Cash Management Survey 2009: Corporates Put Accounts Receivable and Centralisation in the Spotlight

The Fourth Annual Cash Management Survey was conducted by gtnews between May and June 2009 in association with SEB. The survey was answered by a total of 212 respondents, all of whom were corporates. Western European readers represented 43% of total survey respondents, while North American readers provided 33% of the responses. As in previous years, corporates of all sizes participated in the survey, with the largest response (49%) from companies with revenues over US$1bn. The respondents also represented a spectrum of positions, with 42% from the manager/team leader segment and 21% from senior management.

Which Process has the Greatest Potential for Improving Cash Management?

Over the last four years, when asked which process has the greatest potential for improving cash management, survey respondents have provided different responses – reflecting the changing dynamics of the cash management environment. In 2006 and 2007, cash flow forecasting was highlighted as the cash management process with the greatest potential for improvement; last year, liquidity management topped the survey. In 2009, the priority has shifted once more, with 33% of the respondents agreeing that accounts receivable (A/R) is now the process with the greatest potential for improving cash management.

Figure 1:Which Process has the Greatest Potential for Improving Cash Management?

Source: gtnews


Accounts receivable in the spotlight

“Working capital management has been elevated on the corporate agenda and for companies assessing their internal operations, A/R is a logical starting point to improve working capital management from a process-orientated angle,” explains Niclas Osmund, head of cash management advisory, at SEB.

He suggests a number of methods that corporates can employ to achieve greater efficiency within this process. “Corporates could make use of trade finance instruments in both accounts payable (A/P) and A/R, as well as other solutions such as factoring,” he says.

A point that became evident from the results of last year’s gtnews Trade Finance survey is that many companies do not consider trade finance to be part of their cash management structure or a tool that could help them maximise their working capital. For example, 41% of the corporate respondents in the 2008 trade finance survey said they did not use trade finance documentation or processes to extend either their A/P or A/R. According to Lars Millberg, global head of trade finance at SEB, corporates could use letters of credit (LCs), for instance, as a tool for achieving greater working capital efficiencies.

In addition, SEB’s Osmund advises corporates to assess all of their customer contracts in order to evaluate the terms carefully and whether or not they are being correctly adhered to. “When evaluating the A/R process, companies must also be mindful of the cash flow constraints their customers face in today’s restricted liquidity environment,” he says. “It is important to consider how to enhance your own performance without causing difficulties for your customers.”

He adds: “The current concern for corporates is not when they will get paid but whether they will get paid at all by some of their customers. As with any balancing act, there are two sides. It is very easy for corporates to get stuck between customers prolonging payment terms and suppliers requesting early payment in order to survive today. If this is the case, it is time for them to consider different options for discounting their cash flow.”

This balancing act in the A/R process is certainly on the radar for many of the corporate respondents. One respondent, an executive/director at a North American company with revenues of US$500m-1bn, said: “Maintaining current payment terms with customers can be difficult, as they look for longer terms to aid their own working capital.” Another, a senior manager at a western European company with revenues of US$500m-1bn, commented: “Decreasing margins in the business and longer payment terms demanded by our clients means that we carry the working capital burden. This is coupled with shorter payment terms from suppliers as a result of high insecurity in the current economic climate”.

Spreadsheets still dominate cash flow forecasting

Thirty-one per cent of the respondents said that cash flow forecasting represented the process with the highest potential for improving cash management. This is consistent with the 2006 and 2007 surveys, when cash flow forecasting received the majority vote. In terms of the systems that corporates use for this function, the 2009 survey results reveal that most corporate respondents (67%) still use spreadsheets for cash flow forecasting, compared with 69% in 2008 and 72% in 2007. While there has been a gradual decrease in the past three years, the results do not indicate any significant progress considering the fact that only 29% of the 2009 survey respondents said they plan to use spreadsheets for cash flow forecasting in the future.

Thirteen per cent of the respondents said they currently use specialist software provided by an external party, while 7% said they use a module in an ERP system. Looking forward, both these systems look set to become the most popular choice for cash flow forecasting, with 59% of the respondents stating they plan to use one of these models in the future.

There is clearly the ambition among corporates to migrate away from using spreadsheets for cash flow forecasting but it remains a challenging process with myriad stumbling blocks. When asked what barriers they faced in terms of accurate cash flow forecasting, 54% of the survey respondents said inaccurate sales targets or projections and 50% identified a lack of internal systems integration.

Figure 2: What are the Barriers to Effective Cash Flow Forecasting?

