Home and Away: Making Your Cash Work

Publication: gtnews.com

BNP Paribas' fourth annual Cash Management University looks at how corporates can optimise their working capital, post credit-crisis. 

The fourth annual BNP Paribas Cash Management University began today at the grand location of Le Pré Catelan in leafy Paris. Matching the ambition of the venue was the line-up of speakers for the morning of the event. Delivering the welcome address was Baudouin Prot, the chief executive officer (CEO) of BNP Paribas, and it was an impressive sign of how the bank view their cash management business that the CEO was in attendance. 

Prot emphasised the fact that he views cash management as not being an ancillary business, but rather that the management of flows on time is a high value, high stakes business. He said that the bank wants to continue developing and improving its cash management offerings, particularly throughout Europe and Asia. 

Looking at the recent financial crisis, Prot explained how BNP Paribas had ridden out the downturn in good shape, having been profitable in every year of the crisis and, since 4Q08, increased both the number of clients it works with and the share of the wallet of these clients. This is emphasised by the fact that, since the Fortis acquisition, BNP Paribas now has a global network with a local presence in a large array of countries. Given this premise, it was interesting to hear his thoughts on the proposed reform and regulation of the banking system, triggered by the collapse of other financial institutions. Prot explained to the delegates that he broadly supported the reforms, but that he believed the emphasis should be placed on better and stronger supervision, rather than the focus favoured by the Basel Committee of increasing capital ratios. The 7% capital ratio requirement (10% in the old terms) is five times higher than previously, something that Prot is wary of. He made the point that if capital ratios are set too high, the price of credit to corporate clients will inevitably be affected. 

Earlier in the morning, Prot hosted an executive breakfast, where he spoke a little more about responses to the credit crisis, as well as the ongoing problems in the eurozone. Regarding the euro, he brought in an outside perspective, citing a recent visit he had made to China. Prot told the assembled breakfast audience that China is not so worried about the future of the euro - they see the difficulties that EU members are facing, but also see that in Europe actions are being taken to tackle these issues. Living and working in Europe, it is perhaps easy for some to think that everything to do with the euro is doom and gloom, so it was interesting to hear this perspective. 

Coming back to the theme of regulation and during the executive breakfast, I did detect a slight tone of concern from Prot regarding how some are tackling what needs to be done. He cited examples of countries where banks had failed and that, despite this, the regulators that oversaw the banking collapse were still in the same role and were very vocal on what additional regulation is required for the banking industry. He couldn’t really see how these regulators could tell countries such as Canada and France (whose banking sectors emerged from the crisis in much better health) what they should be doing to regulate their banking industry better. I have to say, this is quite a persuasive argument. 

Making Cash Work 

Following the welcome address from Prot, two senior treasury professionals from large global corporates provided examples of their approaches to cash management, in a panel moderated by Jack Large, partner at J&W Associates. First up was Yves Gimbert, group treasurer of GDF Suez. GDF is a huge global utility - in 2009 the company had €79.9bn in revenues - and invested around €30bn net between 2008 and 2010. 

Gimbert began with a truth - that cash management is the least ‘sexy’ part of the treasury function. It’s administration and project management, and as such it can be hard to justify budgets. This can particularly be the case with long-term projects and implementations. But today treasury is operating in a fast-moving business world that demands returns, so he advised that projects which take years to accomplish need a lot of drive, consistently over their life cycle. 

GDF is a mix of large business to consumer (B2C) entities. Regarding project times, Gimbert explained that long-term projects in large companies could actually be simpler than working with smaller companies. One of the reasons for this is that global costs tend to rise when the size of the company decreases. 

In Gimbert’s treasury, there is a culture of internalising strategy, IT architecture and project management. He said that an upstream investment is necessary to save time, control projects and make sure that all parties involved in a project are coordinated. He was also able to justify having his team in-house, as the projects they are interested in are defined by having a long-term evolution. 

Thinking philosophically about treasury management, Gimbert explained that cash pooling and other cash management techniques are only tools, not objectives. They are not fashion items in this way - just because another global utility might be pooling in a certain way, this does not mean that GDF will suddenly start copying this method. Gimbert said that it is important not to forget the basic needs that your company has in this area, including: 

• Cash concentration and short-term funding - looking for improved liquidity and funding or investment costs. 
• Communication with banks - standardisation, automation and processes under scrutiny, particularly with regard to costs and security. 

Gimbert advised the assembled delegates to think of solutions first, and products only as a tool. As he said, “a product without an optimised process is not a solution.” 

International Cash Management Evolution 

Following Gimbert, Ernie Caballero, vice president (VP), Eurasia treasury and mergers and acquisitions (M&A) for UPS, presented a case study of his work at the company, the decision to move to a centralised treasury in 2002, and how he and his team had gone about achieving this. Considering the confusing, unstructured picture that treasury had over the company’s cash in 2002, it is remarkable that UPS had US$45.3bn revenue in 2009, and US$3.7bn free cash flow that year. Due to its international shipping network, the company is also the world’s seventh largest airline, which underlines its global scale. 

