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Joining the dots: controlling cross-border liquidity

Increasing regulatory and governance pressures for more direct control and accountability of treasury processes has changed the relationship between corporates and their bank partners.

Supplement: Technology in Treasury Management Guide

Sponsored by ABN Amro

Corporates have traditionally outsourced the whole or part of their treasury processes, to be run on their behalf by a bank partner. By  taking advantage of advances in bank ‘treasury management systems’, corporates are now bringing it back in-house and creating ‘virtual’ centralized treasuries, particularly in respect of managing liquidity.

While physical centralisation of treasuries remains a daunting prospect for most corporates, in the light of Sarbanes-Oxley and other governance regulation there is pressure for greater visibility and control of corporate cash and funding positions.

More and more, middle-market treasurers are turning to new banking technologies to centralize management of global and regional cash pools. It’s no longer enough just to report balances to head office; global treasurers want to be able to monitor - and influence - local accounts and investment policies. Increasingly, best practice means that central treasury owns the cash.

Flexibility and control

Technology has been the key driver in recent liquidity management innovations such as globalization of sweeping, the replacement of intra-day with end-of-day sweeping, multi-bank sweeping and also the full automation of cross-currency notional pooling.

Treasurers are taking a more global perspective, linking regional structures automatically in key operating currencies without losing value days or relaxing internal controls. More than ever before, bank technology helps treasurers gain visibility and control over group cash, for example, by letting them set in-house parameters governing group access and authorisations, transaction limits and cash balance management. Advances in technology have also enabled banks to develop a range of cash concentration solutions with regional variations. Automated global US dollar pooling, for example, enables US treasurers to consolidate dollar positions dispersed throughout the US, Europe and Asia into a single position - a definite advantage if paying down US dollar debt from released working capital. 

Multi-bank cash concentration has long been established in the US, where it is known as Automated Standing Transfer. It allows treasurers to automatically capture liquidity held in different accounts in different banks in western, central and eastern Europe and Asia, ensuring that idle pockets of cash are consolidated for optimized returns. In this way, one bank’s technology can be used to improve the reporting on and management of accounts held with other banks.

Automated multi-bank sweeping solutions enable treasurers to define, target and trigger parameters to leave sufficient balances to meet local needs, while sweeping surplus cash to designated concentration accounts, at treasurer-specified times. This is then used for inter-company financing or short-term investment.

Companies with a more decentralized management culture may use notional pooling products to maintain the autonomy of local subsidiaries. By putting different accounts of different legal entities into a notional pool, treasurers can get the benefit of full offset between debit and credit balances, while managing overall liquidity by investing or funding the net balance of the pool. Each participating subsidiary opens an account in its own name within the notional pool, so there is no mingling of funds and no inter-company loans are created.

Automated cross-currency pooling is a solution that can overcome many of the obstacles faced by the modern treasurer. It uses a combination of solutions to access and concentrate cash from key and local third-party banks, thereby eliminating inter-company loan creation and administration and auto-sweeping, and significantly reducing the operational burden on the treasury.

In addition, embedding FX within cross-currency notional pooling for less significant currencies avoids the pain and risk inherent in converting currencies, for instance, to fund deficits in one country with surplus cash in another. Demand for automated cross-currency pooling may well increase following FAS regulations relating to conventional FX transaction reporting. Treasurers can also initiate multiple FX swaps that automatically swap currencies when they reach certain levels.

A logical continuation is the use of bank technologies to develop automated in-house bank services; for example, online cash-concentration services that allow treasurers to capture dispersed liquidity automatically. This would enable some companies to replace external sources of funding for group entities with internal ones. Rather than addressing funding issues locally, local treasurers would draw on the central liquidity pool, subject to individually applied internal ‘interest rates’.


Making more possible

Leveraging process and connectivity technologies to bring together all of a treasurer’s cash management requirements within a single platform is a key priority for ABN AMRO.  The consolidation of dispersed cash positions - including those of other banks - into a single interface that can be accessed anywhere, at any time, supports enhanced cash forecasting and strategic planning.

Integrating automated transactional FX execution within banking platforms enables branches and subsidiaries to ‘trade’ with a central or regional treasury, rather than directly. This transaction banking technology already eases electronic payments, trade services and FX execution, and also supports automated investment of consolidated, surplus cash into a range of innovative, yield-enhancing products with full straight through processing and reporting. Loan requests, cheque management and imaging and e-procurement services can also be incorporated within the same platform.

Advances in treasury technology and decreasing banking and infrastructure costs make centralized management of cash a reality for every corporate. Re-engineering these processes to integrate with a bank partner’s electronic execution, information and reporting platform requires a commitment on the part of treasuries, but creates immediate visibility for consolidated and individual group cash positions.

The benefits of taking a more global view should not be underestimated - both in respect of enhanced performance from increased interest and investment benefits and also through ensuring that corporate governance, compliance and regulatory obligations are fully met. 

ABN AMRO is a market leader - and multiple award-winner - in the provision of innovative, automated cash management and liquidity enhancement solutions to multinational, regional and local corporates. Our unique Liquidity Advisory Desks harness treasury and investment, financial markets and asset management expertise and bank-wide capabilities to create and implement integrated and tailored solutions.

ABN AMRO Transaction Banking delivers cash, trade and card products and services to corporations and businesses, financial institutions, retail customers and private clients globally. These services are available in some 3,000 locations in over 60 countries, including LaSalle Bank in the US and Banco Real in Brazil. Underpinning this extensive global network is integrated technology supporting billions of payment, trade and card transactions every year. Global scale, a commitment to continuing product and service innovation and an in-depth understanding of local and global markets are key components of our offer.


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