Cash management debate: Optimizing local, regional and global cash management

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The balance between centralized and local processes in cash management is a complex issue that varies according to the special requirements of particular corporates. Users and providers discuss the issues in this roundtable.

Cash management debate: Learn more about the panelists

Executive summary

• Global corporates will have to use their local assets more effectively

• Both global banks and local banks are needed to effect this efficiently

• Cash pooling has been facilitated and simplified in Europe by such developments as Sepa

• Accounts receivable processing depends heavily on full information being transmitted

• Accounts payable will always involve a degree of local autonomy alongside centralization

• Complex or sophisticated hedging is best handled as a centralized process
Jack Large We are here to discuss cash management and working capital management in the context of the relationship between the local, regional and global offices of multinational organizations. What strategic changes are affecting your businesses?

Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia For a start, global corporates will have to be more inclusive and use local assets more effectively. The challenge to treasury has been that those distant locations can be very difficult to control and it has been difficult to incorporate developed market best practices. A new approach is needed. Group treasurers must realize that through collaboration they have to educate subsidiaries for the good of everybody. They need to participate in global initiatives.

Because we were asset-backed, once it became difficult to raise collateral through the existing assets, there was no-one interested in offering unsecured credit, or any other kind of credit. We had then to focus on looking for local facilities; so if we wanted to extend a factory in India, where in the past the money might have come from the centre by way of a capital injection, that was not possible because there was a liquidity squeeze. We had to go round all the local banks and get turned down nine times out of 10, but eventually we found the one bank out of the 10 who was willing to help us extend our plant because there was clearly a business case.

Jack Large So what has been the impact of that?

Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia We need more visibility and more control from the centre because we need to be able to use cash from the regions more easily.

Jack Large And are these services best supplied by a global bank or by local partners?

Charles Barlow (CB) is the group treasurer of Coats plcCB, Coats I would have to challenge that a truly effective global bank structure really exists. I have made two or three attempts to introduce a European banking structure for different companies and found that the nature the business, for example if it involves a lot of paper-based transactions for small-value amounts or lots of cheque clearing and bills of exchange, has a profound influence on the solution. Global banks or pan-European banks can only do so much, but to do it properly in France, Spain or Italy, usually needs a ‘local’ local bank. A bank can provide a global solution for a company with large cashflows and a small number of clients; but for clients with lots of smaller customers, I do not think a global solution works. You often need local specialists alongside your global bank.

Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia That has been my personal experience. It is important to emphasize how the game has changed for the corporate treasurer. In the past the corporate guarantee from headquarters used to fix anything locally. You gave a corporate guarantee and the local bank rolled over and did things for you. Such has been the impairment of the balance sheets of corporate HQs that this has become an issue; banks themselves want to see more of the local balance sheet being pledged to get local and regional banking relationships going. Also I think the execution of the treasury process has evolved, so that we are having to look at taking control and being more proactive in what we do regionally and locally, rather than just relying on things to come out of the centre as one size fits all, Also, why indeed would a corporate these days want to lean too heavily on one institution, given the problems that institutions have had?

To finish, there is possibly now a corporate model out there, where corporates may want to concentrate on picking specific banks for certain specialist products, and not trying to get their main corporate bank to provide everything, to spread the counterparty risk.

Bank account and liquidity structures

Jack Large So companies want local funding, better local control internally combined with more devolution of responsibilities. Are these big-picture changes reflected in bank account and liquidity structures and payment processing?

Charles Barlow (CB) is the group treasurer of Coats plcCB, Coats Yes. In the past if I wanted European cash pooling I needed to use one bank and have all my subsidiaries work with that bank, either as their main bank for domestic operations or as an overlay bank as a mechanism for funnelling cash back to the centre.

Today, instead of having a legal entity in each country it is possible to have a single legal entity based in, say, Germany, and do direct invoicing from Germany to Spain, Portugal, France, UK. Following on from that with the introduction of Sepa [the Single Euro Payments Area] in November last year, it’s no longer necessary to have a cash collection account in each country to ensure that local customers can pay efficiently. They can now pay from France to Germany for the same price as they can pay within France, so the requirement to have a branch of my European cash-pooling bank in each country is no longer there. My cash is automatically concentrated in one location.

Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia Charles, is that just because you have a lot of collections under the €50,000 ceiling?



Charles Barlow (CB) is the group treasurer of Coats plcCB, Coats
Yes.


Fernando Iraola (FI) is global subsidiaries group (GSG) head for the Russia & CIS division at Citi, responsible for managing Citi’s corporate banking business with all multinational clients across Russia, Ukraine and Kazakhstan. FI, Citi
Which means it suits you well but might not suit others.


Jack Large
Is there a variation between your strategy in Europe and the other regions?

Charles Barlow (CB) is the group treasurer of Coats plcCB, Coats Yes, because in a lot of the other regions in which we operate there is a different currency for each of the countries.


Fernando Iraola (FI) is global subsidiaries group (GSG) head for the Russia & CIS division at Citi, responsible for managing Citi’s corporate banking business with all multinational clients across Russia, Ukraine and Kazakhstan. FI, Citi
And so the infrastructure is not available?



Charles Barlow (CB) is the group treasurer of Coats plcCB, Coats
Exactly.



Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan
To Charles’s point, Sepa has always addressed the payables side effectively, but as long as the collections element lags, corporates have not been able to rationalize their bank account structure in the way that would lead to the most efficient use of their cash. I hope this year with the advent of Sepa direct debit and the possible adoption of that by corporates, this will be accelerated but there still remain some requirements for other local collections instruments and accounts. In terms of liquidity structures, it is back to visibility, control and forecasting and trying to increase the return on capital employed in the business. I’ve seen corporates for the past 18 months really drilling down into the sales order to cash cycle and looking at how quickly they are collecting, and they are much more focused at group level on that rather than letting in-country finance directors or regional treasury manage that themselves.

Fernando Iraola (FI) is global subsidiaries group (GSG) head for the Russia & CIS division at Citi, responsible for managing Citi’s corporate banking business with all multinational clients across Russia, Ukraine and Kazakhstan. FI, Citi Also access to credit has become more difficult, so they have been forced to put a lot more emphasis into extracting cash and building up liquidity. Having the right counterparty in terms of credit facilities in expanded geographic distribution – intra-day facilities as well as overdrafts linked to your account structure – is absolutely key when credit has become a scarce resource.

Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan The frequency with which corporates are looking at these liquidity structures is now daily and intra-day when often it was weekly or monthly. Also, in the past the liquidity structure may have been with one bank and the balances were left there. But we saw in the crisis that one bank may have the account structure but the end investment ended up with us.

Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia Notional pooling was everyone’s goal until the credit crunch. Now its validity has been seriously called into question. In the past we would just instruct local directors to sign cross-guarantees and do whatever was necessary to set up a pooling structure. In many countries they are legally responsible for the actions of their company and they have become a much more inquisitive audience for us in treasury. We now have to justify things in more detail; so often it is longer or harder to implement a notional pooling structure, and I think it will become harder still in future.

These concerns about cross-border notional pooling mean that corporates want the international banks to cooperate more freely in designing cheap methods of zero balancing cash between each other, where I have a hub account with a particular cash management bank but I have local or regional accounts throughout Europe. We have always struggled with the banks when we have asked them to try to cooperate to that aim.

Vanessa Manning (VM) is responsible for advising RBS’s international client base (both GBM & LCB) across corporate & NBFI segments, on regional and global cash and liquidity solutionsVM, RBS We have certainly seen an increase in the number of partner banks, Swift 101 agreements, or multi-bank sweeps, specifically to drive this automated transfer of cash to help clients better manage concentration risk.

Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia I still have to have the treasury centre involved to do 101s, whereas if I have a global French bank as my in-house hub bank in France, and I have a global UK bank sitting in the UK and they have cash that can be used to repay borrowings, then cross-bank ZBA structures are preferable to avoid MT101 fees and processing. Because notional pooling has become harder to initiate the banks have to tear up the rule book and collaborate.

Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan Interoperability between banks has become key, for the counterparty risk concerns, for the credit discussion, and also because of the changing business models of corporates. Through the crisis we saw a huge increase in the number of corporates implementing Swift connections, because that at least gives corporates some consistency in terms of connectivity, formatting and so on. I do not think those trends will go away.

