AFP Conference Stresses Fundamentals of Treasury

November 11, 2012

By Ted Howard and Hilary Kabak

This year’s Association of Financial Professionals stuck to the fundamentals of running treasury without going too deeply into specific challenges in the world. 

This year’s Association of Financial Professionals (AFP) Annual Conference as usual offered up hundreds of themes, but the prevailing ones can be filed under treasury basics: connectivity, cash management and forecasting, visibility and counterparty risk. And while risk mitigation is always at the heart of all things treasury, what was not much discussed was risk mitigation as it related to the European sovereign debt crisis.

The conference saw the customary cast of thousands, with treasury pros wandering the rows of vendors hawking their wares, attending the dozens of education session offerings—many of which were filled to capacity, or overflowing—and eating in the giant commissary. In terms of sessions, International Treasurer attended several, including bank counterparty risk, corporate tax reform, and cash forecasting.

In addition, International Treasurer met with many vendors to hear about what was new. These included new tools from SunGard and new iterations of existing offerings from derivatives and treasury management provider Reval. Also FX exposure management company FiREapps announced a new partnership with HedgeTrackers. International Treasurer also discussed supply chain management with Bank of America Merrill Lynch, cash velocity with WAUSAU Financial Systems, the expansion of mobile banking with Wells Fargo, flexible pricing/valuation solutions with FINCAD and how BELLIN treasury is trying to make deeper inroads into North America.

Sessions Presents

Jeffery Power and Geoff Nolan of eBay along with Joseph Sansone of Standard Chartered discussed bank counterparty risk in an informative session.

Given the impending disappearance of the FDIC for corporate accounts and the increasing necessity of supplements and substitutes to credit ratings for choosing counterparties, more and more of the due diligence falls to corporates themselves. Fed stress tests are getting more detailed, but the equation remains a secret, so doing your own analysis where you know all of the components is crucial.

Outsourcing to managers is one option, but if you plan to retain control, you should keep these things in mind:

1. Where is your cash?

2. Stress-test all possible scenarios. You and your bank must be on the same page with regard to what is and is not acceptable and what actions to take if the unacceptable approaches.

3. A deep banking relationship is always better for both credit and operating cash. Mr. Power summed up his approach in this area in this way: “I want to be in countries I like with banks that are systemically important.” And both the bank and the whole company should know about this, so there is no room for ambiguity.

4. Any given country’s economy is a risk factor, so regardless of the bank itself, keep up with political and legal developments.

5. On-site due diligence is a must. See how people work and how they react to you so you can curtail any uncertainties before an urgent situation arises.

6. Brand and reputation can be destroyed in a fragile market, so you should do deep analyses of fundamental business and align your real risk tolerance throughout the company and with your counterparty.

7. There is no such thing as over-reporting. Clear and consistent reporting is the most reliable way to keep communication open throughout the company and with the bank, and it eliminates excuses for being uninformed.

Most important of these is the bank relationship, which should be viewed as a risk-mitigation tool. Electronic transactions are certainly convenient, but there is no substitute for being able to reach a person you know and who knows what you need and is inclined to help you on your terms.

Another session on corporate tax reform featured Robert Foster of Northrop Grumman, David Wagner of the Clearing House and Joseph Hargrove of KPMG.

Given all of the confusion over the new FBAR rules (Report of Foreign Bank and Financial Accounts), one needs to know what to do with all of the forms to fill out. One of the main issues is signature authority: who is the owner of record or legal title to the account? In other words, on whose direct communication will the foreign bank act or move funds? Given that this clarification still leaves many questions, treasurers should at least make sure that if they have incorrectly reported, they are not at risk for a gigantic penalty. A regular failure to file (correctly) will result in a $10K fine, while a willful failure to file will result in a $100K fine or a fine of 50 percent of the account value. So, make an effort.

Cash forecasting

Emphasizing the increasing uncertainty of cash flow forecasting, Dwight Seeley from Community Health Systems set the tone in this session on cash forecasting (with Peter Wheeler of KeyBank) by reminding the room that “either you don’t know, or you don’t know you don’t know.” This was followed by Mr. Wheeler’s setting of priorities: 1) Do you have the confidence to make business decisions? and 2) Are you going to avoid cash shortages?

Forecasting goals should be set within realistic thresholds that address the fundamentals of forecasting. And once these goals are set, they should pass the “gut test,” as measured by the gut reaction (there should be no smirking) of people to whom the forecast is pitched. Mr. Seeley also emphasized the necessity of accounting for the entire payment cycle with participation from all parties involved, which is especially difficult in healthcare because people receive services before they pay for them. You can’t repossess a physical exam or put a stop payment on a spleen. Nor do you want to.

