Cash Management Survey 2008 Reveals Liquidity is Corporate Priority

The third annual cash management survey1 was conducted on gtnews between March and April 2008 in association with SEB. The 2008 survey was answered by a total of 481 respondents, of which 402 (84%) were corporates, surpassing both the 2006 and 2007 corporate response.2

Western European-based readers represented 36% of the total 2008 survey respondents, although north American readers came a close second (32% of respondents). Corporates of all sizes participated in the survey. The largest response (53%) came from larger companies with annual revenues over US$1bn. The respondents hold a variety of positions, such as senior/executive level (38%), mid-management level managers (42%) and team members (20%).

Highest Potential for Improvement

In the 2006 and 2007 survey results, corporate respondents indicated that the process with the highest potential for improving cash management within their organisation is cash flow forecasting. In 2008, however, corporate respondents say the process that now represents the highest potential for improvement is liquidity management (34%). We can assume that this is due to the ongoing impact of the credit crunch, which has further accentuated the significance of efficient cash management at a time of restricted credit. Improving cash flow forecasting is still a priority, though, with 29% of corporate respondents highlighting this process as having the most potential for improving cash management within their company.

“Right now, cash is a scarce and expensive resource so the current focus on liquidity management is a natural trend,” says Erik Zingmark, head of global cash management at SEB. “Liquidity management and cash flow forecasting are closely interlinked though so you cannot focus on one without reference to the other. Generating cash flow is vital in business and thus forecasting should always be a top priority regardless of the state of the markets.”

Figure 1: Highest Potential for Improvement

The 2008 results highlight the main barriers to accurate cash flow forecasting as inaccurate sales projections and lack of internal systems integration. Both of these hurdles were selected by 51% of the respondents. Limited availability of resources, such as staff and investment (41%), lack of inter-department communication (41%) and lack of effort/priority within the business unit (39%), were also highlighted by corporate respondents as hurdles obstructing efficient forecasting.

Looking ahead, among the corporate respondents, the most popular choices for future cash flow forecasting systems are either using a module in the corporate ERP system (27%) and/or specialist software provided by an external party (23%) with 26% planning to continue using spreadsheet models. There has been development in the past three years, however, as the survey results show that spreadsheet usage within forecasting systems has continually decreased. In 2006, 82% of respondents admitted to using spreadsheets, in 2007 this fell to 72% and in 2008 the figure has dropped further to 69%.

“The challenge with cash flow forecasting is accuracy. Treasurers can achieve this with the use of spreadsheets but it has proven to be much harder,” says Zingmark. “This is not primarily due to inflexibility in Excel spreadsheets, but rather that those companies who rely on spreadsheets tend to have a weaker process overall, especially with regard to the accuracy of data sent by the reporting units.” According to Zingmark, without open and constructive dialogue between all parties involved in cash flow forecasting, the quality of this process will never be satisfactory.

Figure 2: Barriers to Accurate Cashflow Forecasting

Accounts payable (A/P) and accounts receivable (A/R) were also identified as processes that could contribute to greater cash management efficiency with 14%
and 17% of the corporate respondents highlighting these functions, respectively.

In terms of working capital, the majority of corporate respondents said that they consider the quality of their processes – purchase-to-pay, order-to-cash and inventory cycle – to be average or good with few describing these processes as ‘best practice’. The main challenges preventing the improvement of working capital management were highlighted by respondents as cash forecasting, data collection, analysis and integration, cash concentration, inventory management, A/R and A/P and internal communication.

“Working capital is one of the most process-oriented areas within any organisation,” says Zingmark. “As a result, corporates need to take a step-by-step approach and ask basic yet vital questions about processes such as the way they register incoming invoices, for example. Improving working capital processes is all about operational excellence across the entire organisation.”

Changing Role of the Treasurer

The survey results suggest treasurers are increasingly responsible for a wider range of functions across their organisation. For instance, corporate respondents said their treasury departments have responsibility for: cash management (75%), financial risk management and/or mitigation (52%), corporate finance (40%), capital markets and investment (42%), and IT systems within treasury (39%). Overall, treasurers/treasury departments were considered to have no or low responsibility for activities such as tax, investor relations, insurance and pension management.

In 2006, one-third of the corporate survey respondents said that treasury would have a leading role in improving working capital in the future. Two years later, it is evident that treasury still needs to assert itself in this role despite the increasingly strategic position it now has within its organisation. Just 24% of the corporate respondents in the 2008 survey said that treasury ‘owned’ the working capital role within their company. The majority of respondents (62%) indicated that treasury simply ‘monitors’ working capital processes with 11% saying that treasury played no part at all.

According to SEB’s Zingmark, if companies operate a small treasury, it is understandable that, for practical reasons, they place the responsibility for working capital elsewhere. “This area, however, links closely to cash flow forecasting, liquidity management, cash pooling and payments etc, so in a number of ways, it is optimal to let treasury manage working capital with a strong mandate.”

Organisational Structure

When asked which structure best described their current cash management organisation, as in 2007, 28% of the corporate respondents selected a decentralised structure. Corporates are working towards creating global and regional cash concentration centres with just 8% committing to a decentralised structure in the future and 29% moving towards global cash concentration.

Figure 3: Cash Management Organisational Structure

Zero/target balance pooling is currently the most widely used cash management technique among corporate respondents (52%), followed by intercompany netting (32%) and notional pooling (19%). The corporate respondents also indicated that they expect to increase their use of cross-currency pooling and multi-currency interest netting with the number that say they use it now set to double in the future.

