Published: January 01, 2000
One of treasurers’ most important, and often most frustrating, tasks is to track down the location of their company’s cash, in any subsidiary and bank account across the world, and then to take control of it. This is not merely an intellectual exercise. As the effects of ongoing liquidity constraints and economic fragility continue to affect companies of all sizes, maximising the use of every dollar can literally make the difference between survival and ruin.
Due to frequent mergers and acquisitions, in many companies, the trend towards globalisation has been accelerated. This often results in bank relationships, accounts and cash management structures becoming fragmented, particularly in decentralised organisations where newly acquired subsidiaries retain their operational independence. Consequently, even if treasury has efficient technology in place, complex organisational structures, diverse technical environments in different parts of the group and dispersal of cash across multiple bank accounts globally can hamper the most robust efforts to centralise and manage liquidity at a group level. However, when cash is not being used for the good of the business overall, strategic and competitive opportunities can be lost, such as reducing borrowings, maintaining working capital levels, optimising investment income and making strategic investments.
Operationally, lack of visibility over bank account information also brings challenges. Unreconciled transactions can mount up, reducing the amount of available cash and creating accounting difficulties. Customer credit limits may incorrectly be shown as fully-utilised, damaging customer relationships and preventing repeat business. Lack of available cash or limitations in accounts payable processes may also result in suppliers being paid late, which can again erode relationships and jeopardise the stability of the financial supply chain. With many smaller businesses particularly vulnerable as a result of ongoing liquidity constraints, predictable cash flow is key; and without timely invoice settlement, the risk of key suppliers going out of business can be substantial.
Despite the challenges, obtaining timely bank account balance and transaction details with complete and consistent transaction data is a challenge worth pursuing. As every corporation differs in scale – complexity, technological capabilities, business focus, geographic reach and culture – it is impossible to envisage that a single solution could be used by such a diverse community to achieve visibility and control of group cash. Bank connectivity is one corner piece in the financial systems jigsaw, but equally, the right connectivity channel is not a golden ticket to cash visibility. While many larger, more complex corporations with global, multi-banked connectivity requirements are increasingly selecting SWIFTNet as their communication channel, other companies that may be smaller, less complex, or have fewer banking relationships, may find that banks’ proprietary host-to-host (including integrated ERP connections) or web-based electronic banking systems are more suited to their needs. The same applies to file formats. As SEPA instruments are based on XML ISO 20022 standards, this has been a catalyst for many larger companies to introduce standard formats for payments across their business. There are still some challenges to ISO 20022 adoption, but these are likely to be relatively short-lived. For example, for a standard to be effective it must rely on widespread adoption. Some banks have yet to adopt ISO 20022 consistently, but this is changing and the standard is increasingly enabling larger, more complex corporations in particular to achieve more coherent payment processes. For firms without the same degree of format fragmentation or payments diversity however, there may not be sufficient cost or efficiency benefit to move from existing formats.
Irrespective of the size or complexity of an organisation, what is important is to understand how transactions and information flows are exchanged. Where there are risks, breaks or bottlenecks in between systems or business entities, and points at which data may be truncated, altered or reformatted, this in turn can result in a loss of detail. Consequently, treasurers and finance managers need to focus not only on the individual systems they use to perform specific activities, but also on the integration between them. [[[PAGE]]]
Once the ’pipe work’ has been reviewed and any leaks plugged, treasurers can then focus on the information that passes through it. However robust and well-integrated a systems environment, this will provide little benefit unless the data on which business processes rely is accurate and comprehensive from the point of origination. High quality, consistent data also needs to be exchanged between internal systems, and with suppliers and customers, to ensure that information remains reliable and complete.
Cash management banks have an important role to play in supporting clients’ data quality, integration and communication needs. For example, they need to be able to provide the level of transaction detail that is required to identify and reconcile transactions. Consequently, they are investing heavily in providing enriched data, not only for reconciliation purposes but to support efficient end-to-end financial processes. From a communication perspective, banks need to facilitate a variety of different connectivity methods, from web-based electronic banking through to host-to-host and SWIFT connectivity. With format standardisation also vital for a growing number of complex corporations in particular, pioneering banks are being proactive in adopting and pushing the boundaries of ISO 20022 to enhance interoperability and extending the range of services covered by the standard.
The way in which banks and vendors deliver services is also changing. Today few companies can justify large-scale technology and integration projects with large cost and resource implications. Furthermore, treasurers and finance managers are seeking scalability of their solutions to enable them to incorporate changes to the business without the need for a major re-engineering of their systems environment. It is therefore becoming a necessity for banks to provide solutions that support seamless integration with clients’ ERP or TMS, with minimal development or technical set-up requirement.
We are on the cusp of significant changes in the way that banks deliver and corporates adopt technology services. Technology innovations such as standardisation through ISO 20022 and the need to do ’more with less’ are all leading to a focus on greater convenience, coherence and interoperability of technology solutions. No longer should a treasurer or finance manager need to distinguish between file and message delivery for payments for example, which is a technical rather than business distinction, instead they should be able to focus on urgent versus non-urgent payments. The payment bank should then be able to provide intelligent routing capabilities, executing the payment by the fastest and cheapest delivery means. Increasingly convenient connectivity methods and seamless integration mean that treasurers and finance managers can focus on the business flows and how they use information, as opposed to spending time on the channels through which data is passed.
Looking ahead, we envisage that these trends will continue, with greater standardisation and interoperability across a wider range of activities, not simply payments. The economic crisis and the recent natural disasters in New Zealand and Japan have, for example, emphasised the importance of supply chain resilience, both physically and financially. Ensuring the smooth flow of data and transactions to ensure timely payment and support structures such as supply chain finance is key to a company’s ability to maintain robust relationships and increase confidence in their supply chains. Banks have an important role to play in achieving this, as they continue to focus on and invest in facilitating efficient and holistic financial flows.
“Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated, which is a registered broker-dealer and member of FINRA and SIPC, and, in other jurisdictions, locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value * Are Not Bank Guaranteed. ©2011 Bank of America Corporation.
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