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Cash management: Making the dimes and quarters count

Citigroup's TreasuryVision is answering the challenge of putting PepsiCo's disparate global cashflows, emanating from 1,000 bank accounts, on a real-time system.

YOU WOULD EXPECT Arun Nayer to think big. He's the assistant treasurer at PepsiCo, a company with 153,000 employees, revenues last year of $29 billion, and products that you can buy in almost every country. To such men big numbers are routine. But Nayer spends much of his time thinking small. Very small. "Mexico is a big market for us," he says. "We bring in $400 million in revenues there. But it comes in change, really small change." It's the same story everywhere. "We're in 140 countries collecting dimes and quarters and their equivalents," he says. And that includes the US, where the company has a fleet of 13,000 trucks. Their drivers, as in other countries, often pick up payment as well as make deliveries. "They deliver to the big guys such as Wal-Mart, but also to the small local convenience stores, which might take only six bags of potato chips and a few cans of Pepsi."

Looking for visibility Coming up with a way to manage such a disparate array of small cash payments worldwide more effectively has been keeping Nayer and his colleagues busy. "We're looking for visibility," says Nayer. "Give me something that puts a roof over my head, that can tell me what my cash situation is in Taiwan, something that will tell me when I've collected a couple of bucks in Timbuktu."

Unsurprisingly, they turned to their banks for help and sent out a request for proposals. Among the ranks of those who talk proudly of their cash management prowess there must, surely, they thought, be at least one that could help. It was not that easy. "What shocked me is how wide the gaps are in terms of the banks' own capabilities," says Nayer. "Some don't even have Swift sorted out yet."

Two banks made his short list – HSBC and Citigroup. "HSBC had a better system up and running, but Citi's thinking was closer to where we wanted to be. The big leap that Paul took was to say that they had an in-house product that they were willing to take out into the marketplace," says Nayer of Paul Galant, global head of cash management for Citigroup. The result is a web-based system called TreasuryVision, jointly developed by Citigroup and PepsiCo. Nayer hopes it will go fully live this quarter. It is based on CitiVision, which has been available internally at Citigroup for a couple of years.

For Galant it was an ideal opportunity: despite being one of the largest cash management houses outside the US, Citi has long punched below its weight in its home market, and Galant has been determined to rectify that. Nayer's request presented him with the chance to improve the bank's relationship with a large US corporation that would also need Citi's international reach. And for a bank with relatively little legacy infrastructure in the US, using technology to win new business makes sense.

Nayer explains: "We wanted something that would be a leap forward from the systems that are already out there, whether CitiDirect, other banks' platforms, or independent treasury management systems. We wanted something that would aggregate, in real time, all our data on our cash balances as well as something that could provide analytics to help make our team smarter."

What the PepsiCo treasury and Citi have developed is a system that, according to Galant, surpasses everything else on the market: "Most systems are very adept at telling you yesterday's weather. What TreasuryVision gives you is actionable advice."

As luck would have it, Nayer found in Galant a man who in a previous job had already developed a system that placed a lot of tools at the disposal of treasurers. In the latter half of the 1990s Galant worked in the high-grade bond division at DLJ, a firm that was lucky if it broke into the top 10 in the US league tables. Galant helped to build Global Edge, a system using data on 35,000 bonds stretching back to 1961 and designed to enable CFOs to manage portfolios of bond, equity and convertible issues more effectively. It helped the bank win more deals, and profitable ones, even if they had little impact on the league table rankings.

Three tiers That, at the time, was complex enough. TreasuryVision, though, is much more so, and it has not been the smoothest ride. "It was languishing early in the year," says Nayer. "But a lot more people are now focused on it, and we've got a very aggressive timescale in place now. Today I cannot tell you it is done. But we have made a lot of progress and the cash side is largely done."

It's a long process because PepsiCo has to deal with about 1,000 bank accounts. A complicating factor is that many of them are in backwater towns in such countries as China, Chile or Nigeria where the local bank lacks the kind of technology TreasuryVision demands. Nayer has divided the task into three tiers. In the first are the biggest accounts, all of which were moved onto the system in March. Mid-size accounts are in the next tier and are expected to be completed by the end of July. In tier three are the rest, the smaller accounts, the ones that cannot report in the way the system needs, and a small handful of banks that thus far have not cooperated.

There are about 200 accounts in this tier, and, says Nayer, "it's the old 80%-20% rule. The last 20% will take 80% of the time. But we have to have all accounts on the system, not just the big ones." He does, though, concede that he might have five or 10 such banks that will not be able to provide what he needs in real time, and that their balances will have to remain end-of-day. "We're working with banks such as JPMorgan, HSBC and Citigroup to find the best local banks to work with in each country," says Nayer, who hopes to complete this last tier before the end of the quarter.

When Citi put on its first demonstration for the company earlier in the year after some of the data had been added, Nayer and his team immediately saw that they were getting what they wanted. "We were ready for them to shoot lots of technical questions at us," says Gary Greenwald, Citi's chief architect of TreasuryVision. "But their first question was to each other: 'Why do we have so much money on deposit in that country, and such a large overdraft in this one?'"

This is where the system starts becoming very useful. "We used to manage our cash on a monthly basis. But now we can do it daily, in real time. With this kind of information we can start looking for and getting the best overnight rates for our cash on deposit, but what's really exciting is that we can start to use this in our forecasting. We can start to project and thus manage our flows much more effectively."

So, for example, Nayer can find out within moments whether the commercial paper or bond deal he is planning is really necessary, or whether he has cash on hand that he could use instead.

And then there is what to do with the cash that is sitting there and will remain so. "Right now there's about 70 basis points difference between overnight rates and one-year paper," says Nayer. "We usually have $3 billion or so in cash which we seldom invest beyond 30 days. But if I have real confidence in the flows I'd invest over a much longer period. Picking up an extra 50 basis points or more would be very useful."

More pie Nayer is cautious about putting a figure on the savings made from using TreasuryVision. Citigroup's bankers have mentioned anything up to $100 million, but Nayer rejects that, and won't even settle on one tenth of that. The system works best at weeding out opportunity costs, he says, which is something very difficult to track, monitor or demonstrate.

Citigroup is now taking the tool to other clients. Thus far two other US companies have signed up, International Paper and Tyco, although they are not yet using the system. TreasuryVision is best suited to larger companies, says Greenwald. "The real power of the system shines through when a corporate has 200 bank accounts or more. But it's a good treasury management system for smaller companies as well."

The system isn't designed to render redundant a corporate's other cash management banks; all can still play a role. But it certainly helps get Citi's foot in the door with clients that might otherwise go elsewhere. "It's certainly an advantage that helps them get a bigger piece of the pie from us," says Nayer.n

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