Back to the old days: Currency jargon in forex trading

14-01-2020 | Marco Lassche |

Nowadays the youth use apparently ‘stacks’ as a nickname for money. In forex we use already for a long time nicknames…

 

Recently I heard my son talking to one of his friends on the play station: “Hey bro, we need more stacks to go to the next level.”

When I asked him what is stacks: “Dad come on, you don’t know? Maybe you are getting too old for this (41?). Everybody knows that stacks is money.” Ouch…
My ‘old’ brain went back in time and this felt a bit like my first steps in the world of FOREX trading. At that time no electronic forex trading platforms were used. We traded still directly with banks / brokers by phone or Reuters messenger. Instead of Bro we used Mate. Instead of stacks we used the nicknames for the different currencies. For me the first days it felt like I was ended up in a scene of the Tower of Babel.

“Hey Mate, I need a Cable (GBP/USD) in two”. Later on I understood, this meant I want a price quote for a GBP/USD in 2 million GBP at which you can buy/sell GBP against the USD.

Now you know that stacks is money, and a cable is GBP/USD, it is time for some more nicknames in currency (pairs), and some background explanation:

Please feel free to contact me if you need any further information or assistance in setting up a more professional framework for controlling your financial risks and cash management in a more efficient way.

 

Marco Lassche 

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

How to reduce your credit risk

14-10-2019 | Marco Lassche |

It is nice to sell your products at a good price. But what if you have delivered goods to your customer, and he is not able to pay? In this article we give you over 15 options, how to reduce your credit risk.

Although a company that you do business with can look very successful and credit worthy from the outside, there are many examples of unexpected bankruptcies.
Credit risk is the probability that your company incurs a financial loss as your counterparty (customer/supplier), cannot meet its contractual obligations.

In this article we give you guidance, how to control and cover your credit risk. We focus on the sales perspective, however it is also applicable on the purchases side; a prepayment to a supplier causes also credit risk.

Ways to control your credit risk:
  • Make a credit check on your counterparty before onboarding, and make sure to keep doing this during the whole relationship. Credit rating agencies like Creditsafe, Graydon, Dunn & Bradstreet make their business out of running credit checks on companies. They also have good tools (risk alerts), to follow the credit worthiness of your counterparty.
  • Transfer your credit risk and insure your counterparty risk to a credit insurer (Atradius, Euler, Coface). In case you trade with unstable countries, do not forget to insure the political risk. If insurance of your counterparty is not possible, this might be already a warning. However it can also be a just established subsidiary, being part of a bigger credit worthy parent.
  • Bank guarantee: the bank of your customer will ensure the payment if the customer is unable to.
  • Execute the exchange (payment vs. property of goods) with your counterparty at the same time or use a trustable intermediary.
Options with the bank:
–    Direct Collection
–    Letter of Credit (LC)In a direct collection as well as in a LC you handover agreed documents to the bank. The biggest difference between direct collection and Letter of Credit: In a collection the bank pays you only, when the customer paid to the bank. In an LC the bank of the buyer pays you when the agreed documents are delivered by the seller. So for goods that are not easily sold to another counterparty, we would advise to go for a LC.

Other options

  • Use an escrow account of the warehouse.
    The warehouse releases the goods to the buyer, when they received the payment, and forward the payment to the seller.
  • In case of transport of the goods by ocean freight you can use the shipper to be the intermediary.
    When your sold goods are transported by sea, you can give the release to the shipper to handover the Bill of Lading (property document) to the buyer. Normally this is done after payment of the buyer.
  • Use factoring. You sell your debtor at a discount to a factoring company. Make sure that you cannot be liable for non-payment (non-recourse basis).
  • Ask for a parent guarantee if the counterparty that you trade with is part of a big parent company. This parent guarantee can also be used to get an insurance at your credit insurer.
  • Diversification. Try to limit credit exposure on one customer, one region (concentration ratio’s). Ensure that a non-payment of one not covered counterparty will not put you in any liquidity squeeze and put your company at stake.
  • Give collection responsibility to the sales team. A trader works mainly for its sales bonus. In my opinion, to be eligible for the bonus, the whole order to cash cycle should be fulfilled. What if you give already bonus to a sale, but the invoice is not paid. So give the trader also the responsibility for collection. In this way he will be more critical with onboarding his customers, agreeing on payment terms and fight for the invoice to get paid.
  • Create your own financial buffer; an umbrella for rainy days.
  • Limit the number of payment terms for your customers, and make sure that you keep them within the Terms & Conditions of insurance company.
  • Determine who within the company has the responsibility for the credit risk management and setting the credit limits. Most of the time this is a collaboration between treasury, sales and controlling team, and final responsibility at CFO.

As said, running a business hardly goes without credit risk, but there are a lot of tools that can help you to limit it to an extent that is acceptable.

