If you feel cash visibility is lacking in your multinational company, the good news is you’re not alone. The bad news of course is that without improved visibility you’re missing out on major benefits ranging from better ability to deploy cash to increasing earnings credits to reducing overdrafts.
That was the message of a recent webinar sponsored by Treasury Strategies that also suggested steps for improving that visibility. Jacob Nygren, a principal at Treasury Strategies, said a recent survey by the consulting firm revealed that 60% of respondents listed cash visibility as one of their top three challenges, second to cash forecasting and ahead of risk management.
“Visibility not only enables the other two but I would argue it is a perquisite of the other two,” Mr. Nygren said.
The challenges companies face in achieving close to if not real-time cash visibility are varied and many. Too many banks and duplicate services across accounts can hinder visibility of trapped or encumbered cash around the world, and that can lead to unnecessary bank fees. Many companies still use Excel spread sheets populated by information that’s manually transferred from bank portals, an approach that not only takes extra time but provides little or no insight into the company’s regional debt, available credit and cash flows.
Another major challenge for multinationals is limited support from their banks, which may in part be smaller regionals that local authorities require doing business with. In some cases, transaction activity and balance information may require a phone call or fax from the bank, or even sending an employee to a branch.
How then to overcome these obstacles and move to greater cash visibility? First, it’s key to review existing policies and procedures and the inefficiencies they produce, to avoid automating what’s become a broken process. Then when considering the technology infrastructure to enable better cash visibility, the corporate should be sure it also improves liquidity forecasting, analytics, and risk management. Companies that have already sought to improve their technology infrastructure should review it, to optimize its full functionality.
“Don’t tackle this effort alone, Mr. Nygren said. “Leverage your banking, technology and consulting partners, and especially your own peer network.” The benefits of greater cash visibility are enormous, Mr. Nygren said. By reducing idle cash, companies can move the cash into short-term investments, maximize earnings credits, lower bank fees by reducing the number of bank accounts and reducing overdrafts, and otherwise operate more efficiently. Ultimately, such visibility leads to greater financial control as well as more intelligent decision-making.
“With broader global cash visibility, [treasury] is able to see the different pockets of cash and operational balances that can be mobilized, perhaps through an inter-company structure, to pay down debt or make refinancing decisions based on the flow of funds,” said Greg Person, VP of global presales at treasury management system (TMS) provider Kyriba who has held treasury positions at Microsoft, EMC Corp., and Boston Scientific. “It helps provide a better framework for borrowing and investing decisions, and reduce the local-operation bank balances that many companies are struggling with.”
Better connectivity to the company’s banks also provides a better visibility into the company’s investments, credit lines, guarantees, and overall liquidity. It allows for more accurate cash flow forecasts and enables timelier variance analyses, as well as improved ability to manage counterparty, sovereign and other risks, Mr. Person said. Such insight, he argued, enables treasury to gain additional alignment and buy in throughout the company, and makes it an integral part of the strategic planning process.
In terms of moving the company in the direction of greater global cash visibility, Mr. Nygren said, a first step is establishing a vision and developing a plan. “Ask yourself, what could your organization look like if you had more timely and reliable cash visibility overall, and what might be the unique benefits to your organization,” he said.
Then review existing practices and structures, identify that greatest pain points and the specific challenges faced by the company, and begin devising strategies to overcome those challenges. Explore the variety of technologies out there and ask for demonstrations—software as a service (SaaS) offerings have brought costs way down. Then build a business case to galvanize internal support, considering quantitative and qualitative benefits.
“Also discuss how the technology could benefit other areas of the company. Accounting often gets huge benefits,” said Mr. Nygren.