Visibility: Excellence in Treasury and Liquidity Management

According to the most recent research from Citi’s Treasury Diagnostics1, 57% of treasurers are achieving a daily visibility of over 95% of their cash, compared with 42% last year. This increase has been driven by greater demand for enhancing information and reporting processes, assisted by analytical tools. This increase is good news. But there is additional opportunity for treasurers to continue to work toward best in class visibility.

Figure 1: Visibility Into Cash Balances

Source: Citi Treasury Diagnostics Benchmarking Survey, 2011

Factors Influencing Visibility Levels

Treasurers have certainly not been ignoring the topic of visibility in recent years. However, successfully improving cash visibility is not always easy to achieve. At a high level, we see two major contributors to this.

1. Every company has numerous internal and external business factors that cause differences, and they can cover:

  • The size and maturity of their business operations.
  • Which business segment they operate in.
  • The spread of countries or regions they manufacture in or sell to.
  • What business practice they follow with regard to taking a decentralised or centralised approach to treasury and liquidity management.

2. The business factors themselves do not stay constant, and there are internal and external ‘tipping points’ that cause companies to evaluate/re-evaluate their treasury and liquidity solutions over time, for example:

Internal tipping points
  • The company is growing fast but treasury functions and systems are not keeping pace and therefore require focus to provide required efficiency gains to fuel company growth.
  • There is a need to provide control and visibility of group treasury processes through to the most senior management levels so transparency is assured.
  • Generating increased internal capital to fund the company’s growth with the best returns.
External tipping points
  • Scarcity/expensive credit is leading companies to seek transparency and flexibility to focus more closely on ‘internally generated’ group cash as a means to fund existing facilities/future growth plans.
  • Regulatory factors across sectors/countries will have a direct impact on the company’s business module and capital requirements.

We will now lay out some of the common themes we have identified when working with our clients to improve cash visibility and control. For each theme, we touch on several associated topics to better understand the overall theme and provide insight to potential solutions that can add significant value to the business.

Common Themes

1. Be engaged with your business partners: a one-size solution or a one-time effort does not fit all

Treasurers have to be engaged with their business partners now and in the future to be aware of their current and future plans, noting the business factors that cause them to be different from each other. This will enable treasurers to plan for change to fulfil their role in supporting companies’ overall business objectives. Equally it is not enough to simply plan to implement solutions that move them along a path of decentralisation, through regionalisation and onto centralisation of their banking, systems and policies without taking into account internally and externally generated tipping points.

Here are some examples that serve to further illustrate this theme:

  • A company has opportunities to grow into global growth generator countries1, and this means that treasury and liquidity solutions are very likely to be different from those adopted in the established markets of North America and western Europe. Active management techniques can be a challenge and the availability of liquidity structures will be lower. This leads to a greater need for visibility and active management of the balances.
  • A company has grown through acquisition at a fast rate across diverse range of countries and the business is doing very well, but the treasury control and policies need to be made more robust and catch up with the new business situation. The implementation of long time frame treasury systems could be a plan, but it does not satisfy the ‘time-to-benefit’ requirement.
  • Regulators are proposing changes across an industry that requires companies to adjust their treasury processes to ensure compliance and position companies in the new regulatory environment. Being spread across ‘too many’ banks exacerbates the problems, and actions to rationalise to global/regional banks offers a relative short-term solution.

Countries that have the greatest growth potential based on domestic saving and investment, demographic outlook, health, education, quality of institutions and policies, and openness to trade.

In these situations, the treasurer should consider the selection of a liquidity tool that has the following features:

  • It supports a collaborative approach to doing business between the treasury and the operating companies by offering to share and view the same data to all parties, controlled, as needed, by data and functional entitlements.
  • It provides an easy and quick implementation of analytical and graphical services that give access to usable and actionable information providing visibility across the group.
2. Control through leadership: provide direction to cover critical control points

Demonstrating control is important to satisfying successful scrutiny by internal partners and external agencies. This is prompting many companies’ treasuries to lead the way to instilling best practices that result in their being able to demonstrate their controls.