It takes a good level of cash management to keep this sort of operation in check. Caballero explained how cash is a corporate asset at UPS and that treasury’s job is to protect this asset and enhance shareholder value. He described how there is a centralised approach but decentralised execution for the company’s treasury operations, with strategic direction coming from corporate treasury, with tactical execution coming via one of the company’s three regional treasury centres (RTCs). Below the RTCs sit the operating business units, managing day-to-day issues. 

For its cash management strategy, Caballero described how UPS has what he called ‘four pillars of operational success’. These are: 

1. Visibility and transparency. 
2. Sound control structure. 
3. Centralised liquidity management. 
4. Information technology. 

Picking up on a theme from Gimbert, Caballero explained how it is impossible to do the ‘sexy’ stuff in treasury without these four bases covered, likening it to what would happen if you tried to put the chassis of a Formula 1 car onto the body of a Renault Clio - you’re not going to win any races. 

UPS began developing its global treasury intranet portal in 2002, and today is rightly proud of its global treasury management system (TMS). Developed initially by Caballero and an intern, MT940 SWIFT messages are loaded onto the platform every day that provides treasury with cash balance visibility. Every business unit that has access to the company’s global notional cash pool report their daily cash needs in this way, and are then serviced by the TMS. 

Turning to liquidity, and Caballero explained how the UPS international liquidity is self-contained. The objective is to maximise returning funds to the US while maintaining working capital requirements. So he is able to use money from the global cash pool, when not investing, to buy things - giving his treasury the ability to grow organically. 

Looking to the future, Caballero outlined the main points that his team is focussed on: 

• Extending the use of technology to drive processing efficiencies. 
• Simplifying account structures as payment systems become more standardised. 
• Consolidating banking relationships into regional banks. 
• Leveraging the UPS network and banking relationships to drive global trade finance solutions for UPS customers. 

These are an aggressive set of goals, but as Caballero has proved over the past eight years, his team are capable of achieving success on a large scale. 

Conclusion 

Overall the first morning of the 4th annual BNP Paribas Cash Management University has given the delegates plenty to think about. The two case studies provided examples of what treasury can achieve within the organisational structure, becoming a driver of business change and best practice, at a time of economic uncertainty, which Baudouin Prot gave a fresh perspective to in his addresses. Still to come today are panel discussions around key issues such as best practice while operating in a low interest rate environment, optimising liquidity through cash flow forecasting, a look ahead at the next 12 months for SEPA, and to manage operational and compliance risks. The range of topics here prove that these are busy times for treasury departments around the world, but that there are also a number of opportunities for treasurers to make their mark.

2010 AFP Annual Conference: Blog

Publication: gtnews.com

Post 1: Multichannel Bank Account Management (9 November 2010)
Electronic bank account management (eBAM) was in the spotlight at a session during the first day of the AFP Annual Conference 2010, with a panel discussion providing corporate, bank, and standards association perspectives.

One of the most compelling sessions on the first day of the AFP Annual Conference 2010 in San Antonio looked at the topic of electronic bank account management (eBAM). A buzzword of the past 18 months, eBAM can be a confusing topic due to the large number of players in the market and the fact that the concept itself is evolving. This session provided a corporate perspective from Barbara Quiroga, director, cash operations, lead, Delta Airlines; a bank view courtesy of Hilary Ward, certified cash manager (CCM) global product manager, global transaction services, Citi; and the thoughts of an international standards organisation thanks to Stacy Rosenthal, head of corporate and payments strategy, SWIFT. 

The session set out to demonstrate how the use of eBAM can help corporates be more efficient in their global banking relationships, particularly in areas where paper and manually intensive processes exist. 

Corporate Approach 

Quiroga began the session by illustrating the challenge that Delta faces in managing over 100 banks, operating in 80 countries and dealing with around 20 legal entities. Managing this number of relationships can be time consuming and challenging, and so the prospect of simplifying processes through eBAM was appealing to the Delta, particularly as their treasury structure is heavily centralised. To start the process, Quiroga explained the eight-point checklist that Delta drew up, listing what the company wanted out of any eBAM process that it entered into. These were: 

1. To eliminate paper. 
2. Control bank accounts in a centralised way. 
3. Track the progress of bank account requests internally and across the company’s banks. 
4. Search for and request changes to a single signatory across all applicable bank accounts. 
5. Use search capabilities to generate reports. 
6. Update the corporate address, contact data, legal structure and any other data and/or information associated with a bank account. 
7. Create a virtual signature card for each signatory that is legally binding and regulatory compliant. 
8. Provide authoritative reporting for corporate compliance needs. 

Quiroga reported that Delta had started implementing their eBAM programme in February of this year, and that it is ahead of schedule. The Delta case study is a great example of how corporates should approach eBAM - by having a clear idea of what they want to achieve with the implementation of eBAM and using these points as a way of measuring progress and the success of an implementation. However, it is worth noting that an eBAM project will only truly be successful - and indeed worthwhile - if the corporate implementing it already has a firm grip on their existing bank account management programme. This was a point emphasised by Citi’s Ward in her presentation. 

