Liquidity Archives - Page 26 of 27 - treasuryXL

Are we entering an unprecedented economic situation?

| 28-02-2020 | treasuryXL | Pieter de Kiewit

One of my favourite professional pastimes as a corporate treasury recruiter is digesting treasury technical content and bridging it to the “rest of the world”. Or see what is happening in the global news and projecting it on the field of corporate treasury.

Currently there is a constant flow of news about too much money in the market. One would say this is a good thing. Let me give you some positive and negative examples of the effects:

The OECD publishes about rising income growth;
Dutch SMEs need less funding;
Corporates and governments are willing to take the extra effort and choose green bonds instead of regular bonds.

But also:

Pension funds are not able to invest in a future-proof way;
We have to pay for our savings (if you have a lot);
Hedge fund managers use external funding, instead of the funding of their investors, to safeguard their bonuses.

We enter an unprecedented economic situation only encountered by Japan and there is no obvious path to take. I will not try to clarify macro economics, it is not my field of expertise, but do know that changing demographics contribute. Us getting older and people retiring rich, most likely richer than their kids, has to do with this. What do I see as effects on corporate treasury? Let’s focus on three main tasks of a corporate treasurer.

In cash & liquidity management there are many exciting initiatives in the improvement of cash flow forecasting. Payments can technically be done smoother, safer and quicker. Cash visibility can be increased and liquidity is centralized. Most corporate treasurers want to implement these new solutions. As liquidity is high, many CFOs do not feel the urgency to invest in these initiatives. Doing nothing will not result in higher cost, so what is the ROI?

In risk & investment management the obvious focus is on interest developments. The general opinion is that interest will be low for a very long time. Getting long term funding for (almost) 0% is doable. So why bother matching long and short term funding options? This results in a situation that the use of hedging instruments is less important. Investing excess cash or helping the company pension fund with their strategy currently requires analysis and choices.

Corporate Finance has the fun task of optimizing the balance sheet and lowering funding costs to an extreme. I recently met the group treasurer of a real estate company who is able to make money attract funding for his company! The more challenging task of corporate finance is participation in business development and M&A. The willingness of entrepreneurs, shareholders and boards to invest in adventurous ways is high. The corporate treasurer has to hold on to his role of risk manager and hit the brake. This does often not increase his popularity…

A lot more can be said about the topic, that will be for other blogs. Back to a non-corporate mindset and not pretending to be a socialist, I hope all this money will be used to improve the world: better the environment, lowering the income gaps, makes us all happier. The real philosophical approach I leave to Notorious B.I.G.

Enjoy your money,

Pieter de Kiewit

Owner at Treasurer Search

Corporate Governance and Treasury | Embrace the Corporate Treasury Policy

| 18-02-2020 | François de Witte | treasuryXL |

Corporate Governance

Corporate Governance is a mechanism through which boards and directors can direct, monitor and supervise the conduct and operation of the corporation and its management in a way that ensures appropriate levels of authority, accountability, stewardship, leadership, direction and control.

The ultimate responsibility for Treasury management within an organization lies with the board of directors. Due to the practicalities and technical aspects involved in corporate treasury, the board typically delegates the daily management of risk to responsible individuals in each department. In the case of financial risks, many of these are delegated to the treasurer.

Whilst, due to its specific activities, the corporate treasurer needs to take a lot of actions and decisions independently, it is important that he does this within a framework and Governance. Quite a lot of corporates have formalized this in a “Corporate Treasury Policy”.

Corporate Treasury Policy

The Corporate Treasury Policy is the mechanisms by which the board, or risk management committee (RMC), can delegate financial decisions in a controlled manner. This document should be a summary of all the principles approved by the Board or the Financial Committee of the Board as a mandate of the Board to the treasurer (the Treasury Mandate).

The Corporate Treasury Policy is a framework document, which covers the following areas:

Organization of the Treasury Function

In most of the companies, the Corporate Treasury Reports to the CFO. The CFO is usually himself a Member of the Executive Committee, which itself reports directly to the Board of Directors. (Treasurer – CFO – Treasury Committee – Audit Committee – Board):

A policy should set out clearly which decisions are delegated to the treasurer and when the treasurer should refer a decision back to the board or other person within the organization. Within several corporate, the Board of Directors have delegated the decision process to dedicated committee, like the Risk Committee, and the Liquidity and Funding Committee.

Treasury Control Framework (including the Code of Conduct)

Procedures and controls to manage the risk should be put in place to provide an overall framework for decision-making by the treasury team.

Ideally, this should also include a code of conduct. The Corporate Treasurer should act as a Corporate Custodian. In other words, he is Protector of the company’s assets, and should act according to a strict Code of Conduct and Ethics. There exist examples of codes developed by professional organizations such as IGTA, ATEB, AFTE, ACT and ATEL.

