Is Corporate Cash Management Changing?

Between 26 March and 21 May 2007, gtnews conducted a survey on cash management, which was answered by 339 readers including 270 corporates. Twenty-one per cent of the corporate respondents have revenues exceeding US$10bn, 39% have revenues between US$1-10bn and 23% have revenues between US$10-500m. Forty-one per cent of the corporate respondents are from Western Europe, 28% from North America and 19% from the Asia Pacific.

Last year, gtnews published a survey on cash management to identify current and future trends in this constantly changing area. The results underlined the ongoing transition towards centralisation and, despite the ambition to achieve a global cash management structure, the fact that regional autonomy would remain a significant part of many corporate cash management structures in the future. The 2006 survey results also indicated that treasury is likely to evolve into an internal consultant with an increasingly strategic role in working capital projects.

One year on, this article assesses how corporate attitudes towards cash management have changed based on the results from this year’s cash management survey and what challenges corporates face today as a result of shifting industry dynamics and new initiatives.

Improving Cash Management

Survey respondents were first asked to identify the processes that represented the highest potential for improving cash management within their company. Fifty-five per cent chose cash flow forecasting (the same percentage as last year); 33% chose cash pooling compared to 35% last year; and 25% chose sales and payments compared to 5% and 14%, respectively, in 2006.

Which of the following processes represents the highest potential for improving cash management in your company/group?

Clearly, cash flow forecasting, cash pooling, payments and sales remain priority areas in terms of improving cash management. From the survey results, we can see that companies with smaller revenues – less than US$10m or between US$10-500m – are more concerned with the purchasing and sales process, whereas larger corporates (revenues US$1-10bn) are focusing on cash flow forecasting, cash pooling, and short-term investment and funding. “This is probably because larger companies are likely to have centralised their purchasing and sales processes to a higher degree than their smaller counterparts and therefore have higher efficiencies in these areas,” explains Erik Zingmark, global head of cash management at SEB. “Larger corporates will pay more attention to issues such as cash flow forecasting and pooling. A centralised cash management structure is certainly the ideal environment to consider improving these processes.”

So what stumbling blocks still remain in terms of improving these processes and how can corporates enhance the efficiency of their cash management?

Cash pooling

Cash pooling is still a complex technique for many corporates considering the different legal and tax issues that exist across Europe as well as cross-border issues. According to one corporate respondent, “The governments of some countries/regions need to eliminate the current barriers in place to allow the free movement of funds across those countries/regions.” Another respondent highlighted the critical problem of “utilising cash trapped through tax barriers.”

It is also true that today’s corporates exist in a climate of mergers and acquisitions where, perhaps, disjointed accounting structures and communication channels hinder the efficiency of pooling structures across the organisation.

Cash flow forecasting

This year, 72% of the corporate respondents admitted they still use spreadsheets to forecast their cash flow compared to 62% in 2006. Eight per cent are using specialist software provided by an external party while 5% are using a module in their ERP system or specialist software internally designed – similar figures to last year’s results. Although 7% of the corporate respondents said they had no forecasting system in place, there are signs of development as the number in this category is slightly lower than last year.

“It is surprising that corporates have not done more within the cash flow forecasting area,” says SEB’s Zingmark. “It is very important to have accurate forecasting because it is fundamental for efficient cash handling. There is a decrease in spreadsheet usage from last year so that must be acknowledged as a positive development.”

In fact, the survey results confirm that corporates are planning to reduce the use of spreadsheets – only 22% of the corporate respondents said that they would still be using the spreadsheet model in the future. In fact, using a module in an ERP system (32%) or using specialist software provided by an external party (24%) are the most popular choices for cash flow forecasting in the future.

Apart from the inefficiencies surrounding the use of spreadsheets for cash flow forecasting, corporates also highlighted the lack of internal systems integration (57%), inaccurate sales targets/projections (50%), lack of effort/priority within the business unit, the lack of inter-department communication (39%) and limited availability of resources (36%) as the greatest barriers to accurate cash flow forecasting.

