How to Solve the 4 Main Payments Challenges

| 18-07-2019 | BELLIN |

Sascha Kopp has been a Consulting Director with BELLIN for over 10 years. He has successfully accompanied and implemented well over 100 payments projects in international groups. In this interview, based on our on-demand webinar, he outlines the 4 main payments challenges for corporates and how to best tackle them.

#1 payments challenge: a complex set-up

What is the biggest challenge for international businesses in handling their payments?

When it comes to payments, the biggest challenge for companies is usually their existing set-up. Very often we witness the following: You have banks on one side, ERP systems on the other side, and the individual entities in the middle. They all exchange payment data, generated by various technologies and in different formats, communicated by several channels. Companies find it difficult to manage this complexity.

How can companies make sense of this complex set-up of several e-banking systems, payment platforms and communication channels?

A payments solution, such as BELLIN’s integrated payments platform in the tm5 treasury management system, allows corporates to leave complex set-ups behind: instead, they experience simplicity with one platform that is accessible to all group companies and connected to all ERP systems and banks. tm5 can be used with any payment format.

You can access it on a desktop computer, mobile phone or tablet. All you need is Internet access. One of the many benefits of this solution is that it is scalable and can be adapted to changing company requirements – and we all know companies change all the time.  Every time a new entity is added, no matter where in the world, this company and its banks can easily be connected to the payment platform. There is no need for an additional solution. The tm5 platform handles it all and is easy to use, transparent and secure when communicating data.

#2 payments challenge: fraud and cyber crime

How important is payment fraud?

Fraud, cyber crime and internal manipulation have been increasing dramatically for years. In 2016, the Leoni Group lost 40 million euros to payment fraud. In 2017, ABB reported a fraud case amounting to 100 million dollars. Companies lose more and more money and the number of attacks has been growing. This was confirmed by the AFP Payments Fraud & Control Survey published in April 2019: 82% of companies report having fallen victim to payment fraud.

How can companies best protect themselves against payment fraud?

Organizations currently invest a lot of time and money in fraud prevention. The best way of achieving payment security is to eliminate vulnerabilities, i.e. by using a multi-bank payments platform with integrated user permissions management such as BELLIN’s tm5. Thanks to a single point of entry and an additional security measure by way of 2-factor authentication in the BELLIN Connect app, tm5 protects companies from external threats. The integrated permissions functionality enables companies to define and manage user rights and implement dual approval for payment processing, thus ensuring compliance.

#3 payments challenge: cost

How can companies save money in their payment process?

In addition to bank fees, payments processing eats up resources. For most companies a centralized set-up is the most efficient – as well as the most secure – option to manage group-wide payments with only one team. As a web-based system, tm5 also enables decentralized cooperation using a central platform. We refer to this approach as Load-balanced Treasury.

What is the most affordable payments set-up for companies?

The most cost-efficient combination of formats and connectivity always depends on the countries in which payments are processed as well as on the volume of payments. tm5 offers all types of connectivity, be it local standards such as EBICS, host-to-host connections to main banks or a global solution such as SWIFT. BELLIN consultants offer advice on how to find the most affordable solution.

#4 payments challenge: new banking partners

What is the impact of changes to the banking landscape on corporate payments?

Companies are hit hard by changes to the banking landscape. In recent years, some banks have discontinued their services in some countries over night. But even when the selection of a new banking partner is driven by strategic and cost reasons, this change usually goes hand in hand with a new, additional e-banking system.

But it could be so much simpler: Companies who process their payments on the integrated payments platform in the tm5 treasury management system always work with the same user interface. This user interface is independent of the banks, channels and payment formats a company uses.

All in all:

Make the move to a central, multi-bank payments platform and benefit from:

  • compliance
  • security
  • reduced cost and effort
  • 100% visibility and transparency
  • 100% cash flow visibility
  • 100% independence thanks to self-administration

Sascha Kopp author picture

Sascha Kopp
Consulting Director at BELLIN

 

RT story: From professional athlete to Treasury Director

| 15-07-2019 | by treasuryXL | Kendra Keydeniers

 

Best example of a great career in treasury (before and) after graduating from the RT program is the one of Jarno Timmerman. This is his Register Treasurer Story:

Professional athlete in The Premier League of volleyball, Jarno decided to further expand his passion for and knowledge about treasury by participating in the RT program of 2007.