Source: gtnews


“As a result of the financial crisis, establishing accurate cash flow forecasting systems and processes should be a priority,” insists SEB’s Osmund. “A major obstacle is the apparent disconnect between treasury and business units/subsidiaries. This is primarily about communication, which becomes increasingly difficult the more diverse and complex a corporate’s organisation is. In larger organisations, for instance, treasury is not often involved in the day-to-day operations of the business units and is therefore not always aware of their priorities and pressures. At the same time, the business units have a lack of understanding about the treasury function and the importance of supplying accurate information on time and on demand for cash flow forecasting.”

This is reflected in the survey results, where 39% of respondents said there was a lack of effort/priority within the business unit when it came to cash flow forecasting, 40% pointed to a lack of inter-department communication and 24% said there was an inefficient process in place at subsidiary level. “There must be greater interaction and integration between treasury and business units in order to overcome these barriers and implement efficient and accurate cash flow forecasting systems,” affirms Osmund.

Comments from the corporate respondents also highlight this disconnect. “The main challenge is getting non-treasury/non-financial people to understand the importance of maintaining a healthy working capital for the company,” said one respondent, a senior manager, company size US$1-10bn from the Asia Pacific region. Another, a manager/team leader, company revenues US$1-10bn from North America, added: “Getting subsidiaries to buy into the treasury mandate to achieve working capital goals is difficult”.

For Osmund, these comments and the results from the survey reflect the common scenario where treasury is not positioned at the core of the business. “Treasury is a business support function and, as a result, it can be challenging for treasury to argue its mandate and gain top management support in order to achieve buy-in from business units,” he says.

Role of Treasurer Continues to Expand

The 2009 survey results continue to emphasise the trend that treasurers are becoming increasingly responsible for a wider range of functions across their organisation. Compared with 2008, a greater proportion of corporate respondents in this year’s survey indicate that their treasury departments have responsibility for cash management (up 8%), financial risk management and/or mitigation (up 11%), corporate finance (up 14%), capital markets and investment (up 24%), and IT systems within treasury (up 17%).

Figure 3: The Expanding Role of Treasury

Source: gtnews


The survey results also highlight the fact that the treasury department’s remit has widened to embrace greater responsibility for activities such as tax (15%), investor relations (24%), insurance (35%), enterprise risk management (21%) and pension management (24%) compared to last year.

“Over the years, running a treasury has become increasingly complex. New tasks have been added but, in a lot of cases, staffing has remained at the same level,” claims SEB’s Osmund. “This indicates that the use of technology in gaining process efficiency needs to be prioritised and be an ongoing activity for treasury. Treasury organisations are lean and therefore processes must also be lean.”

He believes that presenting a solid business case is one way for treasury to address this situation. “In order to do this, I would recommend utilising the capacity available with core relationships banks. Over the past few years, the complexity of treasury management has been recognised by leading banks and some of them have even set up advisory units within different business areas,” he says. “A lot of experience can be gained from working in different industries across different locations and corporates should seek to leverage such expertise from banks.”

Treasury processes retained in house

Corporates continue to retain most of their treasury processes, such as cash concentration, cash flow forecasting, FX and short-term investment and funding, in house. The majority of respondents stated that this trend is set to continue, with just a small percentage of corporates (5%) saying that they plan to outsource certain functions in the future. What is perhaps more telling is the proportion of respondents who answered ‘not managed’ when questioned about certain processes. For example, 20% of respondents said they did not manage short-term investments or cash flow forecasting. This is shocking considering the absolute importance of both these functions in the current economic climate.

According to SEB’s Osmund, the reason behind these results could be that many treasuries run manual and labour-intensive processes. “Implementing lean processes that are supported by the right technology would free up a lot of time for treasury, which could instead be spent on managing more processes efficiently,” he argues. “In order to support the business case for investment in new technology, treasurers should raise the importance of risk management and mitigation.”

Role of treasury in working capital management

When asked what role treasury has in terms of working capital, 30% said that treasury owns the function – a 6% increase from last year. The majority (60%), however, confirmed that treasury still merely monitors working capital. Just 9% of the respondents compared to 11% last year indicated that treasury played no part at all in working capital management for their organisation. If we look at these statistics in the context of how respondents perceive the quality of their working capital processes, however, we can draw some interesting conclusions.

The majority of respondents described the quality of their purchase-to-pay (P2P), order-to-cash (O2C) and inventory cycle processes as either average or good. Less than 10% of the respondents considered their P2P process (8%), O2C cycle (8%) and inventory cycle (7%) to be best practice. These results could stem from the fact that based on the survey results; treasury does not have full responsibility for the working capital function in many companies. For instance, looking at the results from just those companies who said that treasury ‘owns’ the working capital function, the proportion that say the quality of their working capital processes is best practice almost doubles – P2P (17%), O2C cycle (16%) and inventory cycle (13%). We also see a significant proportional increase in the number of respondents who describe their processes as ‘good’ – P2P process (37% compared to 33%), O2C cycle (41% compared to 31%) and inventory cycle (37% compared to 30%).

