Exchange rate risk | A Challenge for internationally trading companies (Dutch Item)

25-05-2021 | Erna Erkens | treasuryXL |

Handelt u internationaal buiten de Eurozone, dan kunt u als bedrijf te maken krijgen met een valutakoersrisico, ook wel wisselkoersrisico genoemd. Wanneer u goederen of diensten uit een land buiten de Eurozone importeert of exporteert, kan de wisselkoers hoger of lager zijn op het moment dat u de factuur moet betalen of uw geld ontvangt. Dit kan een gunstig effect hebben op uw marge, wanneer u geluk heeft. Het kan ook een negatief effect hebben op uw marge.

Een koersbeweging kan uw winstmarge dus maken of breken. Er zijn heel veel factoren, die het koersverloop van een valutakoers kunnen beïnvloeden. In dit artikel kunnen we niet alle invloeden benoemen. Zeker ook omdat veranderende marktomstandigheden, ook weer nieuwe invloeden naar voren brengen. In dit artikel behandelen we de belangrijkste factoren.

Voorbeeld wisselkoersrisico

Hoe ontstaat een wisselkoersrisico of een valutarisico? Deze termen worden door elkaar gebruikt. Een voorbeeld: Uw onderneming levert producten aan een onderneming in de Verenigde Staten voor USD 100.000.

Op het moment dat u de producten in de Verenigde Staten levert is de EUR/USD koers 1.2000. Uw 100.000 dollar is dan 80.333,33 Euro waard. De Amerikaanse aankopende partij hanteert een betalingstermijn van 60 dagen en voldoet de factuur dus 60 dagen na levering.

Op dat moment is de EUR/USD koers 1.2500 en is uw 100.000 dollar nog maar 80.000 Euro waard. U verliest in dit geval dus een bedrag van 3.333,33 Euro. Als dit op nog grotere schaal en met grotere bedragen gebeurt, kan dit pijnlijke verliezen opleveren. Zo erg zelfs, dat het kan leiden tot een
faillissement. Dit is echt niet nodig en kan worden voorkomen.

Wanneer ontstaat een wisselkoersrisico?

Er zijn verschillende manieren en momenten, waarop een wisselkoersrisico kan ontstaan.

Pre-transactierisico

Stel u brengt een offerte uit aan een bedrijf in China. Of u ontvangt van een bedrijf uit een land buiten de Eurozone een offerte. Op dat moment ontstaat er direct een wisselkoersrisico. De wisselkoers kan namelijk op het moment dat de offerte wordt uitgebracht hoger of lager zijn dat het moment, waarop de offerte wordt geaccepteerd. Daardoor kan de offerte opeens gunstiger of juist minder gunstig uitpakken. Dit risico noemen we het Pre-transactierisico.

Transactierisico

Stel de offerte wordt geaccepteerd en omgezet naar een definitief contract. Op dat moment ontstaat er een vast wisselkoersrisico. Bij het contract hoort namelijk een betalingsverplichting of betalingsontvangst in een andere valuta dan de Euro. Als een contract wordt afgesloten, wordt de betaling meestal niet direct gedaan. In de tijd tussen het tekenen van het contract en de betaling zal de wisselkoers zeker veranderen. Dit risico noemen we het Transactierisico.

Economisch risico

Door het wijzigen van een wisselkoers, kan uw concurrentiepositie en de winstgevendheid van uw bedrijf veranderen.

Stel u bent producent van paraplu´s. U produceert deze in de Eurozone. Een ander bedrijf gaat dezelfde paraplu’s verkopen en laat deze papaplu’s in VS maken. Als de dollar goedkoper wordt (EUR/USD stijgt) dan worden de productiekosten voor uw concurrent die de paraplu’s in VS laat maken goedkoper. Uw concurrent kan de paraplu’s daardoor goedkoper aanbieden. Dit is een voorbeeld van een economisch risico. De mate waarin een wisselkoersrisico de concurrentiepositie of de winstgevendheid van een bedrijf beïnvloed noemen we het economisch risico.

Voorbeeld van een wisselkoersrisico

Het bedrijf Hippe Tassen importeert handtassen uit China. Het bedrijf uit China wil betaald worden in USD. Dit gebeurt heel regelmatig bij Chinese bedrijven. De factuur voor een collectie handtassen is USD 50.000. Hippe Tassen heeft een offerte gekregen met een wisselkoers van EUR/USD 1.2000. Dus de USD 50.000 met de koers van 1.2000 komt in de boekhouding voor USD 50.000 / 1.2000 = EUR 41.666,67.

En dan komt het moment dat Hippe Tassen de factuur moet betalen. Dit kan bijvoorbeeld via Cash Against Documents (CAD). De boot met de tassen ligt in de haven van Rotterdam. Op dat moment moet de betaling aan het Chinese bedrijf worden gedaan. De koers is dan EUR/USD 1.1500.

Hippe Tassen moet de Amerikaanse Dollars aankopen om de betaling in USD te doen. Maar op dat moment kosten die USD 50.000 ineens EUR 43.478,26 (USD 50.000,– /1.1500 = EUR 43.478,26). Dat levert Hippe Tassen ineens een verlies op van EUR 1.811,59 (EUR 41.666,67 – 43.478,26).

Dit was voor Hippe Tassen niet de bedoeling en dit was ook zeker niet nodig. Andersom komt natuurlijk ook wel eens voor. Als de koers was gestegen van 1.2000 naar 1.2500 heeft Hippe Tassen een extra winst van EUR 1.666,67 (USD 50.000 / 1.2000 = EUR 41.666,67 – USD 50.000 / 1.25 = EUR 40.000).

Maar deze gok is het risico niet waard. Geld moet verdiend worden met de verkoop van hippe tassen en niet met verandering van de wisselkoers.

Schat uw wisselkoersrisico in

Het is als Internationaal handelend bedrijf verstandig om goed in kaart te brengen wat uw valutarisico´s zijn om onnodige verliezen te beperken. Om het wisselkoersrisico zoveel mogelijk te beperken zijn er verschillende mogelijkheden. Een ervan is gebruik maken van termijncontracten.