Starting as Treasury Manager at Nike, following by a role as Manager Group Treasury at KLM/Air France and winning the award of being Asia’s Best Treasurer by The Corporate Treasurer Awards working at AkzoNobel – you can say that Jarno is an outstanding treasurer who must be passionate about his work.

Jarno returned to Nike in January 2018 and started as Director Treasury EMEA, surrounded with top athletes from around the world. Being a former professional athlete himself, working for Nike is feeling at home. Nike and Jarno is an obvious match.

Why did you start with the RT program?

I started the program because I felt it would elevate me as a treasury professional. I studied economics also at the VU, already positioning myself for treasury. I did that by taking classes like Corporate Finance for example and the RT felt as a natural next step to improve my treasury knowledge.

How did the education help you in your career?

After the completion of the RT it definitely helped me in my career. Besides being a more rounded treasury professional also to the outside world it allowed me to distinguish myself and definitely help me in my career to get a promoted role in a new company for example.

Therefore, I can for sure recommend every Treasury professional to consider participating the RT program. It will be an investment you need to put in, primarily in time at the expense of your social life for a while, but it will pay off.

Which topics covered were most interesting?

The program is a strong combination of die-hard deep dives in treasury subjects like cash management and derivatives, but it also brings a nice introduction to overlapping subjects like tax and legal which allows to have a better understanding of those topics as well.

The program also brings the right balance between theory and practice. Therefore, the second strong element of the program is the ‘mandatory physical presence’ to the classes and sessions. This gives a nice discipline, rhythm and momentum to keep track of the subjects, challenges and tasks at hand.

Are you still in touch with your peers?

Maybe even more important is that the journey you undergo with a group of similar treasury professionals, providing synergies, keeping you motivated and allows you to build up an important network that will last throughout your career. Although I finished the program more than 10 years ago, I still keep contact with many treasury professionals from my year.

So in short, the RT program is about knowledge & network and will definitely elevate your career as treasury professional!

More stories please! Read the RT story of Mathieu and Richard and/or read more info about the RT program here.

The post-graduate Executive Treasury Management & Corporate Finance programme combines two finance disciplines: Treasury Management and Corporate Finance. These disciplines largely overlap and are inextricably connected.

After a successful completion of all required modules, the title of Registered Treasurer (RT) is conferred by the Registered Treasurer foundation.

The course will start on 1 September 2019. Why wait? Apply today!

 

 

Why Richard decided to explore the World of Treasury

| 08-07-2019 | by treasuryXL | Kendra Keydeniers

The post-graduate Executive Treasury Management & Corporate Finance programme combines two finance disciplines: Treasury Management and Corporate Finance. These disciplines largely overlap and are inextricably connected.

After a successful completion of all required modules, the title of Registered Treasurer (RT) is conferred by the Registered Treasurer foundation.

The course will start on 1 September 2019. Why wait? Apply today!

 

Let’s talk with another RT graduate this week: Richard Blokland started the Executive Treasury Management & Corporate Finance programme in 2007 to become a certified Treasurer. He graduated in 2009.

Richard’s broad professional treasury experience touches several industries like Oil & Gas, Airlines, Real Estate and the Public Sector. His experience brought him to his latest function as a successful Corporate Treasurer at NewCold.

 

 

What was your main reason to start a career in Treasury?

I started within a Treasury Department for my first job and found out that Treasury would offer me the opportunity to combine business economics with mathematics which I was looking for. Besides this, each day within Treasury is different and I really appreciate this aspect.

Why did you start with the RT program?

This program would offer me the opportunity to get the best education in the field of Treasury.

What are key words that you would use to describe the program?

Divers, meeting the requirements for being a Treasurer and fun.

Which topics covered were most interesting?

Cash management (international), business analysis, derivatives and tax.

Can you describe what your research and thesis was about?

My research and thesis resulted in a framework for handling (US) cross border lease within your organisation, and have it embedded in the right way.

How did the education help you in your career?

It helped me a lot as the RT is a highly trained Treasury professional and also puts you in the same league as the RA or RC.

What surprising elements did the program hold that you did not expect?