Figure 4: Quality of Working Capital Processes from Corporate Respondents Who ‘Own’ the Process

Source: gtnews


This is a clear indication that, if treasury does take a leading role in the management of working capital processes, substantial improvements can be made. “It is a fact that one of the key success factors in managing your working capital in the best possible way is having treasury in the front seat,” affirms Osmund at SEB. “Treasury should be the unit best equipped to advise business units about the potential to facilitate concrete actions and to follow up on progress. The lack of ownership within treasury is, of course, a matter of balancing priorities. For example, in many cases, a lean treasury has to focus on more pressing activities that they already have ownership for.”

The results also highlight the fact that smaller companies, for example those with revenues less than US$10m, are more likely to have a treasury department that owns the working capital function. Fifty-six per cent of the survey respondents in this bracket affirmed ownership compared to just 26% of respondents from companies with revenues between US$1-10bn and 27% of respondents from companies with revenues more than US$10bn. This is further evidence that the organisational structure of a company makes a difference to the treasury role and the importance of treasury’s interaction within the company and with business units.

Organisational Structure: Decentralisation Dominates Models

Following the trend of preceding years, when asked which structure best describes their cash management organisational structure, the majority of respondents (68%) chose de-centralised structure or regional cash concentration (overlay structure). The internal bank model (internal funding/investment initiated by subsidiaries) remains popular with 26% of the vote, closely followed by a global cash concentration model (overlay structure). Significantly, 89% of the corporate respondents said they plan to move to a centralised structure in the future. This is the same trend indicated by the results of previous surveys but, just like cash flow forecasting, while the goal is clear, little progress seems to have been made towards achieving it. For instance, in 2007 and 2008, when asked what structure they would choose for their cash management organisation structure in the future, less than 10% of the corporate respondents selected a decentralised structure. But, two years on, almost the same significant proportion of corporate respondents are still using a decentralised structure.

“The move towards centralisation could be a ‘wish list’ goal for respondents,” says SEB’s Osmund. “Treasurers have to cope with a role that is constantly expanding and an important way to organise cash flows is centralisation. But to embark on this sort of organisational change, treasurers need a business case that is supported by a mandate from senior management as well as resources. Looking at the results over the past few years, this seems to be a dream that is not coming true. Everybody knows what they need to do but it is not happening.”

According to Osmund, treasurers should argue the business case that centralisation is essential in mitigating the risks and damage that might be caused by any future financial crisis. Visibility and control over cash flows is even more vital at times when liquidity is constrained and centralisation allows treasurers to have a consolidated view of accounts and funds. “The business case must also be underpinned by technology and systems that help treasurers achieve centralisation,” he says. “Even if we disregard the risk perspective, large to mid-sized multinational companies should have a sound business case for investing in the centralisation programme they so consistently wish for.”

Cash concentration – move to cross-currency pooling

In terms of cash concentration, the survey follows the trend of 2007 and 2008, with the majority of respondents (55%) using a zero/target balance pooling technique. Twenty-nine per cent said they have an inter-company netting model in place, with 19% choosing notional pooling. It is clear that survey respondents expect their cash concentration technique to change in the future. The most significant trend is the 15% decrease in the number of companies choosing zero/target balance pooling and the considerable increase in those companies opting to use cross-currency pooling or multi-currency interest netting – more than doubling from 10% today to 25% in the future.

“The expected uptake in cross-currency pooling is understandable because the model does introduce a greater level of simplicity,” explains SEB’s Osmund. “For instance, instead of using different cash pools and credit lines, with a multi-currency pool, companies can reduce the number of overdrafts needed and make use of that credit space elsewhere, as well as manage their exposures more effectively, particularly with respect to smaller value currencies.”

Payments and collections

Both payments (44% of respondents) and collections (50%) continue to be reconciled locally (decentralised) although centralisation remains the ambition for all companies, irrespective of size. Looking at future potential management structures, it seems that global or regional centralisation of payments and collections in a shared service centre (SSC) is the most popular choice.

SEPA Still Not Gaining Traction among Corporates

Despite the fact that in November this year, pivotal deadlines loom for the single euro payments area (SEPA) in the shape of the Payments Services Directive (PSD) and SEPA Direct Debit (SDD), the survey highlights a worrying lack of momentum among corporates. Forty-four per cent of the corporate respondents have not yet considered the impact of SEPA while 47% of the respondents said they believed SEPA has so far had no impact on their organisation’s cash concentration structure.