“There are pros and cons with all pooling methods. Zero balancing, for instance, has become the main technique, at least in Europe, partly because the leading ERP suppliers support it better than other pooling methods,” explains Zingmark. “When legal and tax rules become more harmonised between countries and continents, we will see new pooling methods being launched and used.”

Both payments and collections continue to be reconciled locally on a decentralised basis by the majority of corporate respondents. Looking ahead, however, more corporates expect their payments and collections to be reconciled centrally and see an increase in the use of shared service centres at a regional level. “This is a positive trend, as centralising disbursement as well as the reconciliation of payments is, in most cases, a good business case from both a monetary and quality perspective,” affirms Zingmark.

The outsourcing of treasury processes continues to be limited with the majority of corporate respondents retaining processes, such as cash concentration, reporting (FX forecasting), short-term investments and funding, in-house. Respondents also indicate that further adoption of treasury outsourcing will be limited in the future, with more than three quarters of corporate respondents electing to keep managing their treasury processes in-house.

“Only time will tell whether treasury outsourcing will take off and it is important to understand that this will not be a black or white decision,” says Zingmark. He notes that some companies, especially the larger ones, will perhaps outsource a few non-strategic processes while others, mainly mid-sized corporates, might outsource the whole treasury function because keeping it in-house may become too expensive as well as the difficulties in attracting and maintaining competence.

Impact of SEPA

On 28 January this year, we saw the launch of the single euro payments area (SEPA) Credit Transfer, or SCT – the new payment instrument for mass euro payment transactions – with 4,000 banks throughout 31 countries committing to delivering the SCT to their corporate clients. While the banks continue to invest in SEPA instruments and services and the infrastructure is developing, the overriding concern is whether the corporate community will adopt the new instruments and formats and migrate to SEPA.

The survey results are encouraging: 88% of western European respondents in the 2008 survey have considered the impact of SEPA, compared to 80% in 2007 who said that SEPA was on their radar. Thirty-nine per cent of western European corporates foresee no impact as a result of SEPA, which is higher than 2007. The results also reveal that 40% of the western European corporate respondents expect to see a reduction in the number of bank accounts they currently use due to SEPA.

“Depending on where you run your business and who you bank with, the business case for adopting SEPA will vary,” says Zingmark. “If you are a large company with advanced treasury and cash management systems, for instance, SEPA itself might not be an alluring proposition. Over time, however, all stakeholders (even banks) will benefit from SEPA because we will finally have ‘one language’ to communicate with across the payments landscape.”

Niclas Osmund, head of large corporates, cash management, Sweden at SEB adds that the business case will also depend on factors such as whether a company’s sales and purchasing are centralised or decentralised, the presence of customers and suppliers in SEPA countries and on how transaction intensive the company’s business is.

Each corporate will have to assess their own business case in terms of SEPA but one fact that applies to all organisations is that any evaluation should be conducted sooner rather than later in order to reap any potential benefits quickly.

Investment and Funding

The majority of surplus cash continues to be invested in bank deposits (60% of
corporate respondents), while money market funds (MMFs) remain a popular second choice (52%). When asked why they chose bank deposits to allocate their surplus cash, the prevalent reasons were limited credit risk (35%), ease of decision (32%) and company policy (27%). The popularity of bank deposits dipped slightly from last year when 63% of corporate respondents selected them as their choice for the allocation of surplus cash, while the strength of MMFs has grown (albeit slightly) from 51% in 2006.

Corporates may increasingly consider MMFs for the allocation of surplus cash in the future and place more weight on benefits, such as the fact that triple-A rated MMFs spread their exposure over a large number of issuers (50-100) compared to bank deposits. According to Zingmark, while more corporates may choose MMFs over time, he believes that the total market usage will probably not increase significantly. “The interest rate conditions are set between the company and the bank, and if they are attractive, it is likely that the company will continue to use this alternative due to its simplicity,” he explains. “At the end of the day, the company’s finance policy will, of course, always steer the allocation of risk.”

Short-term deficits are handled mostly through bank overdrafts (43%) and inter-company loans (42%). This is in line with both the 2006 and 2007 results where short-term deficits were mainly funded through bank overdrafts, as indicated by 47% and 46% of the corporate respondents, respectively.


This year’s cash management survey has provided a valuable overview of corporate attitudes to their working capital processes and cash management structures. It has also highlighted the latest trends and priorities that now dictate the cash management agenda, such as further efficiencies in the area of liquidity management. While this has always been a significant driving force for corporate treasurers, the credit crunch has further underlined its importance.

For corporate treasurers, enhancing their role within working capital will be an ongoing task. The survey results reflect treasury’s current range of responsibilities, but the ‘ownership’ of working capital processes still appears elusive. In practical terms, the real challenge for treasurers is the adequate staffing and allocation of resources to manage their growing responsibilities such as asserting their significance with regard to working capital.

“The role of the treasurer is expanding into new areas while liquidity management and forecasting remain as important as ever. At the same time, the business case for SEPA needs to be assessed and treasury needs to be more ‘hands on’ in working capital initiatives,” argues Osmund at SEB. “This leads to a crossroad where the choices are to increase the size of treasury, limit the current scope or start thinking about outsourcing some of the less value-adding treasury processes.”

This type of evaluation will be difficult and it will force corporate treasurers to look long and hard at their current responsibilities in terms of what they could focus more closely on and what they should perhaps disengage from. Treasury must remain committed to raising its profile within the organisation and, in particular, working capital processes, as it is a role it is ideally suited and positioned for.

1 The results presented from this survey are based on corporate respondents only.

2 In 2006, 67% of the survey respondents were corporates and in 2007 the survey was answered by a total of 339 respondents of which 270 were corporates.


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Mark Carney Bank of England