Maak kennis met Erna

Erna is geboren in Rotterdam in 1963. Ze heeft 35 jaar binnen het bankwezen gewerkt waarvan 33 jaar in Treasury.

Erna’s drijfveer is mensen en bedrijven helpen met haar kennis en ervaring. Leren van elkaar en door samenwerking allemaal beter worden. Met die reden heeft Erna haar business EEVA opgericht (Erna Erkens Valuta Advies). Erna’s mening is dat bedrijven geen zakendoen met bedrijven, maar mensen doen zaken met mensen.

Haar basis voor zakendoen is altijd de mens. Een primaire behoefte van mensen is dat ze het gevoel willen hebben dat ze ergens thuishoren. To Feel that they belong. Mensen met een set van dezelfde normen en waarden voelen zich thuis bij elkaar. Na een poosje voelen ze zich veilig en dan ontstaat er automatisch vertrouwen. Dat kost tijd.

Erna’s kernwaarden: Integriteit, loyaliteit, professionaliteit/kwaliteit en samenwerking. Bent u helemaal thuis in alle vaktermen als u aan tafel zit met uw bank? Of schiet er soms een woord voorbij waarvan u denkt? Wat was dat ook al weer?

In uw werk komen internationale transacties dagelijks voor, kennis van het vakjargon is dan belangrijk. Wilt u in gesprekken met uw bank of broker goed beslagen ten ijs komen en uzelf zeker voelen en alle gebruikte vaktermen begrijpen? Dan is deze online masterclass ‘Vakjargon in 5 dagen’ speciaal voor u!

Ja ik wil meer informatie!

Erna Erkens

Owner at EEVA

Bron

International Treasury Management Virtual Week | Celebrating 30 years as the world’s leading treasury event

| 19-05-2021 | Eurofinance | treasuryXL |

International Treasury Management is the annual meeting place for 1000s of the World’s most senior treasurers to learn and share experiences in valuable peer to peer discussions. With a reputation for ground-breaking sessions and world-class speakers, our 30th anniversary event will explore the boundaries of the profession, take a glimpse into the future of business, treasury and working life as well as offer the practical case studies on the treasurer’s top agenda items.

Only one treasury event can deliver the comprehensive mix of big picture global insight and granular treasury knowledge you need to make the right choices for the future.

Back to the future, again

Over the past 30 years since EuroFinance’s inaugural conference on International Cash and Treasury Management, much has changed. Treasurers have firmly become business partners, technology experts, risk managers and opportunity spotters. They often lead fundamental change within the company as markets, business models and technology shifts.

What next? This event will delve into how treasury operations can gear up for the future, having learned the lessons from the past. Where, who, what and how will the corporate be in the coming years and what is treasury’s role?

Keynote sessions will offer big-picture insight alongside themed streams including:

Payments revisited
Risks and Rewards
Digital strategies
Practical solutions to day-to-day Treasury challenges
The power of partnership

What makes International Treasury Management the must-attend event of the year?

networking on a global scale – a significant rise in attendees in 2020 boosted the value networking with banks, providers and potential clients… all in one place
strategic insights and best practices – get solutions to the challenges you face from treasury and economic experts during keynotes, practical case studies, fireside chats, analytical panels and more
future trends – delve into the latest innovations and new technology driving change in treasury, and their practical applications
live Q&A with world-class treasurers – enjoy borderless networking and live Q&As with high-profile speakers directly after each session
cost and time-efficiency – tune in form anywhere in the world, at the click of a button with no long distance travel or accommodation costs
continued learning – catch up on any missed sessions and re-watch your highlights, on demand for up 2 months after the event
unite your international teams – as a free event, it offers an opportunity for your whole treasury team to attend. Perfect for encouraging learning and development at all levels

September 27th – October 1st | Virtual

Register Now for Free!

Global Treasury Americas | Planning the post-pandemic Treasury

| 12-05-2021 | Eurofinance | treasuryXL |

The leading virtual event defining today’s corporate treasury agenda

For the past year, treasurers have sweated the core stuff: securing short-term liquidity and longer-term credit; enhancing risk monitoring and hedging processes; and dealing with the implications of remote working. But in the complex and uncertain transition to a new ‘normal’, finance functions will have to resume the search for growth. Can treasury help identify where growth is most likely to come from and which parts of the business are most threatened by digital disruption? And can they do better – can they help build the business strategies needed to prosper as we emerge into the next phase of the pandemic.

This event will explore the practical steps treasurers can take to make enterprise and treasury digitalization a reality and look at varied case studies of transformation in the treasury. The event will look in-depth at new technologies in action as well as more strategic concepts including the sustainability agenda. We look at how treasury can make a difference. Finally, we look at what it takes to transform treasury wherever you are in your journey in order to increase efficiencies, protect the business and make a difference to the bottom-line.

Global Treasury Americas: Planning the post-pandemic treasury

2 days of actionable insights, plus real world case studies tackling the key issues facing treasurers in the region. Topics include:

The Great Bounce-back
Practical steps on the path to automated Treasury
Why sustainability matters for Treasury
Name that threat: What’s next
Building a true cash culture
Payments evolution – the Treasurer’s view

What makes Global Treasury Americas your must-attend event of the year?

Understand the practical steps towards making enterprise and treasury digitalization a reality
Gain actionable solutions and best practices from varied real-world case studies
Network with an unrivalled audience of 800+ senior treasury professionals across the Americas
Benchmark your operations against the regions most forward-thinking treasury teams
Explore how to support business growth whilst balancing the traditional role of treasury

June 9-10 | Virtual

Register Now

Partner Interview | Manipulating market-leading data to navigate volatility

11-05-2021 | treasuryXL | Refinitiv |

As a leading financial markets data provider, Refinitiv is an essential partner for corporate treasurers. Refinitiv’s global, multi-asset and multi-jurisdiction view of risk, credit and economic data enable treasury teams to drive stability by managing the global and interconnected nature of risk today.

