This week’s editorial meeting woke up the echoes in terms of issues treasurers are talking about. That’s because issues of cash-flow forecasting and in-house banks, both old treasury topics from several years ago, are creeping back into view. Also up for further exploration is whether to clear or not clear certain derivatives trades.
Cash-Flow Forecasting.
At least two of The NeuGroup’s fall meetings have had discussions around the importance of cash-flow forecasting. At one meeting there was a comparison of two companies’ processes: one was mature and robust, the other was a fledgling program just getting off the ground.
Currently most companies are slogging through the effort. That slogging is also being done by an army of people; any army that many companies are reluctant to dissolve until they know current technology can fill in where humans have left. What’s important, then, for accurate cash-flow forecasting? Whatever process one uses, it’s clear the management buy-in is key. Some companies have it (usually the ones that have gone through a liquidity event) and some don’t. Companies certainly want to be part of the former group, as coming regs, continued economic slowdowns and other constraints on cash are gathering on the horizon.
In-House Banks.
While there have been discussions at NeuGroup meetings this fall about decentralization of some parts of the treasury function, there has also been some interest in learning more about the centralization of the company’s financial structure; enter in-house banks. This is part of treasury’s ongoing quest to gain better control and visibility over cash. There are many benefits to an in-house bank, several of which IT has noted in the past. These include:
• Greater Volume. With record high levels of cash, treasury has enough volume (and overseas transactions) to justify a switch.
• Greater Visibility. While ERPs promise easier integration, the effort to see and control cash involves many internal and external constituents. By getting rid of at least one layer (i.e., banks) the view of cash is less opaque.
• Automation Simplification. If treasury needs to collect, aggregate and translate data from fewer sources, it also requires fewer system interfaces and expensive support resources.
Clearing or Not.
We’ve highlighted in a couple articles (here and here) how going after the end-user exemption might not be the right solution for everyone. We’ll continue to explore this idea and get into when it’s a good idea and when it’s not. At one recent NeuGroup FX Managers Peer Group meeting, one company suggested that companies re-evaluate their hedge programs in light of the cost increases resulting from regs like Basel III and Dodd-Frank. As interest income dwindles and volatility concerns persist, hedging might not be worth the trouble, whether one has an exemption or not.