Digital Finance Summit | The World After | 24 November 2020

| 20-11-2020 | François de Witte | treasuryXL |

Only 4 days left for the Digital Finance Summit, the highly renowned conference focusing on the ever-increasing digitalisation of the financial industry, is back again this year to set the path for a bright and more dynamic future at the heart of Europe.

Digital Finance Summit is at the crossroads between Tech Talent, Regtech, Cloud Computing, Big Data, Blockchain, Crypto-assets, Artificial Intelligence, Crowdfunding, Cybersecurity and Banking. It gathers global innovators looking to get inspired by a unique blend of industry leaders and turboboost the whole European FinTech ecosystem!

ONLINE EVENT | NOVEMBER 24 | 2020

Due to the current sanitary situation, this year’s edition goes entirely ONLINE!

For the 5th year in a row, FinTech Belgium is preparing a creative programme spread over 3 stages with Keynotes, Workshops and the European FinTech Pitch Battle!  And, of course, be prepared for the most qualitative networking in Digital Finance in Belgium!

REGISTER NOW!

 

 

 

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

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

Why are you still paying too much banking costs? There is a simple solution to save money

2-12-2019 | treasuryXL | Vallstein |

Do you have full transparency in your banking cost? Do you fully trust your bank(s)? You can easily save a significant amount of money and create strong ties with your bank(s) for a better relationship.

We interviewed Huub Wevers, Head of Business Development at Vallstein, he will take a deeper dive into the advantages of using WalletSizing® , give you a better insight and even shares a success story.

Can you tell something about WalletSizing® ?

WalletSizing® is a SaaS platform with a number of modules that gives Corporates full transparency on how much they spent on their banks and how profitable they are for their banks. A CFO would like to be able to drive the meetings with the bank supported by independent data showing exactly what a corporate is doing with the bank AND how profitable the corporate is for the bank. This is exactly what WalletSizing® delivers. WalletSizing® drives the focus and strategy of the meeting by showing how much a corporate is spending on their banks and how profitable they are for their banks. It ensures that a corporate gets value for money from their relationships with their banks.

An additional module of WalletSizing®, the bank fee edition is able to upload all bank invoices for cash management and comparing them with the original price agreements. Am I paying the price as agreed during the RFP phase?

WalletSizing® the Bankfee edition, can be used together with the other WalletSizing® modules or stand alone.

This module uploads all bank invoices (any format) for cash management and audits them with the original price agreements: Am I paying the price as agreed during the RFP phase? Are there unforeseen billing charges? I was not aware of these unusual situations like:

  1. a) manual payments,
  2. b) investigations,
  3. c) volumes… leading into continuous internal processes improvements.

WalletSizing® Bankfee edition is all about Automation, Control and Transparency, down to account level and including tailor made reporting for Auditors and Control teams. WalletSizing® Bankfee edition it is not a daily reconciliation system. It is an audit process that can be ran in different frequencies as those fits’ client requirements.

What is, in your perception, the biggest benefit of using WalletSizing® ?

Let me explain the following questions that WalletSizing® answers:

  • How much am I spending on my bank products & services?
  • How profitable am I for my banks?
  • Is the above fair?

The last question is the most important one and can be answered through the benchmarking capabilities of WalletSizing® and the underlying methodology. WalletSizing® is calculating the exact profitability on the basis of the relevant credit ratings, bank fees and the latest Basel III/IV regulations.

Another benefit is during the RFP or price revision process where the proposed prices from the Banks are also uploaded in the system and amongst other criteria, compared with the Vallstein Benchmark. This benchmark is a Vallstein property owned database with hundreds of thousands of data points collected over the last 20 years.

How does the customer project phase look like from start till actual use?

A typical WalletSizing® project takes 6 weeks where Vallstein will handle most of the work, typically 90%. We will gather all necessary data and integrate, translate and upload into the system. Through a number of workshops we ensure the client domain is 100% accurate and the client is versed in making the analysis and acting on it. “Having learned how to fish instead of just been given a fish” as the saying goes. During the project we will also set-up and agree how to continue maintenance of the system, ensuring an up to date system.

How fast can customers experience the impact of WalletSizing® after implementation?

Already during the implementation clients will be able to get benefits from the system by detecting missing bills. After an implementation, clients can immediately review their bank relationships and typically will reach very significant savings in their banking costs through that. And on the long run, clients will have more transparent and better relationships with their banks. When you have clarity on how much you are really paying, you have time to talk about more strategic topics with your banks.

What was your biggest challenge with WalletSizing® ?

