Has Optimal Cash Visibility Been Achieved?

Cash visibility has certainly improved over the past few years, driven in no small part by the CFO’s mandate to gain a deeper real-time insight into corporate liquidity. In 2011 corporates bullishly predicted in research reported by gtnews that cash visibility, measured as a percentage of total cash on the balance sheet, would rise from 78% to 91% by 2014. Although there are still many companies who have not yet achieved or bettered 90% visibility into cash, the proportion that have reached that threshold continues to increase.

Those organisations that have achieved at least 90% visibility into cash on a timely basis (this detail is key) have done so in the following ways:

Deploy technology for bank reporting
The proliferation of SWIFT – either independently or, more often, integrated within treasury management systems (TMS) – has enabled deeper bank connectivity at a lower cost. Individualised connections into banks are no longer required and different flavours of SWIFT improve efficiencies and complement other connectivity mechanisms, such as host-to-host connections and EBICS-type domestic protocols. Connecting to banks to view balances and transactions has also been made easier and cheaper.

Reduced banking requirements
Many organisations have reduced their global banking relationships, thereby significantly simplifying the process of connecting. I recently co-presented at a conference with one of my clients who had streamlined their number of banking relationships from 74 to three. While this is an extreme example, the trend is clearly to simplify the number of both banking partners and bank accounts, to reduce the effort needed to achieve visibility into cash.

Alignment with other visibility and control initiatives
Improving cash visibility has not usually been an independent project, but rather an objective linked to bank account management, cash forecasting, and treasury and banking structures. Treasury teams that have succeeded in implementing improved visibility into cash on hand within bank accounts wanted to improve not only the visibility into those balances, but also the control over the use of those funds, to better control the deployment and movement of cash and liquidity within the organisation. Achieving these targets drives business value by improving overall efficiency as well as mitigating liquidity, geopolitical, counterparty, and exchange rate risk.

Roadblocks To Visibility

Despite the proliferation these tactics for achieving greater cash visibility, not every organisation has been successful in attaining these goals. Certain factors are often cited by organisations that fall short of their desired cash visibility.

Low interest rate environment
The main explanation given is usually that in this low interest rate environment, the value of cash does not justify the expense to improve visibility and access to it. Many times each year, treasurers tell me that they don’t forecast cash because they have excess cash – and only if they were in a deficit would they need to conduct cash forecasting. Many would disagree with such an approach, including the organisation’s stakeholders. Cash has value, even if investing cash in overnight deposits or money market funds doesn’t yield much. Many enterprising treasurers find value in the supply chain and leveraging excess cash to garner early payment discounts or customer financing programmes. Cash is king for a reason, after all.

Cost of connecting to banks
Many medium and smaller treasury teams, which often have disparate banking relationships around the world, worry about the cost of connectivity. They may have spoken with one of their global banks or inquired with their internal ERP support team about how much it would cost to receive daily reporting on all their global bank accounts, and will likely have been taken aback at the response. In fairness, there are much more cost effective ways to connect to banks. Leveraging SWIFT – including SWIFT Alliance Lite 2 – as one of the tools to achieve cash visibility can reduce those costs to very reasonable levels – if the right connectivity strategy is employed. There is no one-size-fits-all mentality here, though. The profile of the banking structure, where banks are located, along with how many accounts are accessed and how much daily activity takes place all determine the best choice for connectivity. The best part, though, is that it does not need to be expensive.

Just when I thought I had it…
A common problem for decentralised treasury teams is maintaining control over bank accounts. A global organisation, especially those growing quickly, may have delegated tasks to local resources such as opening and maintaining bank relationships and bank account management. In such situations, treasurers are trying to gather visibility into a moving target. While this is a barrier, the solution is linking cash visibility to bank account control. There is nothing wrong with regional controllers and/or on the ground resources retaining the responsibility for banking relationships. What treasury needs is information control – knowing what accounts exist so they can ‘slow down’ the moving target. Collaboration between treasury and local resources is also a best practice, simply because coordination can ensure that alignment with global banking relationships is achieved, simplifying visibility and generally reducing costs.

Other priorities
Treasury is busy and there is no end to the number of projects competing for a treasurer’s attention. Interestingly, most projects are linked directly or indirectly to achieving visibility into cash including:

  • Bank account management
  • Cash forecasting
  • Working capital improvement
  • Balance sheet and/or cash flow hedging programmes
  • Counterparty risk management
  • Bank fee analysis
  • Bank rationalisation
  • Treasury automation and productivity.


Conclusion

Visibility into cash is an enabler to making more effective – and ultimately more strategic – financial decisions. Visibility creates opportunities and lowers risks. It isn’t always easy, but achieving 90% (or more) cash visibility is achievable and most definitely worth the effort.

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