Liquidity and funding

The board should be informed about funding possibilities to put currency, maturity, cost and equity/debt character into a wider context. The board should decide on the strategy but can delegate fund raising decisions and actions to treasury. However, I recommend that Treasury asks the final board approval for strategic decisions (e.g. major syndicated loans, bond issues, etc.).

The board should have an overall view on the liquidity risk of the company. The Board should also define the financial policy, covering the gearing and maturity issues, fixed and variable interest rate obligations, dividend policy and covenants.

Banking Relationship

Banks chosen by the treasurer must be able to meet the needs of the organization, both domestically and internationally. I recommend that the Board approves annually criteria for selecting the banks with whom it will work.

Risk Management

The Treasurer must identify the various risks to which the company is exposed, quantify the impact, and should inform the Board thereof. He should estimate the size of these exposure risks and their impact on the he overall operations and financial performance of the company, and make recommendations in these areas

The board must approve the hedging policy, the company’s foreign exchange, interest rate and commodity risk management policy and its attitude to risk. It should define which part of the risks must be hedged and the hedging horizon. I recommend that the Treasurer submits at regular intervals to the Board the list of authorized instruments, the amount per instrument and their term

Investment Policy – Counterparty Credit Risk

The board should approve the treasury’s Investment policy including the choice of instruments, the list of counterparties used + the maximum amount/counterparty & maturity. It is recommended that the Board provides guidelines and limits per instrument.

It is recommended that the Board approves the guidelines for fixing counterparty limits, and maximum exposure per counterparty.

Authorized instruments and Arrangements – Authorized Approvers

The Treasurer should make sure that the board must understands and approve the strategies and instruments used and sets guidelines for the appropriate limits for their use. These guidelines need to ensure that treasury has not sacrificed long-term flexibility or

survival for short-term gain, especially in view of the volatile financial market’s situation.

Treasury Operational Risk

The treasurer should make the Board aware of the operational risks to which the company is exposed. He should provide recommendations in this area. Furthermore, the treasurer should also submit recommendations to the board on the treasury organization and the ways to reduce the operational risks.

Monitoring

A Corporate Treasury Policy has only sense, if there is a regular follow up and control framework; Hence procedures and controls to manage the risk should be put in place to provide an overall framework for decision-making by the treasury team.

It is also important to provide to the Board a regular update on the way the treasurer complies with the policy. The policy should also be regularly reviewed.

Treasury must alert the board to external changes and internal strategic developments, which may have long-term implications for the organization and make proposals for managing them.

The policy needs also to be reviewed at regular intervals each “Policy” in function of the market and of other internal or external developments. I recommend having treasury on the Board’s agenda on a quarterly basis.

Conclusion

Treasury is not an island in the company. It is closely linked to the corporate governance. Hence it is important to define the right framework.

I recommend to corporates to put in place a treasury policy validated by the Board of Directors and reviewed regularly. It is important to update the Board at regular intervals about strategic topics, such as strategic financing topics and risk management.

The treasurer has also an important educational role, as he must be able to make complex treasury topics understandable for the board members.

Hence there must be a good interaction between the treasurer, the CFO and the Board is key, where the Treasurer is the linking pin.

François de Witte
Founder & Senior Consultant at FDW Consult
Managing Director and CFO at SafeTrade Holding S.A.
treasuryXL ambassador

Digitalization enhances the strategic position of the treasurer

| 27-12-2019 | TIS | treasuryXL

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Digitalization as a horizontal phenomenon
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To swap, or not to swap that is the question

30-9-2019 | Marco Lassche |

Cash management in different currencies:
The FX swap, a way to optimize your interest result

Years ago, when I made my first baby steps in the world of Treasury at Bank Mendes Gans, my old teachers Jan Loohuis and Aart-Jan Lensvelt, taught me some good lessons. One of them, that I always used in the companies that I have worked for, is this one.

What if you have temporary an overall negative position in one currency (e.g. -/- EUR 10 mio) and an overall positive position in another currency (e.g. +/+ USD 11 mio)?

Basically you have two easy ways to manage this liquidity position and optimize your interest result. Both ways lead to Rome:

Keep the balances in your bank account
You swap the balances in different currencies temporary by means of a FX-swap

Option 1: Keep the balances in your bank account
This option does not need much clarification.

For your debit balance you pay interest (basic interest +/+ margin)
For your credit balance you receive credit interest (basic interest -/- margin

Option 2: The FX swap
In a FX swap you do a trade in your FX trade portal, in which you exchange the bank balances at a spot date (at the spot rate) and you reverse it at a future date (at the forward-rate). You do the trade at the same time, so no FX risk is involved.

