The cash position may be defined as ‘the consolidation
of validated bank account balances with today’s treasury transaction
settlement flows and other treasury payments and receipts’. Balance and
transaction reports, aka bank account statements, provide the starting point
for the daily cash positioning exercise.
Transaction Statement Uploads
The technical issues of
locating, downloading and translating this information vary radically in
complexity according to several factors. Large multinational corporations
(MNCs) with globally homogenous business patterns may operate relatively few
bank relationships and bank accounts.
organisations may have diversified, cash-based commercial operations,
requiring many accounts with different local banks to provide an effective,
secure solution. Many companies are obliged to operate cash management
relationships with their group of lending banks, sometimes involving
obligations to retain cash surpluses within this group. Local regulations, tax
considerations and operating necessities may be primary factors in
establishing a bank relationship structure. Companies that grow by merger
and acquisition (M&A) usually inherit the banking structures and
relationships of the organisations they absorb, with results that tend to
complicate rather than simplify their treasury cash management operations.
So bank relationships and account structures are organic, resulting
from numerous causes. For the reasons outlined, a group of cash management
banks may not in practice deliver superior cash management services. They may
also not use contemporary technology to deliver bank statements as punctually
and reliably as corporate treasurers require. Some treasurers will enjoy the
luxury of a funded project to select and implement a new cash management
bank or group of banks. Others, for reasons of politics and economics, are
stuck with the ones they have and must make the best of them. Technology
provides essential support for resolving such situations as effectively as
Further complicating matters, banks employ a range of
techniques to make account statements available to their clients. One way
of classifying these is that they are either ‘push’ interfaces – where the
bank pushes the information out to the corporate – or ‘pull’
interfaces where the corporate pulls information from the bank. In all
cases, corporate treasury needs to deploy some form of technology to access
and interpret the information.
‘Polling and parsing’ is a
traditional technique still common among North American treasuries. The
classic treasury workstation establishes a dial-up or other connection with
the bank, and downloads the statements in a pull operation. Use of ‘bank
workstations’ has been equally common in Europe: with the bank pushing the
statement to a predefined location on the corporate’s network, controlled
by a client/server bank workstation.
In both cases, the
numbers of interfaces and bank workstations has tended to proliferate,
leading to significant technical and operational complications as companies
grow organically and by M&A. More recent techniques include file transfer
protocol (FTP) which may operate on a push or pull basis, and web-based
communications in which the treasury management system (TMS) accesses
information on a secure website, and pulls it into its database.
SWIFT provides a standardised, robust channel for communicating statement
information via files (the familiar MT 940 message) and via web-based
extensible mark-up language (XML) messaging. The relationship between
corporates and SWIFT is in practice fairly complicated (to be addressed in
a later article). Comparatively few (larger) corporates are themselves SWIFT
members, primarily because of the substantial technical and procedural
overheads needed to obtain and sustain the certification needed to process
SWIFT messages. SWIFT Alliance Lite 2 is a cloud-based connection option
that is attractive to many corporates because of its light technical
There are several alternatives for corporates seeking to
simplify the technical miasma that may surround the apparently
straightforward downloading bank statements. Many companies work with lead
or ‘overlay’ banks, which take responsibility (at a price) for managing the
process. There are also specialist technology and communication companies –
themselves usually SWIFT members – that competitively offer this service. The
benefit to the corporate is that many of the technology issues, including
issue research, are outsourced to specialists.
commercial operations in developing countries are fundamentally cash-based,
and require setting accounts with local banks for security purposes. These
banks might not be SWIFT members, and may not even offer the electronic
distribution of statements. In such cases, corporate treasury needs to
design and implement manual processes to handle and control paper statements
and faxes, and to integrate this with their automated workflows. The value
of securing the physical cash may outweigh the value of fully automated
Role of the TMS
Having considered the ways in which banks communicate account
statements to corporate customers, we turn to the corporate perspective and
the way in which a TMS acts as the central control hub for the process.
Without the support of robust TMS operations, treasury would need to
implement top-heavy, expensive and error-prone manual processes to accomplish
this essentially mechanical and routine process.
requirements for the hub’s effective operation in assembling bank statements
are knowledge, intelligence and communications. The TMS must be set up
with information defining the location, access methodology and security
controls of each relevant account. It will need powerful scheduling
functionality, so it can initiate operations to pull statements from banks
and locate information that has been pushed by the banks. The key function
of intelligence in this process is the checking and analysis of the
downloaded information. Is it complete? Does it pass validation checks?
Have all relevant bank accounts been properly reported? The communications
requirement is two-fold, managing both information transfers with the banks
and banking systems, and with efficiently notifying relevant treasury
executives of all errors and omissions, so prompt corrective action can
The required scale and sophistication of the TMS
and third party technology used for bank statement downloads is a function of
the complexity and diversity of a company’s bank relationships and account
structures. It is also determined by the level and value of financial
risks that are ultimately reflected in the cash position. Business and
technology are intimately connected in this process, since the treasurer
must rely on the technology to initiate, execute and monitor key operations,
so that the current raw bank statement information is ready for the next
step, of reconciliation.
