Published: October 01, 2011
While the ongoing crises in the Eurozone are a concern for all, the situation need not be one of doom and gloom. Martin Runow, Head of Cash Management Corporates EMEA at Deutsche Bank, discusses how increasing the visibility and control of liquidity and working capital can help Europe’s corporates navigate turbulent times.
Against the backdrop of the global economic crisis of 2008, and the ongoing financial market turmoil in the Eurozone, the control and visibility of liquidity and working capital has emerged as a core theme for European corporates. Cash control is, certainly, of particular importance to the region’s corporate treasurers who, under increasing pressure to do more with fewer staff and less fiscal resources, need to make the best use of available resources. In doing so, treasurers should be able to reduce debt and free-up trapped capital for short-term funding requirements or to increase return on investment.
Effective cash concentration and pooling can allow corporates to address short-term funding needs internally.
Enhancing cash and liquidity management can also mean that corporates can independently address their working capital needs, thus decreasing dependency on external sources of funding. For example, effective cash concentration and pooling can allow corporates to address short-term funding needs internally, which means they can save money on expensive sources of stopgap liquidity, such as overdrafts.
Yet effectively managing and controlling liquidity in Europe can be a complex task. As a market, Europe - which is more than just the Eurozone - is often oversimplified, which can be a detriment to optimal treasury management. Different countries have different tax laws, accounting structures and reporting requirements, all of which means that pan-European cash pooling and concentration is not as simple as it seems.
Of course, there are initiatives designed to aid this process, such as SEPA (Single Euro Payments Area) – and indeed it would be impossible to discuss European liquidity management without bringing SEPA into play. While much has been said about SEPA, take-up has been painfully slow. Given the ongoing market turbulence, this is perhaps understandable. Converting domestic payments to SEPA format is a costly undertaking and many corporates are reluctant to make such a significant investment when they are faced with a series of more immediate pressures. This is especially the case when these concerns seem to some as though they could potentially have game changing effects, such as the breaking-up of the euro.
While the present challenges, as well as those in the not too distant future, cannot be overlooked by treasurers, who need to balance both short- and long-term funding requirements, they must take a broader view. Savings made today could turn into significant losses tomorrow, if there is a lack of emphasis on planned and potential future developments such as SEPA. Although there is currently no formal legislated end-date for full SEPA migration, an official implementation deadline will definitely come. Corporates that have failed to prepare may find themselves having to pay more, as the cost and implementation of compliant systems and services will only increase as the cut-off point looms.
At Deutsche Bank, we believe in the longevity of the euro and the long-term value of turning a fragmented market into a borderless payments zone. As a result, we have made noteworthy investment in an automated and scalable SEPA engine to deal with increasing payment flows. While many corporates – and indeed some of their partner banks – are still putting off these investments, it is ultimately not in a treasurer’s best interest to allow short-term hurdles to stand in the way of larger, expensive projects that will result in long-term sustainable efficiency gains. [[[PAGE]]]
As corporate treasurers are becoming increasingly aware of the importance of sustainability, many are beginning to look at the extended value chain. For some corporates, this is manifesting itself in an analysis of the stability and security of their supply chains and trade counterparties. Given that the physical and financial chains are inextricably linked, any disruption to the physical chain will have a negative impact on company cash flow. As efficient cash flow is crucial to the longevity of commercial cycles, this is a risk corporates can ill-afford, especially as access to affordable liquidity remains greatly restricted.
For others, this renewed focus on sustainability is resulting in a reassessment of their traditional banking relationships – a pre-crisis trend that shows no signs of abating. Certainly, this is an age where strong relationships are paramount, and changes in the industry landscape mean that corporates are placing their banking partners under increasing scrutiny.
Seemingly counter-intuitive, this is leading corporates to reduce their number of partner banks in a bid to reduce complexity and increase cash visibility. While this may increase concentration risk, the upside is that by decreasing the number of accounts they hold, treasurers should find it easier to get an accurate overview of how much cash they have (and in which currency), where it is located and where it is most needed.
Our aim is to create a positive onboarding experience for our clients.
This leads back to the crucial concept of cash control. While treasurers may control company cash by having signatory rights on accounts, the most effective way is via online banking control. As a result, effective cash and liquidity management is largely – though not solely – an issue of technology. Although the shift towards the automation of liquidity management solutions has been gaining momentum for some time, we are now also seeing a move from standardisation to bespoke products and services.
While some concerns are universal, corporates are equally likely to have problems and issues that are unique to them, making tailored solutions vital. This in turn drives home the importance of strong corporate-bank relationships, which cannot be overstated. State-of-the-art systems and infrastructure may act as the enabler, but transaction banking is ultimately a people and relationship-driven business. It is the knowledge gained from these relationships that generate solutions capable of making a tangible difference to the client.
Deutsche Bank has long recognised the importance of client relationships and understanding, as well as the importance of ongoing investment in technology. As a result, we constantly strive to deepen client relationships to gain a greater understanding of corporates’ individual liquidity management needs and develop our solutions with these needs in mind.
Our aim is to create a positive on-boarding experience for our clients and combine outstanding quality of service with ease of use. This translates into a customisable and intuitive approach to technology. A prime example of this is the new treasury platform on Autobahn, the bank’s award-winning electronic distribution service. This market-leading platform offers clients web-based liquidity management and planning, foreign exchange and investment tools and services through just one entry point. With such easy access to a variety of services, corporate treasurers should find company cash and liquidity much simpler to see and effectively control.
As greater cash control is not possible without improved access to transaction processing information, the data and analysis tools offered on the treasury platform on Autobahn are presented in an intuitive graphical format via customisable dashboards. This means that treasurers can access the precise information they need, when they need it and in the way that is best suited to them.
Given its client-centric nature, the development of the treasury platform would not have been possible without a consultative approach on the bank’s part to addressing issues treasurers face, and what they require to fulfil the demands of their increasingly challenging role. As we move forward, corporate treasurers in Europe will need greater visibility and control of their cash and liquidity if they are to navigate both the ongoing market turmoil and uncertainty, and meet the growing number of regulatory requirements.
While this is not possible without technical tools that can provide optimum visibility of end-to-end process flows and relevant data and information, it is also not possible without solid bank partnerships. As we work to be the partner bank of choice for Europe’s corporates, we will continue to invest in sophisticated solutions that can offer our clients the efficiency gains and cost reductions they need to remain strong throughout challenging times.
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