Cash & Liquidity Management

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When Domestic and International Collide The Editor considers some of the current and future cash priorities of companies either headquartered or doing business in the US, and how they are being supported by their banks.

When Domestic and International Collide

by Helen Sanders, Editor

There has been a long-held perception that, somehow, cash management is different in the United States from anywhere else in the world. It is true that payment instruments are not the same, as cheques are not used in most parts of Europe, and the regulatory environment also differs from that of other countries. However, this can be said when comparing any two countries in the world. As the largest exporter and importer of goods in the world, the US is the world’s biggest driver of globalisation. With continuing economic challenges in many western markets, few companies can focus on the US home market alone, and are increasingly looking overseas to achieve their growth ambitions. This article considers some of the current and future cash management priorities of companies either headquartered or doing business in the US, and some of the ways in which their banks are supporting them.

Cash management challenges

Dub Newman, Head of North America Global Treasury Solutions at Bank of America Merrill Lynch highlights three key, related issues that treasurers are facing:

“The dominant discussions amongst US treasurers and cash managers are how to obtain access to liquidity on one hand, and dealing with surplus cash in a low rate interest rate environment on the other. Many companies have built up large cash balances over recent years and now need to find ways of placing this cash. Another important trend is the need to achieve efficient financial processing, such as the increased use of electronic payments.”

Treasurers really need to see all of their cash in one place at one time.

These priorities perhaps come as little surprise, as they have been the issues that have dominated the agenda for some time. However, Cindy Gerhard, Head of Product Management, Global Liquidity & Investments, Citi adds, 

“Maximising working capital and improving operational efficiency have remained priorities in recent years; however, what has changed is the intensity of companies’ focus on these areas. For example, while it may have taken 6 to 12 months for a treasurer or cash manager to roll out a bank solution, they are now putting in place professional programme management so that the solution is up and running in 3 to 6 months, with results being measured proactively.”

The three trends of liquidity, investment and operational efficiency are closely related. Dub Newman, Bank of America Merrill Lynch illustrates one of the challenges in investment decision-making,

“Cash managers and treasurers have a limited range of investment options that fall within their risk appetite. For example, many now only wish to invest in deposits that are guaranteed under the FDIC insurance scheme, which excludes money market funds (MMFs). The incremental return earned on MMFs is typically too low to justify giving up the benefit of FDIC insurance compared to short-term deposits that are insured whilst still offering access to liquidity.”

Cindy Gerhard, Head of Product Management, Global Liquidity & Investments, Citi emphasises that as a result of low investment returns, driving value from operational efficiency has become more important,

“While our customers still want to discuss how to invest their cash in a low interest rate environment, they are recognising increasingly that they can earn a higher return by investing in operating efficiency and proactively mobilising cash, as opposed to searching out a few additional basis points of return.”

Dub Newman, Bank of America Merrill Lynch also illustrates the importance of reducing the need for working capital to facilitate longer-term investment,

“A key liquidity challenge is to optimise the cash flow cycle, freeing up working capital for alternative use. By permanently extracting working capital, cash can then be invested in medium- to long-term investments, which alleviates the problem of where to invest cash.”

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