Thinking Outside the Box – Building a Global Multi-Currency Liquidity Management Backbone 

 

By Eleanor Hill, Editor

With over $150m flowing into Ingram Micro subsidiaries across the world on a daily basis, having centralised visibility and control over that cash – and being able to move it swiftly between different legal entities is a must. Here, Erik Smolders, the company’s Treasurer, and Bertie Sanders, Managing Director, Clients & Products USA, Bank Mendes Gans, explain how they set up a global notional cash pool that affords Ingram Micro the flexibility to move funds between entities without intercompany loans. They also outline the benefits of this overlay set-up, ranging from significant reduction of FX exposures and costs to working capital improvements – all without ruffling the feathers of existing banking partners.

Cast your mind back to 2007 – the year that Apple launched the first iPhone and Slovenia joined the Eurozone. It was also the year that Erik Smolders moved from Belgium to California to become Corporate Treasurer for Ingram Micro, having previously worked as the company’s European Treasurer. 

Taking up this new role, Smolders was keen to make Ingram Micro’s global treasury operations best-in-class, with central visibility and control over worldwide cash balances. This is understandable given that the group’s cashflows are not only significant in value and volume terms, but also highly seasonal.

“Like every multinational company, we have entities that are cash rich and others that are cash poor. But the seasonality in the cash flows between the different entities varies from day-to-day, from month-to-month, and from quarter-to-quarter,” explains Smolders. As a result, Ingram Micro was performing a high number of intercompany loans in order to meet any cash shortfalls, together with some borrowing from domestic banks. 

Overcoming legacy hurdles

“While it worked to an extent, this set-up was cumbersome and inflexible,” admits Smolders. “Producing the correct paperwork for intercompany loans can be extremely time-consuming, meaning that it is challenging to swiftly alter arrangements in response to borrowing patterns. Also, if we were performing intercompany loans between entities in different countries and in different currencies, then we needed to execute FX swaps – adding yet further cost and complexity.” What’s more, local CFOs do not always want to let go of their surplus cash, in case a strategic investment opportunity arises, he explains.

“So, as soon as I took up oversight of the global treasury operation, I started to look for ways to be more efficient at moving cash around, and to have complete visibility over all of our balances – worldwide – whilst closely managing the group’s FX risk.” Here, Smolders already had some experience, having operated a zero-balancing cash-pooling set-up out of a co-ordination centre in Brussels for all of Ingram Micro’s European subsidiaries. Smolders had also successfully set up cross-border cash pooling between Singapore and Brussels, so he knew that global cash pooling solutions could be made to work in many jurisdictions and was keen to ‘extend’ the benefits of the European cash pooling set-up to Ingram’s global operations.

While the obvious solution may have been to centralise all of the company’s cash management with one global bank, this was not an option Smolders was prepared to entertain. “We have operations spread across 100 or so partner banks, and our core banking group consists of around 20 banks. Because bank funding and cash management ‘wallet share’ go hand-in-hand, I was keen to find a solution that would allow me to reward all of my relationship banks appropriately,” he explains.

“Moreover, Ingram Micro has more than 200,000 customers across 160 countries worldwide, many of whom are small and medium-sized businesses. From a cash collection point of view, we need to be close to the customer and make it as easy as possible for them to pay us. That means we can’t work with one bank across the globe; in some countries, we need local banks with a bricks-and-mortar presence.”

As such, Smolders began looking for a bank that could offer an overlay solution in the form of a global notional cash pool. “I wanted to be able to have a global cash management set-up, but at the same time to allow individual countries to retain relative autonomy in picking a local bank that is appropriate for their needs and retaining a level of control over their cash,” he says.

 

Fig 1 - Global overlay structure

 

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Finding the right partner

One solution that answered all of these criteria was Bank Mendes Gans’ global notional pooling model. This involves a global overlay structure where the need to perform FX and/or swap transactions is eliminated and no funds are physically moved. Through the solution, all of Ingram Micro’s local cash pools and non-pooled bank accounts are integrated into one global pool – including entities in challenging countries.

And while most global notional cash pools use cross-guarantees, BMG’s pool does not. This means that credit facilities are not needed and that subsidiary surpluses may be offset with borrowing needs within the group without creating an intercompany loan – whilst still remaining compliant with all rules and regulations.

“Not having to use cross-guarantees was one of the main reasons why we chose BMG over other banks who offer similar solutions,” notes Smolders. “It made the whole process of setting up the global notional cash pool much smoother, especially from the perspective of our tax and legal teams.” 

Additional factors influencing the choice of BMG over other partners, explains Smolders, included: the bank’s expertise in operating global structures across the Americas, EMEA, and Asia-Pacific; and the fact that BMG has a core focus on cash management.

“The BMG team is focused on being the best cash management service provider. The team in Amsterdam is highly responsive and very easy to deal with,” says Smolders. This is precisely what BMG prides itself on, adds Sanders. “Our aim is to act like an extension of the corporate treasury function’s back office. We are in sync with the client and we have a team of people on standby to respond to urgent requests,” he notes. 