The elements not typically Treasury but every Treasury professional should at least know about something, and the international aspect in terms of teachers.

Are you still in touch with your peers?

I am with some.

What other treasury education programs did you consider and why did you choose this one?

None as the RT program is all I need.

Can you describe a treasury topic you learned about that you could directly implement in your job?

For example Tax in terms of transfer pricing.

More stories please! Read the RT story of Mathieu here and/or read more info about the RT program here.

 

Why Mathieu decided to explore the World of Treasury

| 01-07-2019 | by treasuryXL | Kendra Keydeniers

 

I am taking you back to our recent post about the Treasury Management and Corporate Finance program at the Vrije Universiteit Amsterdam. We mentioned to share some Register Treasurer (RT) graduate profiles to give you a better insight of treasurer types that are “RT material”. Let’s kick off with the first interview with Mathieu Ummelen.

Mathieu Ummelen is a Treasury and Corporate Finance interim professional who successfully graduated as a RT. We asked him the following questions regarding his ‘world of treasury’ experience:



What was your main reason to start a career in treasury?

My interest in financial markets started when the stock markets crashed in October 1987. As a 15-year-old boy, I was stunned how companies could be worth 20% less overnight. I wanted to know more about that, resulting in a study of business economics at Tilburg University.

I found courses such as corporate finance, treasury management and derivatives the most interesting, so that after my studies I started looking for a position in treasury and I found that as a trainee at FMO. On my first working day I had to analyse the cash position, and when I was allowed to place the excess cash (USD 2 million) on an overnight deposit, I definitely devoted to the profession and I still am.

Why did you start with the RT program?

After a year in the traineeship program, I was asked by the treasurer to quit the program early and join the treasury department. Although I received a great training-on-the-job there, I was also happy to be given te opportunity to follow the post-doctoral Treasury Management course. In the first instance my goal was to gain more specific knowledge about treasury, for example, the legal and fiscal aspects of treasury were not part of the curriculum at the university. But shortly after the start of the course I realized that the interaction with fellow students and building a network of peers were (at least) just as valuable.

Are you still in touch with your peers?

The weekly contact with a group of peers who are in the same phase of their career was one of the most positive aspects of the Treasury Management program for me. It was an ideal way to quickly build a network of peers, and I probably learned more from them than from the theoretical part of the program. The contact has been somewhat diluted over the years, but I still have contact with some.

Did following the program influence your relation with your family, friends and/or colleagues?

Taking the course takes quite a lot of time, not only the number of hours of lecture and travel time, but of course also preparation and studying for the exams. Fortunately, I started the course a year and a half after my graduation, so I was still used to studying. Also, we had no children yet and my wife was also following a course, that made it easier for me to study in the evening or at the weekend than for some fellow students. So, if you are considering to follow the program, my advice would be to do it as soon as you can!

Become a Register Treasurer yourself and apply for the course that will start on 1 September 2019!

More info here

More stories please! Read the RT story of Richard.

Historisch lage rente nu vastleggen in 5 stappen

| 25-6-2019 | ICC Consultants | treasuryXL |

Steeds meer bedrijven, investeerders en instellingen dekken hun renterisico’s (verder) in. De rentemarkten zijn hiervoor aantrekkelijk geprijsd. Gedurende de laatste twee kwartalen zijn de lange rentes zelfs nog iets verder gedaald en is de rentecurve verder vervlakt. Dit biedt mogelijkheden om ‘relatief goedkoop’ van een korte rente (lees Euribor-rente) naar een lange rente te gaan. Belangrijkste doel hierbij is het afgedekt zijn tegen stijgende rentelasten voor de onderneming.

Hoe realiseert u een optimale afdekking van uw renterisico’s? Voorstellen van uw huisbank(en) zijn vaak eenzijdig en moeilijk te beoordelen op de aangeboden pricing. Graag schetsen we hoe u in 5 heldere stappen veel tijd, geld en frustraties kunt besparen.