The areas in which we see the most leadership here include:

  • Using account-opening and -closing processes that show exactly how many accounts the group has around the world, and using a process that controls and administers account-opening policies including signature management.
  • Having a core list of banking partners that operational companies use ‘first’ when new banking services are needed, which promotes group buying power and standardises bank functionalities.
  • Adopting working capital controls that are coupled with actionable and verifiable analytics.
  • Removing investments and debt management from offline processes so that they come under the control of a central database.
  • Standardising cash flow forecasting processes that move away from offline systems to promote intra-company collaboration and improve forecasting accuracy.
  • Adopting inter-company lending processes which use a centralised data base approach and remove reliance on risk-prone spreadsheets.

In these situations, the treasurer should consider the selection of a liquidity tool that has the following features:

  • Different modules that move away from the less efficient offline modes currently in use, i.e. Excel and email, and towards much more efficient online modules.
  • Modules that support bank account management, cash flow forecasting and inter-company loan management, which allow critical control parameters to be systemically added and used by all parts of the company to administer treasury policies.
3. Improving visibility through analytics: provide analytics showing KPIs in client-definable ways

The visibility of all the company’s asset and liability class data, across all financial providers, creates a huge amount of information. Treasurers are increasingly requested to provide clear, transparent and concise views of this information based on business-definable data elements so that the results are portrayed in company-relevant and user-friendly ways. These requests happens both regularly and episodically in response to events. This is leading treasures to use more analytical and graphical views of information rather than trawl through reports and spread-sheets.

The visibility of cash, debt and investments in a centralised database also allows companies to enter their own data attributes to provide analytical views and graphics in ways needed to run their businesses. This centrally sourced data is available to all parts of the business, allowing easy access to and use of valuable, auditable and business-critical information.

Here are some examples of the data elements that clients find valuable to aiding the ‘slicing and dicing’ of their data:

  • Company legal entity structures, from simple parent/child relationships to more complex, multi-level structures.
  • Company business streams, from simple to more complex multi-level hierarchies.
  • Company financial institution coding to monitor counterparty risks.
  • Company authorised signitures for each account, including details of their authority levels.
  • Company-unique attributes for each account, legal entity and business stream, enabling the information to be usable in business-driven views, for example treasury and management codes.

In these situations, the treasurer should consider the selection of a liquidity tool that has data aggregation and normalisation combined with web-based analytical tools, views and report, which allow users to choose the exact service to match their business needs.

With TreasuryVision, for example, Citi acts as the ‘data aggregation and normalisation’ agent for the client and stores the multibank cash information in its data warehouse. This information is then available to be exported to a client-defined destination system. Meanwhile the service offers web-based analytical tools,that views and reports, provides all the tools necessary to allow clients to set up, maintain and data-mine this rich source of multi-bank information. One example being cash accuracy analytics, which tracks financial institutions’ reporting timeliness against stated reporting service level agreement (SLA) times, providing daily feedback through a graphical dashboard and reports of on-time data and stale data.

4. Efficiency through core banking and technology partners: prepare to meet businesses’ constantly changing needs.

Control-driven leadership and visibility of all company assets and liabilities invariably lead treasurers to consolidate banking partnerships to: maximise banks capabilities, drive efficiencies, reduce fees, control costs and be ready to accommodate change. This consolidation also leads treasurers to establishing a smaller number of concentration/pooling structures to cover a larger amount of group cash. The residual cash (outside the structures) is visible to treasury, which helps put in place controls to maximise returns.

A reduction in technology partners is also a common theme for many of the same reasons noted for banking partners. This consolidation can lead to:

  • Long implementation timelines (from three to seven years) to get treasury and business partners onto a single platform mean the benefits to be gained from best-in-class controls and visibility of cash (and other set classes) are too far away. Treasurers are therefore opting for a complementary technological solution that gets up and running quickly.
  • An established core of technology platforms that can handle most but not all of a treasury’s needs, which leads to complimentary solutions from providers to ‘plug the gaps’.

In such situations, treasurers should consider selecting a liquidity tool that has web-based services, where all the heavy technology lifting is housed and handled by one provider, and taking a modular approach, which allows them to use pieces of the service that are needed to solve current and changing pain points.

