Cash Visibility Is the Key to a Treasurer’s Peace of Mind
June 06, 2017
Improving cash visibility is high on the agenda of many treasurers and cash managers, who too often find themselves struggling to see the whole picture of group liquidity.
“The source of many cash-related challenges is that most corporate treasurers are dealing with too many cash management banks, and secondly, they also have too many bank accounts. The more bank accounts, the more costs and risks, not to mention the manual work that is needed to manage the bank accounts and to create a cash overview,” said Karl-Henrik Sundberg, Solution Consultant, OpusCapita, when he spoke about cash management centralization at the Treasury & Cash 2017 event in Helsinki in May.
Sundberg was also speaking from personal experience. Before joining OpusCapita, he was Cash Management Director at the treasury department of a multinational company, and headed up a project to improve cash visibility.
“A common situation was – and this is a known problem in many treasury departments – that we would end up making a decision and acting on old data. The bank balance data coming from subsidiaries and local businesses can easily be one to two weeks old, resulting in out-of-date cash visibility and hindering efficient cash forecasting, cash pooling and internal funding at the group level.”
Creating a single view over a myriad of bank accounts puts treasury department back in control. With OpusCapita Accounts, all the information from all the bank accounts and account statements can be compiled into one central hub, giving an up-to-date view on cash in different banks, accounts, and currencies, for instance. Sundberg also mentioned that being able to do an analysis of banking fees and create transaction statistics gives leverage when negotiating with banks or steering subsidiary behavior.
“From experience, I can say that it is a really powerful tool, with the additional benefit of ‘peace of mind’ for the treasury. You can, for example, keep tabs on the FX translations that are extremely expensive and easily accumulate when subsidiaries pay foreign currency invoices from their local bank accounts. When they are visible, you can take the appropriate action.”
How should cash be managed in a negative interest rate environment?
The panel of industry experts at the Treasury & Cash event acknowledged that acquiring cash visibility is a key component of efficient cash management, as well as other value-adding treasury functions. The panel discussed how to manage cash in the prevailing negative interest rate environment, and how to make a profit with short-term cash surpluses.
“At the end of the day, treasuries need to manage cash regardless of the interest rate. Focusing on cash forecasting is a continuous trend among large global companies,” stated Jukka Sallinen, Head of Cash Management, OpusCapita.
Sirkku Markula, Corporate Treasurer and Senior Vice President of Kone Corporation, said that even with the unfavorable interest rates, there is value in holding the liquidity in itself.
“It is more important to minimize the risk of credit loss, so we would rather have the cash and invest it with negative yields than not have it at all. We have not changed our policy because of the current interest environment, but still encourage our local businesses to focus on the customer payment terms. Nevertheless, we have increased our investments in interest rate funds and somewhat increased the interest rate duration of these funds.”
Markula also pointed out that Kone operates in more than 60 countries around the world and 75% of Kone’s revenues are generated in currencies other than euros, balancing the situation.
Jouni Liimatta, Head of Liquidity Management Advisory at Nordea Bank, said that a balance must be struck between the costs and benefits of having excess liquidity and the disadvantage of having too little.
“Companies have taken a more holistic approach to liquidity management in response to the interest rate environment and are actively dividing their cash position into different baskets, each with different tools such as cash balance accounts, commercial papers or money market funds. Looking into the future, I believe that investment actions like fund transfers will become more and more automated to allow even more active control over liquidity.”
Additionally, interest has been growing lately in solutions like dynamic discounting. Sallinen stated that large buyer companies feel that the better return on their cash can balance the interest rate risk.
“There have been a lot of interesting discussions around these types of early payment programs. Implementing in-house bank structures and thus enabling an internal short-term funding mechanism through internal accounts seems to be popular as well,” noted Sallinen.
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