TCM Guide 2007 : Realizing The Dream

Elyse Weiner, global head of liquidity at Citi, says: “Corporations have been sitting on record levels of cash driven by corporate earnings and a greater focus on control and liquidity from the point of view of shareholders. Now, companies are focusing on the next phase—how to get the most value out of excess cash balances.” Corporates are going after pockets of cash that, before, they may not have been aware of or could not move because they did not have the product capabilities to do it.

Companies that may have put in an initial liquidity structure a few years ago, for example dollar pools or euro pools implemented at the inception of the euro, are re-evaluating those structures to see if they are capturing maximum value for the company. Weiner says: “Today, we see increasing functionality and capability—for example multi-currency pooling—that can provide additional opportunities to maximize cash efficiency.”

Increasing focus on centralization of cash management for improved operational efficiency has really helped this process, according to Lisa Rossi, head of liquidity management, global transaction banking, at Deutsche Bank. “Treasurers want transparency into their overall cash position. While this has always been important, we are seeing an increased demand for information around the movement and control of cash positions. Additionally, they are seeking the capability to integrate into their treasury workstation and are asking their banks to provide solutions to manage liquidity as well as the tools to enhance cash forecasting capabilities.”

“Recently we have been seeing customers consolidating quite a bit on the systems side as well as on the vendor side,” says John Killen, who handles cash and treasury management products at Oracle. “They are consolidating in terms of ERP systems they use, treasury management technology vendors and also banking relationships.” One goal of that is to simplify connections and increase ease of automation between systems.

However, Jonas says that in order to get a clear view of global liquidity, it is essential to have a fully Internet-based reporting system and a high-end treasury management system. “You really want a system that can give you a global view, where you can drill down to region, country and entity,” he says. He points out that to achieve a total view of liquidity, it is important to have a view on not only bank accounts themselves but also any investments or borrowings that are outstanding and also including cash in transit or cash equivalents.

Corporates are looking for real-time reporting with information provided wherever they are. “They want the ability to see real-time information to manage positions and feed different systems,” says Rossi. “Also they want the ability to integrate into their treasury workstations, and they want their banks to provide solutions to manage that liquidity.”

Although global cash management has been possible for quite some time, technological developments by banks and clients—along with ongoing harmonization in Europe and relaxation of exchange controls and tax regimes in certain parts of the world—make it far easier to achieve now. Phillip Lindow, head of global treasury and investment management, transaction banking, at ABN AMRO, says that cash management banks have moved to take advantage of this greater openness by developing tools to help treasurers create greater visibility and efficiency in managing day-to-day working capital. “For example, cash management banks have developed cash control tools that provide either intra-day or end-of-day concentration of cash positions to treasury hubs,” he says. “Where local circumstances require companies to make use of more than one bank, they can opt to achieve global liquidity management by means of automated multi-bank cash concentration solutions,” he adds.

“Online real-time systems provide the treasurer and cash manager with the means to support the impact of the accounting and regulator requirements that arise from the centralization of funds,” Lindow says. For example, where concentration occurs across different legal entities, the movement of funds between accounts can be tracked automatically in order to administer and manage the inter-company loan positions and settle the interest on loan positions.

While regulatory regimes have relaxed somewhat in terms of structures that can be used, regulators are demanding greater control and visibility of corporate financial processes. They require watertight structures, especially when it relates to inter-company lending and cross guarantees. “This requires tight control over and transparency of a company’s liquidity positions,” says Lindow. “Banks will have to deliver the tools and means to support the management of this on an integral basis.”

As the tools and the regulatory environments continue to evolve, having a single global cash position is increasingly achievable. “Global banks are linking the main currencies across regions,” notes Lindow. “It is now possible to globally move on a same-day basis, without loss of value days, positions across a group into a single global position.”

Companies want flexible solutions to centralize and manage liquidity that is as automated as possible. They are using solutions such as multi-bank cash concentration, notional pooling of multiple FX positions and automated sweeping. One big development is the increasing use of money market portals, where treasurers can trade in multiple funds, monitor performance, subscribe and redeem all from one screen.

A greater focus on risk and investment diversification has contributed to the significant increase in usage of money market funds, as they offer treasurers a low-risk investment option while providing competitive yields and same-day liquidity, says Lindow. “The underlying mix of instruments and counterparties provides diversification for the corporate’s investment portfolio,” he explains.

However, the ability to take advantage of many such tools globally is still dependent on the legal and financial structure of the company and the specific regulatory regimes in which it operates. Also, it is critical to get the right mix of liquidity management tools.

The ability to see liquidity on a global basis was, until recently, solely the domain of the largest of corporations. However, more companies can and do have the systems and structures in place to manage global cash positions in near real time. And of those that don’t, more and more companies are looking at how they can begin the process.

Denise Bedell