Colin Digby (CD) is the head of treasury solutions and markets, EMEA, at Deutsche BankCD, Deutsche Bank Like other global banks we are relying on the firmly established practices of MT, 101 and Swift messages generally, because it is a robust and proven environment. It may be a little costly and may be not the easiest solution to adopt, but it does work. It is very firmly established. We have seen an increase in the number of corporates wanting to adopt those structures, and we will always support that approach.

Charles Barlow (CB) is the group treasurer of Coats plcCB, Coats This supports the argument for continuing with a local specialist bank in each country. It is also partly responsible for my change of view about cash management across Europe. You do not necessarily need to do everything with the same bank to be able to get the reporting on a common platform or to move the cash. You can use a local bank and connect it to your main bank using Swift. Five or six years ago we were asking: "What is the role of the local banks? They will just be swamped". Now we know that not only have they survived, but now they can become an important part of a regional or global solution, because improved infrastructure has been put in place.

The key is information and cash. In the past, to get information, the cash and the information had to be in the same place. Now you can channel all your information through a central provider and leave the cash wherever it is most efficiently collected. You can have an independent central information source with a diversified cash management structure.

Fernando Iraola (FI) is global subsidiaries group (GSG) head for the Russia & CIS division at Citi, responsible for managing Citi’s corporate banking business with all multinational clients across Russia, Ukraine and Kazakhstan. FI, Citi And that helps with diversification of counterparty risk. You may be processing and collecting through multiple banks, concentrating all that liquidity into one but you have your information through one provider, and then you decide where to invest your liquidity.


Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan
This in turn means that banks do not have to have a retail presence in all locations. With technology a global bank can be the hub bank for clients without competing with local banks and if they do not have a retail presence then local banks will be more likely to cooperate with them because they are not competitors.

Vanessa Manning (VM) is responsible for advising RBS’s international client base (both GBM & LCB) across corporate & NBFI segments, on regional and global cash and liquidity solutionsVM, RBS Maybe, maybe not. For example; a local bank may be needed in certain markets to support the need of a client to deposit cash or collect via a local niche instrument, but then the liquidity is very quickly swept to the global bank via the 101s.

Pure information gathering from multiple banks and multiple sources may allow you to spread your concentration risk, but the real challenge is being able to help clients harmonize and enrich data, ensuring their ability to reconcile centrally. This creates a more level playing field in this space. Banks need to differentiate themselves from the pure-101 arrangement, for example by forming joint ventures with strategic technology providers who can help with this process. Simply having a MT101 agreement with an in-country bank doesn’t constitute an embedded partner bank.

Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia I have always held the same stance, which is that I do not like partner banks. Global banks may tell me that their partner in eastern Europe provides a wonderful relationship, but my experience has been when things go wrong the global bank does not have enough leverage over the local bank, and they fall out over who is to blame. So I might as well just deal with the local bank. However, at the same time when I look at my list of global bank accounts and I see lots of local banks, I feel uncomfortable with that because I still lack sufficient leverage over those local bankers. What I really want is a global bank if it is represented in that country.

Vanessa Manning (VM) is responsible for advising RBS’s international client base (both GBM & LCB) across corporate & NBFI segments, on regional and global cash and liquidity solutionsVM, RBS We solve that with single documentation, single client service representation, and a single implementation person assigned from the RBS side to cover all of those issues.

Collections and accounts receivable

Jack Large If we move to a more difficult area, which is collections. Payment factories typically started with payments and quite a few have not moved on, and those that are trying to move to receivables (AR) are finding it very difficult. How does this regional versus global debate pertain to AR?

Charles Barlow (CB) is the group treasurer of Coats plcCB, Coats The most important thing to improve the accounts receivables processing is information – reconciling amounts on your bank statement with specific customer collections. When you have found out who has remitted funds to you how do you find out what invoices are being paid? That is one of the most difficult challenges.

Colin Digby (CD) is the head of treasury solutions and markets, EMEA, at Deutsche BankCD, Deutsche Bank In fairness to the banks I do not think it is a problem caused by them. It is about educating customers and counterparties.



Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan
It is banks and the ERP providers helping corporates to get an efficient invoicing platform on the way, so that as far as possible you get consistency.