“As well as offering exceptionally high service levels, as Erik has described, we also like to think differently from other providers and to come up with solutions that play by the rules but offer something distinct – like removing the need for cross-guarantees,” says Sanders.

Reaping the rewards

As for the benefits of the global cash pooling model, “We now have far fewer pockets of surplus cash, which is a big working capital benefit and the solution has allowed me to free up around $500m to date – which is equivalent to a sizeable revolving credit facility,” notes Smolders. “Furthermore, I can keep all of my relationship banks happy because they continue to get the flows that they are entitled to as part of our bank structure, and yet we have a highly effective overlay structure through the BMG model – it’s like a global cash management backbone that underpins everything that we do in treasury.”

Sanders goes on to explain that: “The global cash pool is also extremely flexible, meaning that cash poor entities can be funded quickly as and when needed – without being held up by cumbersome intercompany loan paperwork, or having to undertake FX swaps. Essentially then, what BMG is providing is a way for an organisation to act as their own bank. Why borrow funds when you can use your own internal funds in a better way instead?”

An additional benefit of the solution is that any newly acquired companies can quickly be connected to the global backbone and immediately funded via the pool, so the solution is highly scalable. Being able to roll out the solution in phases, as Ingram Micro did, also makes it easy to implement.

In fact, Smolders quips that arguably the hardest part of setting up the global cash pool was convincing local entities in far flung locations such as Australia that they needed to open a bank account in Amsterdam! But after participating in the structure, all of the subsidiaries recognise the value it brings to the group. The training programme that Ingram Micro undertook with the bank around the platform was also a huge help in getting everyone to ‘buy-in’ to the solution.

Strategic evolution

Now that the global cash pool has been up and running successfully for five years, Smolders is keen to take it to the next level. “Initially, we set it up with manual sweeps – this was the easiest and quickest way to get the solution implemented, but it also meant that individual entities could decide whether or not to sweep their funds across into the pool. Looking ahead, we’d like to automate those sweeps, both in and out of the global cash pool, to eliminate the time spent performing and monitoring the sweeps, and to ensure surplus cash is put to optimal use. So, we’re currently working closely with BMG to develop that,” he notes.

“We may also look at an intercompany netting project in the future, which could lead to even further cost savings and working capital benefits. But our focus right now is on the automated sweeps as we feel this is a good way of future-proofing our cash management,” Smolders confirms.

“Like Ingram Micro, the majority of our customers who use the global notional cash pool enter into it initially for visibility and control benefits – after all we can deliver enormous flexibility to move funds quickly and efficiently around the world, on a ‘same day’ value basis – which is extremely powerful. But once the solution is up and running, they start to see the strategic benefits from a cash concentration and working capital perspective too, and then begin thinking of new ways to use the pool to enhance their treasury operations,” notes Sanders. 

Likewise, BMG is always looking at innovations to further improve the level of service it offers to customers. Sanders says that the bank is currently rolling out an app which allows customers to log on to the BMG platform by scanning a QR code, rather than using a security token, with the hope of vastly improving the customer experience, whilst upholding security standards. The bank, he explains, has also “recently launched a customer onboarding portal which offers and online end-to-end process right the way through the KYC workflow, eliminating a significant number of emails and automating processes in the background.” 

Finally, something many companies are exploring is the potential to expand the use of cash pooling accounts for operational purposes such as supplier payments and customer collections. “There are always new ways to work and innovations that can help treasurers to achieve their goals – and at BMG we are constantly exploring what will be possible in the cash management space tomorrow, whilst delivering concrete results for corporate treasurers today,” Sanders concludes.   

 

Erik Smolders Vice President & Treasurer, Ingram Micro Currently its Vice President and Treasurer, Erik joined Ingram Micro as its European treasurer in 1995. Before moving to California in the US, he was also CFO of Ingram Micro’s Pan European Business Unit and Senior Director - Business Analysis in Brussels. Over the last 23 years he has become a highly successful senior corporate executive with expertise in international treasury, global cash management and corporate finance. Prior to joining Ingram Micro Erik was Treasurer at Sandoz in Belgium. Erik holds a Master of Business Engineering degree from the University of Antwerp, Belgium.

 

Bertie Sanders Managing Director Clients & Products USA, Bank Mendes Gans, Amsterdam, the Netherlands Bertie Sanders joined Bank Mendes Gans in 2001 and is responsible for the marketing and sales of the bank’s global cash management services in the USA market. His broad project management experience includes rolling out global liquidity management solutions to multinational companies. Bertie Sanders, who has previously held positions at ING Central Europe, BHF-Bank and MeesPierson, lists relationship management, contractual negotiation and seminar presentation among his core competencies. He says he uses willpower, humour and enthusiasm “to get things done” adding: “My purpose in life is to inspire people.”