These problems are all rooted in inefficient communication and systems channels within organisations and this is a trend that underpins the survey results overall this year. Within many organisations, it seems that subsidiaries show a lack of understanding and/or ability to send treasury the data it requires for cash flow forecasting, and other treasury processes, in an accurate and timely manner. For example, one respondent made the point that “the process [cash flow forecasting] has not yet been ‘sold’ to subsidiaries.” Another respondent commented that the main challenge was “getting everyone to work in the same direction and make non-finance people understand the issue of the ability to forecast better.”

According to SEB’s Zingmark, one way to address this issue is to make sure banks are present at the local level to help promote the importance of cash flow forecasting to subsidiaries. “In order to become really efficient at managing working capital, companies have to increase and improve communication between different departments, such as sales and procurement and the treasury department, to really achieve the greatest benefits from these areas,” he says. “Treasurers are struggling in general to find ways to add additional value to the business and they really need to automate processes, such as FX and payments, so they can focus on value-added functions, such as improving working capital and supply chain management as well as advising business units on their role.”

Systems integration is another key factor that needs to be resolved and this is a task for banks and software providers to collaborate on. For example, one corporate respondent said that there is currently iinadequate integration within internal systems to pull together forecasting data on collections and payments into the treasury system for funding and cash planning purposes.

“Corporates will need help from their banks in this area and there are certainly tools available that can immediately resolve some of the technology barriers to achieving better cash flow forecasting,” adds Zingmark.

Which of the following represent possible barriers to accurate cash flow forecasting to your company?

Cash Management Organisation Structure

In terms of their cash management organisation structure, 25% of the corporate respondents said they had a decentralised structure, 24% have a regional cash concentration structure, 20% have a global cash concentration centre and 16% said they had an internal bank in place where internal funding/investments are initiated by subsidiaries.

Looking ahead, 27% of the corporate respondents said they would adopt a global cash concentration centre and 20% said they would adopt a transaction centre (payment and collection factory or shared service centre). The results support the trends identified by last year’s survey that fewer corporates will stick with a decentralised structure – a decrease from 25% currently to 3% in the future – and that regional concentration will still exist but for fewer corporates – 24% to 13%.

Interestingly, the results show that over three quarters of the corporate respondents aim to change their cash management structure in the future, while 27% are unsure about the direction they will take with their cash management structure. “It is clear that many corporates are unsure about their future vision and this boils down to technology and uncertainty about what corporates believe they will be able to do in the future,” says Zingmark. He adds that in order to move towards best practice, corporates must be more proactive about creating a vision for the organisation over the next few years.

Among smaller coporates, those with revenues below US$10m, 39% have a decentralised structure while the majority of large corporates with revenues over US$10bn have a regional cash concentration overlay structure in place.

When we look at the regional breakdown for this category, more North American corporates have a decentralised structure in place (23%) compared to other countries; while the regional cash concentration structure is most popular among Western European corporates and North Americans (23% in both regions). Transaction centres are most popular among corporates in Asia Pacific (14%) compared to just 6% in Western Europe and 3% in North America.

The regional overview also shows that across all countries, fewer corporates are likely to stay with decentralised structures or internal banks. North American and Western European corporates, in particular, are likely to adopt a global cash concentration centre overlay structure. There is a less distinct pattern in Asia with a varied response to the type of cash management structure that is likely to be adopted by corporates in this region, though the majority, 20%, chose transaction centres. This variation might be due to the substantial differences in infrastructure, legal and tax regulations across countries in this region. The 2006 survey certainly highlighted the fact that improving cash management in Asia would be a focus for corporates as they get to grips with regulations that affect cross-border solutions and operations and improve their own operations by looking at how to further centralise in Asia and develop relationships with banking partners.

Cash Management Techniques

Zero/target balance pooling is the most commonly used cash management technique among corporate respondents – 40% chose this option. This is likely to change in the future, however, with only 24% staying with this type of pooling. We are likely to see the greatest increase in cross-currency pooling/multi-currency interest as demonstrated by the fact that 4% of corporates said they currently use this technique but 16% plan to in the future. (It is important to note that cross-currency pooling is the same as zero/target balance pooling but cross-border, of course.)