⬇️ ⬇️ ⬇️

In this interview, we take a look at how Refinitiv’s corporate treasury customers used Refinitiv data and apps to remain agile and proactive in one of the most volatile years ever. We also consider what data is likely to be needed as we recover from the pandemic and companies seek growth.

An introduction to:

Andrew Hollins

Director of Corporate Treasury Proposition, Refinitiv, an LSEG business

Rasyid Kwee

Proposition Sales Specialist for Enterprise Solutions, Refinitiv, an LSEG business.

INTERVIEW

1. From your data, what can be identified about the behaviors and activities of corporate treasurers during the onset of the pandemic?

Using the data we have available, we’ve been able to discern three broad phases of corporate treasury response and action throughout the pandemic. The period March through to May 2020 represents Phase 1, which for many Corporates could be termed the ‘Survival Phase’. During this first phase, we witnessed pronounced patterns of activity amongst our Corporate Treasury clients.

Firstly there was a strong focus on analysing and reviewing the Credit Risk of suppliers, clients and also corporate’s own credit risk. Treasurers wanted to know if their customers would be able to pay for the goods and/or services they are supplying, and if their suppliers were still going to deliver supplies, raw materials, component parts, goods, etc.

We also saw a spike in usage of Company Fundamental Data (app for company financial analysis, for financial statements and valuation metrics for over 90,000 companies listed on 169 exchanges in 150 countries), especially so for balance sheets, income statements, key ratios and Cashflow data. Furthermore, there was an increased appetite for Private Company data, which almost certainly reflected a desire to review the health of the extended supply chain, a trend which has continued.

Finally, there was an increase in usage of Sector-specific Economic Indicator data, up 30% globally from Feb – Mar 2020 (this app allows users to search for any Economic Indicator, chart the history, export to Excel and view associated press releases). An increase was also seen in the use of Peer Analysis data (allows for the comparison of a company against its peers across a multitude of measures and variables), reflecting a demand for wider sectoral intelligence, as well as insight into how related companies were performing in such a stressed environment. Conversely, we also saw a decline in demand for ESG related apps and data, as well as data and apps relating to Libor transition. Libor transition in particular had been a high priority area for most corporate treasurers, but the economic shock brought on by Covid-19 pushed these onto the back burner during the ‘Survival Phase’.

2. What are the Data and App usage highlights from Phase 1?

Globally, Credit Default Swap (CDS) data usage grew 115% in EMEA and Americas between February and March 2020. Asia showed a 155% rise in usage of this data during the same period. (The CDS Dashboard app provides comprehensive Streaming price coverage on major global Index and single name CDS from major market maker).
In the Netherlands (February to March 2020), there was an 83% rise in usage by Corporate Treasurer’s use of credit and credit risk data, specifically;
- 68% rise in use of Debt Structure data (both for oneself and for one’s peers)
- 67% rise in Starmine Credit Risk data (Starmine Credit Risk models utilize industry-specific accounting ratios, equity market valuations and text mining models to produce a 1-100 score of an company’s credit risk).
During the same period we also saw significant increases in usage of company fundamental and private company data. At the same time there was a clear drop in consumption of ESG data.
- - 81% rise in Company Fundamental data
  - 33% rise in Private Company data
  - 45% drop in use of ESG data

Looking at year on year data for the Netherlands for March 2020 and March 2021, we saw a 50% rise in CDS data; 50% rise in Debt Structure Data; 66% rise in Industry sector data; 113% rise in use of peer analysis apps.
Furthermore;
- Private Company Data and Analytics grew by 31% between February to March 2020, receding during the summer months but then grew >100% from October 2020 into Q1 2021.

3. As the pandemic progressed, how did the behaviors and activities of corporate treasurer’s change?

Moving on from ‘Phase 1’ (above) and heading into ‘Phase 2’, which we can place from mid Q2 through to Q3 and call the ‘Cash Phase’, many companies focused on cash preservation and extending their cashflow runway as far as possible. Companies focused on maximising all sources of liquidity, in some cases working with suppliers to extend payment schedules and expedite receivables as far as possible. Companies also drew down reserves and utilised credit facilities. We also saw Bond Issuance accelerate significantly especially in Q3.

4. What are the Data and App usage highlights from Phase 2?

In the Netherlands, from June to October 2020, we saw a notable pick-up in usage of Issuance and Credit-related data and analytics:

A 40% rise in usage of the New Issues Monitor – (app providing a comprehensive library of new issues covered by Thomson Reuters and supporting IFR).
A more than 250% jump in usage of Starmine Credit Risk analytics and data
A 25% rise in usage of the Fixed Income All Quotes app

At the same time, there were also further significant changes in usage of apps and data related to the financial health of the supply chain and the corporate ecosystem in general:

Income Statement: Up 116%
Balance Sheet: Up 72%%
Key Ratios: Up 160%
Cashflow: Up 175%

5. How do you see the behaviors and activities of corporate treasurers changing as we move into a recovery mode from the pandemic?

If we identify Phase 3 as the ‘Recovery Phase’, which focuses on positioning and planning for a return to normality, or at least a new normal, our usage data suggests that many companies continue to focus on bond issuance and refinancing in order to take advantage of current lower yields. It’s notable that issuance of US$ denominated debt by non-US companies has been particularly strong in the first quarter of 2021.

There are distinct trends apparent in the usage data for our issuance-related Data and Analytics apps, in particular:

DCM Pricer – usage is up 21% from November 2020 to March 2021 (a custom bond calculator designed to build new bond issues and price them for the primary market)
Debt Structure app – usage is up 20% between November 2020 and March 2021
New Issues Monitor – usage is up 52% from November 2020 to March 2021 (New Issues Monitor provides a comprehensive library of new issues covered by Thomson Reuters and supporting IFR).

As countries navigate out of the pandemic, we can also see that ESG is firmly back on the agenda, with usage of our ESG apps and data rising strongly as we move deeper into 2021. For much of the pandemic period many companies focused on survival, but a rapidly developing global sustainability landscape is contributing to a significant shift towards adopting and ESG standards and behaviours across the corporate sphere.