Please feel free to contact me if you need any further information or assistance in setting up a framework to control your credit risk.

Marco Lassche 

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

What is Treasury?

10-10-2019 | Marco Lassche | Kendra Keydeniers

What is treasury?

Have you ever asked yourself the question, “what is Treasury?”. Many people will think about pirates and big see ships that sank deep into the bottom of the ocean including their ‘treasure’. A mystery treasure map will lead the finder to a treasure worth a lot of money. In some way Treasury and Treasure have definitely similarities, it is about money and other valuables.

Find out what Treasury is……

Treasury

Treasury or Treasury Management is the task to manage the firm’s liquidity and mitigate its financial and operational risk, with the goal to safeguard an organizations’ holdings. Let’s make this more specific. In each organization treasury tasks exist, regardless if the organization is big/small, profit/non-profit, nationally operating/ multinational. Although entrepreneurship is always bearing risk, this should be limited to a certain extent in order not to jeopardize the survival of the company. For each company this is different. For a company like Apple with a net profit margin > 20% losing 4% on its FX exposure has a much smaller impact on profitability, than for a WallMart with a net profit margin of 2-3%. In small organizations treasury is mostly done by the CFO or finance department. Bigger organizations have their own treasury departments, controlled by the CFO. In general, the bigger and more international the organization operates, the bigger and more complicated the tasks of treasury get.

3 main Treasury Categories of Tasks

Treasury management, can be divided in 3 main task categories.

  1. Cash & liquidity management (short term):
    a. This is mostly the day-to-day operations. Make sure that payments that are due are being paid in time to the correct account.
    b. Manage your bank accounts in an effective and efficient way
  2. Corporate finance (long term): How do you want to finance your company? What is the best mix for equity and debt, based on the long term scenarios for a company.
  3. Risk management (short & long term):
  • Liquidity risk: the risk that you cannot pay your bills in time (salaries, suppliers)Market Risk (or price risk) is the risk that changes in market prices (e.g. foreign exchange and interest rates), cause losses to the business;
  • Credit Risk is the risk that a counterparty default causes loss to the business;
  • Operational Risk (cyber & security, internal fraud).

Although the basic tasks for treasury remain the same over time, the content of the tasks evolves over time. Due to external factors like technology, regulations or new financial products, some tasks are less time consuming nowadays then they were in the past.

The future treasurer

A treasurer is someone who manages and oversees the treasury side of financial management of an organization. Tasks like bank selection, reconciling bank statements and managing cash flow are typical for a treasurer.

Payments these days can be automatized to a high extent, a TMS (treasury management system) can help the treasurer. However risks in cyber fraud are increasing. Also increased regulations by banks and/or government take more time of the treasurer. In the past a treasurer only went to his own bank for financing, these days there are many other options for financing or reducing financial risks. It is the task fort the treasurer to keep up-to-date with developments, and to be the consultant for the organization on treasury related subjects.

TreasuryXL.com will help you with this by following the latest trends on all aspects of treasury.

Marco Lassche 

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

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.

FX swap visualised

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

Interest result FX swap

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

10 Steps for an effective and efficient credit card policy

16-9-2019 | Marco Lassche |

Corporate credit cards are often used by employees to pay their expenses during business trips.

In this article we explain how you can easily control the use of corporate credit cards.

  • What are the advantages of corporate credit cards, apart from the old-fashioned declaration on paper (including receipts)?
  • How do you set up an effective and efficient credit card policy?
  • How do you use simple tools to ensure that the accounting process of credit card statements runs quick and smooth?
  • How can you ensure that costs are controlled or even reduced with a simple analysis tool?
Advantages of business credit cards

The advantage for the employee is that she does not first have to pre-finance the expenses herself and later declare the costs based on a stack of crumpled receipts.

Advantages of business credit cards for the company are countless:

  • A free short-term credit line.
  • Purchases are often insured, as well as misuse of the card.

By using a number of simple tools, many more benefits are added:

  • Time saving for accounting through automatic processing of credit card statements in the accounting system. Every transaction on a credit card statement contains a cost category code (also called Merchant Category Code). These codes can be easily linked to (sub) ledgers.
  • Analyzing credit card expenses becomes easy because there is direct insight into the business costs incurred by staff. This means you can also manage cost savings. You can use a special tool for these analysis, but a pivot table in Excel works fine as well.
  • Employees scan their receipt via an app on the phone and can then throw the receipt away. No more hassle.
10 Steps to implement a good credit card policy

A good credit card policy is essential for optimizing credit card use within a company. So make sure that it is clear beforehand what the rules of the game. Equally important, maintain them as well. It is also important that the management confirms itself to the credit card policy. Management should be a good role model.