5. Getting subsidiary buy-in: treasury cannot do it on its own, so find the win-win

Some of the best plans can die on the vine if due consideration is not paid to gaining the buy-in of business partners before any implementation is undertaken. Here clients have noted several important points that have lead to successful implementation, providing an all-round win for everyone involved

Sell the benefits to the subsidiary and the centre
  • Keep the message short and high-level, briefly cover what subsidiaries need to do and show both central and subsidiary benefits.
  • Use senior sponsorship to explain why it is good for the centre and the subsidiaries.
  • Choose appropriate communication channels to reach the affected audience – hold a launch event to reiterate group and subsidiary benefits, and keep it short.
Post-launch explain the implementation in detail
  • Who will pay any additional costs.
  • How savings will be accounted for.
  • Detail only mandatory data that is required to be collected.
Work with main subsidiaries offering maximum return
  • The initial response from subsidiaries and non-core third party banks will be variable – plan to work with main subsidiaries who give maximum return.

Draw on the experience of key banking partners

  • Your core banking partners have done this many times before so use their experience to help sell and implement your plan.

In these situations, there are benefits in selecting a vendor available to support you on this journey, one who can provide practical advice based on extensive previous client experience and represent the benefits of your selected solution.

6. Working with third party banks: maximise your buying power

The vast majority of our clients are multi-banked, and this does make the collection of data, which makes visibility possible, challenging at times, both from a commercial and an effort-verses-benefit perspective.

  • Do you need all your banking relationships? Take the opportunity to rationalise your banking partners, if that approach is in line with your businesses needs and your vision.

  • Exercise your relationship buying power when negotiating with your banks to provide the data. Deal with the bank’s head office and get it to deal with its branches. Remember who the customer is and exercise your option to change banks if it is more beneficial to your business.

  • Decide on what data you want. By doing this, you can decide what you need to collect to deliver your business objectives. Getting “all” data is only sometimes applicable, whereas gathering only the data you need usually saves you time and money.

Focus on:

  • Data frequency: for some businesses accounts, weekly information may be sufficient and cheaper than daily

  • Do you need end-of-day only or intraday as well?

  • Data format: file formats are sometimes cheaper then message-by-message formats.

  • Accounts: do you need all accounts or is viewing just the liquidity structure headers sufficient?

  • Automation: this is always the best approach but sometimes commercial considerations direct businesses to enter balances manually (which may not be extra work as they have to advise their treasuries through an offline process anyway).

In these situations, there are benefits in selecting a vendor who offers a strong implementation process, who appoints a dedicated implementation manager to oversees things from end-to-end, and who brings tried-and-trusted industry-recognised techniques to assist you throughout the implementation process. In addition, there is value in the use of analytical tools to record, maintain and demonstrate your successes as you rationalise your banking partners.

Conclusion

Gaining visibility of the information you need is a vital step towards treasury and liquidity management excellence. It does not have to be a long, drawn-out technology project.

Our experience with many clients over the years has shown that regardless of the company situation and required solution, it is possible to gain global visibility – on a value-for-money budget and in a time frame where the returns lie within short-term planning horizons.

We have seen that all companies are different and that change is constant. It is beneficial to acknowledge these differences and to gain insights from client experiences. For example, we have outlined the internal/external business factors and ‘tipping points’ that result in the re-evaluation of solutions because changes are required over time. Crucially, within this array of solutions, there are common, repeatable themes and topics.

By understating these and looking at the lessons learned by others, you will be in a better position to confidently apply them to your own situation with successful results.

1Countries that have the greatest growth potential based on domestic saving and investment, demographic outlook, health, education, quality of institutions and policies, and openness to trade.

Case Study 1: Vestel Electronics

Vestel Electronics, with 24 companies, is a leading player in Turkey and global markets in consumer electronics, white goods and digital product segments. Vestel ranks among the world’s biggest original equipment manufacturers (OEMs) and original design manufacturers. Vestel is the second largest exporter of Turkey.

The challenge

Vestel, operating with nine foreign trade companies across Europe in multiple market segments, ranks among the top three manufacturers of LCD TV and among the top 10 manufacturers of home appliances generating a significant revenue stream.