Forward FX-rates are being calculated directly from the spot FX-rate and are adjusted for the difference in interest rates between the two currencies.

Option 1 or option 2?
When the interest rate difference between the two currencies is more attractive in option 1, you keep your bank balances. When the interest rate difference between two currencies is more attractive in option 2, you swap.

Example
I would like to clarify it by an example in which we have a EUR balance of -/- EUR 10 mio and a
USD balance of +/+ USD 11 mio. We will swap the currencies for 1 month (30 days).

Interest results after 30 days

Option 1) Interest result by keeping balances in your bank account

Total interest proceeds in USD: EUR 2,708 * 1.1000 = USD 2,979 + USD 18,563 = USD 21,542.
Interest rate difference between USD and EUR: 2,35% (2.025% -/- 0.325%).

Option 2) Interest result by swapping balances

At the start date we buy EUR 10 mio, and sell USD 11 mio at the spot rate 1.1000.
At the end date, after 30 days, we reverse the trade as we agreed with the bank:
We sell EUR 10 mio, and buy USD 11,025,770 at the agreed forward rate 1.102577

Our total interest rate difference proceeds is USD 11,025,770 – USD 11,000,000 = USD 25,770.

Conclusion:
In this example the FX swap is USD4,200 more attractive than keeping the account balances like it is. Of course, this is not always the case, but a FX swap can be a good alternative in many cases.

* How to calculate the interest rate difference between two currencies in a FX swap
As previously said, the difference in spot and forward rates, can be explained by the interest rate difference between two currencies, We calculate the interest rate differences as follows:

Forward Rate on annual basis / Spot Rate

As interest percentages are always based on 1 year we multiply the 30 days forward points by 12 to get to 1 year forward points (EUR and USD, calculate 360 days in a year, GBP e.g. 365 days).
The forward points for 30 days: 25.77, which means for one year 12 * 25.77 = 309.24
Forward rate on annual basis: 1.130924

Spot rate: 1.1000

1.130924/1.1000 = + 2,81%

Please feel free to contact me if you need any further information.

Marco Lassche

Founder and Owner of at Bedrijfskostenexpert
Treasurer and Project Manager at Van Caem Klerks Group
treasuryXL Ambassador

Is your company struggling with liquidity forecasting?

| 12-09-2019 | treasuryXL | Cashforce |

Is your company struggling with liquidity forecasting?
Find out how you can transform your forecasts from bad to best.

Too much manual effort and too little time for analysis, a statement (too) many treasurers can relate to. According to PwC and their Global Treasury Benchmark Survey, still 87% of treasurers use technology from the 1980s (i.e. spreadsheets) or have a disparate set of ERP systems, multiple bank websites and email. Consequentially, this leads to a lack of visibility and makes it very arduous to answer critical questions like “Is my company over borrowed, underinvested or overexposed?”.

An inability to answer this question not only constrains treasury’s ability to measure its success but could harm the future viability of the company. With automated and accurate forecasts & simulations within reach, this is a clearly avoidable risk.

During this one hour webinar, Bruce Lynn of the FECG and Nicolas Christiaen from Cashforce discuss how to radically optimize your cash forecasting workflows by:

Identifying the operating risks by utilizing existing resources
Quantifying the benefits to be gained by examining existing “flows” regarding cash, accounting, work, and information, whether across treasury, the business units or other financial parts of the company.
Using a step-by step approach to set up an accurate & automated forecast

About Cashforce

Cashforce is a ‘next-generation’ digital Cash Forecasting & Treasury Platform, focused on analytics, automation and integration. Cashforce connects the Treasury department with other finance / business departments by offering full transparency into its cash flow drivers, accurate & automated cash flow forecasting and working capital analytics. The platform is unique in its category because of the seamless integration with numerous ERPs & banking systems, the ability to drill down to transaction level details, and the intelligent AI-based simulation engine that enables multiple cash flow scenarios, forecasts & impact analysis.

Cashforce is a global company with offices in New York, Antwerp, Amsterdam, Paris & London and provides Cash visibility to multinational corporates across various industries in over 120 countries worldwide.

The challenges of liquidity planning and forecasting

| 17-06-2019 | treasuryXL | Cashforce |

For more than a decade, liquidity and cash flow forecasting have remained in the top three challenges for CFOs and treasurers globally. This begs the question: why has this been a perennial challenge for so long? The reason: treasury operations today are, for the most part, a series of unintegrated systems, spreadsheets and silos between groups and other departments.

Companies are often faced with multiple ERPs, many entities, and different currencies. These make the task of managing liquidity a major challenge, not to mention a significant manual effort involving many people. The result: lots of time spent gathering and validating data while still not having a full, transparent view into the numbers. The volume, variety, velocity and veracity of data generated each day has made traditional analysis – using spreadsheets, for example – obsolete. It is just not possible to manually aggregate and analyse that much data with sufficient speed to be able to gain insight, and then turn that insight into action. To be able to do so you need the right set of tools.