The past is not always an indication of the future, but knowing your history, knowing your clients and how they pay, and ensuring the validity of your assumptions will help smooth the forecasting. Also, technology can be a boon, as electronic payments are much more efficient than US mail.

Meet the vendors

As mentioned, much of the general conversation of the conference was light on eurozone woe and heavy on educating treasurers et al on risk mitigation, cash visibility and other typical treasury issues.

Vendors were equally silent about the ongoing problems in Europe and were more eager to discuss how their products could help treasurers meet their day-to-day challenges. Here are some standouts.

Bellin believes. German-based treasury software and connections provider has many customers in Europe but is now making inroads into the Americas, most notably in Canada and South America.

While one of its more successful areas, according to the company, is in its payment factory business, the company offers a wide variety of services including consulting. But beyond the actual services it also sells its beliefs, its philosophy. This philosophy is embodied in its Backstage networking platform created exclusively for its customers.

According to its web site, Bellin Backstage customers “enjoy access to all the tricks and tips of tm5 (the name of its treasury services) and the latest news from Bellin. On this platform, Backstage users can network with other Bellin users and exchange ideas and knowledge. So using this open-source-style sharing if you as a Bellin customer are looking for a bank partner in Chile, you need only contact another Bellin customer (or two) in Chile and get the answer.

Tracking short-term cash. SunGard has been working on its short-term cash-management portal, the SunGard Global Network (SGN). SGN is a “global, multi-currency trading and connectivity” tool to help companies monitor short-term liquidity. The portal can tell treasurers what their exposures are down to the asset, identify trading partners by providing “direct access to the fund company” in real-time. In this way treasurers can diversify their company’s portfolios as well as secure them by setting automatic concentration and other restrictions.

SunGard also released a preview of its Corporate Cash Investment Study. Among preliminary findings, the results so far reveal that about 38 percent of respondents said their company’s surplus cash had increased in the past year. More than 40 percent reported the need to get a better handle on cash-flow forecasting and 82 percent use bank deposits for cash investment. Surprisingly, 50 percent of respondents said they still do transactions over the telephone.

New versions. Financial risk management company Reval released the latest version, 12.1, of its treasury management product. The new version promises “advanced functionality in cash, liquidity and financial risk to support.” It’s been just about a year since the company fully integrated its acquisition of Austrian-based treasury management system provider ecofinance (see related story, “New Reval Update Adds Cash, Liquidity Management” on iTreasurer.com).

Also, TMS provider IT2 made it official with the announcement of version 8.0 of its system. Calling it “Treasury re-imagined,” the company says the new version looks, feels and functions like no other treasury management system on the market.

New Tie-ups. Also at the conference FX exposure management software provider FiREapps introduced a new suite of capabilities that has been tested for foreign exchange trade management and derivative accounting solutions. That it is now able to widen its offering to include derivatives accounting owes to a new strategic partnership with financial accounting and reporting firm HedgeTrackers.

FiREapps will utilize HedgeTracker’s cloud-based Capella Foreign Currency software, which provides FAS 133 (ASC 815) hedge accounting and trade management. FiREapps says this will extend the capabilities of its suite of FX exposure management offerings. The new partnership also helped FiREapps better assist client Jabil Circuit. The supply-chain management and electronic manufacturing partner company tossed its spreadsheet-intensive FX management process and implemented a program that includes FiREapps FX Pro+ (powered by HedgeTrackers’ Capella) for “full lifecycle FX exposure management” as well as FXall for trade execution.

International Treasurer also met with WASSAU Financial Systems. The company offers a wide variety of eBam-focused processes that can help companies be more efficient when it comes to their banking and other cash issues. It can also provide efficiencies when it comes to a company’s supply-chain management.

The company does this through its integrated receivables offering, Receivables360, which can help companies (and financial institutions and their corporate clients) “expand beyond lockbox” by aggregating payment info, images and data. This automates receivables processing thereby boosting cash velocity from point of sale to the balance sheet.

SCF Religion

Speaking of the supply chain, International Treasurer sat down with Maureen Sullivan, managing director at Bank of America Merrill Lynch (BAML). Ms. Sullivan noted that the AFP annual conference was not always a hotbed of supply-chain finance interest. That’s because SCF wasn’t always high on the list of “must knows” for treasurers. But she said that had changed.

“We’ve seen significant growth in SCF [supply-chain finance] and more focus on working capital,” Ms. Sullivan said. But, she added, the AFP has been “attracting more trade finance people in the last three years.”

Those last three years of course being those since the financial crisis. According to Ms. Sullivan, the crisis made working capital management more critical than ever. “The financial crisis created working capital religion,” she said.

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