Every day, fresh newspaper headlines around the world tell the story of Asia’s continued growth. During the boom years of 2004 through 2008, life was good and the world was every company’s oyster. Today, however, the world is too volatile to take cash positions for granted, and corporates have learned that they must plan ahead for consistent, sustainable growth. This is particularly true for companies in Asia as they establish new partnerships and adopt new operating models, expanding into new geographies with varying payment practices and regulatory requirements.
In this context, implementing efficient and effective accounts payable (A/P) and accounts receivable (A/R) processes has become a vital component of working capital management and liquidity optimisation. The example of a multinational oil and gas company in Asia highlights a corporation leveraging its bank’s capabilities to implement A/P and A/R best practice and illustrates how companies are enhancing their working capital management across all operations in Asia-Pacific.
Today’s Business Challenges
With businesses in multiple countries across Asia, the company is involved in a vast range of operations and sales activities along the supply chain.
Challenge #1: managing domestic payments and collections across diverse geographies
One of the most prominent challenges is the sheer number of parties along the supply chain, hence the breadth of payment and collection methods employed across vast and often isolated terrain. For its downstream business, the company uses modes as diverse as cash, wire transfers, credit cards, cheques and armoured car pick-up to collect payments in remote locations, as well as major cities, across Asia.
Challenge #2: gaining visibility of transaction status and cash balances
As with many companies with operations in Asia managing hundreds of accounts and multiple bank relationships in each of the Asian countries, the company faces similar challenges gaining visibility and control of its cash balances. In addition, different units and entities had their own enterprise resource planning (ERP) systems and varying connectivity with different banks. Disparate systems and decentralised processes made it difficult to track payments and collections status, and made it impossible to have a single, real-time view of its cash balances across all entities and countries.
Challenge #3: adapting to local regulatory requirements
At the end of 2008, BPMigas, the governing body for oil and gas companies in Indonesia, imposed restrictions on oil and gas producers, requiring them to use state-owned banks to transact payments. Adding another banking relationship, more accounts and additional points of contact with less visibility over cash positions would result in further complexity and operational risks for the company.
The above are examples of issues that corporate treasurers commonly face on a broader scale. The ability to act quickly and remain nimble enough to navigate ever-changing business dynamics requires implementing efficient processes and optimising working capital by:
- Adopting technology to centralise and integrate information flow in all locations.
- Automating scalable solutions that support business growth, development and new acquisitions.
For corporate treasurers, leveraging the expertise of a global banking partner with a geographic coverage that aligns to their own and local expertise is critical to the design and implementation of these efficiencies.
Employing Best Practice
Streamlining A/P and A/R processes
To maximise the benefits of a centralised treasury, the company undertook a bank account rationalisation exercise, and now maintains a majority of its accounts with a single, regional banking partner. It also outsourced all domestic payments and collections – physical cash, credit card, cheque transactions, and courier and armoured car pick-up services – to the single bank, eliminating the discrepancies in service levels and risks associated with multiple banking relationships.
Improving STP and control
Through an integration module provided by the bank, all entities and units across the company were able to retain their existing ERP and file interfaces, upgraded to enable fully automated and standardised transaction initiation. Partnering with a trusted cash management provider, this scalable solution enhances efficiency, shortens the on-boarding process, and ensures a consistent A/P and A/R processes, even as the business expands into new countries and acquires new entities.
Optimising reconciliation and cash flow forecasting
Technology has also automated their reconciliation process. By employing an internet-based receivables management solution, the treasury gained a consolidated view of all collection activities, expediting the process and improving day’s sales outstanding (DSO). By using this solution, the client is able to outsource the end-to-end collection process. Using a single bank provides the client with the full range of collection services, receivables reconciliation and reporting which helps them reduce the administrative effort in their receivables reconciliation and tracking. Coupled with comprehensive online reporting, the company now enjoys more accurate and timely cash flow forecasting.
Fully leveraging a banking partner’s local know-how
To comply with the new Indonesian regulatory requirements with minimal disruption to the company’s payment workflow, an innovative, purpose-designed solution was engineered: host-to-host SWIFTNet connectivity between the company’s regional banking partner and a state-owned bank. As a result, each entity maintains just one bank account with the state-owned bank, and the regional banking partner manages all payments and receivables, allowing the company to continue operating its standardised processes across all geographies.
With these solutions in place, the company was able to maintain a streamlined workflow in full compliance with one country’s unique requirements. Across its operations in Asia, it has full visibility of all cash positions on its bank’s online banking platform, including detailed information about suppliers, clients, payment dates, credit cycles and collections data. Through this strategic partnership, the company was able to minimise unnecessary bank and interest costs from a fragmented treasury function. The regional banking partner acts as its single point of contact across multiple geographies, supporting the business in day-to-day servicing and in overcoming regulatory hurdles.
For corporates across a variety of sectors, the experience of the company demonstrates how highly efficient financial operations can drive and deliver value, and ensure that groups not only meet, but also exceed their corporate goals.
To read more from JP Morgan, please visit the company’s microsite.
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