The biggest challenge with WalletSizing® we had over the last 20 years is the data quality of the banks and the speed at which they deliver the data to our clients.  Fortunately this is improving due to invoice standards like CAMT.086 and a more shared belief in transparency in the market place. Things have changed for the better and we hope that we have and are contributing to that.

Can you share a great WalletSizing® success story?

A client of ours implemented WalletSizing® Bank Fee Edition. We Started with 9 Banks, 12 countries and 170 different accounts. We have now made the bank process completely automatic. Banks are sending the required and detailed fees data on a quarterly basis and this data is being uploaded into the system.

We found no unique and individual product codes across the banks. Product descriptions are not clear and fees are not consistent across the same billing items and accounts. This has been resolved completely by the system which is now automatically mapping all billing items into unified product names and codes. It is more easy now to compare different banking terms and conditions and market benchmark. Needless to say significant savings and 100% transparency has been achieved.

After this implementation the client agreed that they now had done the difficult part of Bank Relationship Management (Cash Management Fees) and were interested to pursue the analysis of the full banking wallet across all their banks. An exercise to understand the current situation, reduce the number of banks, but with full visibility across all banks on how much business and how profitable they were right now. In the end the client reduced their number of banks from 17 towards 9 and have an even spread of their business (Wallet) across all their banks.

visit Vallstein.com

You are only one step away from saving a lot of money

Huub is thrilled to help you. Fill out the contact form and we arrange a call for you.

Recap ATEL Annual Conference 2019

| 22-10-2019 | François de Witte | treasuryXL |

Each year in the 3rd week of September, ATEL, the Luxembourg Association of Corporate Treasurers, organizes its Annual Conference. This year the ATEL Annual Conference was held on September 19, 2019. It was a very special edition, as it coincides with the 25th anniversary of the creation of ATEL. There were over 200 participants, and this was a good opportunity to have snapshot of some recent tendencies in treasury.

“The annual conference is a great way to take stock of the sector’s developments while celebrating our quarter-century run in a friendly atmosphere,” stated François Masquelier, Chairman of ATEL and Deputy Chairman of the EACT.,

The Conference started with a series of workshops. I followed the one on Cybersecurity in Treasury, given by BNP Paribas, and the one on “®evolution of Payments” given by BearingPoint.

BearingPoint expect major changes due to Instant Payments. The existing solutions to obtain customer information on the receipt of payments are not enough anymore.  Corporations require immediate information on received payments. The Westhafen Expert Dialogue has defined immediate customer information of received payments as a best practice. The format used is the Credit-notification N54 defined based on the camt.054. The proposed transmission channel is either via API: Incoming payments are transferred from the bank to the corporation via a web-service-notification (HTTPS, push) or the through the banking server (EBICS.

The plenary session started with a video of Finance Minister Gramegna congratulating the association on its 25th anniversary and coming back on the establishment of the euro as a great accelerator for the profession and underlining Luxembourg’s key role in maintaining a positive environment for treasurers.

Isabelle Badoux presented Sanofi’s treasury transformation journey focusing on centralized treasury, central bank interaction and the conception of a “payment factory.”

Luca Lazzaroli, then presented the EIB, the largest multilateral lender and borrower in the world. The institution invests over € 1.2 trillion in innovation, environment, infrastructure and SMEs with a special accent on sustainable growth in Europe.

Vincezo Dimase from Refinitiv concluded the plenary session by presenting the challenging transition from LIBOR the so-called ARR (Alternative Reference Rate – e.g. the ESTER – Euro short term rate, which will replace the EONIA). By the end of 2021, the financial sector will abandon the IBOR, and this will have a major impact on the corporate treasurers, as several long-term contracts using the IBOR go beyond end 2021.

Following on this conference we had a nice get together with all the participants where I had interesting exchanges of experience. The ATEL Annual Conference was a very good event.

I am impressed by ATEL, who proves to be able in the small country of Luxembourg to group top experts along hot topics in treasury. On 26/9/2019, we also had at the Luxembourg House of Training the official Ceremony where 13 treasury professionals received their “Certified Path in International Treasury Management and Corporate Finance“, organized in collaboration with ATEL. A new session of this Certified Path will be held starting from January 2020. All practical information and program are available here. I was also part of the lecturers and of the jury.

Will you join next year?

François de Witte
Founder & Senior Consultant at FDW Consult
Managing Director and CFO at SafeTrade Holding S.A.
treasuryXL ambassador
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How are largest European companies managing their financial risks?

17-10-2019 | Stanley Myint | BNP Paribas

The second edition of the “Handbook of Corporate Financial Risk Management” has just been published by Risk books. The handbook is written with all risk management professionals, practitioners, instructors and students in mind, but its core readership are Treasurers at non-financial corporations. It contains 43 real life case studies covering various risk management areas. The book aims to cover both financial risk management and optimal capital structure and its contents.

