Cash & Liquidity Management

A Renaissance for Treasury and Working Capital Optimisation The corporate sector has learnt to live and act in a much more fragile financial environment. Nordea's Roger Lundholm argues that this has led to a renaissance for treasury and working capital optimisation.

A Renaissance for Treasury and Working Capital Optimisation

by Roger Lundholm, Head of Cash Management Sales & Solutions, Nordea

After five years of financial turbulence, the dust is finally starting to settle, allowing us to draw some conclusions on the crisis. Since 2008, the world’s economic climate, the regulatory landscape, consumer confidence and corporate and banking attitudes to liquidity and risk have changed dramatically. All industry participants, including corporations, banks, governments and regulators have taken measures to prevent a similar crisis from happening again.

Central banks and regulators have focused their efforts on rebalancing the economy. Central banks have pumped large liquidity supplies into the market and pushed down interest rates to historically low levels. At the same time, regulators have introduced a range of measures to stabilise and increase resilience in the financial sector.

The banking sector has experienced massive changes and many of the assumptions that the industry was based on have turned out to be lacking. This has led to government support for their local banking community, credit downgrades and a fundamental shift in the approach to funding, liquidity ratios and key performance indicators.

Corporate impact

From a corporate perspective, the consequences of the crisis are apparent in all industries and at every stage in the supply chain. Some companies have had to make major readjustments to survive and there have been some casualties of course. But as a general consequence, managing liquidity and risk is now recognised as core to a company’s business strategy, not only as financial good practice.

Corporations are in a better position than ever before to resist economic turmoil and attitudes towards liquidity and risk have changed fundamentally. All companies, including those that have not experienced difficulties during the crisis, recognise the need for greater discipline in inventory levels, a strong flexible balance sheet and an efficient working capital cycle. Companies that have focused on working capital optimisation and supply chain efficiency have been able to withstand the financial crisis. They are also better positioned to flex production in line with changing customer demand without jeopardising the supply chain.

Banking relationships

Another outcome of the crisis is a change in the relationship between corporations and their banks. At Nordea, we are focused on developing and maintaining close, long-term relationships with our customers. Our relationship model enables us to understand our customers’ business, strategic direction, opportunities, constraints and priorities. This allows us to devise and develop solutions and deployment models that treasurers can adopt easily, and that deliver financial and operational efficiency.

Conclusions

The past five years have shown that political and regulatory systems can react fast to complex and fast-moving events. Financial regulation will continue to play an important role in preventing a similar crisis from happening again. The corporate sector has learnt to live and act in a much more fragile financial environment. This has led to a renaissance for treasury and working capital optimisation. For relationship banks like Nordea, our long-term customer commitment is the basis for understanding each customer’s unique situation, engaging in strategic dialogue and delivering services that create competitive advantages for the customer.

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