Published: January 02, 2008
With consistent year-on-year growth this century exceeding that of many western economies, Central & Eastern Europe (CEE) has become a vital region for many multinational companies as both a consumer market and sourcing location. Many are choosing to locate a shared service centre in CEE and domestic companies are developing their own international markets. With both euro accession and SEPA on the horizon, we look at some of the trends and opportunities in cash management in this economically vibrant region.
Multinational companies have identified CEE countries, such as Poland, Czech Republic, Hungary or Slovakia in particular, as a significant region for shared service centres (SSCs) with skilled staff, multi-lingual capabilities and good accessibility to other parts of Europe. In turn, this has helped to drive the development of domestic companies and overall economic growth. However, while cash management techniques such as cash pooling across CEE countries are increasingly sought-after, there are still obstacles to cross-border cash pooling despite the harmonization of the different regulatory and legal frameworks in each country (see box 1). By working with a bank experienced in the regulatory intricacies in each market, however, there are ways of achieving high levels of concentration or pooling with the respective benefits in interest return and cost of borrowing.
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With the development of SSCs in CEE, which often cover the whole region and beyond, together with the growth of domestic companies both across CEE and outside, there are increasingly sophisticated demands for efficient, cost-effective payments and cash management solutions. With euro accession pending in some CEE countries and the advent of SEPA, CEE has the opportunity to benefit from the efficiencies that have already created in existing eurozone countries which will be enhanced further with SEPA. RZB Group has developed substantial capabilities in the area of international payments processing, with a particular emphasis on CEE.
Furthermore, many CEE countries have fewer problems with legacy payments infrastructures and can therefore benefit from the most modern and efficient technologies, like RZB´s newest product innovations, Cash Payments to CEE and CMI@Web.
Cash Payments to CEE, a new cross-border payment product, was launched in 2006. This is an open solution which allows correspondent banks to make use of the comprehensive RZB network in the CEE region to effect money transfers, by linking standardized interbank channels like SWIFT to a web application that allows additional correspondents to be included in cash disbursement transactions.
CMI@Web provides clients with services through an internet based banking portal which includes international account reporting, international disbursement service and RZB´s payment format converter, the ‘Central Conversion Solution’.
Together with local and international cash pooling solutions and the investment in the newest SWIFT technologies for corporates such as MA-CUG and SCORE, RZB Group is in a leading position to provide cash management services in the CEE region and has developed substantial market share in SWIFT transactions in CEE.
However, in addition to optimizing cash at a high level, companies are seeking a cohesive approach to optimization across the whole financial supply chain, from purchasing & sales through to payments & collections, in order to increase their competitiveness and efficiency. While there are increasingly opportunities for efficient payments in CEE, receivables are more problematic, with differences in market practices and cultures across each country. For example, the Czech Republic has a strong electronic payment system supporting direct debits and payment cards, while many countries such as Romania or Ukraine are still largely cash-based. Cash-based receivables can create challenges for companies and their banks, to ensure the efficient and secure lodging, movement and storage of large quantities of cash. This is an expensive process and banks which are the most efficient and cost-effective are typically those with a substantial network, such as RZB which has one of the largest networks in the region.
Furthermore, although companies may receive money through different means, CFOs and Treasurers still need to have visibility over outstanding collections across the region which often means that a single collection bank is desirable. This can be very beneficial in obtaining a view of days sales outstanding (DSO) and other receivables metrics. In a shared services environment, the use of a central credit and collections system to ensure common processes and reporting across all countries, irrespective of how funds are received, is also highly valuable in achieving efficient credit monitoring, procedures and reporting and reducing DSO. Companies are then in a position to securitize their receivables as a source of financing, in which RZB is experienced in working with its corporate customers.
Not only can companies make their receivables work harder, but supplier financing techniques can also be highly advantageous in a market where many suppliers may be un-rated small- to medium-sized companies without easy access to financing, which may be a risk if these companies have cash flow problems. Supplier financing can help to ensure that suppliers are paid earlier without creating liquidity problems for the customer. For example, a supplier may assign its receivables to an external financing provider in order to be paid earlier at a reduced cost of borrowing by leveraging its larger customer’s credit rating. With suppliers’ costs reduced, the customer can also then benefit from lower pricing.
The different countries, languages and cultures which comprise Central & Eastern Europe are today characterized by economic vibrancy and fast developing financial infrastructures. The opportunities for consumer, sourcing and investment markets exceed those of many other regions but without entirely harmonized financial markets and with euro accession on the horizon, not all companies are taking full advantage of these opportunities. Cash management and working capital optimization are key components in the success of all companies, and with regional flavours and variations, companies which work with an experienced banking partner will be best-positioned to take advantage of the potential benefits in this dynamic marketplace.
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