Which of the following best describes your cash management technique? What is it likely be in the near future?

  Current (%) Future (%)
Zero/target balance pooling 40 24
Notional Pooling 9 10
Interest compensation 7 2
Single Legal account pooling/balance netting 9 8
Reference account structures 3 2
Cross currency pooling/multicurrency interest 4 16
Intercompany netting 18 12

“One thing that corporates should be aware of when moving to a more global structure for cash management is that it might affect working capital management at the local country level,” advises SEB’s Zingmark “If you consolidate cash and place restrictions on the cash that local subsidiaries can hold, it could have the psychological effect that local entities will feel less motivated to improve working capital and release cash if they do not see the results of their efforts. Setting up intraday limits and key performance indicators (KPIs) are, however, simple ways to address this potential problem.”

The results also reveal that there will be a reduction in the number of corporates who use intercompany netting – a decrease from 18% today to 12% in the future. This is surprising because most of the cash flows within an organisation are usually large internal cash flows and having an internal netting system is a very efficient cash management method.

Working Capital – Quality of Processes

From a working capital perspective, survey respondents were asked to rate the quality of the following processes – purchase-to-pay, order-to-cash, inventory cycle and accounts receivable (A/R) and accounts payable (A/P) reporting processes – on a scale of ‘poor’, ‘average’, ‘good’ and ‘best practice’.

The survey results among corporate respondents reflect a wide variation in their perception of the ‘quality’ of these processes. A higher proportion of corporates say their order-to-cash (39%) and inventory cycle (40%) is best practice compared to just 6% for purchase-to-pay and 7% for A/R and A/P reporting processes. However, an almost identical proportion of corporates admit that their order-to-cash process (34%) and inventory cycle (40%) is poor. Overall, the majority of corporates believe that all four processes are average, good or best practice.

Treasury and Commercial Payments

Thirty-one per cent of corporate respondents said that their treasury payments are currently centralised globally at a shared service centre (SSC) and, in the future, more corporates will aim to do so. A high proportion of corporates still manage their payments locally/decentralised (27%). In terms of outsourcing, there aren’t high levels of take-up – just 1% of corporate respondents currently outsource their treasury payments and only 2% intend to do so in the future. “This is likely to increase in the future (both on the disbursement and collection side). I believe that the focus on core business will force corporates to also consider outsourcing some of the treasury and payment operations,” says SEB’s Zingmark.

In terms of commercial payments, 43% of corporate respondents said these are currently managed on a local or decentralised basis, but only 11% plan to keep this structure in future. There is a clear trend among corporate respondents towards managing commercial payments through a globally or regionally centralised SSC in the future with just 11% and 20%, respectively, saying they do so today but 23% choosing these options for the future. Again, there are lower figures for outsourcing with just 1% currently outsourcing commercial payments management and only 4% planning to do so in future. “Corporates will outsource this function to a larger extent in the future in order to focus more on their core business. There are already specialists in this area, such as banks, that can provide higher quality at lower costs,” says SEB’s Zingmark

There have certainly been some changes since the results of last year’s survey when just 9% of corporate respondents said they managed their payments from a globally centralised SSC and half the respondents said they managed their payments on a local, decentralised basis. The trend towards centralisation is also evident with 42% confirming they would manage payments at a regional SSC and 27% choosing a global SSC.

Treasury and Commercial Collections

When we look at treasury collections, 31% of corporate respondents currently manage them on a local/decentralised basis but only 9% plan to do so in future. Twenty-nine per cent currently centralise their treasury collections globally and this looks set to remain constant in future. None of the corporate respondents outsource this function at this stage and only 1% anticipates outsourcing their treasury collections in the future.

