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Currencies: From Forecast to Settlement | Treasury Management International
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Cash & Liquidity Management

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Currencies: From Forecast to Settlement In the age of globalisation when companies are expanding rapidly into new markets, this challenge of managing payment and receivable flows in multiple currencies is becoming ever greater.

Currencies: From Forecast to Settlement

Currencies: From Forecast to Settlement

by Duncan Kerr, Deputy Editor, Euromoney 

One of the greatest challenges any corporate treasurer of an international company will face is managing payment and receivable flows in multiple currencies. In the age of globalisation when companies are expanding rapidly into new markets, this challenge is becoming ever greater and more acute.

Ensuring the best possible visibility around these flows and currency exposures is a crucial starting point in managing this effectively. Managing it successfully will depend the internal strategy or set of strategies the treasurer then employs. 

Offering their insights on this particular challenge, Yves Gimbert, group treasurer of GDF Suez, and Bruno Demonie, deputy director of finance, Cigna, explained the level of visibility they have on this part of their business, as well as the strategies they employ in order to manage this risk exposure effectively.

Both companies are large – if not the largest in their industry sectors – and international, with operations spanning multiple countries, currencies and operating entities, presenting them with a very real and complex challenge.

This is illustrated by Gimbert, who says: “We operate 1,200 entities worldwide. We have a very extensive cash-pooling operation, where we consolidate more than 530 entities in more than 20 countries and in 15 different  currencies.”

For Demonie, the challenge is no less complex. “We are collecting premiums in 12 currencies but we are paying claims in over 50 currencies, so you see immediately that there is a huge mismatch in the currencies we are collecting payments in and the currencies we are then paying out claims in,” he says.

For any international company, visibility and understanding the specific types of currency exposure is the best starting point to tackling them

“More importantly, and this makes it even more difficult, is that there is a timing mismatch too,” he says, “because we know, more or less, when the premium is going to be paid but we don’t know when exactly the claim is going to become payable. That can be far in the future, which is why an insurer has to build reserves on balance sheet to take this into account. So these are some peculiarities of the insurance business that make our task more complex.”

For any international company, visibility and understanding the specific types of currency exposure is the best starting point to tackling them, and those exposures can range widely from economic to translational to transactional, says Tom Cools, director, corporate treasury solutions, PwC.   

“This is the starting point for every corporate treasurer – understanding in full the specific exposures the company has: where they materialise and at what moment. Over the last 12-18 months we have actually seen an uptick in FX optimisation projects for clients. Why? It is partly because it is still one of the key risks a treasurer will face. It also has a lot of exposure at board level. In addition to that, financial market volatility has increased in this time and importantly our clients have become so much international than before.”

Visibility on payments is critical in supporting this level of understanding, and for Gimbert that visibility comes from “our banking partners as well as from our customers, suppliers and within our own organisation,” he says.

On being asked whether he feels the banking industry is helping provide the level of visibility and efficiency in monitoring payments he requires, he says:

“If the industry does not apply this global standard end-to-end from debtor to creditor through their banking chain, then XML is useless.”

Wim Grosemans, Head of product Management International Payments - Cash Management, BNP Paribas, tends to agree and says that there is no such thing as a level playing field for international payments.

“Outside of Europe (where SEPA has had a beneficial impact), payments are so much more complicated,” he says. “It is very difficult to make the old SWIFT formats for interbank payments evolve. You need the buy-in of the whole world for that – and not just the European banking community. But without evolution of these formats, adding new end-to-end service from debtor to beneficiary is challenging because there’s simply no space to put it. Maybe the imminent shift to XML for TARGET2 settlement will be a trigger for evolution”.

Demonie says that direct debits provide him and his team with a “near perfect layer of visibility” and that while credit card payments are more expensive than direct debits, they do offer good payment visibility too.

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