Globally, ESG Data and Analytics Usage has grown 93% between Dec 2020 and March 2021, higher than the pre-Covid-19 peak.

Across EMEA, this was up 78% in the same period.
In the Netherlands, although below the global and EMEA percentages, ESG Data and Analytics usage was still up 35% in the same period.

Looking beyond Covid-19, conversations with our corporate treasurer clients have revealed an appetite for greater visibility and predictability when it comes to cash and liquidity management. Aligned to this, is a desire for increasingly accurate forecasts and risk analysis regarding projected future cashflows. Hedge accounting and hedge effectiveness tools also feature strongly in these conversations.

Furthermore, automation to support more robust and frequent analysis and reporting, as well as a comprehensive enterprise-wide view of cashflow, risk and liquidity, are also areas of growing interest which are going to feature more in the post-pandemic landscape.

Finally, ESG data consumption has recovered and is now above pre-Covid-19 peaks. This trend is likely to continue on its upward trajectory, becoming systemically more prevalent than it was pre-pandemic, given the rapidly evolving regulatory and demand led factors which are driving an ever-greater focus on sustainability. We recently hosted an event with the Association of Corporate Treasurers on treasury ESG roles and responsibilities which you can watch on-demand here.

6. How can corporate treasurers gain access to Refinitiv’s market-leading data and navigate current and future volatility?

Serving more than 40,000 institutions in approximately 190 countries, Refinitiv provides advanced data and technology to help corporate treasury teams make critical decisions with confidence. Our corporate treasury solutions help deliver accurate and relevant data, tools and analytics that can be accessed easily and intuitively – advancing your end-to-end workflows and ensuring seamless integration with your entire treasury management eco-system.

To find out more, speak with our experts by completing your details here.

Liquidity Benefits From Dynamic Discounting in Supply Chain Financing

10-05-2021 | treasuryXL | Kyriba |

It might not always be obvious where business can learn lessons from somewhere like yacht racing, particularly in more specialist fields like Supply Chain Finance and Dynamic Discounting. But there are often uncanny parallels from this sport and finance, when both seek to deploy serious sums of money and leading-edge technology to deliver the marginal gains that can mean the difference between winning and losing.

I thought this was particularly evident in the recent America’s Cup yacht racing challenges in New Zealand. Those AC75 mono-hull super yachts that raced around the bays off Auckland often travelled at a logic-defying 40-50 knots, twice as fast as the winds that powered them and seemingly in defiance of both gravity and conventional sailing speed barriers.

Liquidity Made Good

The key to having one AC75 go faster than an almost identical competitor is the ability to analyse masses of data points in real-time to make the required adjustments to sails, rudders, weights and foils in order to attack the optimum route to the finish at maximum speed. It’s a concept called Velocity Made Good, with VMG now the go-to acronym that defines winners in America’s Cup racing. Perfecting VMG was the reason the New Zealand boat successfully beat its global challengers – again.

I was particularly struck by how this VMG-led transformation of yacht racing, now cascading down from the pinnacle of the sport to the club level, is not dissimilar to how a focus on technology-led cash and liquidity management is liberating corporate balance sheets. We could even refer to it as Liquidity Made Good, where, by the way, velocity also matters.

New Level Playing Field

The deployment of more powerful technologies can improve decision-making, release resources from previously opaque silos and supply chains, and deliver new competitive advantage. Historically this was only available to those high-tech firms and financial institutions with deep pockets, just like the owners of America’s Cup yachts, because of the almost prohibitive cost of computing power, data storage and analytics.

But cloud-based software platforms, the blossoming of data analytics, ubiquitous access to near-unlimited data storage and the power of connectivity-as-a-service now ensures, like in yachting, that these benefits filter down from the elite to level the playing field.

Greater Flexibility, Visibility

In particular, the once sleepy backwaters of trade finance are now waking up to new opportunities to maximise cash resources in ways that not only strengthen supplier relationships, but also enhance Corporate Social Responsibility credentials. Early Payment Discounting has been around trade finance for many years. But persistent, ultra-low interest rates and expectations of greater flexibility now demand more creative solutions from Treasurers. Answers to which technology can now help to provide.

Dynamic Discounting

Within the broader field of Supply Chain Finance, firms can now use technology to transform early payment schemes into Dynamic Discounting. These can be deployed as an integral part of wider working capital management, where better visibility can optimise liquidity and improve profitability. It might seem just a simple method of paying invoices earlier, particularly for businesses with surplus cash that can benefit both parties involved. But how it is managed becomes critical to the outcome.

Win-Win Solution

For Dynamic Discounting to succeed, it needs to be sufficiently flexible (dynamic) as to how and when suppliers are paid, with payments made prior to due dates at a discount to original invoice values calculated on a sliding scale. This means that the earlier the buyer pays a supplier, the greater the discount. The discount is therefore “dynamic” in relation to the number of days until the invoice due date and avoids the previous “cliff edge” difference between simply either having a discount or not.

Most importantly, suppliers get continuously paid earlier, which improves their liquidity position and which could then allow them to pay their own suppliers earlier, invest more in their business or alternatively just do more business with the buyer.

Funding Flexibility

For a cash-rich buyer operating in a low interest environment, the benefit is obvious. Rather than leaving liquidity in a low-interest account, it can pay large invoices early to receive additional discounts and strengthen profitability. For instance, if a buyer receives a 2% discount for paying a 90-day-net invoice after 30 days, it can invest the amount for 60 days and receive a return. This is the equivalent of a just over 10% annual return on capital that would far outweigh any loss of interest.

The buyer is fully in control of how this program is run, determining how much funding capital to set aside and adjusting that capital as seasonal liquidity fluctuates. Any seasonal liquidity issues could then also be managed by pairing the dynamic discounting program with a traditional SCF program. This would also allow the flexibility for third-party funding to fill any gaps that emerged due to potential, or periodic, lower cash balances available for the original arrangement.