10 Steps:

  1. Determine the credit card company that fits the best to the company. (VISA/MASTER/American Express).
  2. Determine who within the company is eligible for a credit card. Usually this will be the management and the people in the sales team.
  3. Determine who within the company is responsible for the credit card management. Place this with the Treasury department or the accounting department.
  4. Determine the credit card limits. An employee who always travels to cheap countries does not need such a high limit as an employee who always travels to expensive countries.
  5. Determine the costs for which a credit card may be used. Think of restaurant, taxi, hotels. We do not recommend to allow using business credit cards for private expenses, as this causes extra work for accounting.
  6. Determine the rules for matching the credit card statement with the receipts. A simple rule is to require that within 30 days after receipt of the credit card statement, the scanned receipts must be linked to the statement by the employee. This is also important for an audit. Of course it is true that in certain countries, people do not get a receipt e.g. a taxi ride, so flexibility is required in this. But hotels, restaurants etc., should be able to provide a receipt at any time. Also emphasize to employees that a payment confirmation from a payment terminal is not a receipt.
  7. Determine who approves the spending on the credit card statement. It makes sense to place this with the department manager or CFO. This approval process can be setup in the same online tool in which the credit card statements are uploaded.
  8. Determine the consequences for not following the credit card policy. Some employees with a corporate credit card are very careless or feel like a kid in a candy store. So consider consequences for not uploading receipts, abuse etc..
  9. Have employees who receive a credit card review the policy and sign it. Make sure this policy is not too long.
  10. Ensure that employees hand in their credit card immediately upon termination of employment and block the credit card.
Cost savings on credit cards

Easy and quick gains:

  1. Limit cash withdrawals by credit cards in ATM’s. Costs are often 4% of the cash withdrawal, with a minimum of around € 5 per withdrawal.
  2. Always pay in the local currency with your credit card in non-EUR countries. Although the credit card company often charges 2-3% rate surcharge, ATM’s, hotels and restaurants charge much higher surcharges to pay directly in EUR.

Other cost savings:
There are more cost savings to realize. E.g. there are still a lot of companies in which employees can book their flights and hotels on their own preferred website and pay it by the corporate credit card. To get better insight and cost control you can consider the implementation of a corporate travel portal, in which the employee can still book on its own, but you can control costs much better.

Please feel free to contact me if you need any further information or assistance in setting up a framework to control your corporate credit card costs.

Marco Lassche 

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

Introduction of two Community Ambassadors: Francois and Marco

| 11-07-2019 | by Kendra Keydeniers |

treasuryXL is happy to announce a close cooperation with François De Witte and Marco Lassche. As community ambassadors they will contribute to further raise the level of the treasury function, both for the inner circle: corporate treasurers, bankers & consultants, as well for the non-treasurers.

François De Witte has worked over 30 years in banking and is founder of FDW Consult, specialized in finance and treasury consulting. With his broad treasury career, his key areas of expertise are International Payments & Cash management, treasury, working capital management, financing & advisory, open banking, digital banking and IT strategy.

“I am eager to share my large experience in treasury, banking and innovation with the TreasuryXL community” said François.

François will bring added value to the community with its innovative and broad corporate finance and treasury experience. He operates from Belgium.

 

 

Marco Lassche started his ‘World of Treasury’ career in 2002 and has become a professional in  banking, corporate treasury both in large, international corporates as well as mid-sized

companies. In 2018 Marco founded ‘Bedrijfskostenexpert’, a Dutch company specialized in Cost Reduction, working on a No Cure, No Pay

base. Marco his core expertise’s are Cash management, Funding, Risk Management, Setup in-house bank and cost savings.

“I am looking forward being part of this growing treasury community. Let’s take treasuryXL together to the next level as a leading portal for treasurers and non-treasurers.” said Marco

 

Marco will give the community an energy boost and he can’t wait to share his knowledge to enhance the treasuryXL platform. He operates from The Netherlands.

The club of treasuryXL ambassadors now exists out of three: François De Witte, Marco Lassche and Pieter de Kiewit – owner of Treasurer Search.

 

 

“Large corporates invest substantially in continuous improvement and innovation of their treasury function. Mid-sized corporates often miss opportunities in, and pay too much for basic treasury. I think there is a lot to be gained in increasing the acceptance of corporate treasury and its’ development. I would like to contribute.” Said Pieter de Kiewit, owner at Treasurer Search.

 

 

Keep an eye out for these treasuryXL ambassadors, they will deliver useful and inspiring topics throughout the year.

About treasuryXL
treasuryXL is built by treasurers to serve treasurers and non-treasurers. treasuryXL offers:

  • professionals the chance to publish their expertise, opinions, success stories, distribute these and stimulate dialogue.
  • a labour market platform by creating an overview of vacancies, events and treasury education.
  • a variety of services in collaboration with flex treasurers.
  • a broad network of highly valued partners and experts.

Kendra Keydeniers
Community & Partner Manager at treasuryXL