Published: May 02, 2012
Much has been discussed over recent years about the expanding role of treasury into areas such as working capital, trade and supply chain finance. The effect of this expansion is that liquidity and risk can be managed more cohesively within an organisation. To support them with their expanded remit, treasurers are increasingly demanding more from their banks. In particular, they need a bank that can help them optimise their cash and liquidity management (combining both cash and trade techniques), leverage technology innovation and enhance the way risk is monitored and managed across their entire geographic footprint. This article considers some of the emerging priorities amongst corporate treasurers and offers some insight into the ways the right banking partner can help to address them successfully.
Challenging market conditions have forced greater collaboration and cohesion across treasury and finance disciplines, such as cash, trade, foreign exchange (FX), financing and investment. As a result, the endemic thinking within banks in terms of ‘silos’ no longer meets the needs of many of their customers. At Deutsche Bank, we were amongst the first banks to introduce a more comprehensive, holistic approach to the way that we design and deliver solutions and services by bringing together multi-disciplinary teams across logical functional areas such as payments, collections, short-term lending, trade finance and FX. This set-up enables us to work with customers at a more strategic level and create flexible, bespoke solutions that are specifically designed to meet each customer’s unique priorities.
An example is SEPA migration, currently one of the key issues that customers with a presence in Europe are dealing with. Treasurers and finance managers are increasingly recognising both the obligation to migrate to SEPA instruments as the 2014 deadline approaches and, perhaps more importantly, the value of doing so.
By adopting a holistic approach to payments, collections and cash management, we are helping customers to rationalise their account structures, leverage lower cost locations for making payments, and simplify their cash management processes. In Italy, for example, the interchange fee for today’s domestic direct debits is even higher than the current cross-border interchange fee for SEPA direct debits. We have therefore helped an Italian customer to replace multiple euro accounts with a single payments and collections account for its pan-European business located in Germany, where interchange and transactions fees are much lower.
This solution to the problem of high charges, fragmented and complex cash, as well as liquidity and bank account management, would not have been possible in the past. The outcomes are not simply operational- there is also a significant impact on working capital by addressing payments, collections and cash management as part of a single conversation.
Our cohesive approach to cash and treasury management does not only extend to the activities conducted by the head office. Through our global network banking concept, we aim to support greater co-operation and closer alignment on both the operational and strategic levels between the corporate headquarters and their subsidiaries. By establishing constructive dialogue and streamlining information flow, decisions will take account of the needs of both subsidiaries and the group as a whole.
To illustrate, in China, the significant growth trajectories of corporates mean that subsidiaries are growing considerably and, consequently, develop more complex financial needs. In many cases, they need investment, FX management, working capital and supply chain solutions. Often we find that group treasuries, which may be based in Europe or the United States, may not have complete visibility or awareness of local issues, while their subsidiaries may lack a full understanding of the group financial constraints and objectives. At Deutsche Bank, we leverage our extensive network to provide local support at both headquarters and subsidiary level as part of an integrated customer relationship approach. By doing so, we help to resolve disconnects, promote a more open dialogue and help to devise the solutions that will meet the needs and objectives of both parties.[[[PAGE]]]
Our global network banking approach means that we gain a far greater depth of understanding about our customers’ business. This model brings particular advantages to our customers, as we are able to take a more bespoke approach to solution design and delivery. For example, a software company was seeking to boost customer acquisition in Asia, whilst preserving margins, and was therefore looking to set up a structured customer financing. We recognised that, as the software was critical to these buyers, they would not jeopardise their business through non-payment. Consequently, we were able to take a more flexible approach to customer credit risk than the credit status of these buyers might otherwise have required, thereby facilitating more business and protecting margins.
In another situation, a company’s headquarters made the decision to adopt Deutsche Bank’s FX4Cash solution. FX4Cash enables companies to make foreign currency payments directly from a single account, removing the need to manage multiple accounts and eliminating FX exposures. One of its subsidiaries, however, was concerned about a loss of autonomy and therefore preferred not to adopt the solution. We worked closely with both group treasury and the subsidiary to communicate the concerns and objectives on both sides and devise a solution that enabled FX4Cash to be adopted group-wide, whilst addressing the subsidiary company’s specific concerns.
Although global banks, such as Deutsche Bank, have an extensive network and depth of expertise and solutions in each of markets they operate, few large multinational corporations choose to work with a single bank across every country. Consequently, they rely on Deutsche Bank to maintain a constructive and open dialogue not only with its customers, but also with their customers’ banking and technology counterparties. We have, therefore, extended our relationship model to ensure we work closely with other banks that our customers do business with, as well as with their technology vendors, in order to optimise our delivery of streamlined, cohesive solutions. The focus on co-operation, rather than competition over who can best try to meet a customer’s global needs, is not necessarily an easy culture shift for a bank. We recognise that a collaborative approach brings considerably more value to our customers and positions Deutsche Bank as a close, trusted banking partner.
Few companies in today’s competitive climate with continuing market vulnerability can afford to tolerate inefficiencies or sub-optimal practices in liquidity and risk management.
As a first step, to ensure that they are managing their cash and treasury activities in their best interests, companies should determine their strategic priorities, such as optimising liquidity, strengthening risk management policies and processes, or increasing the resilience of their supply chain. This analysis should form the basis of their discussions either with their current or potential banking partners.
Secondly, companies should review their current banking relationships to determine whether they are the right partners capable of supporting them in their strategic growth path. They should seek answers to important questions, such as: do their banks consider the company to be a core client, and how is this reflected in the availability and stability of financing? What solutions are they proposing to address pressing issues such as SEPA, and what strategic and operational advantages will these solutions deliver? How are these banks preparing for Basel III and what will be the likely impact of this regulation on their customer relationships?
As companies take a more cohesive approach to cash and treasury management activities, they recognise that their banking partner must be able to deliver a consistent global message, demonstrate resilience in the face of economic and regulatory uncertainty, and devise and deliver solutions that accommodate both their global objectives and local requirements and constraints. The following months and years will bring a variety of new challenges, some expected and others unforeseen. Regulatory changes such as Basel III will most likely require changes in funding aspects for many companies. By working with a strong, global banking partner, treasurers and finance managers can anticipate changes, both in their own business at the local and group level as well as the wider market, and prepare accordingly.
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