1    WELKE RENTERISICO’S LOOPT U?

Allereerst zult u voor uzelf een beeld moeten vormen welke renterisico’s u loopt. Wat is de actuele ‘hedgeratio’? Welk deel van de financieringsportefeuille is afgedekt en voor hoe lang (nog)? En wat is de impact van een procentpunt rentestijging op uw resultaat? Hoe zeker is de onderliggende kredietbehoefte en gaat deze toe- of afnemen? Hoe lang heeft uw financier een financieringscommitment gegeven? Hoeveel flexibiliteit wenst u, bijvoorbeeld voor (extra) toekomstige aflossingen?

2    GAAT U UW RENTERISICO AFDEKKEN, OF (NOG) NIET?

Afhankelijk van uw verwachting omtrent verschillende scenario’s voor marktrente ontwikkelingen (Inflatie? Gematigde inflatie? Deflatie? Etc.) dient u te bepalen of u een deel van uw renterisico wenst af te dekken, met welke instrumenten en voor hoe lang? Bedenk dat vooral de swaprentes ongemerkt hard kunnen oplopen. Tegen de tijd dat het Euribor gaat stijgen en uw rentelasten daadwerkelijk toenemen kunt u de huidige ultra lage swaprentes niet meer vastleggen. Deze zullen op dat moment een stuk hoger liggen dan nu.

3    WELK INSTRUMENT KIEST U EN WAT KOST HET?

De volgende stap is hoe dekt u af? Elke onderneming kent hierbij unieke uitgangspunten. De bank biedt echter vaak een ‘standaard’ renteoplossing aan, veelal een Interest Rate Swap (IRS) met een looptijd van 5 of 10 jaar. Het loont om ook naar andere looptijden, dan wel naar andere instrumenten te kijken en ICC kan desgewenst alle voor- en nadelen en kosten van alle instrumenten op een rij zetten. Ook berekenen we de optimale looptijd van de afdekking voor u en werken we meer flexibele mogelijkheden uit, waarbij de onderneming is afgeschermd tegen een stijgende rente, maar tevens (gedeeltelijk) kan meeprofiteren van dalende of gelijkblijvende rentes. U krijgt geen ‘standaard’ renteoplossing, maar een maatwerkoplossing passend bij ùw situatie.

4    HOE SLUIT U DE TRANSACTIE SCHERP AF BIJ DE BANK?

Deze stap is het lastigst om zelf uit te voeren voor een onderneming. De marge voor de bank zit versleuteld in het rentepercentage van de swap die u van de bank aangeboden krijgt en wordt niet nader gespecificeerd. De kale marktprijs van het instrument dat u gaat afsluiten is in een altijd bewegende rentemarkt alleen inzichtelijk met behulp van professionele en kostbare real-time pricing tools. Bankmarges van 20 basispunten en meer zijn geen uitzondering. Dat betekent dat als u een renteswap sluit voor 10 miljoen met een looptijd van 10 jaar u maar liefst 200.000 euro (niet contant gemaakt) marge betaalt aan de bank, welke zij direct als eenmalige inkomsten boekt.

ICC kan desgewenst het volledige traject voor u begeleiden. We kijken naar de (verplichte) documentatie, de inrichting van het transactieproces bij uw bank en doen een zogenaamde ‘dry-run’ (proefpricing). Vervolgens ondersteunen we real-time bij het daadwerkelijk afsluiten van de transactie. U krijgt inzicht in de ‘kale’ marktprijs en bankmarge. Waar nodig ondersteunt ICC in de uitonderhandeling van deze bankmarge naar marktconforme niveaus. Dit kan u al snel een rentevoordeel van tienduizenden euro’s opleveren.

5    HOE LEG IK HET PROCES EN UITVOERING VAST VOOR ALLE STAKEHOLDERS?

Afsluitend kan ICC een sluitende rapportage (een zgn. ‘Trade Recap’) van de afgesloten afdekking(en) verzorgen. Hierin wordt het gehele transactieproces uiteengezet, inclusief de onderliggende berekeningen, welke onderbouwd worden met ‘screenshots’ vanuit onze pricingsystemen. Deze ‘Trade Recap’ is voor intern gebruik en verslaglegging ten behoeve van o.a. de accountant, shareholders en overige stakeholders.

Als u over bovenstaande vijf stappen c.q. het afdekken van renterisico’s met uw bank(en) vragen heeft of vrijblijvend wilt sparren met een ervaren en onafhankelijke rentespecialist, neem dan contact met icc op via telefoonnummer 030-8201221 of mailen naar [email protected]).