Motivation for the book

This Handbook is based on real-life client discussions we had in the Risk Management Advisory team at BNP Paribas between 2005 and 2019. We noticed that corporate treasurers and chief financial officers (CFOs) often have similar questions on risk management and capital structure and that these questions are rarely addressed in the existing literature.

This situation can and should lead to a fruitful collaboration between companies and their banks. Companies often come with the best ideas, but do not have the resources to test them. Leading banks, on the other hand, have strong computational resources, a broader sector perspective, an extensive experience in internal risk management, and the ability to develop and deliver the solution. So, if they make an effort to understand a client’s problem in depth, they may be able to add considerable value.

The Handbook is the result of such an effort lasting 14 years and covering more than 700 largest European corporations from all industrial sectors. Its subject is corporate financial risk management, ie, the management of financial risks for non-financial corporations.

While there are many papers on this topic, they are generally written by academics and rarely by practitioners. If we contrast this to the subject of risk management for banks, on which many books have been written from the practitioners’ perspective, we notice a significant gap. Perhaps this is because financial risk is clearly a more central part of business among banks and asset managers than in non-financial corporations. However, that does not mean that financial risk is only important for banks and asset managers. Let us look at one example.

Consider a large European automotive company, with an operating margin of 10%. More than half of its sales are outside Europe, while its production is in EUR. This exposes the company to currency risk. Annual currency volatility is of the order of 15%, therefore, if the foreign revenues fall by 15% due to FX, this can almost wipe out the net profits. Clearly an important question for this company is, “How to manage the currency risk?”

The book blends real corporate situations across capital structure, optimal level of cash, optimal fixed-floating mix and pensions, which are particularly topical now that negative EUR yields create unpresented funding opportunities for corporates, but also tricky challenges on cost of cash and pensions management

One reason why corporate risk management has so far attracted relatively little attention in literature is that, even though the questions asked are often simple (eg, “Should I hedge the translation risk?” or “Does hedging transaction risk reduce the translation risk?”) the answers are rarely simple, and in many cases there is no generally accepted methodology on how to deal with these issues.

So where does the company treasurer go to find answers to these kinds of questions? General corporate finance books are usually very shy when it comes to discussing risk management. Two famous examples of such books devote only 20 – 30 pages to managing financial risk, out of almost 1,000 pages in total. Business schools generally do not devote much time to risk management. We hope that our book goes a long way towards filling this gap.

Website

We invite the reader to utilise the free companion website which accompanies this book, www.corporateriskmanagement.org There, you will find periodic updates on new topics not covered in The Handbook. Much like the book this website should prove a useful resource to corporate treasurers, CFOs and other practitioners as well the academic readers interested in corporate risk management.

About the authors

Stanley Myint is the Head of Risk Management Advisory at BNP Paribas and an Associate Fellow at Saïd Business School, University of Oxford. At BNP Paribas, he advises large multinational corporations on issues related to risk management and capital structure. His expertise is in quantitative and corporate finance, focusing on fixed income derivatives and optimal capital structure. Stanley has 25 years of experience in this field, including 14 years at BNP Paribas and previously at McKinsey & Company, Royal Bank of Scotland and Canadian Imperial Bank of Commerce. He has a PhD in physics from Boston University, a BSc in physics from Belgrade University and speaks French, Spanish, Serbo-Croatian and Italian. At the Saïd Business School, Stanley teaches two courses with Dimitrios Tsomocos and Manos Venardos: “Financial Crises and Risk Management” and “Fixed Income and Derivatives”.

Fabrice Famery is Head of Global Markets corporate sales at BNP Paribas. His group provides corporate clients with hedging solutions across interest rate, foreign exchange, commodity and equity asset classes. Corporate risk management has been the focus of Fabrice’s professional path for the past 30 years. He spent the first seven years of his career in the treasury department of the energy company, ELF, before joining Paribas (now BNP Paribas) in 1996, where he occupied various positions including FX derivative marketer, Head of FX Advisory Group and Head of the Fixed Income Corporate Solutions Group. Fabrice has published articles in Finance Director Europe and Risk Magazine, and has a master’s degree in international affairs from Paris Dauphine University (France).