Fernando Iraola (FI) is global subsidiaries group (GSG) head for the Russia & CIS division at Citi, responsible for managing Citi’s corporate banking business with all multinational clients across Russia, Ukraine and Kazakhstan. FI, Citi
This is not something that is going to happen quickly. Western Europe may be well integrated, but not the less-developed countries. You will have ERPs rolled out in those countries and interfaces with the banks, so you still have a local solution embedded in your network.

Colin Digby (CD) is the head of treasury solutions and markets, EMEA, at Deutsche BankCD, Deutsche Bank Some banks have created solutions where we take data in from the ERP systems along with the payments and then deconstruct some of that information to be able to simply process the payment traffic into the clearing systems, and then we reconstruct it in order to help the corporate do the actual reconciliation.

Fernando Iraola (FI) is global subsidiaries group (GSG) head for the Russia & CIS division at Citi, responsible for managing Citi’s corporate banking business with all multinational clients across Russia, Ukraine and Kazakhstan. FI, Citi Ours is called Citi File Exchange.


Colin Digby (CD) is the head of treasury solutions and markets, EMEA, at Deutsche BankCD, Deutsche Bank
But we also have a responsibility, to Cara’s point, to play more of a collaborative role in the market with the ERP systems, the clearing systems and other market participants, to make sure that this works a little bit more effectively. Currently we are all putting a plaster on something that is fundamentally broken, so we do still need to address it collectively.

Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan This is where banks have to differentiate themselves. It is not about looking at a bank’s capabilities and taking a bet on what they can do in every country, it is what can your banker do in a consultative and advisory capacity, for example bring a team of people in, look at the data quality within your RSP, look at how your shared service centre is organized, and show you from their experience how other similar corporates have managed to gain efficiencies.

Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia There is certainly a lot to be gained by investing time, educating remitters to quote the right information on the payment. Where we have not moved forward on the fundamental issues is EDI. EDI solutions between suppliers and their customers have often not reached a stage where they are using systems outside the banking network to exchange information electronically to match incoming funds. That has not really taken off.

And there is still another problem – the mechanism for receiving payments. For instance as long as you are under the €50,000 transaction limit and are using Sepa, getting money in and out of your AR system is great. As soon as you go over 50K in certain countries, certainly in southern Europe, you trigger central bank reporting, which creates a problem for you, the receiver of the cash or for the guy who is paying. Even now, in some countries, it is still not possible if you are a shared service centre perhaps (as in Charles’s case), as a non-resident trying to deal domestically in certain countries, to act like a resident. There is still not a single market, and in many cases the only solution is still to have a nominated local company as your domestic representative. We do not have a harmonized payment cut-off system around Europe, so the time that you have to put a payment in to get same day across the eurozone is not the same, and that needs to be fixed as well if corporates are really going to reap the benefit of a single European market.

Jack Large Is it wise to set up a shared service centre for AR – to make your payment factory include receivables?

Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia Yes, but you need to do diligent research before going ahead, and in some cases it is either not possible or you have to come up with a very customized solution for each country.

Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan The difficulty with it is that it is an area of treasury and banking that really affects your business because it is your marketing and sales function.

Jack Large And they resist it violently?

Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan Right, and the one thing you do not want to do with the treasury or shared service centre is have a negative impact on the sales of your company. That is where I find as a bank now increasingly we are facing off against corporates at different levels and in many different areas, because it is the head of sales and distribution that is concerned about receipts, making sure that he gets the sales done and gets the money in. It is the CIO that is interested in the impact of the ERP system, so as bankers now it is no good to know the AP manager or the global cash manager. Solutions that are really going to change how we interact are done at a much higher level.

Jack Large So what is the key lesson in terms of the balance for AR operations between national, regional and global?

Charles Barlow (CB) is the group treasurer of Coats plcCB, Coats The key issue is getting the information to reconcile payments. It’s not just about timing and cashflows, it’s about efficient allocation. You have made the investment in SAP, you have the links between the bank accounts and SAP, but straight-through processing can be constrained because of a lack of "reference for beneficiary" information.

Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan As a bank in this process one of our key roles is to try to help our corporate clients make their receivables processes more efficient. We are talking to clients about Sepa direct debit because it is a way of migrating some of the random electronic payments into something controllable. You get certainty of the day you are receiving money and you reduce the number of invoices in the suspense account black hole. You have to control as much as possible.

