Cash & Liquidity Management

Efficiency - the Final Frontier We all know the methods of increasing efficiency - and there is probably no area that could not evolve further and maintain effectiveness.

Efficiency – the Final Frontier

by John Gibbons, EMEA Regional Executive, J.P. Morgan

John Gibbons‘Efficiency’ is a constant theme that echoes around the banking and treasury profession year after year. Perhaps it’s a challenge that we all seek to overcome in some shape or form, but will the day ever come when someone declares they are optimally efficient?  We all know the methods of increasing efficiency – and when you think about it, there is probably no area that could not evolve further and maintain effectiveness. 

But if that’s true, why does ‘efficiency’ continue to be discussed year in and year out?  If areas have been identified, why has change not occurred?  While everything around us from the economy to geopolitical events take precedence, ‘I must become more efficient’ tends to be put to one side.  When you look at the past four years, there has been something in each quarter that has distracted us all. The irony is that if we were more efficient in the first place, managing an urgent situation wouldn’t be as much as a challenge as it tends to be.  Maybe a change in approach is needed.  Perhaps, just looking at one single issue, addressing it and then moving on to the next one would be more effective.  At times, we want to reach for the stars but actually just end up only halfway there before we have to turn back. This column over the next few months will identify a single method that could increase efficiency and/or mitigate risk.  It might not be for everyone every month, but we have to start somewhere!

This month we focus on the multinational corporation with a decentralised structure. The discussion about centralisation versus decentralisation is probably as long as how best to improve efficiency – so, for the sake of column space, let’s just acknowledge whichever model a company chooses is the best for them.  But to be decentralised and have subsidiaries making payments locally, is that really being efficient? Also, if it takes up to a week to obtain a full picture of cash positions, is counterparty risk mitigation and cash forecasting simply an aspiration on the way to the stars with no prospect of returning to earth for some time? 

Over the last few years there has been a tendency for a global or regional HQ to adopt a single cross-currency account model for payments while holding local accounts to use for collections.  This is not, by the way, just the view of a banker looking for more FX fees (well, maybe technically it is!): the efficiency savings such as a reduced need to deal, confirm and settle, including the associated overhead of re-keying data between ERP and TMS, plus the daily visibility, and let’s not forget risk mitigation, which is now travelling back to earth at light speed, far outweigh the modest increase in cost.  While the news is dominated with ‘what if?’ scenarios in the market, ask yourself these questions:  What impact would a market disruption truly cause to my Payments and Collections? How quickly could Standard Settlement Instructions be changed?  Would we have complete visibility of our accounts on a previous and intra-day basis? Are we at risk of trapped cash? 

There are a number of tools readily available today to help improve efficiency without disrupting a decentralised structure.  We could move the discussion towards SEPA as a great euro efficiency tool for both centralised and decentralised models. SEPA discussions are a constant in our lives and though most of us probably wish that the amount of marketing around its advantages was passing Jupiter on its way to the next galaxy, the fact is, it is a tool that can be leveraged to increase efficiency and effectiveness.      

Efficiency starts with all of us. My advice is to ask yourself this question every day, ‘If something happened today, am I efficient enough to handle the event?’  One small change could start a chain reaction with incredible results.

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