Significantly, while it seems that fewer corporates have considered the impact of SEPA compared to last year; more respondents believe that SEPA will lead to the reduction of bank accounts. For instance, 57% of the western European respondents in this year’s survey expect to see a reduction in the number of bank accounts they currently use due to SEPA compared to 40% last year.

According to SEB’s Osmund, even though there is an abundance of SEPA information being channelled from banks and industry bodies, such as the European Payments Council (EPC), to corporates, they could be stalling on their SEPA implementation plans for two reasons. “The financial crisis may have steered the focus away from SEPA but, more importantly, corporates are still waiting for confirmation on end dates for local clearing and formats before they start any implementation or change programmes,” he says. “There is definitely a ‘wait and see’ approach being taken by corporates.”

He adds: “If you only consider the prospect of getting lower banking transaction fees and lower account maintenance cost, SEPA is not a brilliant short-term business case for corporates. On the other hand, if you also consider more immediate access to euro liquidity and the impact of centralising the processing of payments and collections, it becomes a very interesting long-term business case.”

Earlier this month, the European Commission released a report entitled, ‘Completing SEPA: a Roadmap for 2009-2012’, which was seen as a signal of political will that hasn’t been visible to date. The communication, which is also in line with the view of the European Central Bank (ECB) and will be endorsed by the ECOFIN Council in December, presented a series of actions to be undertaken by EU and national authorities, industry and users over the next three years.1 With this commitment to SEPA targets from a regulatory level and as banks continue to communicate with their corporate clients, SEPA will hopefully gain the traction it so vitally needs among the corporate community.

Investment & Funding: Bank Deposits Retain Lead but MMF Popularity set to Grow

The majority of survey respondents (70%) continue to use bank deposits for the allocation of their surplus cash. We can see a steady increase from previous years, where the proportion of respondents who said they use bank deposits was 56% (2006), 63% (2007) and 60% (2008). When asked why they chose bank deposits, the respondents said that limited credit risk (40%), company policy (33%) and the ease of decision (29%) were the main contributing factors to their decision. According to SEB’s Osmund, the extensive use of deposits and bank overdrafts is possibly due to the expanding responsibilities of treasury and a resource issue for many corporates.

An interesting trend is that it seems less corporates will choose to use bank deposits in the future but instead opt for money market funds (MMFs). The results reveal a dramatic potential uptake of MMFs in the future, from just 4% today to 44%. “If corporates do choose to use MMFs, they must fully understand what their funds are invested in and also consider all risk factors carefully,” advises Osmund at SEB. “MMFs do have a good return at low risk but corporates must keep track of their investment portfolio and take a cautious approach.”

When asked how they handled short-term deficits, in line with the results since 2006, the majority of the 2009 survey respondents said that their organisations mostly handle short-term deficits through bank overdrafts (46%) and inter-company loans (44%). In the future, while bank overdrafts look set to remain popular, there is a dramatic 26% decrease in the number of companies who say they will continue to use intercompany loans. This is surprising, according to SEB’s Osmund, who believes that internal financing is the most efficient way to handle cash flows in today’s economic climate. “This might be easier for large companies, though, who perhaps have the right structure to handle cash flows in this way,” he adds.


As in previous years, the Annual Cash Management Survey provides a valuable overview of market trends and developments in corporate cash management. The impact of the credit crunch is evident from the survey results with the focus shifting from overall liquidity management to driving efficiency from internal cash management processes, such as A/R.

At a time when liquidity is restricted, all companies are seeking to maximise their cash flows and A/R is an obvious starting point. But this is not without its challenges. It is clear from respondent comments that they are aware that they must tackle this issue proactively but sensitively and take into account the impact of the economic climate on their customers as well. One respondent, an executive/director, company revenues US$500m-1bn from North America, underlined the importance of getting senior management on board in improving the A/R process. “We want to get more significant buy-in from top management and individual business leaders to control their inventory and improve terms with their suppliers and customers,” he said.

The role of the treasurer continues to expand, as does the challenge of raising treasury’s profile within the organisation. “What treasuries really need today is solid business cases to bring in resources and invest in new technology, enabling them to deliver both efficiency and quality,” affirms SEB’s Osmund. “To accomplish this vital task they need to look both inside their company to get stakeholders onboard and outside the company to seek advice from other companies, consultancies, technology providers and banks.”

Fundamentally, how treasury departments endeavour to engage and interact with business units and implement effective communication channels will be the true test of their success.

1 Read more in the article, SEPA and PSD Loom Large at Sibos Hong Kong, by Joy Macknight, section editor, gtnews.


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