Content:

Introduction

1 Theory and Practice of Corporate Risk Management *

2 Theory and Practice of Optimal Capital Structure *

PART I: FUNDING AND CAPITAL STRUCTURE

3 Introduction to Funding and Capital Structure

4 How to Obtain a Credit Rating

5 Refinancing Risk and Optimal Debt Maturity*

6 Optimal Cash Position *

7 Optimal Leverage *

PART II: INTEREST RATE AND INFLATION RISKS

8 Introduction to Interest Rate and Inflation Risks

9 How to Develop an Interest Rate Risk Management Policy

10 How to Improve Your Fixed-Floating Mix and Duration

11 Interest Rates: The Most Efficient Hedging Product*

12 Do You Need Inflation-linked Debt

13 Prehedging Interest Rate Risk

14 Pension Fund Asset and Liability Management

PART III: CURRENCY RISK

15 Introduction to Currency Risk

16 How to Develop an FX Risk Management Policy

17 Translation or Transaction: Netting FX Risks *

18 Early Warning Signals

19 How to Hedge High Carry Currencies*

20 Currency Risk on Covenants

21 Optimal Currency Composition of Debt 1:

Protect Book Value

22 Optimal Currency Composition of Debt 2:

Protect Leverage*

23 Cyclicality of Currencies and Use of Options to Manage Credit Utilisation *

24 Managing the Depegging Risk *

25 Currency Risk in Luxury Goods *

PART IV: CREDIT RISK

26 Introduction to Credit Risk

27 Counterparty Risk Methodology

28 Counterparty Risk Protection

29 Optimal Deposit Composition

30 Prehedging Credit Risk

31 xVA Optimisation *

PART V: M&A-RELATED RISKS

32 Introduction to M&A-related Risks

33 Risk Management for M&A

34 Deal-contingent Hedging *

PART VI: COMMODITY RISK

35 Introduction to Commodity Risk

36 Managing Commodity-linked Revenues and Currency Risk

37 Managing Commodity-linked Costs and Currency Risk

38 Commodity Input and Resulting Currency Risk *

39 Offsetting Carbon Emissions*

PART VII: EQUITY RISK

40 Introduction to Equity Risk*

41 Hedging Dilution Risk *

42 Hedging Deferred Compensation*

43 Stake-building*

Bibliography

Index

Note: Chapters marked with * are new to the second edition

Special offer for treasuryXL readers. Use the code HCFRM20 at checkout for 20% discount on your book purchase at riskbooks.com/corprisk2

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

Our banks are not like theirs (if they even have one)

| 08-10-2019 | by Pieter de Kiewit |

Recently Bloomberg reported about the authorities in Indonesia closing down 826 Fintech startups. My first assumption was this has to do with tax evasion and a very controlling government. Indonesia is most definitely not my field of expertise. Reading the article it struck me that my mindset concerning banking is quite limited and restricted to western standards. And over time I have noticed that I am not the only one. Reason to browse the internet, tell you about my findings and issues this concerning.

Even European banks are not all the same
In The Netherlands the retail banking standard was: banking services are for free and you get a decent percentage on your savings. Furthermore cheques were left in the previous millennium and even my grandmother uses on-line banking. Italian retail banking already came with an invoice long ago and cheques were and still are a standard in Germany. As many Europeans have no regular access to the (mobile) internet, banking on their computer or phone is not an option. One can also take this from the average number of banking offices to be seen in the streets of Amsterdam versus the ones in Bucharest.

Banking differences in the rest of the world
I did not do a comprehensive study but do know that for many of us Europeans a personal credit rating does not very sound familiar. When I lived in Canada I learned that you need a personal credit to get a cheque book. You get your credit rating by having an account where a regular income lands and improve it by leasing a car and pay your credit card bills in time. Without a credit rating no mortgage, a better credit rating results in a lower interest rate.
In some African countries telephone landlines were never installed and the first regular telephone was a cell phone. In parallel, bank accounts were skipped and cash is replaced by credit on this same cell phone. I think all these systems are doing a more or less proper job. Only if you want to cross the border you will need to help.

Problems with inadequate banking services
EY reports that over 200 million SMEs do not have access to banking services putting them in an offside position in the global economy. All this because the regular big banks want to deal with them as if they are a Western company. The Bloomberg article describes a situation where 90% of the Indonesian population has no credit card or access to banking services. Of course this is a facilitator for the black market economy. But also, there are examples where Fintech and loansharking are being combined with all related criminal behaviour and excessive interest rates. And, in a society without banks, what can you do with your savings? I think these are real issues.

Having browsed and learned I don’t think we should aim for a worldwide standard in banking. I hope we can learn from each other and that the banking landscape will be more honest, enabling a fair global economy. With this in mind I think I will have another look at cryptocurrencies introduced by Facebook and other new kids on the block. That is for another blog and by now I think I understand the Indonesian government better.

What are your thoughts and which interesting examples do you see around the world?

 

 

Pieter de Kiewit
Owner Treasurer Search

 

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
Treasurer and Project Manager at Van Caem Klerks Group
treasuryXL Ambassador