Cash & Liquidity Management

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Fluor Corporation Optimises Cash Management in Europe Fluor have achieved considerable financial and operational efficiency through a series of transformational initiatives - including notional cash pooling and a SWIFT-based payments hub.

Fluor Corporation Optimises Cash Management in Europe

by Martin Blom, Finance Director, and Arno van Slooten, Manager Accounts Payable, Fluor B.V.

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As a leading global engineering and construction company, Fluor has had a long-standing presence in Europe. The Netherlands office was established in 1946 and acquired by Fluor in 1959. Managing cash and risk is a key treasury responsibility. In cooperation with its US headquarters, the Netherlands treasury group is responsible for over 20 legal entities and branches across mainland Europe. This article outlines Fluor’s successful relationship with partner bank ING, which has resulted in considerable financial and operational efficiencies through a series of transformational initiatives including notional cash pooling and a SWIFT based payments hub.

A partner in business

According to Martin Blom: “We have a large multi-currency credit facility in the United States and typically, we try and offer our ancillary banking business to the banks that participate in this facility wherever possible. As a result of our financing relationship, we evaluated ING’s cash management services in Europe to understand synergies between the organisations. We were very satisfied with the solutions and services that ING offered, and appointed the bank in 2006 for European cash management services. This relationship has progressed very successfully both in terms of day-to-day banking and transformation initiatives that we have undertaken together.

“Our treasury centre in the Netherlands has responsibility for cash and treasury management activities in mainland Europe. We have set up entities in each country in which we operate, each of which needs its own bank account for supplier and employee payments. We use SAP for cash management and accounting and produce batch payments files which are forwarded to ING. We have a local multi-used facility with ING in the Netherlands to allow occasional overdrafts, but primarily to allow ING to provide bank guarantees. Typically we give guarantees to customers for advance payments or performance guarantees. Smaller guarantees (e.g., under €2m) are issued within this facility, although specific credit lines are set up for larger ones, supported with a parent company guarantee.”

Cash pooling and intercompany netting

In addition to our daily banking and guarantee requirements, our close co-operation with ING also includes its subsidiary bank, Bank Mendes Gans (BMG). By working with BMG, we were able to implement a global notional cash pool to improve liquidity and risk management monitoring. We first implemented the cash pool in the Netherlands and have subsequently rolled it out to more than 40 legal entities and branches across the world, while the number of participants is still growing. As we had hoped, this has proved a very effective liquidity management tool. A challenge that we had always experienced in the past is that profits are generated and maintained within each entity. We only centralise this cash to issue dividends when it is cost-effective to do so, which may be every six to seven years, and cash remains with the local entities in the meantime. Before implementing the BMG notional cash pool, this cash was effectively ‘trapped’ in each country, offering no value to the wider enterprise. We have implemented cash concentration in some cases too, so the combination of physical and notional pooling enables us to manage both our liquidity and risk management requirements effectively.

Having put in place the BMG notional cash pool, we have also been able to introduce an intercompany netting solution to settle intercompany invoices cost-effectively and automate the production of the resulting account postings. It is important to settle intercompany invoices regularly to avoid these amounts being treated as loans for tax purposes.

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