Achieving Full Global Visibility & Understanding of Your Cash

Lisa Rossi, Deutsche Bank & CTMfile

In today’s environment where increasing financial regulation is changing the way banks conduct their business, corporates need more than visibility of their cash positions. They also need to understand the characteristics and tenor of their cash. The capital requirements from Basel III, Bank of England’s Capital Requirements Directive IV, and stress testing are requiring banks to value liabilities differently than in the past, when regulators considered all deposits to be identical.

Today deposits that are temporary or transitory are not as valuable as deposits that have duration or a term component. This requires corporate treasurers who have comfortably left balances in current accounts to now consider the true value of cash more carefully. And this will become even more important if the financial institutions, as some have suggested, start charging for large overnight current account balances that absorb too much of their balance sheets.

Corporate treasurers will be required to become far more proactive in their management of operating and reserve balances. They will not only need to have full visibility of their cash in the financial system, but also to become better at understanding and predicting its duration. This could include rationalising their banks to ensure that all the banks in their cash management processes and pools are able to report full balance and transaction data in full and on time, full visibility and understanding of your cash is now vital.

This checklist takes the corporate treasury department through the key questions to be answered, the issues to be considered and the main actions required to have full visibility and understanding of their cash globally.

1. Review corporate treasury policy on cash and the visibility of cash in the new environment:

ensure all cash balances at banks and other financial institutions are regarded as a corporate resource controlled by treasury
ensure the corporate treasury department is responsible for the global aggregation of data on cash balances and transactions
agree with global and regional teams the daily data and information flows to ensure full global cash visibility.

2. Review periodically how effective your cash concentration structures and resulting cash flows are in leveraging your cash, covering:

i. account structures: check that the account structures still reflect the current business structure – globally and regionally, currencies used today, and the business units and legal entity structures

ii. cash concentration facilities (both intraday and end-of-day management):

sweeping and pooling (regionally and globally)
multi-bank draw downs at end of day

iii. opportunities for inter-company netting to reduce the number of intra-company payments and stabilise internal cash positions.

3. Ensure all cash balances are reported (wherever they are held), including:

i. standard account balances:

current accounts at lead banks, secondary banks, and other FIs (Financial Institutions)
time deposit accounts at lead banks, secondary banks, and other FIs, including evergreen deposits/call deposits
currency accounts
off-shore deposit accounts

ii. near cash balances (in accounts with positions that can be liquidated in less than six months):

money market funds (funds that can be liquidated as part of the daily sweep processing and/or easily purchased/redeemed)
other short term investments, including certificates of deposit, repurchase agreements, commercial paper
credit lines (short term credit that can support your daily requirements when cash is not easily available and enable a reduction in the cost of borrowing)

4. Select what cash balance and transaction data is to be collected and key performance indicators:

i. summary balances:

intra-day (real-time or reporting within few minutes)
end of business day
next business day

ii. transaction data,

intra-day (real-time or within few minutes)
end of business day
next business day

iii. key performance indicators, e.g.

100% of balances and transaction data reported automatically in developed countries

80% of balances reported automatically in emerging markets can be acceptable; however, if emerging markets are a major part of your revenues, you may need to change banks to achieve a higher proportion

5. Accept that you will receive data in different formats, e.g.:

i. in short term, many formats will need to be supported including:

SWIFT MT 940 and 942 messages
FileAct
ISO XML
local multi-bank formats, e.g. EBIC – Germany & France, Anser - Japan, Isabel - Belgium
local bank’s own formats

ii. in longer term aim to reduce number of formats to:

GI ISO XML standards by eliminating banks that do not support this standard
local bank formats where still need to keep accounts

6. Choose the most cost-effective combination of systems and services to collect the data and information you require on your cash:

i. direct dialing into banks via treasury management system

ii. direct SWIFT connection options:

Score
SWIFT Alliance Lite2
SWIFT service bureau

iii. aggregator services from:

lead cash management banks
third parties, e.g. Fides

N.B. 1: A combination of systems and services will be needed to provide full global coverage

N.B. 2: The main objective here is to ensure that full information on cash balances is available in time for investment decisions to be made before 11am-12 noon local time to obtain best market prices.)

7. Pick the system(s) for managing and analysing cash availability data:

a) lead bank system:

b) treasury management system:

8. Identify operational cash (available over-night) taking into account:

i. payments in the clearing systems

ii. the daily schedule of payments and collections from the ERP system(s) showing:

Days Sales Outstanding / Accounts Receivable payments
Days Payables Outstanding / Accounts Payable payments

iii. known treasury payments

iv. other payments including, tax, dividends, payroll, etc.

9. Identify reserve cash available for 30, 60 and 90 days:

ensure corporate treasury has control of the overall cash flow forecasting process and can chase units/departments producing inaccurate forecasts
use cash flow forecasting systems and data in the treasury management system, in the ERP systems, and in stand-alone cash flow forecasting systems to forecast cash positions more accurately
focus on freeing up cash by identifying as accurately as possible the exact date payments will be made or collections received. The greater the accuracy the more cash can be made available for longer investment periods:

Co-developed with Lisa Rossi, Managing Director Global Head of Structured Liquidity Products, Deutsche Bank

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