WHAT SHOULD A TREASURER OR CFO BE ASKING THEMSELVES?

Can you identify all your sources of data that you need to make a cash flow forecast? Eg ERP (how many do you have, are they all on the same instance), CRM, bank statements, trend analysis, manual data (such as budgets).
How often do you refresh your short-term/mid-term cash forecast? (Daily, weekly, monthly, quarterly, or I don’t make a cash forecast).
How do you ensure no mistakes happen in your data capturing/consolidation?
How do you incentivise your subsidiaries? Local subsidiaries and users typically download information from their ERP, and upload in other types of files to HQ, or in SharePoint, or they will just send Excel files from all over the globe to HQ, which means it’s 100% manual. There’s no real alignment of the processes across subsidiaries and no audit trail at the local level.

WHAT TO CONSIDER?

Companies should ensure their information is system-based. In other words, they have full integration with their ERP, so they don’t have to manually download data (it should flow automatically).
Any augmentation of data should have an audit trail so that, ultimately, the group treasurer can see who did what, and when they did it.
Automate the process and deploy alert functionality, such as reminders for subsidiaries to post their local forecast, and for the group treasurer to look for it.
Ensure bank connectivity to enable comparison of actuals with forecast figures.

I HAVE THE DATA. NOW WHAT?

With this data, treasurers should now be able to answer these four key questions: what happened; why did it happen; what will happen; and what should be done?

Descriptive analytics answers the question, “what happened?” This is the most basic form of big data analytics, and provides a picture of past events.
Diagnostic analytics, “why did it happen?” Diagnostic analytics enables you to perform root cause analysis and use that information to prevent future repetition of events.
Predictive analytics, “what will happen?” Predictive analytics uses advanced algorithms – often with artificial intelligence and machine learning – to forecast future events.
Prescriptive analytics, “what should I do?” Prescriptive analytics tells you what the best steps are to achieve a specific result. Prescriptive analytics requires advanced machine learning capabilities.

The (Im)possibility of Liquidity Planning

| 07-06-2019 | BELLIN |

Defining and establishing liquidity planning workflows

Liquidity planning is extremely essential. Companies can survive a certain amount of time without making a profit. However, they will go down within just a few days if they lack the necessary liquidity. Therefore, liquidity planning is high on any treasury’s agenda.

Suddenly, cash was in short supply. Everything ground to a halt. Indeed, the crisis of 2008 has shown how important it is for companies of all sizes and industries to plan with liquid assets. They have to ensure that liquidity fluctuations will be hedged adequately and that times of tight liquidity can be overcome easily. Even long-term profitability cannot always serve as a guarantee that financial markets will be able to provide sufficient liquidity in times of crisis – unless waterproof strategic agreements for financing liquidity shortages were concluded long before the crisis. Liquidity planning is not the same as planning a company’s cash balance. Instead, it forms a basis for strategic hedging decisions in interest, currency and commodity management.

When you begin dealing with liquidity planning in your business, you may be disappointed at first. You will not be able to transfer experience from a balance sheet and profit and loss (P&L) calculation. As a first step, you will need to define liquidity planning and set your treasury’s liquidity planning goals.

Liquidity Planning Versus Cash Management

Liquidity planning serves to illustrate cash flows from all organizational units over time. lt distinguishes between different cash flows, e.g. customer payments and HR payments. The timeline – the underlying planning horizon – usually includes the next six to twelve months. However, certain business models may require planning several years in advance. Never confuse liquidity planning with daily cash management, which focuses only on future balances of individual bank accounts and on creating daily cash forecasts.

The quality of balance sheet and P&L planning is determined by its accuracy. The better the planning, the more accurate the predictions. In the relationship of balance sheet and P&L to liquidity planning, the most important factor is the end result: both plans should result in the same balance at the end of a period. To ascertain this figure alone, a treasury department would not need to create its own liquidity plan. Yet from a treasury perspective, the projected balance is only a means of checking plausibility at the end of the planning horizon. Even the smallest change in an underlying transaction or payment can lead to significant changes in the final result, without affecting overall corporate success or reducing the quality or even sense of liquidity planning as a whole.

A Basis for Hedging

Determining a precise cash balance at the end of a particular planning horizon is not the goal of liquidity planning. Its focus lies on analyzing the differences between an original plan and a rolling plan. The treasury department bases hedging decisions on the original plan. Then, it examines the reliability of these risk management measures. If the treasury finds significant inconsistencies, it can swap or create new foreign exchange deals, negotiate new credit lines or revise the maturities of interest bearing transactions.