Vraag hier het recente Global Financial Markets Rapport aan waarin ICC op frequente basis ook de meest waarschijnlijke rentescenario’s bespreken.

Auke MiddelAuke Middel
Senior Consultant Market Risks | ICC Consultants

 

Duplicate Payments: Instability with Multiple Platforms

| 24-06-2019 | BELLIN |

It is an arduous request for your Enterprise Resource Planning (ERP) payment platforms or IT department to provide ample protection against duplicate payments and cyber-fraud.  Though it can be tempting to assume administrative controls can provide protection, the facts can show otherwise. Supplier invoice payments are typically the largest annual payments and consequently, represent the highest amount of risk.

According to an Acculytic’s report on duplicate payments, “industry studies have shown that the rate of duplicate payments can be as high as 3%. In fact, 20% of the best performing companies, responding to the 2013 ePayables survey performed by Ardent Partners, had an average duplicate payment rate over 1%.”

Acculytic’s report also stated that “the Institute of Finance & Management (IOFM) concluded that a quarter of the respondents reported duplicate payment rates between 0.1% and 0.5%. Applying these rates to different purchase volumes suggests the following rate of duplicate payments may be generally applied across all organizations.”

Rate of Duplicate Payments ($)
Purchase Volume 0.1% 0.5% 1.0%
$10,000,000 10,000 50,000 100,000
$50,000,000 50,000 250,000 500,000
$100,000,000 100,000 500,000 1,000,000

How duplicate payments and payment fraud can bypass controls

Even the most sophisticated controls still have their pain points. Here are 5 ways that duplicate payments and fraud can unhinge even the best administrative controls:

1) Human error transcends even the most secure systems.

Regardless of how technologically-sound and secure an ERP or IT infrastructure is, mistakes can always occur. Such systems can typically alert when duplicate payments occur by executing matching runs. However, matching runs are incapable of determining if there was an error earlier in the submission phase.

2) Multiple systems leading to inefficiency

The presence of multiple systems is not rare with large multinational organizations. Payment processing becomes more complex in terms of ensuring ample security is present. The seamless connectivity between all systems is a paramount function to be able to detect duplicate payments.

3) Platform migration limbo period presents payment risk

When migrating from one platform to another, there is often a period in which one platform is introduced before the initial is removed. That period before the legacy platform is removed causes a risk for duplicate payments.

4) Administrative controls: biggest strength is a potential weakness

Automation comes with pros and cons and is effective with routine tasks but your integrated controls systems can hamper the speed and efficiency of your productivity. Duplicate payments are detected based on the parameters set and if there are too many parameters, a majority of payments will be flagged. With too few parameters, duplicate payments will slip through the cracks.

5) Accounts Payable are susceptible to internal fraud

Automated detection is a first line of defense but cannot factor in employees that are extremely familiar with the parameters and know how to evade detection. Invoices under certain amounts tend to not require secondary approval, leading to undetected invoices being processed.

3 essential ways a centralized platform can prevent duplicate payments

  1. Seamless data extraction for routine analysis that will not slow operations.
  2. Ability to consolidate and analyze data from any subsidiary or location.
  3. Digestible data that is concise with the system providing relevant alerts for fraud or issues in payment processing.

Bonus function: the ability to analyze historical payments and check for duplicate payments, tax or currency problems, contractual compliance, etc.

Eliminate duplicate payments with a centralized platform

For comprehensive protection, BELLIN’s treasury management system, tm5, will seamlessly connect all of your banks and enable you to process payments and view master vendor information. The centralized platform allows you to connect any system to any bank giving you a true, single-window view of your worldwide banking data.

With company-wide visibility as a core competency of tm5, users can monitor payment and vendor information through the entire workflow. Consequently reducing the chance for duplicate payments that originate from external or internal sources.

Treasury management systems are both innovative and extremely helpful. Knowing this, treasurers are tasked with realizing and dealing with the limitations of having multiple systems. Centralizing payment processes with automation that ensures security is an extremely efficient way to maximize controls and minimize the chance for duplicate payments to occur.