Besides earning a return on excess cash, Dynamic Discounting can also reduce supply chain risks (in that financially more stable suppliers mean reduced supplier risk) and then strengthen supplier relationships. Conversely, on the supplier side it improves cash flow and provides early payment options, both of which save time, puts cash into accounts sooner and increases liquidity visibility. Benefits everywhere!

CSR Benefits – Risk Free Returns

There’s no such thing as a free lunch, but there are other compensating benefits to offset the initial costs of implementing a modern Dynamic Discounting plan, not least of which can be a significant increase in ROI on otherwise dormant cash without increased risk. After all, you are only effectively paying existing suppliers early, who you have to pay anyway, free of any additional counterparty risk.

And, as I mentioned earlier, today’s much more keenly scrutinised CSR credentials can also be significantly burnished by the support provided to often much-smaller suppliers down the food chain. That can then be more widely communicated directly to CSR scoring tables which, in turn, recognise responsible buyers and suppliers.

So, to get the maximum benefit of the wind in your sails and the best performance from your assets, make sure you use the right technology to strengthen decision making. After that, understanding the challenge, minimising the risks and reaping the mutual rewards of Dynamic Discounting will enable much smoother sailing and help you optimise your liquidity!

Bank connectivity – why it is not a one-size-fits-all issue

04-05-2021 | Luca Crivellari | treasuryXL |

Corporate to bank communication is still a very pressing issue in cash management. There are several alternatives that allow corporates to interface and exchange data with banks, and most of the times it is complex for treasurers to identify the best choice. The consequence of not adopting the best setup might be to receive inadequate or old information, or the inability to have the right level of control over the issue of payments. The aim of the article is to assist treasurers in identifying all the relevant variables, and to take a decision that factors in all the possible impacts of each alternative.

Introduction – Why bank connectivity is still a hot topic?

In 1973, over 200 banks from 15 countries created a cooperative body with the aim of easing the communication among banks. This organization was born under the name of SWIFT, the Society for Worldwide Interbank Financial Telecommunication.

SWIFT enables its customers to automate and standardize the processing of financial transactions, thereby lowering costs, reducing operational risk and eliminating inefficiencies from their operations.

The rise in global trade was the main reason why financial institutions were pressed by defining a common standard for international payments and reporting, and the aim was to avoid lengthy conversions, useless charges and operational inefficiencies that might derive from the use of different standards.

Fast forward to today, SWIFT is the undisputed backbone of financial markets, with over 11,000 financial institutions and corporations in more than 200 countries, processing a record of 46,3 million messages in a single day on the FIN service. SWIFT messages are nowadays used for both bank-to-bank and corporate-to-bank communication, and the organization has developed dedicated categories for messages that are related to payments, cash management, foreign exchange, trade finance, treasury markets, and securities.

Overtime, several other organizations with a similar aim were created, at national or international level. It is worth to mention the CBI (Customer to Business Interaction, former Corporate Banking Interbancario) consortium in Italy, and the EBICS (Electronic Banking Internet Communication Standard) protocol in Germany.

We still live in a world of different standards and practices, where corporates often struggle in navigating among the different options they have when it comes to issue a payment or to receive a piece of account statement. This article is meant to be a guide for corporate treasurers on how to select the right connectivity setup, because there is no such a thing as a universal optimum, and every alternative has its own advantages and its own shortcomings.

From the experience I gathered during the last years of conversations with several corporates based throughout Europe, one of their most relevant priorities is to consolidate an accurate picture of the liquidity available in the company bank accounts, on a daily basis. Too many organizations, including some with a relevant experience in international business and with a very important turnover, are still relying on Excel files shared on a monthly basis, in order to get the information of the balance that is sitting in a certain bank. In a world where business is changing rapidly, this can be an issue.

Moreover, the ever-changing technology landscape is adding complexity to the issue. New trends as the API-based connectivity can definitely allow a more efficient exchange of information, shortening the gap to a real time treasury, while the migration from MT to MX messaging standard is going to heavily impact how payments are going to be settled in the near future.

In conclusion, bank connectivity is still a hot topic because it is yet perceived as being a complicated issue by many corporates, and there is a clear need for treasurers to figure out all the relevant variables before choosing the most valid option for their company.

The alternatives on the market

Years of innovation and progress in information technology and financial markets have developed a wide array of possible bank connectivity services. In order for a treasurer to take the most educated choice, it is essential to list and examine all the options available. The list goes from the simplest to the most complex.

E-banking or bank-proprietary platforms: the base scenario nowadays is for a company to exchange messages and documents over an e-banking platform. This kind of platforms are provided by most of the commercial banks, and they include a common range of functionalities such as the possibility to import payment files from the Enterprise Resource Provider, approve them and send them over to the bank for the execution of the transaction. On the informative side, banks can allow their clients to download account statement messages, and possibly to collect statements sent by other banks.

Additional features that an e-banking platform might have are, for example, the possibility to manage direct debit mandates, or to place FX dealing orders to the bank.

Most of the e-banking solution in the market are endowed with a scheduler function that allows to exchange files with external systems such as the Enterprise Resource Provider or the Treasury Management System.

Companies that are relying on an e-banking platform for bank communications should carefully examine the range of functionalities that are included in the solution, when looking for a bank to work with. Corporate e-banking platforms developed by international banks might be more adequate for companies with international business, while domestic banks might develop functionalities that are more fit to the domestic market.

Another variable to consider is the technology that runs behind the platform. Most banks are nowadays offering web-based solutions that are more flexible and easier to maintain than hosted solutions.

The main advantage of relying on e-banking connectivity is the fact that it requires virtually no effort for the channel to be available, especially if it is a web-based service.

Although it is a very practical solution, companies that have multiple banking relationship will need to activate multiple e-banking platform to issue transactions from these bank accounts. Another shortcoming is that the availability and the security of each e-banking platform relies on the systems of the bank who is providing the service, and this can be a potential risk if the financial institution is not disciplined enough to run a highly secure infrastructure.