Liquidity planning is possible. However, it is impossible to plan liquidity in terms of cash on hand at a particular date. With this different goal in mind, liquidity planning becomes the basis for strategic hedging decisions. Only a liquidity plan that is kept up to date can provide information on when to expect cash flows in foreign currency, when group companies need more liquidity within the planning period and when excess liquidity will be returned.

Interest and Currency Risk

Liquidity planning is not just about liquid assets, however. Flawed planning can have negative side effects, particularly with regard to financing and related interest. High interest rates can reduce income and reserve assets of companies that are notoriously short, i.e. always in a position of net debt. At the opposite end of the spectrum, companies in a «long» position, i.e. those who have sufficient liquidity to finance their ongoing business, miss out on interest earnings. They rarely consider such opportunity interest.

Interest topics aside, liquidity planning also deals with the somewhat more complex issue of foreign exchange risk. Currency exposure can also affect cash on hand. The media frequently circulate striking examples, although they often wrongly blame derivatives for lack of liquidity or financial losses. In any case, it is important to note that a shift in exchange rates may have a decisive influence on the liquidity development of companies active in countries with foreign currencies.

Liquidity planning made easy in tm5

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Our technology lets you make short-term or long-term liquidity forecasts across all subsidiaries in the corporate group. Be prepared for all eventualities.

Make use of scenario planning via detailed financial reports that enable you to stay on top of cash flow management
Generate payment forecasts in different transaction currencies
Define your individual planning categories
Conduct plan comparisons
Use your own capacity for effective planning, whether it be a matter of days – or years – into the future
Consolidate planning data across all subsidiaries within your corporate group
Use a reconciliation matrix to resolve intercompany conflicts
Aggregate liquidity planning on a group-wide level
Calculate hedging ratios and your company’s refinancing strength based on any possible scenario.

Product: Cash & Liquidity Management

Room to Breathe

No company can exist without liquidity planning: it would be incapacitated within just a few days. Primary liquidity risk factors take a company’s liquidity – its room to breathe. Cash management is essential for short-term planning horizons. In the medium and long term, companies require a liquidity plan, a prerequisite for meaningful risk management, which is cleanly separated from corporate financial planning. These two topic areas deal with interest and currency management from different perspectives. Companies need to ensure a basic liquidity supply, consider supply costs and take into account possible fluctuations caused by currency exchange factors.

Martin Bellin

Founder & CEO at BELLIN

Treasury as a service

| 02-10-2018 | ENIGMA Consulting |

Je zou kunnen denken dat alleen grote bedrijven een liquiditeitsplanning nodig hebben. Dit is echter niet waar. Of je nu een start-up bent, een klein groeiend bedrijf of een middelgrote onderneming op zoek naar innovatie, voor financiering en interactie met kredietverstrekkers is een liquiditeitsplanning erg belangrijk. Als je je nog niet eerder met liquiditeitsplanning hebt bezig gehouden, dan is het verstandig om verder te lezen.

Waarom is er een liquiditeitsplan nodig?

Effectieve liquiditeitsplanning is essentieel voor het succesvol managen van een bedrijf. Het biedt een gestructureerd overzicht van de belangrijkste inkomende en uitgaande geldstromen bij het bedrijf, normaal gesproken over een periode van één tot drie jaar. Er wordt onderscheid gemaakt tussen een liquiditeitsplan dat betrekking heeft op een fiscaal jaar en een liquiditeitsplan dat periodiek wordt aangepast om de laatste ontwikkelingen weer te geven. Een doorlopende planning wordt gebruikt om wijzigingen vast te leggen die bijvoorbeeld kunnen voortvloeien uit verkoop- en kostenvariaties voor de planningsperiode. Jaarlijkse en voortschrijdende plannen worden uiteindelijk vergeleken met werkelijke kasstromen met als doel de verschillen te analyseren en maatregelen te nemen om de liquiditeit te waarborgen.

Wat is het doel van liquiditeitsplanning? Naast het voor de hand liggende antwoord dat het projecties voor de komende maanden en jaren biedt, zijn er andere goede redenen voor liquiditeitsplanning.

Basis voor deugdelijke bedrijfsbeslissingen door het management; een van de taken van een directeur is om niet alleen de financiële groei van het bedrijf in de gaten te houden maar ook de solvabiliteit. Een gestructureerd liquiditeitsplan is in dit opzicht een goed uitgangspunt en levert betrouwbare cijfers als basis voor elke strategische beslissing.
Bewijs voor geldschieters en aandeelhouders; liquiditeitsplanning speelt ook een belangrijke rol bij het zoeken naar financieringsaanbieders om investeringen te doen, groei te financieren of nieuwe productideeën tot uitvoering te brengen. Een liquiditeitsplan kan de financier (bank or andere kredietverstrekker) aantonen hoe de liquiditeit de komende jaren naar verwachting zal evolueren – bewijsmateriaal dat keer op keer moet worden verstrekt en die voortschrijdende planning kan bieden. Nauwkeurige planning schraagt de reputatie van een bedrijf in de ogen van alle externe partijen – zowel kredietverschaffers als aandeelhouders.

