Cash management debate part two: How cash is driving working capital management
Cash management debate: Learn more about the panelists
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EXECUTIVE SUMMARY
• The treasury function has to increasingly relate to a business’s strategy in offering data and functions
• This involves cash management banks dealing actively with liquidity, risk management and efficiency issues
• Beyond basic payment functions banks can offer value in quality data flow, analytics and integration
• Treasurers increasingly want to benchmark all aspects of their business flows
• Cashflow forecasts not just historical cashflow data are much sought after
• Difficulties faced by corporates post the financial crisis in raising capital are prompting new expectations of cash managers |
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Jack Large Let’s start with the issue of aligning business and corporate treasury. As treasury becomes more important, this is increasingly vital. Sean?
SC, AstraZeneca Treasuries have to do more with less or the same and so we constantly seek efficiencies. One set of these is improving our own processes and the banks’ products, the other is to understand what matters the most to the business. That can only be established by understanding the business strategy and making sure we put our time and effort into the areas that are going to add most value to it.
So for us the key thing is what that means for our investment needs and our shareholder return targets. That affects financing, the amount of cash we hold and how we structure ourselves to support the business and drive cost efficiencies. And we are finding that we need to review this much more frequently than in the past.
RoM, Co-operative What makes the Co-operative Group different is what we do with our profits, so cash remains king. If we can’t generate the profits and the cash, we can’t reinvest in our business and serve our members as we would want to in the true Co-operative model of returning dividends to our members and investing in community projects across the country. To Sean’s point, though, we certainly have to comply with our return-on-capital-employed target and indeed net debt and ebitda ratios in order to minimize interest costs and so on.
PP, easyJet This is very pertinent to me because four months ago a new CEO and CFO started on the same day and were keen to undertake a strategy review. From a treasury standpoint the crux was a study of the overall shape and size of the balance sheet. And an important rider to that is that we are still a very young company; we are only 15 years old with almost 200 aircraft in the fleet, the result of massive expansion in Europe. This is a very different model to companies where processes are more established and it means that much of the complexity you see in other companies does not exist in ours.
The internet is almost designed for us in the way we run our business, so all of our collection and processes are through a UK website, which makes it an awful lot easier. We hardly see any cash at all; it is all through cards, which is great. We do not have overseas branches as such, but we do need help from our banks to establish some relationships, outsource payment provision for payroll and so on.
Jack Large So how can the banks help their corporate clients comply with these new business objectives?
RaM, Citi Sean and Roger have talked about some of the drivers behind the increasing connectivity between business strategy and treasury. As I see it, there are three main drivers of change: liquidity, risk management, and efficiency. With liquidity, global companies are already dealing with concentration issues and challenges around trapped liquidity and we have many conversations with our clients around visibility, mobilization and, finally, optimization. Never before have these themes been more prevalent.
The second driver of change I mentioned is around risk and here we are seeing treasurers expand their risk remit across the entire business – engaging on both the supply and distribution sides. And with efficiency, this spans both cost and operational efficiencies and there is no doubt that treasurers are moving far beyond the confines of their historical purview.
In addition, there are new developments to the overall business environment that are affecting treasuries in a way that is giving them broader scope to implement change across their organizations. For example, derivatives and accounting regulations, such as Dodd-Frank, are significant emerging agenda items for treasurers. M&A and capex are also an increasing focus – depending on the geographical footprint regulations.
Clearly banks can help in these discussions and processes and they are resulting in an increased demand for working-capital solutions, where you see a more holistic buying pattern in the corporate than before.
LW, BAML The regulatory change will have an impact at all levels. Banks need to work closely with clients, sharing experiences, providing insights and providing oversight. In this new norm things both sides previously took for granted before are now no longer so. Increasing pressures in governance, risk management, access to funding are all coming to the fore. The future is to combine our experiences and best practices to come up with a solution together, deepening our relationships and trust.
The other key driver is technology, in particular systems interoperability. It influences the ways treasurers can realize efficiencies, being able to do more with less. To help them do this banks need to provide the tools and quality data that treasurers need.
VM, RBS Yes. Efficiency begins with visibility and control. As corporates look to mitigate their bank and institutional investment counterparty risk, they have also been reviewing the financing arrangements and risk profile of their own customers and suppliers, their own straight-through processing rates, and the process and information flow efficiency between these key relationship streams.
Treasurers need to be able to see trade, cards, cash, capital markets, exposures and maturities as well as your suppliers and so on. Only then do they have a practical tool, in addition to ERP/TMW functionality, with which they can deep-dive into flow processing efficiencies and risks across treasury, procurement and finance. This need is increasingly evident in the market availability of dashboard-style overviews from banks, integrated bank-wide technology platforms and enhanced reporting and reconciliation solutions.