Vanessa Manning (VM) is responsible for advising RBS’s international client base (both GBM & LCB) across corporate & NBFI segments, on regional and global cash and liquidity solutionsVM, RBS Exactly. It is helping our clients to re-engineer business processes. It is automating the receivables side as far as is possible. There has been an increase in demand for lockbox solutions, remote deposit and capture solutions and direct debits – both the standard existing direct debits as well as the new Sepa DD, although there hasn’t yet been much of an uptake for these.

Fernando Iraola (FI) is global subsidiaries group (GSG) head for the Russia & CIS division at Citi, responsible for managing Citi’s corporate banking business with all multinational clients across Russia, Ukraine and Kazakhstan. FI, Citi The trend will continue for corporates to roll out ERP systems interfaced with banking partners but they will still need tailor-made solutions for specific functions and geographies. How information is fed into the ERP is critical to ensure standardization at the top level. Technology continues to play an absolutely key role in this, and we do have solutions, like Speed Collect for example, that addresses the issue of reconciliation of the beneficiary information.

Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia As Charles has said automation of account receivable reconciliation is hugely important, particularly in shared services where quite often the charging structure internally is based on the number of invoices that can be processed per employee; but it is not just the responsibility of the banks to come up with these solutions.

Jack Large That the key is discipline inside the company?

Fernando Iraola (FI) is global subsidiaries group (GSG) head for the Russia & CIS division at Citi, responsible for managing Citi’s corporate banking business with all multinational clients across Russia, Ukraine and Kazakhstan. FI, Citi Yes. Whoever is selling is also responsible for collection and that changes the business model.



Accounts payable

Jack Large On the topic of localized decision-making: say a local company needs to make a payment; who authorizes it, how do you set that structure up, how does it work, what is the best balance?

Colin Digby (CD) is the head of treasury solutions and markets, EMEA, at Deutsche BankCD, Deutsche Bank First, there are certain types of payments that you will never be able to centralize, tax payments being a typical example. So you will always need both a centralized and a localized set of processes running in tandem. In the specific area of the cheque decision in the UK, you will start seeing the emergence of other payment channels such as mobile payments, and that obviously introduces new issues. This is where some of our dialogue with clients is currently going, certainly with the B-to-C business models.

Fernando Iraola (FI) is global subsidiaries group (GSG) head for the Russia & CIS division at Citi, responsible for managing Citi’s corporate banking business with all multinational clients across Russia, Ukraine and Kazakhstan. FI, Citi It depends on the complexity and size of the business a company has in a specific market, as well as the complexity of that specific market. For example, it may have currency control requirements. Some companies need a great deal of local autonomy, others, like airlines, less so. We can provide the centralized approach and the information flow, and even the remote authorization capability, we can also give you the local solution for the complexities that a country in an emerging market can bring.

Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan The point is there are many clients within a client. You can have a centralized shared service centre or a local financial controller or local treasury. You need to give the corporate the ability to deal with different situations flexibly, depending on the type of transaction. If it is routine AP, for example, then that can be input locally, authorized centrally, or input and authorized centrally in the shared service centre; but transactions involving foreign exchange settlement, investments, or tax payments may need to be done in a decentralized manner.

Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia I have helped design treasury solutions for two shared service centres, one in the UK and one in Dublin, and I believe that as far as standard accounts payable is concerned you can pretty much pay anybody using any payment method from anywhere. So from Dublin we were able to settle payments to employee T&E accounts in Mexico and the Czech Republic to clear credit card bills, and we were able to use mass AP payment solutions seven or eight years ago to settle AP anywhere in Europe, the US and Asia, so I do not think that is a problem at all.

Fernando Iraola (FI) is global subsidiaries group (GSG) head for the Russia & CIS division at Citi, responsible for managing Citi’s corporate banking business with all multinational clients across Russia, Ukraine and Kazakhstan. FI, Citi Well, you still need to have the banking partner to access the local clearing system to deliver the payment, and depending on which type of payment you have different complexities.


Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia
Yes, I should have prefaced my comment by saying: "If you pick the right bank and are demanding enough of that bank to help you with your solution you can achieve it", because there is an awful lot of ERP work that has to go on to achieve that. But essentially it is just a series of mapping, and creation of compatible files.

Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan And it is getting easier with the adoption of more common formats. You can work with many different banking partners in a consistent format through the adoption of industry standards that enable you to have common format and process around that.

Jack Large What are the issues surrounding local versus central authorization? The technology is now available to do it in almost any combination, so what is the most effective structure?

Charles Barlow (CB) is the group treasurer of Coats plcCB, Coats I think it is common sense. AP is a process. Treasuries do not want to get involved in running accounts payable. We will help set the process up, we are enablers, but the last thing senior management should be doing is signing individual payments. Yes, they need to look at the total and make sure there is funding in place, but there is a process behind that. The implication is that the master data in the ERP system has to be up to the job; are the controls around amending master data in the ERP system as good as the controls are in the electronic banking system.

Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan Although, as Charles says, treasuries do not want to get involved, accounts payable has come to the attention of more senior people. Take payment terms. If unsophisticated or inexperienced staff release payment files 20 days early, there is a cost of capital penalty that matters in the current climate.

Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia I have had first-hand experience of that; as a result of the credit crunch last year we analysed all our supplier relationships. This proved that while our initial concern was simply our ability to make payments, there had been so many changes in terms and conditions over the years that we were paying people early and outside normal terms and discounts. We had to go back to basics and analyse how we were interacting with suppliers who were benefiting from our internal lapses.

Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan So now you are seeing supply chain solutions being front and centre for more than one area of the organization. It is not just procurement; it is not just treasury. When it comes up to the CFO level he is concerned about the supplier relationships, how they are managed, and we enable people to access the data needed to take advantage of early payment discounts and so on.

Hedging and FX

Jack Large How does the local versus global issue affect foreign exchange and hedging policies and processes?

Fernando Iraola (FI) is global subsidiaries group (GSG) head for the Russia & CIS division at Citi, responsible for managing Citi’s corporate banking business with all multinational clients across Russia, Ukraine and Kazakhstan. FI, Citi Typically subsidiaries are allowed to deal low-volume spot foreign exchange with autonomy at country level. Some companies also allow them to engage in vanilla forward hedging as part of their risk management policies, but anything else that becomes more complex or sophisticated will definitely be centralized. One issue is liquidity: in some emerging markets liquidity will be local not at the centre so you are better off as a corporate dealing with a bank locally. One of the solutions we offer is to allow the subsidiary as a legal entity to authorize the experts at the centre to deal on their behalf but with us in the emerging markets.

Jack Large In Coats, Charles, how do you do this balance? Where do you do your foreign exchange?

Charles Barlow (CB) is the group treasurer of Coats plcCB, Coats Generally any transaction that involves an exchange of currency is an inter-company transaction and it is centralized via a netting process run on a monthly basis. Our subsidiaries have very few requirements to transact in other than their local currency for third-party payments. We are increasingly putting third parties into the netting process as well, so that in the UK we have a set of foreign-currency accounts that replace any foreign-currency accounts of our subsidiaries. We pay suppliers from these accounts on behalf of our subsidiaries so the supplier gets certainty of payment and also transparency via our netting system. We do that payment once a month so we do not have lots of very small foreign-currency payments going out at non-competitive rates. We concentrate, net, and then transact one amount professionally.

Jack Large What is the limit on the payments, foreign exchange, locally in terms of value?

Charles Barlow (CB) is the group treasurer of Coats plcCB, Coats Transaction limits are very tightly controlled.



Fernando Iraola (FI) is global subsidiaries group (GSG) head for the Russia & CIS division at Citi, responsible for managing Citi’s corporate banking business with all multinational clients across Russia, Ukraine and Kazakhstan. FI, Citi
Typically volume limits are less relevant than the nature of the transaction. If it has some sort of ‘optionality’ embedded, derivatives, then that would usually be centralized.


Charles Barlow (CB) is the group treasurer of Coats plcCB, Coats
Although that also depends. For example, in Bangladesh solutions have been developed that give us a better rate and also smooth out the operational processes. We review everything centrally and if approved give our local CFOs the go-ahead to transact locally because we cannot execute these transactions from the centre.

Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia In FX, because of the credit crunch, there is now a big trade-off between your credit facilities and your ability to do FX. It’s not so easy now to get unsecured FX lines, so you eat up your general credit lines instead. That can mean having to give up FX capability just to maintain liquidity and that has forced us to be more aware of internal hedging and more use of localized solutions. For instance in South Africa we obtained dispensations to hold euro accounts in South Africa to avoid unnecessary FX transactions.

Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan Similarly with foreign exchange you can minimize that by having a natural arbitrage in country.



Fernando Iraola (FI) is global subsidiaries group (GSG) head for the Russia & CIS division at Citi, responsible for managing Citi’s corporate banking business with all multinational clients across Russia, Ukraine and Kazakhstan. FI, Citi
For which you need to provide your subsidiary with a certain level of autonomy to make those decisions, but keeping the control centralized because the allocation of credit is being done by you, and the way they manage that cash that they collect is also instructed by you. It is within your framework, so it gives some autonomy to the local sub to operate within that framework.

Colin Digby (CD) is the head of treasury solutions and markets, EMEA, at Deutsche BankCD, Deutsche Bank Size is an issue. Companies have typically had very strict, central controls on the larger-ticket items. But €100 million of small payments, each less than, say, €10,000, will have been executed on a local level. However, a lot of corporates are now looking at that because they have realized that they do not control pricing and perhaps they are not receiving the best service.

Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan That is the trade-off between using a local bank versus a global bank. When a corporate customer deals with a global bank all subsidiaries’ foreign currency payments can use automated foreign exchange dealing and get the benefit of what his group has negotiated with his global bank.

Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia Because of the credit crunch, we have been forced to look more closely at all our costs. Until 2009 when we needed to make a specific currency payment, we would just accept the system rate allocated to us by the bank’s payment system. We have spent a lot more time and effort even for small transactions, taking the trouble to book specific FX contracts, where in the past we would have paid cross-currency from euro account and accepted the system rate.

Vanessa Manning (VM) is responsible for advising RBS’s international client base (both GBM & LCB) across corporate & NBFI segments, on regional and global cash and liquidity solutionsVM, RBS I would agree. We have also seen a huge demand for transactional FX solutions supporting currency payments where clients are demanding more transparent and competitive pricing, including customized margins.


Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia
The banks were very sceptical and negative about aggregated services, both for FX and liquidity, but now you go online and all the banks are represented. This is an example of corporate demand driving the policy of the banks to participate in these things, whether they wanted to or not, because counterparty risk and pricing means that corporates spread their business around.

Colin Digby (CD) is the head of treasury solutions and markets, EMEA, at Deutsche BankCD, Deutsche Bank True, but I would say that is still a wholesale argument. You are still talking larger-ticket items in these portals. The lower limit is about €100,000. But we have also been looking with our clients at hedging and risk management tools for significant small-ticket flow.

Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan And they are over-paying on the hedging if they are doing spot trades.


Colin Digby (CD) is the head of treasury solutions and markets, EMEA, at Deutsche BankCD, Deutsche Bank
It is probably not even hedged. This change in corporate mindset has changed the rules of engagement, and it is one area that is still evolving and slowly.


The future?

Jack Large Finally, what do you all see as the future of this global-local relationship?

Fernando Iraola (FI) is global subsidiaries group (GSG) head for the Russia & CIS division at Citi, responsible for managing Citi’s corporate banking business with all multinational clients across Russia, Ukraine and Kazakhstan. FI, Citi Managing local and regional operations within a global model is increasingly the challenge for treasury, especially as regional companies in emerging markets evolve into the large multinationals of tomorrow. As this happens, we’re witnessing what amounts to businesses without borders and with approaches such as the implementation of shared service centres we’re going to see a greater blurring of boundaries between local, regional and global cash management. Lastly we are seeing a significant demand for innovation. Mobile payments, security, risk management, real-time visibility within a multi-bank frameworks are at the top of our clients’ list and new partners and competitors are emerging.

