Cash & Liquidity Management

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A Fitness Programme for Treasurers Treasurers must regularly revisit liquidity and working capital structures and processes to ensure that they remain world-class. This article outlines a five-step programme that will help enable treasurers to position the company for future growth.

A Fitness Programme for Treasurers

by Andrew Betts, Managing Director, Global Head of Supply Chain, J.P. Morgan Treasury Services

Like the Olympic athletes of this summer, treasurers have excelled themselves in recent years, showing great responsiveness and flexibility through challenging times. While those Olympians look ahead to Rio in 2016, treasurers also need to be making their preparations for the future. The training regime for most athletes is gruelling but in essence relatively straightforward: diet, stamina, strength and technique. Likewise, the techniques for achieving optimal working capital and liquidity management are simple, but need to be combined in the right way to be fit for an uncertain future.

Twenty-five world records were set during the London Olympics as athletes constantly strove to exceed their own achievements and those of their competitors. Corporations are no different in their ambitions. However, with business strategy, organisational structures, cash flow dynamics, market conditions and regulatory frameworks continually evolving, the treasurers’ role in supporting the company in its pursuit of excellence is a constant one. Treasurers must therefore regularly revisit liquidity and working capital structures and processes to ensure that they remain world-class. This article outlines a simple, five-step fitness programme for treasurers to position the company for success and future growth.

Step 1:

Simplify bank account structures

The first discussion we typically have with treasurers is how to leverage credit balances held in bank accounts around the globe to fund debits in accounts domiciled elsewhere, thus reducing the cost of financing and maximising the value of cash. This is difficult to achieve when a company works with multiple banks and potentially hundreds of bank accounts. It is often impossible not only to manage the flow of funds effectively across accounts, but also to achieve timely visibility over these accounts at a global level. Furthermore, these accounts are typically costly and labour-intensive to maintain, and they can expose the company to counterparty risk.

With complex legal and organisational structures, diverse geographies and currencies, and frequent M&A, an optimal account structure one year may no longer be fit for purpose the following, so this is often a useful place to start when seeking to enhance liquidity. Typically, treasurers’ first objective should therefore be to rationalise the number of banking partners and accounts, leveraging primary banking relationships at a regional and global level as far as possible.

But treasurers, like athletes also need to set realistic goals. Any exercise to streamline bank relationships needs to be managed in line with geographic and market diversity. Few corporates achieve the ultimate goal of one global or even regional relationship and this presents challenges from a liquidity and counterparty risk perspective. Fortunately even that hurdle can be overcome with automated multi-bank sweeps which concentrate funds in a regional or global provider of choice.

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