Vestel wanted to centralise cash recieved from exports in several European countries. As part of the same goal, Vestel needed easier electronic access to account balances to monitor and manage liquidity centrally and to enable more accurate cash-flow forecasting. An associated aim was to streamline Vestel’s payables process, minimise costs and automate reconciliation of export proceeds. Vestel’s second objective was to improve its working capital cycle by financing open account import transactions.

The solution

Citi offered a number of solutions to increase visibility, to mobilise and optimise liquidity. Firstly, through Citi’s TreasuryVision cash management platform, Vestel’s is able to monitor third party bank and Citi accounts and review its regional working capital positions at a consolidated level.

Secondly, using CitDirect online banking Vestel is able to manage its payables smoothly through a single platform, customise payment authorisation levels and access all entity accounts for reporting and payment activities.

Thirdly, using target balancing and account receivables (A/R) matching, Vestel has automated the centralisation of cash in London for seven countries and consolidated its export receivables. Citi’s integrated A/R matching tool will enable increased operational efficiency for Vestel.

As a final solution, Citi offered import factoring to provide short-term financing for import transactions. This solution improves the working capital cycle without increasing import costs, while creating operational efficiencies for Vestel.

The result

Vestel has benefited from real-time online global visibility of all of its accounts, optimisation of liquidity and improved workflow management as a result of the solutions designed and implemented by Citi. Vestel and Citi, whose business relationship started in 2003, have strengthened their partnership further during this project.

 

Case Study 2: Teva Pharmaceuticals Industries

Automating Teva Pharmaceuticals report platforms with ease

A global pharmaceutical company with legal entities and business units throughout the globe, worked with Citi to create a uniform and transparent reporting platform ensuring more effective liquidity management.

The challenge

Teva specialises in the development, production and marketing of generic and proprietary-branded pharmaceuticals, as well as active pharmaceutical ingredients. Teva is among the top 15 pharmaceutical companies and is the largest generic pharmaceutical company in the world. With significant growth through acquisitions, managing Teva’s treasury platform became very difficult at a global level.

Further, as the organisation continued to add more and more entities to its operations, effectively monitoring balances, new bank relationships and new accounts became increasingly challenging. With hundreds of legal entities across the regions, diverse treasury systems and enterprise risk platforms (ERPs), and more than a 100 bank relationships, Teva required a transparent, innovative solution to ensure automated daily visibility, as well as enhanced reporting and monitoring capabilities.

The solution

Citi deployed the local (Israeli) cash management team to work in partnership with Teva’s treasury team. Citi not only provided a full overview of it’s capabilities and extensive experience in the liquidity management space, but also referred Teva to an existing client to share its experience with Citi’s platform and service. As part of the implementation process, Citi appointed an implementation manager, as well as a local product manager, to lead the project. Further more, Teva assigned a project manager to promote the solution internally, contributing to a very rapid implementation process.

The project manager, together with the regional treasury centres approached the relevant business partners to make sure that the cash management process transformation will get full co-operation. Finally, Citi hosted weekly calls with Teva to ensure the process ran smoothly. Using Citi’s TreasuryVision technology, Teva identified all accounts associated with each of their legal entities. These accounts were then set up on the system together with the relevant static data (company structure, regions, business units, etc), Teva’s local entities negotiated with third party banks to send the MT940’s to Citi and in addition few manual accounts were set up by Teva to cover bank accounts which can’t be reported automatically or too expensive. The process uncovered that the actual number of bank accounts exceeded 700 accounts, underscoring the value of a uniform, transparent reporting platform.

The result

Teva completed the implementation programme in less than six months.

The main project achievements:

  • Reducing operating cash balances by 30%.

  • Eliminating bank accounts by 15%.

  • Transform manual process into an automated process, eliminating work and potential mistakes.

  • Teva’s regional and local treasurers and chief financial officer’s (CFO) are also using the platform in order to view their balances in one consolidated place.

Given the success of this programme, Teva and Citi are working together to explore additional ways to supplement Teva’s existing capabilities in the account management and intercompany lending space. Teva has also offered to share their positive experience with other potential clients.

To learn more about Citi, visit the company’s gtnews microsite.

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