The one thing the financial crisis taught was the value of having access to your cash. With bank and capital markets sources of liquidity drying up, companies found it hugely advantageous to have their cash management systems optimized. Rethinking how to improve and deploy cash firepower was therefore a topic of particular interest at this month’s EuroFinance conference in Miami.
In one session, AES assistant treasurer Lawrence Hirsh and Microsoft treasurer George Zinn gave overviews of their priorities and processes for improving their cash management. Although very different companies, both emphasized the need to rationalize bank account management and obtain as much cash visibility as possible.
POWER FUNCTION
AES faced a particularly difficult challenge. The Arlington-based company runs about 50 power plant subsidiaries scattered throughout the world, each of which is its own operating subsidiary. These are funded through local debt arrangements that typically require the company to maintain bank accounts, and specific bank account structures, in the country in which the power plants are domiciled. Until recently, AES had about 2,000 bank accounts in 55 countries around the world. It has since worked to centralize treasury operations, implemented a global treasury workstation, and reduced that number to about 1,700 in 50 countries.
Mr. Hirsh had several principal goals in common with other multinationals. First, he wanted transparency so that he knew where his cash was all around the world at any time. Second, he wanted to move loan and deposit account management to an electronic system that would give him transparency and allow him to manage issues such as signatories, as well as opening and closing accounts as needed. And finally, to feed his treasury system, he wanted to get as many of his accounts on a common XML platform as possible to reduce the need to translate feeds from various accounts into the language used by his TMS.
Transparency, automation, common platform, SWIFT all key to getting better bank account visibility
Mr. Zinn’s Redmond-based software giant faced equally daunting, though different challenges. When he took on his current job in 2004, Microsoft had piles of cash on its balance sheet. With a 25 percent effective tax rate, the company kept significant amounts offshore. But a sore point was cash-flow forecasting. “You have to know where your money is—we had thousands of accounts,” he notes.
The first priority was to start a SWIFT project so that Microsoft could get 100 percent visibility. Then, the company improved its cash-flow forecasting, which allowed it to hold onto its cash longer—paying later in the day rather than risk having its money trapped during the crisis.
So how did AES and Microsoft find a solution across all their international business units? Mr. Hirsch held a meeting with representatives from all geographies and organizations over the course of several months. It held fact-gathering sessions with conference calls and then brought the key players in for in-person meetings. Microsoft used its own Visio software to understand process flows. But even with sophisticated analytics, Mr. Zinn noted, “We’re salmon swimming upstream” with new accounts opening all the time.