The repetitive, detailed and essentially
mundane process of bank account reconciliation lends itself well to an
automated solution. The essential requirement is the rules-based comparison
between anticipated bank account movements recorded in the treasury cash
book and the actual account movements recorded as transactions in the bank
statements. The volumes of data may be comparatively large, especially for
centralised group treasuries in MNCs and for in-house banks (IHBs). The
manual alternative, sometimes ironically recalled as ‘tick and bash,’ is
exceptionally error prone and ultimately the most unproductive use of
valuable human resources.
The importance of treasury
reconciliation lies in providing a systematic validation of the cash position,
which can confidently be used post- reconciliation as the basis for
performing subsequent cash transfers, loan, deposit and investment
operations, and foreign exchange (FX) dealing. Without reconciliation,
treasury would run significant risks of making substantial,
potentially costly errors in the actual cash movements and financial
transactions executed. So the primary value of reconciliation is to provide
dependable verification that the bank statement and the books maintained in
treasury closely correspond. All detected differences will be reported for
prompt research and correction.
A secondary value of effective
bank account reconciliation is alerting the treasury team to any unpredicted
charges on the bank statement. These generally apply to interest and various
bank fee debits. Although rarely incorrect, these nonetheless require
verification. Automated reconciliation is the means by which this important
treasury control process is initiated, and through which errors and omissions
are detected and rectified.
As bank account reconciliation is
such a fundamental treasury management process, modern TMSs include integral
reconciliation functionality. There are also numerous stand-alone
reconciliation solutions available in the market, which are much used in the
banking and insurance industries. These offer some potential value to
treasuries not otherwise automated.
TMS reconciliation solutions
vary in the power and flexibility of the functionality offered. More
advanced solutions enable authorised managers to define reconciliation rules
beyond the basics of currency, amount and value date, such as reference
number matching. Reconciliation rules allow variation tolerances to be
defined so that, for example, reconciliation will be permitted if the
difference between two items is less than some pre-defined value. Some
solutions are flexible enough to allow tolerances to be set for groups of
accounts, or for individual accounts.
solutions are supported by reporting that documents successful reconciliation
events in summary and detail, and defines all exceptions detected for
research and correction. Treasuries with strong technology support will
perform well in this area, given the underlying nature of the requirement.
In automated treasuries that take advantage of secure
straight-through processing (STP) efficiencies, reconciliation is another
operation that can be automatically triggered by detection of the successful
receipt of all expected daily bank statements. Much of it can therefore
be accomplished before the working day starts. The cash management team can
start their day’s work by reviewing the reconciliation reports, then
initiating research and correction of errors and differences. The end result
is the reporting of a dependable multi-currency bank cash position.
Consolidated Cash Position Construction
Reconciled bank statements form the secure basis for constructing the
organisation’s cash position. This is another process that varies in detail
by company, depending on the nature and management of the relevant bank
accounts, and the integration of treasury information with the bank
position. This is another process highly suited to automation, being based
on a close-ended set of rules that requires robust control and monitoring due
to subsequent use of the information for physical cash movements and dealing
Construction of the cash position depends on the
definition of the component set of bank accounts, on a currency by currency
basis. The process must also accommodate the realities of working with
different value dates, with the organisation’s domestic currency’s position
based on the current business day, and foreign currency positions based on
the spot date – and perhaps others.
Cash positions are derived
currency by currency, by applying today’s known treasury cash flows to the
reconciled bank cash positions. This is an exercise in which the TMS
database provides significant value, and the automated process will
dependably identify all relevant flows. These include the flows derived from
maturing transactions such as FX hedges and loans and deposits, and in more
complex operations it also includes interest and coupon payments on loans,
bonds and swaps, maturity flows and other derivative-based flows such as
option premium payments and forward rate agreement (FRA) settlements. In many
treasuries, other payments will be integrated in cases where it holds the
execution responsibility. Sound TMS technology ensures that applicable cash
flows are included and correctly allocated.
worksheets have become a primary reporting output of treasury workstations
and TMSs. They are flexible reports that reflect the cash position
organised as required by the corporation’s cash management team, and often
summarise the cash position in base currency terms as well as in the
Advanced TMSs include real time
functionality that dynamically updates the cash position worksheet as changes
– such as new treasury transactions and intra-day bank balance updates
– impact it. Such advanced functionality helps cash managers concentrate on
effective management of cash positions, without concern about how up-to-date
their information might be.
Cash Positioning in the
Daily Treasury Workflow
Close integration between bank
reporting technology and the TMS can generate dependable cash position
reporting, forming the basis for the current business day’s cash
mobilisation and treasury dealing operations. The detailed challenges of cash
positioning require flexible and responsive solutions, which must
accommodate all variations of corporate and treasury organisation and
policy found in the word’s regions and industry sectors.
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