Cash & Liquidity Management

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Rapid Returns in Receivables There are significant ways in which Treasurers can substantially improve their liquidity and working capital with rapid return on investment. The key is not just to throw more money and more resources at a problem, but to think creatively about addressing challenges. In doing so, Treasurers can achieve a return on investment which contributes directly to the company’s bottom line. Focusing on receivables is a prime example of where Treasurers can act creatively to enhance liquidity and add economic value to the company. The watchwords here are Centralization, Optimization, Leverage and Protection. But what does these mean in practice?

Those who remember the late 1980s and who also grew up in the United States may remember Ken Hakuta, better known as ‘Dr Fad’, TV personality and inventor - for those who missed out, he’s featured on the old VHS ‘I Love the ‘80’s: 1983’. I bet you never expected to pick up that sort of trivia in a treasury publication. I haven’t seen it, in case you were wondering. Anyway, amongst (I’m sure) very many sensible comments made by ‘Mr Fad’, one struck me as actually being quite relevant:

“Lack of money is no obstacle. Lack of an idea is an obstacle.”

While I am not suggesting that we all send our banknotes fluttering from a top storey window (after all, many of us might feel that this is already the effect of much of the current economic uncertainty) there are significant ways in which Treasurers can substantially improve their liquidity and working capital with rapid return on investment. The key is not just to throw more money and more resources at a problem, but to think creatively about addressing challenges. In doing so, Treasurers can achieve a return on investment which contributes directly to the company’s bottom line. Focusing on receivables is a prime example of where Treasurers can act creatively to enhance liquidity and add economic value to the company. The watchwords here are Centralization, Optimization, Leverage and Protection. But what does these mean in practice?

Centralization

According to a survey conducted last year by GTNews in association with SEB (‘Is Corporate Cash Management Changing?’ 19 July 2007) 43% of companies have a decentralized approach to receivables. The survey included a high proportion of SMEs and domestic companies, and according to research such as the Treasurers’ Benchmark of companies with a turnover above $1bn the percentage of companies which have not fully centralized their collections is far higher. Approximately 65% of larger multinational companies still have partially decentralized collections and only 5% have fully centralized (source: Treasurers’ Benchmark). However, there is a significant drive to centralize collections amongst companies of all sizes, either globally or regionally, depending on the structure of the organization. While short-term priorities differ amongst firms, it appears that only 15% of those with decentralized collections ultimately intend to maintain this arrangement in the future.

Although many Treasurers say they are planning to focus on collections, there are always other priorities, and like cashflow forecasting, which has appeared on Treasurers’ list of top priorities for a number of years, it does not seem likely that all those who ideally want to centralize collections will end up doing so in the short to medium term. However, why should receivables be a priority now when they have not been in the past?

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