Published: May 18, 2011
When considering the cash and treasury management issues facing corporate treasurers today, it is important to recognise that every company has different needs and priorities. Consequently, a bank has to tailor its solutions to each client’s existing needs and future goals. Across the spectrum of Deutsche Bank’s corporate clients, the experiences and pressures of a €20m midsize domestic company will differ significantly from those of one of the world’s largest companies. There are also differences across industries: a retailer may be most concerned by the move from cash to card receivables, risk management and the expansion of online retailing, while a manufacturer may be focused on export finance, having witnessed a trend from trade instruments to open account and then back again. Smaller companies may be seeking new avenues of liquidity, while larger firms may be interested in supply chain finance to increase the resilience of their supply chains. At Deutsche Bank, we are focused on delivering highly automated, efficient and reliable solutions that meet our clients’ diverse needs, embracing today’s challenges and tomorrow’s opportunities.
Among our multinational corporate clients in Germany, there are a variety of issues currently consuming the attention of senior treasury professionals. One of the most significant of these is the Single Euro Payments Area (SEPA) which faces growing momentum as we approach the defined end dates for existing domestic schemes. For many companies, SEPA has been an issue that could be left on the ‘to do’ list for the past few years, but it is now becoming a priority. Germany has the advantage of already being a low-cost, highly efficient jurisdiction for payments, so many companies are seeking to centralise payments and collections in Germany to take advantage of these opportunities. For example, a company seeking to use direct debits in Italy can avoid higher interchange fees by transferring this activity to Germany. Consequently, we are seeing that clients are looking at SEPA migration not only as a necessary regulatory requirement, but also as an opportunity to optimise payments and collections, increasing efficiency and reducing costs. As a pioneer in SEPA, with a strong track record of supporting our clients to migrate to new payment and collection instruments, we are seeing a considerable upturn in interest in SEPA migration, and we are encouraging clients to plan and implement projects as soon as possible rather than waiting until the final deadlines when there will be greater pressure on resources.
By implementing efficient payment and collection instruments, with greater transparency and control over processes and cash flows, treasurers are in a better position to manage working capital at a strategic level and accelerate the cash flow cycle. The quest for enhanced working capital and greater control over liquidity has been a long-standing priority for larger companies, but we are now seeing smaller companies seeking to take advantage of techniques such as physical and notional pooling, domestic, regionally and globally. In doing so, their aim is typically to maximise the use of cash across the business, reducing the need for financing to fund working capital and increasing surplus cash available for investment. To achieve the degree of transparency and control that they are seeking, treasurers need to be able to rely on timely, accurate data that is delivered securely and can be integrated easily into other systems, a particular strength of Deutsche Bank and one of the factors in our clients’ decision to work with us as their primary cash management bank.
While cash management is a priority for many companies, trade finance has also become a more significant topic. For example, since the financial crisis various forms of supply chain finance have received significant attention, such as supplier financing where a buyer enables suppliers to gain access to liquidity by discounting confirmed payables from the buyer, financed by the buyer’s bank, while the buyer itself could enjoy longer payment terms.
While cash management is a priority for many companies, trade finance has also become a more significant topic.
There have been several high profile success stories for supplier financing, particularly among the automotive and pharmaceutical industries. However, we are also finding that many suppliers in Germany remain less attracted to such schemes as the financing rate available for supplier financing may in some cases be no more attractive than borrowing locally. Nevertheless such suppliers might join supplier finance programmes for improved working capital management and availability of enhanced treasury forecast information. Overall, we are recognising continually increasing volume on our platform due to the fact that this financing tool has become a stable source of financing which complements other alternatives. For example, in addition to supplier financing, Deutsche Bank is working closely with our clients to determine the most appropriate means of transaction-based financing, both including pre- and post-shipment.[[[PAGE]]]
While more traditional forms of payment and collection, such as credit transfers and direct debits continue to be vitally important, companies of all types, not simply retailers, are also focused on the use of cards. Many of these companies are turning to Deutsche Bank, as a leading card acquirer, to deliver integrated payables and receivables solutions, not only in Germany but across Europe. For example, the bank has been a pioneer in online card acceptance, enabling highly flexible, controlled and reconcilable payments, and new technology such as mobile payments. We are already working actively with clients to leverage opportunities in mobile technology for B2B, C2B and B2C industries. While the retail market has received the most attention in this respect, we see considerable potential in mobile payments for B2B and B2C companies. For example, we aim to collect smaller payments from customers in emerging markets via mobile devices, which reduces collection risk and fraud. To turn mobile payments from a niche to popular payment choice, it will have to offer a more convenient service to users while being priced competitively compared to existing legacy payment options. SMS and bank charges will need to decrease in order to make mobile payments a cost effective, convenient solution. The increasing use of smartphones with fixed price 3G data plans will enhance the user experience and minimise the need for SMS-based applications.
Regulatory developments, such as Basel III, are certain to have a major impact on banks' behaviour and the way that they work with their corporate clients.
The industry is not only witnessing change in the areas of payments, collections and working capital management. Regulatory developments, such as Basel III, are certain to have a major impact on banks’ behaviour and the way that they work with their corporate clients. We are now presenting regularly to clients and to the wider industry about the potential implications that Basel III will have on counterparty risk management, the need for banks to raise more equity, and the cost of financing, including trade finance products.
There are still a number of question marks in many of these areas, so we are working through various scenarios with clients. In particular, we recognise clients’ concerns that with off balance sheet instruments such as guarantees moving onto the balance sheet, the risk/cost profile will change; in particular, with already narrow margins, it is challenging for banks to be able to absorb additional costs. We are therefore working with clients to see how we will continue to be able to meet their financing and risk management requirements in a new regulatory landscape.
Regulatory change as well as sustained competitive pressures will inevitably further alter the banking landscape since the post-financial crisis consolidation. Companies do not want to be in a position where their banking partner exits a market or where their strategy changes considerably, perhaps as a result of new ownership. Consequently, companies are seeking the confidence that their bank will remain committed to the markets in which they operate.The next few years will continue to bring new regulatory, political and economic challenges. Uncertainty in parts of the world such as North Africa, for example, is already creating additional demands in how companies work with suppliers and customers, and increasingly, companies are looking towards emerging markets to fuel their future growth. In this uncertain, yet also exciting period of change, companies of all sizes are looking to Deutsche Bank to advise on how best to leverage new opportunities and manage risk. Deutsche Bank therefore continues to make it a priority to invest in the skills, expertise and innovation that will produce the cash management and trade finance solutions to support our clients’ future success.
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