Multibank platforms: one of the most annoying disadvantages of leveraging on e-banking connectivity is to maintain the access to multiple platforms, and to constantly need to switch from one to the other during the day. This shortfall can be bypassed by the adoption of a multibank platform. These solutions work just like an e-banking platform, but they give the possibility to manage bank accounts belonging to more banks via a single solution.

This possibility is often developed by multinational banking groups, that might allow to reach bank accounts within the same banking group via a single e-banking solution.

Alternatively, some banking communities have developed country-wide standards that allow the possibility to manage all the bank accounts that a company has in the country with a single e-banking channel. This is the case of Italy with the CBI service.

Technical advantages and disadvantages of this solution are essentially the same of the e-banking connectivity that was described in the previous point.

Host to host connectivity: some financial institutions allow their corporate clients to exchange files via a secured file transfer mechanism. This option is preferred when the company has a privileged relationship with a specific bank, and this is the case because the setup of a host-to-host connection can be a time consuming task both on the bank and on the corporate side.

It is important to bear in mind that a dedicated host to host connection can be a resource intensive solution to maintain, therefore it is key to agree with the partner bank who is responsible in the maintenance of the service, and which is the minimum uptime contractually agreed.

Having a host to host connection with a specific bank means that the company is clearly trusting the security protocol of the financial institution. Connections of this kind are normally secured by an encryption protocol, and this makes a host-to-host connection generally more secure than an e-banking connection.

SWIFT connection: most of the companies with a complex cash management infrastructure choose to connect directly to the SWIFT network.

Being part of the SWIFT network means for a company to be identified with a specific SWIFT code, the same identifier that is normally used by banks.

It also means that a company can securely exchange files with several banking partners from a single channel, and for this reason a SWIFT connection is the preferred option for companies that have implemented a central payment factory.

Two separate services are used within the SWIFT network: the FIN service is used to exchange single MT messages to banks connected to the network. This service is normally used to receive account statements such as MT940/2.

The second service used is called FileAct, and it is the service used to exchange any kind of file to banks. This service is mostly used for bulk payment files such as XML.

Joining the SWIFT network as a mean to consolidate payment operations in the company headquarter or in a shared service center can definitely bring efficiencies, but at the same time it makes sense to go through this road only if the company has the necessary resources to maintain a SWIFT connection overtime, or if it is willing to outsource the maintenance of the connection to a service bureau.

API-based connection: with the sharp rise of open banking in Europe, driven by the PSD2 regulation, the adoption of APIs is becoming more and more common among banks, corporates, and software vendors. An API, or Application Programming Interface, is an interface that allows a secure exchange of information among several software applications. Through an API, the company and the bank can exchange information such as payment files or account statements, without the need to setup and maintain a resource-intensive host-to-host connection.

Although it is a very interesting concept, most of the players in the financial industry still have to develop an adequate IT infrastructure in order to get the benefits of this new protocol.

An important role can be played by software vendors that are offering Enterprise Resource Providers or Treasury Management Systems, since they have a strong incentive to differentiate their offer by develop APIs that would connect their solution to the largest possible number of banks.

Who should manage your SWIFT connection, and why should it be FIS?

Every company that wishes to connect to the SWIFT network should ask itself which configuration is the best for them. The main question to consider for a company is if it has the adequate resources to manage and run a SWIFT connection, or if they want to leverage on a service bureau.

Companies that wish to setup and maintain their SWIFT connection should plan the IT resources required to host the SWIFT software, and the personnel that will be dedicated to fulfill all the functional and technical duties required by SWIFT or by the banks.

Because of the effort that is required to setup and maintain a SWIFT connection, a company might decide to outsource those tasks. A SWIFT service bureau can help companies to establish and ensure the availability of the SWIFT network overtime.

Via the Managed Bank Connectivity service, FIS offers its capabilities as one of the largest SWIFT service bureaus in the world, being a key partner for more than 350 groups of banks and corporates, spread in over 35 countries. As part of the Service Level Agreement that FIS has with its clients, service availability is set for a minimum of 99,5%, although the average uptime for 2020 was 99,99%.

Companies that choose to leverage on a service bureau are either those with a very limited staff within the treasury department, or those that have a very complex cash management infrastructure.

The cost of connecting to the SWIFT network via a service bureau can be quite relevant, therefore companies that are evaluating this kind of solution should create a comprehensive and accurate business case that includes both direct and indirect expenses for both alternatives.

Which variables should be considered?

A company should consider several variables when evaluating which is the most adequate connectivity setup.

The size of the business: it might sound overkill for a small corporate to adopt a SWIFT connection, in fact most of the small business normally rely on e-banking portals. More complicated connectivity choices are normally more expensive, and it might not be sustainable for a modest company to adopt more complex solutions
The number of markets the company is operating: multinational companies normally need several banks in order to do business internationally, therefore a company that is active in several countries might want to adopt a SWIFT connection in order to collect the daily account statements and to orchestrate their payment flows.
The number of banking relationships: a company that is operating with several banks might find difficult to maintain access to several e-banking portals. In this case, a company of this kind might want to evaluate a SWIFT connection, unless a country wide multibank standard is available.
The company treasury policies: there are several reasons for a company to centralize their payments at headquarter level, or to keep them at country or at division level. The choice of connectivity should reflect the processes in place within a company: in corporate groups where every country is responsible to issue their own transactions, and banking relationships are limited in number, e-banking platforms can work just fine, while on the other hand an international payment factory will most probably require access to the SWIFT network.

Whatever process should the company have in place, it should anyway explore a way to consolidate the account statements of all the subsidiary at headquarter level, in order for the holding company to have complete information on the liquidity situation at group level, and to make sure that liquidity is used in the best possible way.

How to choose the best connectivity solution?

If there is one thing that I have learned by talking to corporate treasurers overtime, it is that no treasury is alike, and every treasury has its own peculiarities.

Given the vast array of bank connectivity options, I will define a few examples of treasury infrastructure, and I will pair them to my recommended choice of connectivity.

