. Converting domestic payments to SEPA format is a costly undertaking and many corporates are reluctant to make such a significant investment when they are faced with a series of more immediate pressures. This is especially the case when these concerns seem to some as though they could potentially have game changing effects, such as the breaking-up of the euro.

A long-term approach

While the present challenges, as well as those in the not too distant future, cannot be overlooked by treasurers, who need to balance both short- and long-term funding requirements, they must take a broader view. Savings made today could turn into significant losses tomorrow, if there is a lack of emphasis on planned and potential future developments such as SEPA. Although there is currently no formal legislated end-date for full SEPA migration, an official implementation deadline will definitely come. Corporates that have failed to prepare may find themselves having to pay more, as the cost and implementation of compliant systems and services will only increase as the cut-off point looms.

At Deutsche Bank, we believe in the longevity of the euro and the long-term value of turning a fragmented market into a borderless payments zone. As a result, we have made noteworthy investment in an automated and scalable SEPA engine to deal with increasing payment flows. While many corporates – and indeed some of their partner banks – are still putting off these investments, it is ultimately not in a treasurer’s best interest to allow short-term hurdles to stand in the way of larger, expensive projects that will result in long-term sustainable efficiency gains. 

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