Charles Barlow (CB) is the group treasurer of Coats plcCB, Coats As long as I am able to manage my cash and information using standard systems I am less concerned about the labels that are assigned to the various bank’s offerings. However, whilst country-specific transactions continue to exist it is likely that local banks will always be able to deliver these more effectively than global banks. Companies would derive greater benefit from standardizing transactions. Why can’t we have one system for low-value, non-urgent payments and another for high-value urgent payments across a number of countries? With standardized transactions the distinction between local, regional and global would become irrelevant.

As mentioned earlier, account reconciliation continues to consume a disproportionate amount of resources. We need to develop cost-effective e-invoicing for low-value, non-standard transactions. The exchange of information between buyers and sellers remains a paper-intensive process even when funds move electronically.

Colin Digby (CD) is the head of treasury solutions and markets, EMEA, at Deutsche BankCD, Deutsche Bank It is unquestionably true that the balance is shifting away from global structures towards regional and even local structures complemented with global overlays.

Liquidity remains a predominant subject of focus for corporate treasurers and it is no longer acceptable to adopt an 80:20 approach to liquidity management – capturing 80% and leaving 20% in small regional or local pockets of untapped cash. As a result we expect to see an increased focus on regional and local liquidity solutions integrating into regional or global structures. Integrated visibility, effective forecasting and execution are key. As a result clients will continue to be focused to a greater degree on the local challenges. Banks will therefore need to respond at a local level.

Post crisis there is a trend towards more bank accounts as clients spread their counterparty bank risk. Again this will drive the market towards a more local or regional approach. Awarding a single bank a global mandate will become an exception rather than the norm.

Colin Evans (CE) is director, treasury operations, Europe, at Faurecia Emission Control TechnologiesCE, Faurecia The banks spent most of 2009 dealing with the credit crisis; I believe that as things settle down those global banks affected the most will contract from certain markets, products and services that they had been trying to grow regionally and globally during 2010. At the same time I expect the handful that stayed mainly unaffected to take the opportunities to grow business and take existing income from other institutions.

Leading on from this (and as the market stabilizes), I also think that regional banks will focus on individual local markets, in order to pull back the losses of the last couple of years; leading to increased local competitiveness. My ultimate feeling is that local providers will have to further consolidate to survive; in the face of fiercer competition and inevitably more advanced technology.

Cara Hanrahan (CH) is an executive director and head of sales for JPMorgan Treasury Services in Europe, Middle East and AfricaCH, JPMorgan Forced consolidation in the bank market has created an increased focus on regional capability for many banks. The recent consolidation is likely to favour regional and global providers as cash managers strive to optimize cash visibility and process efficiency.

The technological tools required by corporates are ever more global in scope and I expect this to drive the selection of cash management providers. Banks will continue to tailor their services to be as client-centric as possible. If a company is operating in multiple countries, with employees, manufacturing plants, distribution networks, etc. then it makes sense to find a regional or global bank with scalable technology.

As corporates review their global and regional treasury operations, it might not make sense to have a different bank relationship in a single or couple of countries. There will always be room for domestic and sub-regional commercial banks, but given the governmental pressure many are feeling today, they might not have the appetite in expanding their services or networks outside their home territories.

Vanessa Manning (VM) is responsible for advising RBS’s international client base (both GBM & LCB) across corporate & NBFI segments, on regional and global cash and liquidity solutionsVM, RBS Companies have used the economic crisis and limited investment wallet to rethink their business strategy and focus on a comprehensive operational and technological model to ensure complete visibility of their transaction processing, cashflow visibility, risk management functions, execution and reporting.

Companies are exploring business process re-engineering to help leverage efficiencies and force process changes across the financial supply chain, laying foundations for extended cooperation with their suppliers.

We will see larger banks offering more white-labelled services to local banks, enabling these institutions to deliver high-end services to their clients, while increasing scale and making delivery more cost-effective for the regional and global providers. We’ll also see a greater market for data transformation, requiring collaboration between banks and technology providers (this may include white-labelling) – for example, the RBS Seift Service Bureau and Experian’s BIC/Iban conversion service. These partnerships extend to a much broader audience (irrespective of geography) opportunities for automatic connectivity and the creation of efficiencies.

Banks’ service models need to be flexible enough to accommodate the evolving needs of our clients. Corporate client demand for differentiated service models and "self-determination" solutions will continue to increase, underpinned by expanded functionality and end-user friendliness.