Case

Company Alfa

Alfa is a company based in the UK, producing semi-finished goods for the food industry. The production is completely sold to English companies, and all its suppliers are based in the UK.

Alfa has two bank accounts, with two English cooperative banks.

Through the e-banking portal of the two banking partner, Alfa will be able to perform all the necessary operations for its daily business.

Company Beta

Beta is the headquarter company of a large conglomerate of ventures, operating in several industries. Since the subsidiaries operate in very different markets, the group policy is for every subsidiary to manage their treasury separately, and to orchestrate their payments independently.

The group has relationships with around 30 banks, counting more than 600 bank accounts.

Every subsidiary of the Beta group will choose its most efficient setup, but the holding company will need to setup a channel to collect efficiently the account statement of all the 600 bank accounts of the group. This will allow Beta group to closely monitor the transactions and to efficiently use its liquidity.

Given the large number of bank relationship, my advice would be to setup a SWIFT connection.

Company Gamma

Gamma is a group of companies providing consulting services. The group has grown dramatically in the last years, acquiring smaller ventures around the world, and the CFO just hired a group treasurer that has the task to rationalize the banking relationships, and to setup the most efficient treasury infrastructure.

Payments are quite limited in number.

It would make sense for Gamma to look for a global bank with which to open bank accounts around the world.

By having one main bank, Gamma will easily orchestrate a cash pooling from its headquarter, and it will be easy for the group treasurer to control the payments that are performed by the local staff.

The most efficient connectivity scenario is a host-to-host connection (or a connection via API if available), with the main banking partner, while payments from minor bank accounts will be done via the e-banking.

Company Delta

Delta is a telecommunication company operating at global level. Due to the nature of its business, the company sends and collects a vast amount of payments of any size from retail and business customers located in several countries.

The company needs to offer the widest range of payment options, therefore it needs to have relevant banking relationships in many countries.

The best way to orchestrate payments and collections on such a complex company is to setup a connection to the SWIFT network.

Given the very complex cash management setup and the large number of banks involved, it will be essential to have the infrastructure served by a service bureau.

Company Epsilon

Epsilon is a company operating in the mining and trading industry, headquartered in Spain but with operations in other five countries.

The company needs to maintain a wide range of banking relationship due to the complex financing plans in place.

The treasury department employs a single person, and there is no plan for the company to hire more treasury staff.

Due to the complex landscape of banking relationships, and the need for the company to control the incoming and outgoing information flows to the banks, my advice would be to implement a SWIFT connection.

As highlighted in the box, it would be extremely hard for a single person to handle the requirements coming from SWIFT and the banks, therefore my suggestion is to adopt a Service Bureau

Conclusion – a complex matter requires a complex answer

As I do with most of the complex questions I receive, when asked which is the ideal connectivity setup for my company, my natural answer is: “it depends”.

The aim of this article was to communicate how sophisticated it can be to identify the best possible way to connect a corporate to a bank, or to several banks. My wish is for every treasurer out there to carefully balance all the options, and to include all the relevant items into a specific business case, in order to have a functioning and sustainable infrastructure.

More about the author, who is Luca Crivellari?

Luca is based in Italy and he is a Sales Executive at FIS, specialized in Corporate Liquidity solutions. He has a solid experience in cash management and treasury, having matured experiences in banking and fintech.

Thank you for reading!

Treasury: the sad story about the ones that do not get it

28-04-2021 | treasuryXL | Pieter de Kiewit

The great Dutch philosopher Johan Cruijff said: “Je gaat het pas zien als je het door hebt”, roughly translated “you only see if you get it”. I recently thought about this when visiting and working with a mid-sized local company. Their treasury team was much bigger than the teams of companies in the same industry two or three times their revenue size. In this team, for example, they had two employees full-time entering manual payments. Data and instructions are gathered from a multitude of systems and typed into banking software. Time is lost, mistakes are made, staff demotivated and money lost. They refused to hire a qualified candidate who could help because his expected base salary was a few thousands of euros too high…..

Recently the Dutch regulatory body for financial markets, AFM, published this research that shows that companies would benefit from a more mature market in alternative funding. One of their observations is that new solutions, for instance in working capital, are accepted even though the rates that have to be paid are preposterous. They see the market grow, not enough focus on credit rating and doubt if the market will stabilize in a professional manner. A stronger regulatory framework is suggested. I am in doubt, who will do the audit?

Those who are in need for strong treasury seem to ignore the available expertise. Distrust? Lack of time? Afraid of treasury lingo?

Personally I hope that entrepreneurs and CFOs will train their critical thinking and only use what they understand. Cost that are hidden in the total price of their treasury solutions are regretfully accepted easier than a separate price for the right solution and one for the advice. That is regrettable because one of the effects is that companies get perhaps the cheapest but the wrong solutions.

We have a simple suggestion: digest what you know about treasury and ask the most obvious question you can think of. Ask the expert panel and pass our suggestion forward to anyone you might think have a proper question. It is a matter of time until we get it all. I am sure.

Take care, Pieter

Pieter de Kiewit

Owner at Treasurer Search

Save money instantly with a Foreign Currency Account (Dutch Item)

26-04-2021 | Erna Erkens | treasuryXL |

Als u Internationaal handelt of u wilt beleggen in vreemde valuta kan een Vreemde valuta rekening interessant zijn. U kunt zo’n rekening bij de meeste Nederlandse banken openen. Op een vreemde valuta rekening heeft u geen geldbedragen in Euros’s staan, maar in een buitenlandse vreemde valuta. Denk aan de Amerikaanse Dollar of de Japanse Yen. U kunt alleen girale transacties doen vanaf uw vreemde valuta rekening. Direct geld opnemen is niet mogelijk. Dan gelden er andere koersen.

Een vreemde valuta rekening voor internationale handel

Stel u heeft een bedrijf waarvoor u goederen wilt inkopen uit Azië. U heeft een goede leverancier gevonden, maar deze wil wel graag in dollars betaald worden. U heeft bij uw bank alleen een Euro rekening en betaalt daardoor de factuur in Euro’s. In deze situatie is uw bank verantwoordelijk voor de aankoop van de benodigde dollars.

