Cash & Liquidity Management

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Have You Caught the Cash Management Bug? Cash management has been steadily climbing the list of priorities in recent years for banks and corporate treasurers alike. The Editor speaks to several industry experts and looks at some of the cash management trends amongst multinational corporations - both globally and regionally.

Have You Caught the Cash Management Bug?

by Helen Sanders, Editor

One of my favourite ‘snippets’ in the Sunday newspapers is the list of fashions ‘going up’ and those ‘going down’. Sadly, I’ve never heard of most of the designers, celebrities and gadgets that are featured on either list, but it makes me feel like I have a finger on some sort of pulse. In a briefly idle moment, I wondered what these lists would look like in the treasury sphere. ‘Going up’, we have working capital optimisation, cash flow forecasting (although this has always been there) and mobile solutions for payments and collections. ‘Going down’ we have decentralised cash management, long alcohol-soaked lunches with banks (never experienced by younger treasury professionals), and spreadsheets (we hope).

Cash management has been steadily climbing the list of priorities in recent years for banks and corporate treasurers alike. No longer is transaction services, of which cash management is a major element, the drab sister to its more glamorous corporate finance or investment siblings. For banks, cash management represents a reliable revenue stream that is less impacted by market volatility than other areas of activity and a vital opportunity to secure long term relationships with corporate customers. For corporates, efficient, reliable cash management is essential to the running of the business, and key drivers of working capital. It is also valuable ancillary business to build secure relationships with financing banks.

A competitive offering

It would be quite wrong, however, to think that cash management is simply an ‘add on’ to a financing relationship; in fact, the need for banks to be highly competitive in their cash management offerings has never been greater:

  • A multinational corporation will typically have more than one financing bank so companies have a choice of cash management partners.
  • A company will need access to cash management services in every country in which it has business activities. For reasons of coverage or regulatory requirements, one or even all of a company’s financing banks may be unable to support the full range of cash management services it requires.
  • There is other ancillary business in addition to cash management that a company can offer to its banks in support of a financing relationship, such as FX and trade finance.
  • It is becoming easier to switch or add cash management banks, not least due to the growth of SWIFT corporate access and more consistent XML-based formats.

Another view I have heard from some treasurers (although typically of smaller companies) is that cash management has become so commoditised that the choice of cash management bank is largely irrelevant. If technology, regulations, and cash management requirements never changed, and if cash management in every country was identical, then this view may be valid. The reality is, obviously, quite different. This article considers some of the cash management trends amongst multinational corporations, both globally and regionally.

European priorities

Starting first in Europe, SEPA is a ticking time bomb for all companies operating in Europe that have not completed their migration, but as we have discussed in TMI on a number of occasions before, SEPA should be a catalyst for change to improve financial and operational efficiency. Pierre Fersztand, Global Head of Cash Management, BNP Paribas explains,

“SEPA is clearly the first priority for treasurers in Europe in order to achieve compliance by the February 2014 end date. Most companies are now involved in a project, typically on a country-by-country basis, whilst also trying to align these activities within a global strategy. Treasurers are recognising the opportunity that SEPA presents to rationalise banks and accounts and streamline cash management and payments processing. Some have issued requests for proposals (RFPs) for a global cash management and payments bank but more commonly, companies are seeking a regional partner who will support their SEPA migration and enable them to leverage the opportunities that SEPA presents.”

Jennifer Boussuge, Head of Global Transaction Services, EMEA, Bank of America Merrill Lynch emphasises strongly that treasurers should not ignore the SEPA opportunity, not only as it relates to cash management in Europe but globally,

“SEPA is clearly a priority for treasurers operating in Europe, but as one treasurer noted at a recent Bank of America Merrill Lynch roundtable, SEPA should not be considered simply a compliance issue but instead, it empowers treasury and is a gateway to greater efficiency. This is an unprecedented opportunity that treasurers cannot afford to miss. For example, while centralising collections has often proved challenging in the past, European harmonisation now means that this is feasible. As IT resources typically need to be engaged to convert formats to XML for SEPA payments, why not take the opportunity to roll out XML globally?” 

Although SEPA migration projects have a mandatory deadline of 1st February 2014 from a compliance perspective, leveraging the opportunities that SEPA offers may be a longer-term strategy. In many cases, SEPA simply facilitates the objectives that treasurers already had, as Pierre Fersztand, BNP Paribas discusses,

“Visibility and control of cash remains a priority for corporations of all sizes. For example, while in the past many companies have set up cash pools across ‘easier’ markets, they are now seeking to extend the benefits to countries and currencies that are typically considered more challenging. Therefore, internal processes such as cash flow forecasting are also an important priority.”

Similarly, centralisation is not a new trend, but SEPA is fuelling many treasurers’ efforts to centralise cash management, payments and increasingly collections, as Pierre Fersztand, BNP Paribas outlines,

“The focus on payment factories continues, with a large number of companies seeking to centralise payments. Those that have already done so are now expanding the capabilities of centralised processing centres, such as automated reconciliation and supplier payment notifications.” 

He continues,

“Collections factories remain relatively unusual, but the opportunities to centralise collections will continue to grow under SEPA, particularly SEPA Direct Debits.”  

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