Cash & Liquidity Management

Cash Management at the Sharp End TMI's CEO provides an overview of the contents for our annual International Cash Management Guide, and adds his own thoughts on the balancing act of cash and liquidity.

Cash Management at the Sharp End

by Robin Page, Chief Executive

Cash and liquidity, and finding the right balance between the two, have long been preoccupations of corporate treasurers, and since the financial crisis this has been an even more pressing issue for many. Comments and feedback on our annual Guides to International Cash Management have shown us that they are greatly valued for their useful perspectives in a range of articles written by people at the ‘sharp end’ in this area, and I am delighted to introduce the 2012 edition which I am confident will not only provide answers to troubling questions but also stimulate thought and discussion in treasuries in companies of all sizes.

This year has seen the introduction of a ground-breaking Treasury Technology Assessment Survey conducted by Reval, the results of which are presented in the article by Peter Reynolds, the company’s Regional Vice President for Western Europe. The survey, which included 122 companies in the UK, Ireland, The Netherlands, Belgium, Luxembourg and the Nordic countries, gives a very comprehensive overview of the companies’ approach to risk and cash management, use of technology and software as well as treasurers’ priorities for this year.

The Cash Management University now held annually by BNP Paribas is enormously successful and TMI is delighted to publish articles based on presentations made there. Here the bank gives a summary of discussions at one of their workshops last December which was on the topic of payment factories. Senior treasury personnel from a major technology firm and a medical equipment company discussed their experiences of implementing centralised payments, followed by a panel discussion chaired by our editor Helen Sanders.

Mickey Vonckx of the financial software firm Hanse Orga, develops the theme of centralised cash management in an interesting article which describes how by deploying specialised technology “which is ideally fully embedded in centralised ERP systems” such as SAP, corporates can get onto the inside track for efficient cash flow forecasting and the ability to see the overall cash situation, including that of subsidiaries, boosting efficiency and allowing reliable performance analysis of all elements of the business.

Risk management “swept to the top of treasurers’ agendas in 2008”, says Frank Kutschera of Deutsche Bank, and has stayed high on their lists of priorities since then. Managing risk is no longer simply a question of fire-fighting, he emphasises, but a strategic activity which adds value to the entire corporation. Kutschera looks at SEPA migration and the possibilities inherent in investing in emerging markets, and advocates a combination of risk management expertise, robust systems, trust amongst senior managers and the right banking relationships to bring “powerful benefits” in their train.

SEPA migration is also the subject of an article by Thomas Klein of UniCredit and Stefan Scheidgen of Deutsche Post AG Renten Service (DPR). DPR is a major pension management outsourcing company based in Germany, and this article describes its experience in implementing SEPA for its pension payments, which it did in 2009. The authors acknowledge that the decision to do this was inspired by the German government’s commitment to the European Payments Council to be a frontrunner in SEPA migration, but knew that there would also be a range of benefits including a reduction in the cost of cross-border payments. And they caution that a project of this type “requires the same degree of focus and investment as historic projects such as Y2K or euro adoption”.

There has been much discussion – and dissension – over the role played by credit ratings agencies, when blame was being apportioned for the root cause of the global financial crisis. Joanna Cound and Stephen Fisher of BlackRock point out that the crisis revealed a number of weaknesses in the Credit Rating Agency (CRA) business model, which regulators worldwide are now trying to address. The third reform of CRA regulation (CRA3) is already under way in Europe, and Cound and Fisher provide useful background on the use of ratings in the investment process, making a case for further CRA reforms and summarising concerns expressed by investors on the latest reform proposals. BlackRock, they note, “supports the rationale behind many of the proposals in the CRA3 package”, but they are concerned that key elements of it might impair the investment performance and choice of their clients with widespread adverse effects. In particular they note problems of possible over-reliance on ratings, potential conflicts of interest within CRAs, and, especially, the difficulties inherent in the application of strict civil liability provisions and a mandatory rotation requirement.

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