Cash & Liquidity Management

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Making Corporate Cash Work Harder That high yields are no longer a valid justification for cash and liquidity management inefficiencies is just one of the indications of a shift in corporate attitudes to cash and liquidity management.

Making Corporate Cash Work Harder

by Dominic Broom, Head of Sales and Relationship Management for BNY Mellon Treasury Services EMEA, and Gerry Barber, Managing Director, Strategic Development and Investment Management Group, BNY Mellon

High yields are no longer a valid justification for cash and liquidity management inefficiencies, say BNY Mellon’s Dominic Broom and Gerry Barber. Instead, corporate cash concerns must be effectively addressed through expert solutions that stem from a mixture of local and global bank provision.

Corporate attitudes towards cash and liquidity management are undergoing a significant shift. Such a change is prompted by liquidity constraints and market turbulence caused by the financial crisis, which revealed a low-risk exercise to be – in reality – fraught with hazards.

Pre-crisis, corporate cash management was plagued with weaknesses, not least of which were the lack of end-to-end transaction visibility and the excess of (costly) operational inefficiencies. Of course, these could be justified by the ease with which corporates could access affordable liquidity, as well as the strong rates of return offered on cash deposits.

Universally, however, corporates are now finding bank-supplied credit lines both severely restricted and, where offered, prohibitively expensive: exposing these inefficiencies as an indulgence. In such a world, business sustainability depends upon enhanced working capital efficiencies and improved cash and liquidity management – not least through stronger visibility of the entire cash and supply chain cycle. And this means reassessing long-standing cash and liquidity management practices in order to remove roadblocks and maximise company cash control. Certainly cash, when adequately managed, can act as a tool to help corporates overcome the challenges of the continuing economic turmoil – driving them towards their individual current and long-term liquidity goals.

Doubts over banks

Before the economic downturn, yield was the priority for many corporates, but doubts over the stability of many banks have shifted concern towards risk. Meanwhile, organisations have grown nervous of investing – leading to an excess of liquidity as they stockpile cash. And this has upset the balance between liquidity, capital preservation and returns. Yet balancing these competing needs remains the crux of the corporate treasurer’s role: meaning that the mobilisation and maximisation of surplus cash is important, no matter what the uncertainty or how the business cycle turns.

When evaluating cash and liquidity management solutions, success is measured in terms of understanding individual client concerns – with regards to balancing cash assets and investments – as well as having access to, and a strong grip on, global financial markets. And this remains the case despite the economic turbulence of the past several years. Indeed, the current economic climate has fostered a wide range of responses for bank providers, reflecting an equally wide range of requirements and risk appetites.

Of course, in this environment, expecting standardised solutions is a mistake. Instead, corporates should insist upon bespoke cash management services that are offered hand-in-hand with broader treasury solutions – designed to support the holistic objectives of the commercial cycle. Yet such a dual approach is a difficult act for many local banks. Despite being in prime position to offer domestic clients solutions to best suit their individual needs, most are prevented from doing so by their lack of IT resources, their limited global reach and the ever-increasing regulatory pressures.

Certainly, local banks have an unrivalled grasp of their local clients’ needs. Yet many have insufficient knowledge of both the international markets and liquidity management practices at the global level, which is information that only global banks are able to provide. Given this, co-operation between local and global banking partners presents a strong potential solution to addressing corporates’ evolving liquidity management concerns.

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