Published: January 01, 2000
Although globalisation has forever altered the rules of the game for corporate treasury, the recent financial crisis has raised the stakes that define success or failure for the department – and ensured that the demand for increasing transparency, operational adaptability and comprehensive risk management will only continue to increase. The functions, controls and processes that fall under the purview of the treasurer are set to further increase in complexity and the need to manage cash and liquidity aggressively will continue, for the foreseeable future, to define the ability of the corporation to weather economic cycles and take advantage of expansion opportunities.
The global financial crisis has brought the role of treasury to centre stage with increasing importance placed on its core functions, controls and processes. As the crisis deepened, it became apparent that a company’s ability to answer basic questions around cash visibility, access to internal funding and managing counterparty risk was dependent on the very systems and processes that sit at the heart of the treasury function. For some companies, this highlighted gaps that are causing a rethink of the operating model, technology and banking providers, and of how a more integrated model eliminating silos is set to prevail.
As these challenges and opportunities have become increasingly more prominent, boards and executive teams have also been looking to treasury for new and creative ways to support and advance the overall strategic business objectives of the company. Whether it is positioning the company for growth or streamlining to protect the bottom line, treasury needs to be able to contribute to the discussion by providing credible insight to the cash position of the organisation, and then remain nimble to act swiftly. This needs to be done within the context of a more heavily regulated environment, where resources remain tight and there may be limited appetite for investment in new systems.
Ultimately, a company’s ability to answer basic questions about cash visibility and meet all the related challenges is often dependent on the systems and processes that treasury has in place. But what the current business financial crisis has underscored is that those systems and processes previously deemed acceptable may not be enough in today’s dynamic environment or during a crisis.
“Having better visibility is critical for today’s global enterprise,” confirms Jennifer Ceran, vice president and treasurer with eBay Inc. “Treasury has to be far more vigilant in understanding and managing capital flows and maximising liquidity. This has been particularly important for us as we continue to expand into new markets.”
The global financial crisis has brought the role of treasury to centre stage with increasing importance placed on its core functions, controls and processes.
Despite having operations all over the world, including treasury headquarters in North America and regional treasury hubs in Europe and Asia, eBay is implementing the systems to know exactly how much cash is available at any given time. That’s no small challenge. Part of this is accomplished by leveraging SAP’s cash management functionality with SWIFT, as well as using just a few key banks to centralise liquidity on a daily basis. eBay manages FX risk by converting currencies frequently, in some cases through negotiated FX margins with the liquidity concentration banks and strategically hedging long-term foreign currency risks.
Bank managed treasury and liquidity services groups can be the key to a company like eBay meeting many of these challenges. Tapping into a pre-existing network that can pull surplus and debit cash balances from third party institutions around the globe, and when necessary, offset positions through multi-currency notional pooling structures can mean the difference between borrowing to fund expansion or leveraging internal working capital to do so.
Another challenge that many global companies face is accessing cash balances that are trapped in a certain jurisdiction and cannot be moved due to exchange controls or other local regulations. Banks can help address this challenge through the provision of interest optimisation structures that can enable the company to improve the yield curve across their various currency positions.
For some growing organisations having quick access to the necessary capital to fund expansion is a new challenge, but one that is likely to remain for the foreseeable future. That reality was driven home early in the financial crisis when companies without access to internally generated working capital could not take advantage of strategic acquisitions and other opportunities. In contrast, eBay was well-positioned to weather the storm and continued with strategic acquisitions when others were stymied.
In 2008, eBay acquired a company called Bill Me Later. This acquisition was a good fit with eBay as it provided an alternative way to make purchases on credit, either online or over the phone, but without using a credit card. [[[PAGE]]]
The timing of this acquisition required eBay to look at alternative ways to finance their receivables. As one of eBay’s key banking providers, we were able to analyse the end-to-end receivables process and therefore help support eBay’s decision to draw on their line of credit as an efficient funding mechanism for their strategic acquisition. This also offered the company the flexibility to pay it down at their own discretion.
The financial crisis propelled the issue of risk management to the top of the agenda demanding robust and speedy action to improve risk management and operational controls. Consequently, management of counterparty risk has become a daily issue for treasurers as both financial institutions and corporates manage their exposures and strive to achieve more stringent processes in their counterparty limit management to mitigate the impact of potential defaults.
For a global leader such as eBay, which continues to execute its growth strategy in a difficult macro environment, this continues to be a significant challenge. As eBay expands internationally and pushes its brands out to new markets, it has also acknowledged the very real risks of doing business with new customers and new banks in foreign countries. To mitigate those risks, eBay is looking to leverage its banks’ local expertise and capabilities in new markets, and then assess the risks and implement best practices. By understanding which providers it can trust and having the necessary procedures in place, eBay is better able to manage its counterparty risk accordingly.
As the treasury function’s rise to prominence continues in what looks like a very different world post crisis, so too are the needs of the treasurer evolving. In order to meet the changing requirements of increasingly globalised businesses, greater improvements to process and more stringent risk management, treasurers are and should be looking to banks to evolve their offering to support the growing demands of their business.
It’s more than just systems and better accounting software. It’s about building relationships and trust and sharing that invaluable local knowledge with the client. Our own experience with multinational clients has taught us that large corporations are looking for greater support from their banks to manage their treasury function. Banks are no longer just a service provider but an enabler for treasury to enhance their core processes, improve their cash efficiency and better manage their risks.
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