2011 in Review: Cash is King and Visibility is Key

As we look back on 2011, it’s fair to say it has been a mixed year: from the
historic downgrade of the US government by Standard & Poor’s (S&P), the
supply chain disruptions caused by the terrible tsunami in Japan and the
sovereign debt crisis afflicting Europe. All have proved that in an uncertain
world it is critical to have the right systems and controls in place for
measuring, managing and reporting operational risk, both in 2011 and the

An Evolving Treasury Function

Corporate treasury has experienced a transformation over the past decade and
it is clear that the role of treasury has continued to evolve in 2011.
Traditionally the treasury department has been focused on manual, task-based
activities but in recent years technology and automation has empowered treasury
to expand its responsibility, increase its importance and become the strategic
centre for many financial decisions. This was particularly true of the past year,
as cash visibility and the management of liquidity became paramount.

By looking back over the top 10 articles of the year, we can identify the key
industry trends and hot topics that visitors to gtnews have been most concerned
with. Of course, articles that were posted at the beginning of the year have had
more time on site to be found and read, none the less this review provides an
interesting snapshot as to what’s front of mind for corporate treasurers.

gtnews Top Read Content 2011
  1. A Professional Guide to RFPs and Tendering for Cash Management Services – Kristian Rygh, Nasarius – Rafael Dominguez, Nasarius
  2. Treasury Trends in 2011 – Laura Ala, OpusCapita
  3. Best Practice in Accounts Receivable Reconciliation
    Elena Cengher, Citi
  4. Is Cash Really King? – Robert de Gidlow, Bank of
    America Merrill Lynch – Rohan Ryan, Bank of America Merrill Lynch
  5. Best Practice for Cash Pooling: A Custom Made
    – Beatrice Wassing, Handelsbanken – 28 Oct 2011
  6. A Paradigm Shift in Transaction Banking – Michael
    Spiegel, Deutsche Bank
  7. How Can Corporates Gain End-to-end Visibility Over Cash
    – Paul Higdon, IT2 Treasury Solutions
  8. SWIFT Message MT202 COV: Background and Impact Points for
    – Vijay Sankar, Tata Consultancy Services (TCS)
  9. Payment Factory Trends in Europe – Filipe Simão, BNP
  10. Basel III: The Changing World of Banking Regulation
    James Babicz, SAS

From the above list it is evident that three themes have continually risen to
the fore during the year.

  1. Effective cash management for clearer visibility and centralisation.
  2. Transforming treasury into a strategic business partner.
  3. The changing world of banking regulation.

Cash Management is Key

Unsurprisingly, for a second year running, cash management has been front of
mind for treasury in 2011 and the current economic climate has brought efficient
cash management into sharp focus. By being able to accurately map incoming and
outgoing cash flows by compiling data immediately from across the business,
treasury can ensure that the organisation is operating at maximum efficiency by
adopting any necessary short-term funding measures. The question that clearly
plagues most treasurers is what can be done to improve cash flow forecasting? Is
it simply a process re-engineering project, or is technology crucial in the
quest for visibility and control of cash?

To improve cash management practices corporate treasury has a number of
available options from enhanced reporting and controls to detailed policies and
complex ‘payment factory’ implementations. Conducting a request for proposal
(RFP) is integral to improving cash management practices, and the top read article on gtnews, by Kristian Rygh and Rafael
Dominguez, Nasrius, analyses the RFP process.

A bank cash management RFP is one of the main practices used by corporate
treasurers to improve their overall treasury strategy. A properly executed RFP
is a great opportunity to not only improve the bank setup strategy and
co-operate with the best partner bank, but also to learn the different banks’
capabilities and market trends allowing you to optimise pricing.

Cash is King

Cash is certainly the lifeblood of any company just as treasury is the
beating heart so it’s no surprise to see the article by
Robert de Gidlow and Rohan Ryan, Bank of America Merrill Lynch, in the top five
for 2011.

If a corporate has access to cash, it can generally fund its working capital
requirements. As the ultimate liquid asset, cash is on hand to make short-term
investments and is easily transferrable into other asset classes and currencies.
Therefore, wherever a corporate treasurer is placing their company’s cash, their
priority is to ensure that they are: (a) not locking it up in investments for
too long; and (b) have the correct investment guidelines in terms of
counterparty risk.

For corporates, cash will be even more valuable in the future based on the
lessons learned from the recent financial crisis and treasurers need to
re-examine their cash deployment methods given the much-changed credit
environment which has been difficult in 2011.

Centralisation and

The debate surrounding centralisation is not a new one. Indeed, it has long
been the source of discussion and frustration for many treasurers and chief
financial officers (CFOs). The trend towards centralising payment processes –
whether in payment hubs, shared service centres (SSCs), or in-house banks has
continued in 2011 and looks set to be popular in coming years.

The article by Filipe Simão, BNP Paribas, discusses
why corporates are interested in centralising cash payments and regardless of
whether a company operates a central hub, a SSC, or an in-house bank with a
central disbursement account, many companies want to have greater control over
the number of bank accounts.

On the one hand, companies may want to rationalise the number of accounts,
but sometimes they may also want flexibility in bank relationships. SWIFTNet
facilitates that ability. With a single pipe of standard connectivity, it is
much easier to switch from one bank to another.

Globally, the outcome is more
towards optimisation, in other words fewer bank relationships, but it depends on
the market, the size of the company, its purchasing power, if it is cash rich or
poor, etc. It is difficult to say whether this is the result of payment
factories or the more difficult market conditions in terms of credit, or whether
it is about the power that companies want to have when they negotiate better
pricing with their banks. Regardless of whether a company operates a central
hub, a SSC, or an in-house bank with a central disbursement account, many
companies want to have greater control over the number of bank accounts.

Regulatory Landscape

Forthcoming regulations, such as single euro payments area (SEPA) and Basel III have focused the
attention of treasury on improving and centralising payments in the eurozone and
improving internal financing efficiencies. Overall, the focus of treasury is
increasingly on delivering value and efficiency for the company and acting as a
strategic support unit to achieve the company’s overall commercial goals.

Banks are now facing a regulatory landscape that is rapidly changing in new
and unanticipated ways and in 2011 they have needed to start addressing their
Basel III requirements. The Basel III banking reform package represents a step
change in the way national banking regulators interact and has been described as
the first concrete example of ‘macroprudential’ regulation that seeks to
moderate the economic cycle. As a result, banks have little prior experience to
help them plan for or react to new rules as they are introduced. The article by
James Babicz, SAS, analyses the changing regulatory landscape and explains how
Basel III can bring business benefits.

The implementation of ongoing initiatives and continuing issues affecting the
financial system as a whole mean that we will see an active and interesting

To the Future

Treasury is the beating heart of most corporates and the role of the
corporate treasurer will continue to remain fundamental to the business in the
forthcoming year.

Of course, there are excellent examples of corporate treasury departments and
individual treasurers demonstrating best practice and creativity and the gtnews Awards for Global Corporate Treasury recognises and rewards those who
demonstrate best practice and innovation.

The third annual gtnews Awards for Global Corporate Treasury will be held on
24 May 2012, during the Global Corporate Treasurers Forum Europe in Amsterdam.
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