Hoe ingewikkeld is liquiditeitsplanning nou?

Als je zelf op een financiële afdeling werkt en in het verleden te maken hebt gehad met liquiditeitsplanning, bent je waarschijnlijk maar al te bekend met de onderstaande problemen.

Je geeft planningssjablonen aan alle betrokkenen, maar alleen onvolledige informatie – of helemaal niets – wordt geretourneerd. Inzendingen zijn tegenstrijdig of bevatten een verscheidenheid aan eenheden en formaten. Voorgeschreven wisselkoersen worden niet gebruikt, er is geen coördinatie tussen operationeel verbonden eenheden, enzovoort. Als instructies te ingewikkeld zijn of de eisen te zwaar, worden entiteiten vaak overweldigd en gebruiken ze de informatie verkeerd.

Verschillende operationele struikelblokken komen dan snel naar voren. Als instructies niet volledig worden opgevolgd en informatie op verschillende manieren wordt geleverd, is het samenstellen van een plan een moeizame en langdurige exercitie. Gegevens moeten handmatig worden overgedragen, veronderstellingen nauwkeurig onderzocht en indelingen gewijzigd. Een hoge mate van betrokkenheid is vereist als je je aan bepaalde tijdsbestekken wil houden en wil voorkomen dat de gegevens waaraan je werkt worden vervangen door recentere gegevens. Handmatige invoer moet ook door een andere persoon worden gecontroleerd om fouten te voorkomen. Vertragingen worden vaak verwacht en ingebouwd in het schema.

Processen zijn dus ongecontroleerd en inefficiënt en alle partijen verliezen momentum. Het resultaat is vaak een liquiditeitsplan op basis van gegevens die verouderd zijn en dus uiteindelijk onbetrouwbaar.

Hoe kan ik een liquiditeitsplanning eenvoudiger opstellen?

In het tijdperk van digitalisering en globalisering is een voor de hand liggend antwoord op het verbeteren van de efficiëntie en het verbeteren van de onderliggende gegevens het gebruik van software – idealiter een bedrijfsbreed platform waartoe alle relevante werknemers toegang hebben en dat in realtime betrouwbare gegevens levert.

Maar niet alle bedrijven willen dit pad volgen. In plaats daarvan willen vooral kleine en middelgrote ondernemingen een stap verder gaan en herhalende, tijdrovende taken helemaal elimineren.

Ze schrikken terug voor de tijd en moeite die het kost om te investeren in een Treasury implementatie project; ze hebben geen personeel beschikbaar. Ze willen zich gewoon op de business concentreren, zonder een langdurig project te beginnen en nieuwe medewerkers aan te nemen en op te leiden.

Dit zijn allemaal redenen om een deel of de volledige verantwoordelijkheid voor de genoemde problemen over te dragen aan een professionele dienstverlener, bijvoorbeeld door een uitbestedingsoplossing zoals Treasury as a Service (TaaS) van ENIGMA te gebruiken. Vooral als het gaat om liquiditeitsplanning, is er een enorm potentieel om resources te sparen en tegelijkertijd de nauwkeurigheid van gegevens en planningsmogelijkheden te verbeteren.

Kan ik de liquiditeitsplanning outsourcen?

Natuurlijk kunnen wij de liquiditeitsplanning verzorgen. Wij bieden bedrijven een service die liquiditeitsplanning en andere duidelijk omschreven diensten zoals financiële status, betalingen, cash pooling en verrekening op een professionele, veilige en betrouwbare manier verstrekt en ondersteunt. We noemen het Treasury as a Service (TaaS). TaaS biedt een professionele service die het planningsproces bij het bedrijf duidelijk structureert en beheert en daarmee de planningsbetrouwbaarheid binnen het bedrijf verbetert. Transparantie en zichtbaarheid nemen toe, waardoor de reputatie van het bedrijf bij banken wordt versterkt.

Hoe werkt liquiditeitsplanning met TaaS?

ENIGMA zorgt voor alle essentiële vereisten. Wij bieden web based toegang tot een applicatie en wij bieden gecertificeerde hosting- en datacenterprocessen die de nodige beveiliging garanderen. Geen handmatige gegevensverzameling via verschillende communicatiekanalen en de vervelende analyse van gegevens. Verdwenen is ook de onzekerheid over de bron van informatie en de vraag of gegevens wel up-to-date zijn.

