Three years ago, gtnews reported research which predicted that the level of cash visibility, measured as a percentage of total cash on the balance sheet, would rise to 91 percent by 2014. Although there are six month left, the majority of treasurers probably won´t reach the predicted cash visibility level by year-end. However, companies can apply the following strategies to reduce the complexity of cash and risk management and thus improve visibility of their cash position significantly:
By aggregating all cash flows in corporate treasury, it becomes easier to control the global cash position itself, as well as related risks, such as FX, interest rate, counterparty and liquidity risk, and to facilitate inter-company funding. Centralised structures can deliver:
- Bank account rationalisation and better fee management
- Improved working capital management reducing fees and charges
- Improved cash visibility reducing cash reserves
- More effective FX, interest rate and commodity risk management
- Cost savings through netting
In addition to centralising bank account and bank portfolio management, treasurers commonly review their processes and try to establish common standards and policies across their enterprise. This does not only improve control and efficiency, but also drives transparency, especially for organisations growing through mergers or acquisitions.
Establish an In-house Bank
The in-house bank concept centralises all payments and collections within a company. As subsidiaries would only have ‘internal’ bank accounts instead of real bank accounts with external liquidity providers, the number of bank accounts could be reduced significantly.
Replacing spreadsheets and reducing the number of systems also helps to increase visibility in many aspects. Software-as-a-Service (SaaS) solutions for Treasury and Risk Management (TRM) can be particularly helpful, as those comprehensive systems capture all treasury cash flows and exposures in a single platform and make the financial data available for further processing and analysis in real time, again right within the platform. Additionally, third-party systems such as bank portals, market data feeds and credit rating services, trading and confirmation platforms, as well as ERP and general ledger software can be easily integrated, thanks to SaaS.
With these four strategies, treasurers should be able to increase cash visibility significantly, reducing idle cash and liquidity risk and improving funding for strategic business initiatives.