When it comes to shipping, freight, logistics and supply chain management, United Parcel Service (UPS) knows how to move packages pretty much anywhere in the world. Yet, obtaining daily visibility into its bank balances across 1,600 accounts globally was anything but simple for the UPS treasury team.
To address this challenge, the treasury department recently implemented a global SWIFT bank balance initiative and integrated it into its global cash flow forecasting platform. The bank balance data serves as one of the main inputs for the cash flow forecasting process.
The key objectives of the UPS initiative, which won the Cash Flow Forecasting Project of the Year category at the gtnews Awards 2012, are outlined below:
- Attaining previous day-ending bank account balances for each legal entity from every bank globally by a pre-determined cut-off time every morning.
- Use actual balances in the cash forecasting process. Part of the cash forecasting process involves a previous day set of actuals to be submitted. The purpose of this is to conduct forecasted to actual variance analysis. If the actual cash movements do not balance to the end of day bank account balances, the forecast cannot be accepted by the forecasting platform.
- Establish a standard global process enterprise-wide, as well as a centralised source of information.
- Link UPS regional treasury centres (RTC) and local in-country subsidiary finance functions around the globe to a common platform.
- Enable bank balances and transaction information to be aggregated and automatically uploaded to the company’s global treasury management workstation system daily.
A major part of UPS’s corporate culture is its commitment to delivering the highest level of service at every touch-point of the organisation. To achieve its global SWIFT bank balance initiative goals, the treasury looked to apply these same standards throughout the planning and execution phases of the project.
Obstacles and Bank Account Reduction
The biggest obstacle UPS faced in implementing its global SWIFT bank balance initiative was getting third-party banks from around the world to send account balance and transaction information electronically via the SWIFT network. To achieve this goal, the treasury team leveraged its relationships with these banks, and in cases where the bank was unable to send SWIFT messages, UPS consolidated those accounts with banks that could. By administering this process UPS was also able to focus on consolidating duplicate accounts within each of the business units. Since the initiative began, UPS treasury has consolidated 1,600 accounts down to 800 globally, delivering another significant project benefit.
To ensure that manual processing was kept to a minimum, Citi GTS’s back-office tracked files as they arrived from the various banks, and provided UPS with a convenient dashboard indicating the progress of implementation of each account from beginning to end. This dashboard allowed UPS treasury to better manage its banking relationships. Part of Citi’s monitoring process provides critical information on each tardy report, such as whether or not there was a holiday in the bank’s country of origin. The partner bank is proactive in sending emails to third-party banks reminding them that UPS balances are due each day. These efforts have dramatically improved the level of automation made possible by the initiative.
The programme has successfully delivered on its anticipated benefits, but has also yielded several that go beyond the original scope of the initiative. As a result of the push to automate delivery of account balance and transaction information via the SWIFT network, UPS treasury has subsequently consolidated its bank accounts, including eliminating those that can’t accommodate SWIFT messaging. By consolidating 1,600 accounts down to 800, the treasury is now better able to manage its banking relationships, which are at a more manageable level.
Additional project benefits included:
- Facilitation of internal UPS programmes designed to minimise in-country safety margins on a daily basis. All excess cash is swept into a global cross-currency, cross-border notional pooling structure where that cash can be used for the greater benefit of the firm (fund acquisitions, external investments, etc).
- Establishing a platform that objectively helps UPS to undertake accurate cash flow forecasting variances.
- Improved coordination and communication between RTCs, driving greater efficiency and productivity.
UPS’s global SWIFT bank balance initiative has proven to be an overwhelming success for the company. All of its objectives have been realised, including standardising and streamlining bank account balance and transaction data and reporting. Treasury has attained centralised visibility and control of vital treasury processes, and as a result is able to view overall positions and forecasts, and more effectively manage global liquidity and risk across the company.
Consolidation of bank accounts has enabled greater automation and controlled workflow processes, which have reduced operating costs and administration risk. The elimination of manual processes has allowed UPS treasury to increase productivity, and thereby focus critical resources on more strategic tasks. Overall, the global SWIFT bank balance initiative has led to either direct or indirect benefits to UPS that are in excess of US$25m.
This case study is based upon an entry into the gtnews Awards for Global Corporate Treasury 2012, sponsored by Bank of America Merrill Lynch (BofA Merrill). The winners of this year’s annual awards, now in its third staging, were only revealed at a gala dinner on 24 May at the Sofitel Grand Hotel in Amsterdam, the Netherlands, after the opening of the two-day gtnews Forum for Global Corporate Treasury conference. This winning UPS entry is shared here from the Cash Flow Forecasting Project of the Year category as a best practice guideline and commentary. To see a full report on all the Awards winners and the gala dinner on 24 May please click here.
A decline in the return on capital employed of globally listed companies over the last decade has been noted in recent EY and PWC reports. This is despite businesses taking an increased focus on balance sheets since the financial crisis in 2008.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?
Global trends, technology and the role of the treasurer in 2025 were hotly debated by treasurers at this year’s Treasury Leaders Summit in London. A focus on technology and automation was universal, others argued over the impact of macroeconomic and global trends on treasury.