Working the assets

The corporate treasury function has often been regarded in the boardroom as something akin to a piggy bank – a static, low risk place to park surplus money for use in times of need

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However, globalisation and the recent credit crisis in financial markets have brought the management of cash in the business higher up the boardroom agenda. Sarah Jones, Strategic Business Development at Bottomline Technologies and former Treasury Director for Hewlett Packard Europe, is well aware of the shift. “The recent global banking crisis has seen liquidity reduced and the cost of capital increased significantly,” she comments. “Before these events, the goal for the corporate treasury function was about managing the cash in the business. That goal has become a vital component to business success and plays a pivotal role in reducing risk, ensuring compliance and creating internal sources of liquidity.”

Even for smaller businesses the risks are growing, but for multi-nationals the situation is becoming increasingly complex. On the supply chain side, it is no longer viable to drive a hard bargain with suppliers, distributors and out-source partners and leave them to cope as best they can. Without access to working capital they will struggle to meet production schedules and sales demand, putting the whole supply chain at risk. And as the world has learned over the last eighteen months, banks are no longer the safe havens for holding funds that we once believed them to be.

To deal with these new risks, CFOs and corporate treasurers need real-time access to better quality data. They also need to meet corporate operational efficiency goals. Traditionally, the 80/20 rule has applied to the time spent on data gathering exercises of finance and corporate treasury functions, meaning that the time left for data analysis and decision making is compressed. Today’s business executives need to be able to reverse that ratio if they are to be in a position to optimise the transaction flows across the business.

Internet-enabled solutions can provide the means to mitigate risk and proactively manage cash and financial supply chain positions. With supply chain collaboration solutions, for example, both suppliers and buyers become better off.

By utilising electronic invoicing the supplier can eliminate the postal delivery, processing and data entry steps that tend to delay payment in a paper-based system. Once the invoice is in the system and approved for payment, both supplier and buyer are able to monitor its status giving both parties greater insight into cashflow forecasts.

In addition, the supplier has the opportunity to receive funds earlier than contractual payment terms for an agreed discount and gains certainty of payment. Whilst the buyer can take advantage of early payment discounts that they may have lost in the past due to an inefficient, paper-based accounts payable process. Early payment discounts offer smaller businesses an additional source of liquidity whilst providing larger buyers, with access to funds or with excess cash, an opportunity to receive an enhanced yield at no risk.

Real-time visibility of cash positions can provide insight into sources of internal liquidity and ensure that a company minimises external interest expense. “At HP we found we could save significant amounts of interest by ensuring that we didn’t have excess funds earning a low deposit yield in a bank in one country, while a subsidiary on another continent might be borrowing funds at a much higher rate,” says Jones.

Sarah Jones’ current role at Bottomline Technologies is supporting the development of solutions to help corporates and banks automate their financial supply chains, optimise their global cash positions and take advantage of innovative supply chain finance offerings. Bottomline Technologies has recently developed new cash management solutions which integrate with Alliance Lite, a connectivity product of worldwide financial messaging network, SWIFT. “The solutions are designed to provide a single point of secure access into the banking networks to give the CFO or treasurer total visibility of the company’s cash positions at all banks anywhere in the world, enabling them to recycle funds around the group on a day by day basis,” she explains. “A spread of even 75 basis points on the kinds of sums that might be involved for a multinational company can generate significant savings and make sure every part of the business meets its liquidity requirements.”

There are many components to the optimisation of the end-to-end financial supply chain, including automated purchase order and invoicing processes, cash flow forecasting processes and standardised bank interfaces, so implementation should be carefully planned. “The key,” says Jones, “is to create an end-state vision for a fully integrated and automated financial supply chain, then to identify the biggest areas of operational inefficiency or business impact as the starting point for an implementation road-map. If you tackle it on a silo basis, you will end up with a fragmented solution that will never deliver the best results.”