Martin Bellin

Founder & CEO at BELLIN

Webinar: Interested in how to minimize costs for FX payments?

| 20-6-2019 | TIS |

Does your firm have a global payment landscape? Are all FX payments globally and their associated costs visible to you?

If the answers are Yes and No, you don’t want to miss this 30-minute webinar chaired by Ebury, one of Europe’s fastest growing FinTechs and TIS, a global leader in corporate payment solutions.

For corporate treasurers and cash managers, FX risk management is part of the daily tasks. In this joint webinar presented by Ebury, a global finance specialist in foreign exchange, and TIS, a global leader in cloud-based corporate payment SaaS solution, the experts Thomas Fakhouri, Head of Technology Partnerships at Ebury and Nikola Hristov, Product Owner at TIS, will discuss how a fully integrated and automated payment process with add-on FX service generates enormous saving opportunities for corporates.

Register today

Wed, Jun 26, 2019
3:00 PM – 3:30 PM CEST

Webinar: Optimize your payment processing security

| 13-6-2019 | BELLIN |

How to optimize your payment processing security via administrative control

This webinar installment takes a deep dive into the need for a centralized payments platform that maintains a hyper-focus on security. Join in as we discuss, how the essential synergy between technical security specifications and administrative controls creates optimally safe and efficient processes.

Webinar start: 27 June 2019 | 16:00 CEST
Webinar run time: approx. 20 min

Register here

Katja FranzPresenter
Katja Franz, Senior Treasury Consultant

A graduate of International Business at Fachhochschule Trier and European Business & language at National College of Ireland, Katja Franz has a background in treasury and cash management that has spanned the globe. With experience in banking and reconciliation at Hertz Europe, cash and credit administration at State Street Bank, as payment implementation specialist for Bankhaus August Lenz and as freelance consultant, she has brought success to projects across banking and treasury.

At BELLIN Katja has brought her experience and her passion to the BELLIN treasury consulting team, focusing on treasury management software, project management and process optimization. She is a keen team player who is committed to her work and always eager to learn something new.

About BELLIN

BELLIN is the global leader in technology for corporate banking and treasury. We provide solutions for the financial sector, catering to a range of clients from large multinationals to SMEs and banks. Founded by a treasurer, BELLIN has been championing innovation and out-of-the-box thinking since 1998. With the treasury software tm5 as the centerpiece, BELLIN makes a fundamental difference by offering solutions that zero in on the relationship between corporates and banks and cover everything from payments to FX, cash and risk management. BELLIN is an international company with offices on four continents, powered by a trailblazing fintech spirit and yet firmly rooted in the heritage of German craftsmanship and engineering. BELLIN delights 500 clients and over 80,000 users around the globe.

 

 

New generation treasurer studies at the Vrije Universiteit

| 13-06-2019 | by Pieter de Kiewit |

 

Research in our candidate files, filled with treasury experts and managers, shows that only a small fraction of the population completed a job specific education. Over time I see the level of impact and complexity of corporate treasury rising and an increase in treasury students. As a member of the so-called Curatorium (management board) of the post graduate program “Treasury Management & Corporate Finance”, I consider it my task to let you know about this education. A task I am of course happy to pick up.

 

 

You can get a first overview on the partner page of the Vrije Universiteit on our site and their own Treasury Management and Corporate Finance program page. In the next months we will post blogs with profiles of Register Treasurer (RT) graduates with their motives, experiences and career paths. This will give you better insight in the type of treasurers that are “RT material”. Furthermore we will invite graduates to share thesis and other research summaries that will give you a sample of the level of what you can expect.

Originally the program was in Dutch and aimed at a relatively narrow candidates working in a corporate environment. An important change is that the program now is in English. The student population is a mixture of consultants, bankers, interim managers and experts working in corporate and non-profit environments. As the value of the student peer group has huge impact on the program, this diversity brings a lot extra.

Our continued information flow will hopefully help aspiring students and their managers making a sound decision. The program is not for everybody, we hope to see you soon and find out if you have what it takes.

PS The next information session is at June 26, 2019.


Read stories from graduates who participated the Register Treasurer (RT) program. How does their treasury career look like now?

 

 

 

Pieter de Kiewit
Owner Treasurer Search

 

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

With tm5’s cash and liquidity management solution, users benefit from real-time liquidity management across your entire corporate group.

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