Any large corporate doing business across borders faces the challenge of dispersed liquidity.
Done well, subsidiary capital structure optimization ensures that the corporate balance sheet is no larger than it needs to be and that that capital can be repatriated with minimal difficulty.
However, companies often pay insufficient attention to subsidiary capital structure optimization. By doing so, they jeopardize the visibility of liquid assets: too many standalone bank accounts and liquidity in multiple legal organizations without planned cash concentration obscures the overall picture.
“There may be multiple banking relationships, all with different formats, availability and ways of delivering information,” explains Patrick Peters-Bühler, principal of the treasury advisory group, treasury and trade solutions at Citi.
Many corporates … don’t know where their cash is
Another potential advantage of subsidiary capital structure optimization is greater control of the cash in the company.
Cash can get lost or trapped, even when it is being used for legitimate purposes, and it is important that this liquidity is deployed for maximum benefit.
“It is also useful for ensuring compliance with treasury policy,” says Peters-Bühler. “Corporate treasurers must ensure that money is used for the purposes to which is it attributed within each subsidiary.”
Centralization
