Cash & Liquidity Management

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A Simpler Approach to Doing Business Internationally In this Executive Interview, the Editor introduces Dieter Stynen, Global Transaction Banking FX at Deutsche Bank to discuss some of the challenges and opportunities for cross-currency payments and collections.

­­A Simpler Approach to Doing Business Internationally

A Simpler Approach to Doing Business Internationally

An Executive Interview with Dieter Stynen, Global Transaction Banking FX, Deutsche Bank

In this month’s Executive Interview, Helen Sanders, Editor, introduces Dieter Stynen, Global Transaction Banking FX at Deutsche Bank to discuss some of the challenges and opportunities for cross-currency payments and collections.

What exactly are you referring to when talking about ‘cross-currency payments and collections’?

Treasurers and finance managers often have to deal with situations where cash is paid or received in a currency different to the currency of the bank account. For example, a company that does not have a KRW account paying KRW to a supplier might need to pay the amount from a EUR or USD account. Similarly, a company may receive KRW from a customer into a EUR account. These payments or collections are known as cross-currency payments/collections.

Assuming that it is possible to pay or receive different currencies into an account, what challenges does this present?

Dieter Stynen

The problem with cross-currency transactions is that the bank has to exchange the foreign currency into the currency of the bank account or vice versa, a process over which treasurers typically have little control. Therefore, there is often no visibility over the FX rate that is applied, making it difficult to monitor FX costs. In many cases, clients are finding that the FX rates that are applied are uncompetitive, leading to significant ‘invisible’ but avoidable costs. In fact, as these rates are fixed and often updated only a couple of times per day, they are often priced with a margin to act as a buffer against currency volatility for the bank.

In theory, treasurers can avoid this by opening accounts in each currency, but this can result in fragmented liquidity and additional administration cost. Increasingly, therefore, companies are trying to reduce the number of bank accounts, particularly as administrative overheads are becoming more onerous as banks’ regulatory compliance requirements continue to grow.

What opportunities exist to overcome this challenge – after all, the ability to reduce the number of accounts whilst still facilitating international payments and collections is likely to be very attractive to treasurers?

At Deutsche Bank, we are helping clients to address this through our cross-currency payment and collection solution, FX4CashTM. This allows treasurers and finance managers to pay or receive more than 120 currencies through a single account. In addition, we give full transparency over the FX rate applied, which is essential for accounting and risk management purposes, and negotiate pre-agreed rate conditions with clients to avoid surprises and manage costs. As well as being able to offer competitive rates, due to our strong position as a top FX bank, we can also convert these flows using real-time rates – evidenced by a date time stamp per transaction – thanks to our direct connection with our global markets team.

In what circumstances is this type of cross-currency capability most valuable?

One frequent scenario today is that companies make payments to suppliers in regions such as Asia or Latin America in ‘hard’ currencies such as USD, EUR or GBP rather than the supplier’s local currency. This has advantages for the payer, as it avoids the need to hold potentially large numbers of foreign currency accounts. There are disadvantages for the supplier, however, in that it may not hold accounts in the payment currency. Therefore, their bank will convert the payment into their local currency. The supplier then faces the issue of lack of transparency over a potentially unfavourable FX rate. To overcome this risk and cost, suppliers will typically build the ‘hidden’ FX risk into the cost of goods and services, but this in turn raises costs for their customers.

By leveraging Deutsche Bank’s FX4Cash solution, a company can pay a supplier in its local currency without having to open a foreign currency account. This in turn enables the buyer to negotiate better conditions for the supply of goods and services as the FX component is eliminated. Our clients tell us that they are making savings of 3%-5% on the invoice amount, which has significant commercial implications when applied across multiple suppliers and currencies. Similarly, FX4Cash is also available for receivables, converting inbound FX flows into the supplier’s account currency in real-time, which also allows for account rationalisation, better centralised control and currency volatility mitigation.

As a result, we have had a lot of interest from clients, but there are challenges to take into account. Specifically, if the contract is denominated in ‘hard’ currency, procurement needs to be involved in renegotiating the contract to convert it to local currency. In some cases, treasury may need to work with procurement teams to help them understand the importance of FX issues and the benefits to the business.

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