In terms of commercial collections, 43% are managed locally/decentralised but this is likely to drop to just 15% in future. Again, the trend is towards centralisation – 19% of the corporate respondents said they plan to centralise commercial collections at a regional SSC and 22% plan to centralise at a global SSC. Only 3% of corporate respondents said they currently outsource commercial collections and 7% plan to do so in the future – higher than commercial payments. ” SEPA is a facilitator for centralising commercial collections because corporates can have one cash account in Germany, for instance, and then collect cash from other European accounts and have immediate flow of cash into that account,” explains Zingmark.

Impact of SEPA on Cash Management

Survey respondents were asked to reveal what impact they thought SEPA would have on their cash concentration structures. To date, 63% of the corporate respondents have already considered SEPA’s possible impact on cash concentration. As expected, of the 37% that have not yet considered SEPA, 80% are non-European corporates. Among the Western European corporates, 26% foresee no impact, 44% expect fewer accounts and 6% believe they can concentrate cash in one bank account.

Thirty-one per cent of the corporate respondents believe they will incur savings in their payments processing as a result of SEPA while 39% believe payment processing costs will remain the same and 6% believe costs will become higher. Just 7% of Western European corporates believe costs will become higher with just under half supporting the view that savings will be incurred.

Management of Treasury Processes

The survey results reveal that corporate respondents currently manage the majority of treasury processes internally – concentration of cash and FX (92%), short-term investments (82%), short-term investing (81%) and cash flow forecasting (79%). There does appear to be a slight trend towards outsourcing in the future though with more corporates indicating that they will outsource the following treasury processes in particular: concentration of cash (12%), FX (13%) and short-term funding (13%).

How do you currently manage the following treasury processes? And how are these processes likely to be managed in the future?

  Current (%) Future (%)
  Internally Outsourced Internally Outsourced
Concentration of cash 92 70 12
Cash flow forecasting 79 6 87 5
FX 92 1 71 13
Short-term investments 81 3 86 6
Short-term funding 82 8 71 13

“The market is not yet supplying outosurcing services on a large scale so this might account for the low figures in terms of outsourcing,” says SEB’s Zingmark. “Banks will offer more treasury outsourcing services in the future, so this is a developing area.”

Currently, only 5% of corporate respondents said they are considering outsourcing cash flow forecasting in the future. This is interesting because the survey results show that cash flow forecasting is the treasury process where most corporates have internal efficiencies – is this not the ideal function to outsource then? The answer is definitely yes, according to Zingmark. “The ideal situation would be to consider outsourcing while at the same time putting in place a more efficient and automated system for cash flow forecasting,” he says.

Allocation of Surplus Cash

Bank deposits and money market funds (MMFs) remain the most popular choices for the allocation of surplus cash with 63% of corporate respondents choosing bank deposits and 52% selecting MMFs. Fewer corporates use the newer, more complicated investment products, such as segregated/separately managed accounts (9%) and yield-enhanced funds (10%). There has, however, been a slight increase from last year’s results where just 5% selected yield-enhanced funds.

When we look at the results by region, MMFs are particularly popular among North American corporates (73%) while bank deposits are used by only 42% of corporates in this region. The US MMF industry is certainly well advanced compared to the rest of the world but there is greater take-up in Europe, as more corporates choose MMFs in this region – 46% according to the survey results. For Western European corporates, bank deposits are still the most common instruments for the allocation of surplus cash and this is the same for corporates in the Asia Pacific and the Middle East and Africa.

Handling Short-term Deficits

Forty-seven per cent of corporate respondents use bank overdrafts to handle their short-term deficits, 36% use intercompany loans and 32% use variable rate bank debt.


Cash flow forecasting, the trend towards centralisation and globalisation, and the transition to using more advanced cash management techniques, such as multi-currency pooling, remain key themes and challenges for corporates today. Corporate treasurers are continually striving for greater efficiency and accuracy across all treasury processes. By increasing automation and integration within operations, and improving the relationship with subsidiaries, as well as promoting their role within the organisation, corporate treasurers can achieve their cash management goals.

These issues will be further explored in a series of articles by SEB over the coming months.


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