Bank Perspective 

Ward described how traditional bank account management was limited by issues such as: 

• A reliance on paper. 
• Manual processes. 
• Long cycle times. 
• Unreconciled records. 
• Embedded risk, such as numerous hand-offs and resolutions subject to interpretation. 
• Country- and bank-specific processes. 

The positive news surrounding eBAM is that the electronic processes involved have the potential to yield a number of benefits to bank account management, including visibility and control, security - with identity automatically built in to processes - and efficiency. However, Ward continued, “if you don’t know where the ‘BAM’ is, how are you going to get to the ‘e’?” In other words, eBAM isn’t going to fix a mismanaged bank account management programme. 

Standards are Needed 

SWIFT’s Rosenthal also agreed with the point that corporates need a solid foundation from their existing bank account management structure before embarking on an eBAM project. But looking at wider trends in eBAM, she argued that it is necessary for all stakeholders in the eBAM project to collaborate and define ‘common’ market practices. Rosenthal pointed out that standards in this area are evolving and will continue to evolve based on market adoption and feedback. 

The need for common standards is seen in the amount of banks and vendors offering solutions that are being marketed as eBAM. This was picked up by a delegate attending the session, who asked the panel who the ‘real’ vendors for eBAM are. 

In response, Delta’s Quiroga suggested that it depends on the process that the individual company operates internally, and that those tasked with selecting eBAM partners should find the best fit for their company. She also pointed out that there are lots of things that corporates can be doing while waiting for their bank to offer the desired level of eBAM support - the primary of which would be focusing on their current bank account management practice. 

Answering the same question, Rosenthal advised the delegates present to speak with the banks and vendors that they currently work with today, in order to help develop and shape the eBAM offerings of the future. There are around 12-15 vendors in the eBAM landscape at various stages of development, she advised. Looking to the future, it will be interesting to see how this market plays out, in terms of competitors falling away or partnering up.

Post 2: Closing the Gap Between Bank Cash Management Offerings and Corporate Needs (10 November 2010)
A session on the second day of the AFP Annual Conference 2010 examined how to close the gap between corporate expectations and bank solutions in the area of cash management. 

A theme of the AFP Annual Conference 2010 that came up in a session yesterday was the idea that corporates and banks need to work much closer together when developing appropriate treasury offerings and tools. This theme was reiterated in a session featuring representatives from Citi and AT&T, as well as Aite Group who announced findings from a recent corporate survey. 

According to the Aite Group survey, over 50% of the large corporates they polled had business with more than 20 banks. So it would be fair to say that corporate banking relationships are complex, overlapping and also fluid. Within these myriad relations, corporates are hungry for information on issues such as cash and liquidity visibility, risk factors and working capital automation. For the latter topic, many treasurers I’ve spoken to at the conference are particularly keen on learning how to move to straight-through processing (STP) and to eliminate both paper and silos from their organisational processes. 

Returning to the Aite Group research, but this time on the financial institution side, the survey found that one-third of banks described the credit crisis as being a ‘near disaster’ for them. However, as Christine Barry, research director at Aite Group, explained, those banks that had survived the credit crisis in better shape are now finding opportunities in the market through a variety of value-added tools they can offer their corporate clients. These include areas such as fraud prevention tools, more advanced liquidity and cash management tools, account receivables and payables management - an area where corporates are keen for more automation. All of these areas are being driven by new technology, and Barry made the point that technology is critical to future bank success. Technology helps to measure risk, promote accessible data and allow financial institutions to provide strong product offerings. 

Another interesting area of the research looked at the customer service experience corporates had when dealing with their banks. Asked whether they had ever switched banks because of poor customer service, 76% of corporates said they would, which backs up the idea of corporate banking relationships being fluid, as mentioned earlier. Numbers like these mean that banks are placing an ever-increasing emphasis on the client experience, and new technology is allowing banks to respond in, for example, some of the following ways: 

• Customer-driven dashboards. 
• Multibank reporting. 
• Strategic tools for better liquidity management. 
• More granular entitlements. 
• Real-time information. 

And corporates are ready and willing to invest in these new products if they are a good fit for their company. Sherri Bazan, corporate manager, domestic cash management, AT&T, explained that they have been developing a number of different treasury initiatives in the quest for greater automation and efficiencies. Some of the AT&T projects include: 

• Simple IBAN redirection solution. 
• Move from cheque to electronic payments. 
• Counterparty risk project. 
• Future improvements - electronic bank account management (eBAM) and automated clearing house (ACH). 

The overall feeling from this panel, and from the mood of the conference overall, is that corporates are keen to embrace technologies and systems that create financial and time-management efficiencies, but they have to be solutions that are created with the corporate in mind. Corporates are looking for end-to-end visibility and reachability in their treasury management processes, and solutions providers that understand how they can fit into this world will surely be successful in the years to come. However, that understanding can only come through detailed dialogue with their corporate clients.