ENIGMA biedt een gestandaardiseerd planningsplatform waarop alle bedrijfsonderdelen planningsgegevens kunnen invoeren in overeenstemming met standaard procesinstructies. Het planningsproces is gedocumenteerd door ENIGMA en voldoet daarmee aan essentiële nalevingsvereisten zoals die door het bedrijf zijn opgesteld. Planningssjablonen zijn gestandaardiseerd en gebaseerd op de uitgebreide ervaring van de ENIGMA-consultants. Er worden neutrale categorieën gebruikt die relevant zijn voor elk bedrijf. Planning wordt uitgevoerd op basis van een jaarplan of op maandelijkse basis waarbij wordt uitgesplitst naar valuta. We stellen deadlines voor het hele proces met behulp van onze planningskalender. Nadat de periode voor het invoeren van planningsgegevens is beëindigd en interne coördinatie heeft plaatsgevonden om consistentie te waarborgen, kunnen alle partijen onmiddellijk aan verschillende analyses beginnen. De verschillende plannen kunnen worden vergeleken met de feitelijke situatie of met elkaar en worden onderzocht op verschillen.

Het hoofdkantoor kan geconsolideerde analyses uitvoeren en waardevolle informatie uit de rapporten verkrijgen die nodig is voor financierings- of hedgingbeslissingen. Rolling-planning toont snel veranderingen in de tijd en maakt onmiddellijke interventie mogelijk met gerichte maatregelen. Dit vermindert de blootstelling van het bedrijf aan financiële risico’s.

Wij zorgen voor de handmatige, operationele klussen en het kader; jij houdt je bezig met gegevensinvoer en -analyse. Je hebt een solide basis voor het uitvoeren van verder strategisch werk.

Frits Touw

Associate at ENIGMA Consulting

Liquidity Management – show me the money

| 31-01-2018 | treasuryXL |

Treasury is a function which entails many different roles and responsibilities. The main task is to monitor and manage the cash within a company ensuring there is sufficient liquidity. This means monitoring all the cash flows – both inflow and outflow, together with the sources of the flows – current operations, investments, borrowing etc. There must be enough liquidity to maintain the daily operations, whilst excess funds need to be invested. At the same time, Treasury must ensure that excess funds are invested in a safe and prudent manner and that future assets and liabilities are hedged where appropriate.

It has been said many times over – for a company cash can be compared to blood in the body or oil in an engine. Without it, a company ceases to be. When liquidity management is properly exercised, it allows a company to establish the maximum benefit from its cash flow, for the minimum of expenditure.

So, what happens to a company when liquidity management is not implemented?

Cash tied up in operational processes
Unable to define the bank balance
Difficulty in managing the existing bank accounts
Impossible to project cash flow forecasts accurately
Volatility in actual cash flow versus expected cash flow
Reconciliation is a time-consuming process
Inability to optimize the cash flow for working capital
Lack of agreed procedures for risk management, hedging policies and cash management
Banks are averse to lending the company money as there is a lack of control
Failure to comply with operational, accounting and governmental regulations
Difficulty in funding internal operations and investments

Advantages of liquidity management

Improved cash flow
Awareness of all bank balances
Ability to aggregate bank balances efficiently
Internal investment and funding operations for subsidiaries
Reduction in external borrowings
Faster payment of creditors
Optimization of working capital
Netting and cash concentrations can be applied
A heightened appreciation and recognition of cash within the company
Less reliance on short term external funding to meet day-to-day needs
Increase in profits
Increase in efficiency within the whole business cycle
Staff can devote more time to projects and procedures that have a higher value
Able to implement and monitor agreed risk policies

Designing and implementing liquidity management

Inspect and document existing procedures
Discover the short falls and dangers
Design specific procedures to enhance and capture the processes
Create an action plan and implement
Review constantly

Everything needs to be documented and signed off by the directors – it must be a policy. One of the greatest – if not the greatest – dangers for a company is not being able to forecast and maintain liquidity. However, in many companies the policy is only lightly enforced. Difficulties in forecasting cash flow are well known and documented, but the consequences are potentially very severe. It should be part of the monthly management reporting cycle and critically observed. Where necessary, actions need to be taken by the directors to ensure that the whole company is aware of the liquidity risks and procedures.

Next: Risk Management

Lionel Pavey

Cash Management and Treasury Specialist

Managing treasury risk: Liquidity Risk (VI)

|13-3-2017 | Lionel Pavey |

There are lots of discussions concerning risk, but let us start by trying to define what we mean by risk. In today’s article I will focus on liquidity risk. Many companies have very significant credit needs and this needs to be formally addressed with a credit analysis procedure in place. In my former articles I dealt with risk management, interest rate risk, foreign exchange risk, commodity risk and credit risk. See the complete list at the end of today’s article.

