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Basic cash management practices ensured survival during the start of the pandemic

The first day of the UK’s Association of Corporate Treasurers’ virtual 2021 Cash Management conference showed how corporate treasury departments went back to basic cash management practices to survive the dramatic reduction in business in 2020 by:

  • Making working-at-home work effectively
  • Having a morning cash call of 10-15 in which key members of the treasury team reviewed their basic cashflows and what “is surprising” (now down to weekly)
  • Standardizing their spreadsheets and systems worldwide (many companies canceled all IT projects apart from corporate treasury’s )
  • Brought forward the introduction of new cash flow forecasting systems with scenario building capabilities so they could be sure of their cash position
  • Introduced much more detail in their cash flow forecasting:
    • going down to daily forecasts
    • much more detail on cash flow and working capital cycles
  • Ensured that their banks and key advisors knew and understood their financial position to ensure they had confidence in the company/group
  • Sticking with their existing banking groups (although several of the corporate speakers felt that their arrangement would change in the future).

Effective and timely cash forecasting

The standout talk of the first day for CTMfile was by Ben Walters, Assistant Treasurer, Compass Group – the world’s largest contract catering group who operates in 45 countries with over 500,00 employees – on “Effective and timely forecasting.”. Compass Group had, like most groups, a horrible second-half year in 2020.

Ben’s talk focussed on ‘Lessons learned’ in the key areas of their survival.

Liquidity and headroom

Not surprisingly Compass’s primary focus was to maintain adequate headroom at all times. The lessons learned here were:

  • Value of relationships (banking, credit rating agencies, legal, USPP investors)
  • Treasury needs to be at the heart of the action
  • Corporate treasury needs increasing ability to model impact, make decisions.

Forecasting

Compass had to build (in THREE WEEKS) an integrated cash AND profit forecast which:

  • Kept data collection to a minimum
  • Was a scalable weekly forecast over a rolling twelve-month period
  • Utilized the Group’s existing reporting application
  • Use variance against the previous forecast to gauge changing expectations.

Lessons learned were:

  • Agile joined up forecasting is needed which supports decision-making and monitoring performance
  • Cash flow forecasts are critical for both internal and external purposes private investors, credit rating agencies, banks, auditors
  • A monthly, simplified reporting model is needed as a norm.

Cash management

Compass had to develop:

  • Increased focus on monitoring actual cashflows versus forecast variance
  • Detailed dialogue with country cash managers
  • Drive the adoption of best working capital management best practices and reassign staff to these activities
  • Actively monitor clients in the worst affected sectors
  • Expanded their Supply chain finance program.

Lessons learned were:

  • Culture, processes, and technology are vital
  • Need to focus on receivables.

Overall lesson

Ben’s overall conclusion and recommendation from their experience were that companies need to invest today in the culture, processes, key staff, and technology in order to be able to carry out the key best practices when they are needed and can deliver under pressure.


CTMfile take: The COVID-19 pandemic has taught the corporate treasury industry - yet again - that getting the basics right and setting up the culture, technology, staffing, AND best practices in cash management to be able to cope with crises are absolutely vital. A useful first day.

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