Published: October 01, 2013
Shahrokh Moinian: Over the past 12-24 months, we have seen a return to a somewhat calmer, more stable business environment. Urgent concerns about the potential break-up of the euro have lessened and worries about bank counterparty risk have largely been alleviated. This return to more of a ‘business as usual’ environment has allowed treasurers to go back to core treasury issues such as efficiency, centralisation, automation and standardisation.
Centralisation, for example, has been a long-standing theme amongst treasurers, but in many cases, centralisation initiatives have been interrupted by the need to focus on managing liquidity and risk during challenging times. Over the past 12 months, treasurers have returned to centralisation projects, focusing on regions such as Asia. In the past, Asia has typically proved more complicated than North America or Europe with its diverse market, cultural, currency and regulatory landscape. Increasingly, however, treasurers are integrating their Asian businesses into payment factories and shared service centres (SSCs) and building out integrated ERP platforms.
Standardisation has also become more important, such as the wider use of XML ISO 20022 standards. Although these were originally developed for SEPA, banks and corporates alike recognise their global potential. Using SWIFT for corporate-to-bank connectivity also remains high on the corporate treasury agenda, allowing bank-agnostic communication through a single channel. Other initiatives too are also gaining traction, such as electronic bank account management (eBAM) which is now becoming a reality, again at a global level.
Martin Runow: Technology investment is becoming more important amongst North American multinationals to achieve their efficiency, centralisation, automation and standardisation objectives. For example, we are seeing an increased focus on rolling out ERP platforms globally, closer integration between treasury and the wider business and greater depth of functionality to support core treasury requirements. These initiatives are illustrative of treasury’s elevated profile within the organisation and its interconnectivity with the wider business. Technology is also bringing a range of new opportunities of which treasurers are keen to take advantage. SEPA, for example, is proving a catalyst for initiatives such as virtual accounts that enable higher straight-through reconciliation rates.
Martin Runow: The changing regulatory environment is undoubtedly having an impact on treasury priorities. For example, Basel III, combined with the ongoing challenges of a low interest rate environment, is making investment decisions increasingly difficult. Many corporations have large cash balances but remain very conservative in their investment policies, with effective counterparty risk management methodologies and clear performance metrics in place. Basel III is impacting how best to invest cash as banks have had to review how they manage their balance sheets. For example, banks now may be more likely to encourage longer-dated deposits, which has an impact on corporate investment strategy.
As the implications of Basel III become clearer to both corporates and banks, they are working together to find solutions that meet banks’ balance sheet and corporates’ investment requirements. In addition, investment is part of a wider dialogue between banks and corporates, so both parties are looking across the full spectrum of banking activities to identify opportunities to work together more collaboratively.
Shahrokh Moinian: We see three key drivers today that are influencing treasurers’ behaviour and priorities:
Firstly, the role and profile of treasury has expanded considerably since 2008. Consequently, there is now greater management attention and insight into treasury’s responsibilities, which have extended into areas such as working capital optimisation.
Secondly, companies recognise that the cost of borrowing is likely to increase as a result of regulatory change, and treasurers have an important role in mitigating the impact of this on the business. Consequently, many are looking at next generation treasury tools to drive efficiencies and reduce reliance on external financing.
Thirdly, market and regulatory changes are prompting changes in cash and treasury management. For example, with the SEPA migration deadline only a few months away (1 February 2014), treasurers are now compelled to focus on compliance. North American companies that are not yet prepared will be looking to banks with proven SEPA expertise, such as Deutsche Bank, to support and help facilitate migration.
Martin Runow: Until recently, many North American treasurers had delegated responsibility for SEPA migration to regional treasury centres in Europe. With the deadline now approaching, they need to be assured that the company will be compliant.
Shahrokh Moinian: As well as supporting customers’ compliance objectives in Europe, and ensuring that senior managers in North America have the information they require, we are proactively promoting the benefits that SEPA offers, for both working capital and operational efficiency, e.g., leveraging SEPA Direct Debits (SDD) to improve the efficiency and predictability of collections, both in-country and cross-border within the Eurozone. By promoting harmonisation and standardisation, SEPA is supporting treasurers in their efforts to simplify and rationalise their banking and cash management structures, such as reducing the number of external bank accounts and implementing payments-on-behalf-of (POBO) and collections-on-behalf-of (COBO) models.
Martin Runow: This has been more difficult in the past: firstly, the originating entity was not always clear to the beneficiary, making it difficult to reconcile amounts; secondly, the amount of accounting work required to allocate amounts on one account to the relevant internal entities was considerable. Today, Deutsche Bank offers the Accounts Receivable Manager (ARM) solution for SEPA, a fully-automated payer identification tool that enables automation of incoming SEPA credit transfers, while significantly reducing the need to maintain multiple bank accounts for separate lines of businesses. Use of International Bank Account Numbers (IBANs) in combination with a virtual account structure offers a solution for automated payer identification without the requirement to match existing client data, enhancing the company’s own reconciliation and account allocation processes. Therefore, providing a solution to both a treasurer’s need to reduce accounts, and an accountant’s need for an efficient and convenient means to allocate cash flows to the correct entities.
Shahrokh Moinian: Another example of treasurers’ focus on operational efficiency is their response to continuing liberalisation of RMB. As the range of offshore opportunities increase, such as Singapore clearing, companies that import goods from China are choosing to invoice in RMB and therefore obtaining more favourable commercial conditions. There are also benefits when applying for tax rebates, which is far quicker for trade settled in RMB rather than foreign currency.[[[PAGE]]]
Martin Runow: Treasurers globally are exploring opportunities for working capital efficiency, such as improving payment and collection metrics (e.g. days sales outstanding and days payable outstanding) and introducing supply chain finance programmes. While supply chain finance and other alternative financing techniques are not new, we have seen a strong uptick in adoption recently as companies seek to increase the resilience of their supply chain while strengthening their working capital position and delegating risk to their banking counterparties.
Shahrokh Moinian: The more involved that treasurers are in the wider financial supply chain, the better position that they are in to centralise and enhance processes, and align financial metrics to optimise working capital. By achieving greater visibility and central control over the financial supply chain, companies are in a better position to work strategically with suppliers and customers, achieving greater economies of scale and stronger relationships than individual business units may be able to accomplish independently.
Martin Runow: Treasurers’ working capital and operational efficiency priorities are likely to remain for the foreseeable future. Changing regulations will continue to have an impact on these objectives, often in ways that were not originally envisaged. With new capital requirements and increasing cost of capital, we expect to see a shift in banks’ lending dynamics. Consequently, we are likely to see adoption of supply chain finance programmes continue as companies seek to increase the resilience of their supply chain by enabling their suppliers to access competitively-priced credit.
Shahrokh Moinian: On the deposit side, leverage and capital ratios will impact the level of overnight deposits that banks are able to accept from their corporate customers. This will mean that treasurers will continue to focus on core processes such as cash flow forecasting in order to invest for a longer tenor. Banks will continue to work closely with corporates to implement best practices that will lead to treasury successes.
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