Liquidity risk comes in 2 distinct forms – market liquidity risk and funding liquidity risk.

Market Liquidity Risk

This relates to assets and potential illiquidity in the market and, as such, can be considered a market risk. In a normal functioning market it is always possible for market participants (buyers, sellers, market makers and speculators) to find each other and negotiate a price for their transactions. Assuming that the transaction is of a normal market size, there should be no dramatic change to the price of the asset after the transaction.

At the time of a crisis, participants could be absent from the market, making it difficult – if not impossible – to trade an asset. Sellers are left frustrated as there are no opportunities to sell the asset they are holding and vice versa for buyers. This can occur due to a financial crisis, changes in legislature, scarcity of an asset or someone attempting to corner the market. An asset generally will have a value, but if there are no buyers in the market that value can not be realised.

Liquidity risk is not the same as falling prices – after all prices are free to rise or fall. If an asset was priced at zero then it means that the market considers its value to be nothing. This is different from trying to sell an asset but not being able to find a buyer.

Markets for Foreign Exchange, Stocks, Shares, Bonds and many Futures and other derivatives are generally highly liquid. Off balance sheet products related to physical settlement can be less liquid as there is a need to actually provide physical settlement. Bespoke products like CDO’s can be considered illiquid as their size is normally small (relatively speaking) and not freely tradeable. Also the complexity needed to value the product affects its liquidity.

Housing is an asset class with very low liquidity – sometimes a property could be sold as soon as it hits the market. At other times the same property could be available for sale for many years and the price reduced regularly, without attracting a firm buyer.
The easiest and quickest way to see if there is a heightened market liquidity risk is via the bid – offer spread. If this is suddenly seen widening, this would imply that there appears to be more risk. In a normal, liquid market, the spreads are fairly constant and small, allowing participants to easily step in and transact. A widening of spreads occurs in a normal market when government data is published – nonfarm payrolls, balance of payment, etc. Within a short time the market will return to a normal spread as the information is properly digested and the market makers return. However, if the spreads widen without a publication event taking place, it is reasonable to assume that the risk has increased.
Additionally, risk could grow if reserve requirements were increased. In markets such as Futures, it is necessary to pay margin to the exchange. If these margin payments were increased, this would lead to transactions being more expensive and so lead to less liquidity in the market.

Market makers can also observe the market depth. This is shown by the quantity available for transacting at a particular price in their order books. When a market is perceived as being deep, it means there are many orders and, therefore, a large number of orders would be needed to move the market price significantly. The deeper the market, the more liquid the market.

Funding Liquidity Risk

This relates to the risk of not being able to settle debts when they are due. Treasury specialists in a corporate environment are acutely concerned with funding risk. Every month wages must be paid, together with tax and social premiums (pensions, insurance etc.) Additionally, it would be advantageous to pay trade creditors on time. Future liabilities also have to be funded after they have been recognized. This could mean arranging external financing.

If there is a liquidity crisis in the market, it becomes difficult and expensive to arrange to borrow the necessary funds. The price may be so high that the intended profit provided by selling the goods, is negated by the increased cost of funding. A reduction in the credit rating of a company can also lead to increased costs and a reluctance to lend.
If a company is known to have problems making payments, then the liquidity risk is specific to the company – the rest of the market will function normally.

Funding risk can also occur if creditors fail to pay you, or if an unforeseen event has occurred that leads to an outflow of cash from the company.
A company can initially perform a quick spot check to ascertain its current ratio. This shows if a company can meet its current liabilities with its current assets. A ratio of less than 1 would imply that the company can not meet all its obligations at the same time. However, this could also be because there is no short term finance arranged at that moment.
It is possible to arrange a line of credit with a financial provider. He defines a maximum loan (line of credit) that can be extended which the company may utilize. While it is normal to pay a standing charge for the balance of the line that is not being used, this can be offset by the knowledge that it is possible to drawdown against the line when needed (in normal circumstances). There is greater flexibility with a line of credit than with a traditional bank loan.

Other methods include –

i) Sell assets like stock that are slow moving and tying down cash

ii) Analyse all overheads – office equipment, expense claims

iii) Increase efficiency in the debtors’ administration. Be proactive

iv) Renegotiate with suppliers – better that you talk to them before it is too late

v) Design contingency plans

vi) Subject your business to stress testing

vii) Apply the techniques of ALM (asset and liability management)

Some very well known companies have fallen to liquidity problems – Bear Sterns, Lehman Brothers, Northern Rock, ABN Amro, AIG, etc. While the risks were prevalent before the crises, the main liquidity problems occurred when it was determined that there was no more time allowed for the situation to remain.
Time is the soul of business.