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Cash & Liquidity Management
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Managing Cash During the Crisis

by Pierre Boisselier, International Treasurer, Publicis Groupe

The following article is based on a presentation delivered by Pierre Boisselier during the BNP Paribas’ Cash Management University in October 2009.

We have a Group Treasury department based in Paris, and local treasurers for key countries, who work as part of the shared service centre (SSC), which also provides accounting services, accounts payable, accounts receivable, legal, tax etc.

As for many of our peers, the key lesson from the crisis has been for us that when liquidity is scarce, cash is king. This applies not only in treasury, from the point of view of cash centralisation and investment, but there has been increased pressure on cash generation and preservation across the entire financial supply chain. As the liquidity pressures created by the crisis became clear, we reinforced measures across three key areas to optimise cash flow:

i) Upstream activities
Firstly, we looked at upstream business activity e.g., sales, the point of cash origination. In order to optimise efforts in this area, every stakeholder within the business needed to be committed also to cash objectives. This required some change in business objectives so that management objectives were aligned with the overall financial objectives of the group. Having aligned business and financial objectives, we needed also to set up  regular reporting to assess performance on those objectives.
In addition we investigated all our processes to ensure that no cash was trapped in our financial chain. One of the outcomes of this exercise was for instance to strengthen our focus on overdues, work in progress or billing process.
Although these areas are not always core activities for treasurers, it was vital that treasury played a role in order to ensure that objectives are aligned at a group level.

ii) Ongoing cash management
Another focus area was on cash management efficiency, an area in which treasury has more direct influence. A key requirement is to have the best visibility on our cash position. This requires that bank account data is received as close to real-time as possible, in order that treasury can be flexible in satisfying the needs of the business. Furthermore, cash management structures, such as cash pooling, needed to be as efficient as possible, as cash can only be optimised if it can first be mobilised. In some cases, physical cash pooling may not be feasible, in which cases, techniques such as notional pooling may be appropriate. Finally cash management solutions implemented should grant maximum manoeuvrability of our cash.  
This focus on cash management and retention needs to extend beyond treasury. When considering, for instance, dividend policy, mergers and acquisitions, business restructuring and major projects, the implications for the cash optimisation need to be examined carefully.

iii) Downstream activities
Every treasury with surplus cash has faced the dilemma during the crisis of how to invest the company’s cash in order that it is both secure and working for the company. In particular, in which counterparties should a company invest, and using which instruments? When determining investment counterparties, it is important to consider bank security, including using a consistent means of monitoring bank performance, and creating reciprocity with banks which are committed to providing financing. Establishing a common approach to counterparty selection and risk assessment is a key principle in a large corporate with many entities. From an investment instrument perspective, both duration and risk of default need to be acceptable, which again needs to be implemented across all entities.
Overall, treasury needs to: