Cash Visibility: Going Global

A recent Reval survey of more than 160 financial professionals in leading international companies showed that, on average, the treasurer is dealing with up to 100 bank accounts at two to five banks. In addition, 16% of treasurers responding say they juggle more than 500 bank accounts, and 20% report that they are working with more than 20 banks.

It is obvious that multiple bank accounts and bank partners make it more difficult to oversee all cash positions. Furthermore, different currencies and regulatory regimes make cash management and forecasting more difficult as financial data from decentralised entities across different time zones have to be captured. This, however, is the reality of global treasury.

Making It Simple Again

Growth outside of domestic markets is challenging treasury departments to keep pace with fast-changing organisational structures, and with that comes the increasing need to manage the complexities of global operations. Seek Limited, the leader in the online employment and training market in Australia and New Zealand, for example, changed its treasury landscape significantly when the company expanded its international business to Southeast Asia, China, Brazil and Mexico in 2011 and 2012.

“It became more challenging to consolidate financial data on an enterprise level, gain visibility into actual and forecasted cash flows in different currencies, understand foreign exchange and interest rate exposures, and centrally manage more complex funding arrangements for the whole group,” recounted Eddie Collis, group finance director at Seek.

Although it is unrealistic to streamline to a single bank account structure, Seek, like many global treasuries, needed to find ways to reduce the complexity of cash and risk management. With the right combination of organisational structures and supporting technology, companies can centralise their treasury operations, standardize workflow, establish in-house banking structures, and streamline systems in their efforts to gain visibility of global cash positions.
 
Treasury Centralisation

Many companies are moving toward a more centralised treasury organisation, concentrating the flow of all cash centrally for easier control over related risks, such as FX, interest rate, counterparty and liquidity risk, and to facilitate inter-company funding. Malaysian telecommunications company Axiata Group established an award-winning regional treasury center (RTC) to enable better cash and financial risk management.

“If you look at it operationally, the opcos [operating companies] had hundreds of bank accounts sitting around,” said Azlin Manan, group treasurer of the Axiata Group. “We chose to rationalise the number and make it more manageable. We will cut the accounts down by 50%, which gave ourselves a better view of cash flows and saved on transaction banking costs, too.”  

Centralisation can deliver:

  • Bank account rationalisation and better fee management
  • Improved working capital management, reducing fees and charges
  • Improved cash visibility and standardisation
  • More effective FX, interest rate and commodity risk management
  • Cost savings through netting.

Workflow Standardisation

In addition to centralising bank account and bank portfolio management, treasurers commonly review their processes to make them consistent and more efficient. In general, workflows set up for a small team based in the same location do not work for global teams collaborating across borders and time zones. In addition, processes are set up differently from one company to the other. Therefore, establishing common workflows and policies is imperative for risk mitigation, especially for organisations growing through mergers or acquisitions.

Establish an In-House Bank

The in-house bank concept centralises all payments and collections via an in-house bank process where physical cash movements themselves go through single accounts, not one per legal entity or business unit. This process can have a dramatic impact on the number of bank accounts required by an organisation. Subsidiaries effectively have an ‘internal’ bank account that, from their perspective, can work the same as a real bank account, but with fees and interest incentives typically built by the company’s treasury department, not by a selection of external liquidity providers.

Systems Consolidation

Business growth and globalisation often herald the end of the era of spreadsheets, as these simple tools are no longer secure or efficient. Fully 80% of treasurers surveyed recently by Reval believe that technology can support change in treasury. This makes sense as treasurers typically review their systems landscape in parallel to their processes. Leveraging modern cloud-based treasury technology can make the treasurer´s life much easier, especially single-version, software-as-a-service (SaaS) platforms that deliver comprehensive and integrated treasury and risk management (TRM) capabilities. With these types of advanced SaaS TRM solutions, all treasury cash flows and exposures can be securely captured in a single system and are available for further processing and analysis in real time, right within the platform. Additionally, workflows can be streamlined with third-party systems, seamlessly integrating banks, market data and credit rating services, trading and confirmation platforms, as well as enterprise resource planning (ERP) and general ledger software.

In this respect, treasurers can not only reduce the complexity that globalisation has placed upon them, but also increase the visibility they need to build their global cash positions in markets that are now material to the business.

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