Cash & Liquidity Management

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A Focus on Best Practices in Cash Management With SEPA compliance projects now largely nearing completion, we speak to HSBC's Head of Sales, Europe, Payments and Cash Management about the priorities emerging amongst corporate customers.

A Focus on Best Practices in Cash Management

An Interview with Robin Terry, Head of Sales, Europe, Payments and Cash Management, HSBC, by Helen Sanders, Editor

With SEPA compliance projects now largely underway or nearing completion, what priorities are you seeing emerging amongst your corporate customers?

Robin TerryAfter a busy couple of months over both year-end reporting and SEPA migration projects, corporate treasurers are now able to take stock and review their strategic and operational priorities for the year ahead. In some cases, treasurers are now able to progress projects that had to be deferred as a result of the global financial crisis and more recently, the need for SEPA migration. In others, they are using the opportunity of relative calm to reflect on, and consolidate their activities to identify opportunities for future improvement.

Whether they see the next few months as a time for action or reflection, companies of all sizes are recognising that implementing best practices in cash management offers operational efficiency, cost savings, improved returns and greater shareholder value. Consequently, treasurers are coming to us to talk about opportunities to enhance cash management efficiency, discuss best practices and understand how these can be adopted in their business.

On which elements of cash management are customers focusing?

The components of an efficient cash management strategy are well understood: working capital management; bank relationships and accounts; liquidity structures and efficient channels. However, as the business environment evolves and companies’ strategies progress, these often need to be reviewed and adapted to meet changing needs, both individually and in combination.

Treasurers and finance managers are scrutinising each of the activities that influence working capital

Working capital management has been discussed for some time, but it has become far more of a senior management focus. According to a recent PwC survey, $3.7tr in working capital could be released globally through the adoption of effective practices. Even small changes in behaviour can make a material impact on the business, so treasurers and finance managers are scrutinising each of the activities that influence working capital. For example, companies continue to review their receivables practices to reduce days sales outstanding (DSO) and increase the predictability of cash flow, such as using direct debits. In tandem, they are looking to increase days payable outstanding (DPO) by lengthening payment terms from 30 to 60 or 60 to 90 days or longer.

However, treasurers and finance managers recognise that simply extending payment terms has the potential to impact suppliers and affect the resilience of the supply chain. Consequently, they are implementing solutions such as supply chain financing alongside DPO initiatives to strengthen supplier relationships and reduce negative impact on their suppliers’ working capital.

What about smaller companies which have the same need to optimise working capital but may not have the same credit leverage as their larger peers?

Many working capital solutions, such as receivables financing, are appropriate for companies of all sizes. On the payables side too, although supply chain financing programmes were traditionally set up by larger companies, we are now seeing smaller companies establishing these programmes. It is important to emphasise that working capital optimisation is both essential, and entirely feasible, for all sizes of company. By freeing up working capital and creating greater financial flexibility, treasurers enable their organisations to pay down debt, buy back shares and invest in efficient production and processes to drive down costs. These savings can then be passed on to customers in the form of lower prices, driving greater competitiveness.

You mentioned SEPA migration at the beginning, which companies should now have completed. To what extent have treasurers and finance managers so far been able to leverage the cash management advantages that SEPA offers?

While there are a number of organisations that have used SEPA as a catalyst to centralise and rationalise processes, bank accounts and cash management structures, the majority of SEPA migration projects have focused on compliance. In these cases, treasurers and finance managers have only had the time, resource and budget available to ‘lift and shift’ from legacy formats and BBAN to XML and BIC/IBAN for SEPA payment instruments. Once these instruments and formats are bedded in, treasurers can then think about how they use the opportunities that SEPA presents for rationalising accounts, cash and liquidity management structures and centralising payments and in some cases collections.

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