De aankoop van de dollars door de bank wordt geregeld via een centraal betalingsverkeersysteem. De bank is in dit soort situaties niet altijd even aardig voor haar klanten. De bank rekent meestal ongeveer 1 cent marge voor iedere transactie.

Stel dat u uw leverancier uit Azië een bedrag van 100.000 dollar moet betalen. Uw bank rekent in dit geval tot 600 euro marge. Deze marge gaat weer af van uw eigen winstmarge.

En wat dacht u van grotere transacties zoals 1 miljoen dollar. Dan betaalt u de bank 5.000 tot 6.000 Euro’s aan marge!

Door zelf een dollarrekening te openen houdt u de aankoop van dollars in eigen hand en dat levert dus direct winst op.

Wisselkoers bij een vreemde valuta rekening

Als u een vreemde valuta rekening heeft geopend kunt u zelf bepalen op welk moment u de dollars
koopt om de factuur in dollars te betalen aan uw leverancier. Wel is het belangrijk dat het binnen uw bedrijf duidelijk is wie deze taak op zich neemt. De kosten (lees marge voor de bank) is dan een stuk lager. Hetzelfde geldt natuurlijk als u vreemde valuta ontvangt uit het buitenland. U kunt uw vreemde
valuta op deze rekening boeken. U kunt zelf bepalen op welk moment u deze weer verkoopt.

Degene die verantwoordelijk is voor betalingen vanaf de vreemde valuta rekening heeft wel een extra taak en het is wel handig om de wisselkoersen in de gaten houden. Dat kan helpen om de dollars of andere valuta op een goed moment te kopen of te verkopen.

Bron

Erna Erkens

Owner at EEVA

Refinitiv Corporate Treasury Data Insights | April 2021

21-04-2021 | treasuryXL | Refinitiv |

Andrew Hollins, Director of Corporate Treasury Proposition at Refinitiv, brings you the April 2021 round-up of the latest Corporate Treasury Data Insights. We will learn about what an increase in inflation will mean for treasurers’ FX hedging plans – and how best to protect your company’s position. Moreover, an update is provided on the Suez Canal traffic jam, and the impact on trade flows, freight movement and prices in the coming months. Plus, some insights on metal prices, ESG, LIBOR and mobile FX trading are shared.

Are inflation fears justified?

While expectations of inflationary pressures have risen significantly over the past six months, reflected in the chart above, the market points to moderating price pressures in the medium-term as revealed by the breakeven yield curve for inflation linked bonds.

Expectations of an inflation spike in the U.S. and elsewhere, perhaps peaking in 18 months to two years, are likely to impact treasurers’ FX hedging plans.

Take the best performing G10 currency so far this year – GBP. While the outlook into H2 2021 and beyond remains uncertain with possible Brexit-linked fallout and a potential separatist supermajority in the Scottish elections on 6 May, continued success on the vaccine front should deliver the dividend of an accelerated economic recovery in the UK.

FX hedging strategy

Corporates with FX exposures may consider a Forward Extra as part of their hedging strategy – an FX option which protects from downside risk but also allows for some upside gains.

Treasurers can use Refinitiv Eikon to manage currency exposure:

Price a Forward Extra using the FX Options Calculator (FXOC), employing key events like the Scottish elections in May as reference points.
Analyse volatility relative value using Currency Performance (FXPT).
Analyse volatility skew and an implied probability distribution chart in FX Volatility Explorer (FXVE).
Keep a close eye on inflation forecasts with Reuters Polling (POLLS), which forecasts a rise in U.S. inflation to 2.4 percent for the year until March 2021, and Rates Views Inflation Screen (RVIN) to monitor breakeven rates.

Emerging market currencies and stocks struggle

While vaccine progress is supporting the position of both GBP and USD, emerging market currencies are telling a different story.

Steering the post-pandemic recovery

Reuters newsmaker with Christine Lagarde, President of the European Central Bank. After taking radical steps to combat the recession, global policymakers now face the task of ensuring recovery takes hold. Lagarde joins Reuters for an exclusive Newsmaker to discuss the best policies to prevent COVID-19 from scarring economies, how and when policy support might be withdrawn, whether rate setters might be facing a major shift in the inflation regime and the challenges that are unique to the euro zone.

Join the conversation.

Suez traffic jam clears, but what’s the impact?

Satellite data from Eikon’s Interactive Map, pictured below on 29 March, shows the Suez Canal blockage beginning to ease. However, treasurers should expect more volatility in the coming months.

The freight derivative markets for dry bulk carriers are seeing heavy traded volume in 2021 due to high volatility, potentially exacerbated by the Suez incident.
Data from the Baltic Exchange for the week ending 19 March 2021 show a record of 78,059 lots of Dry FFA (Freight Forward Agreement) traded, a record not set since 2008.

Will gold remain bullish in 2021?

Gold is seen as a hedge against uncertainty and hence we witnessed a drastic increase in pricing during the pandemic. However, will vaccine rollouts and stimulus measures cause this precious metal to bottom out?

Watch – Refinitiv Metals Outlook 2021: Gold

How Mercuria proactively manages commodities exposure

Mercuria is a global energy and commodity group, with business lines covering a diverse range of commodities trading, as well as large scale infrastructure assets. Discover how they manage exposures in FX, FI and commodities markets, as well as credit terms with trading counterparties.

Sustainability and ESG: what role should you play?

Today, no two treasury teams are alike when it comes to sustainable finance roles and responsibilities. However, will upcoming regulatory and political change result in clearer and globalised standards and benchmarks? And what should treasurers be watching out for?

Join us, the ACT and two leading treasurers from Page Group and Optivo next week to discuss these significant developments – and how treasurers can support future growth ambitions, sustainably.

LIBOR: What you need to know about fallback and transition data

To prepare for the oncoming LIBOR transition and IBOR reform, hear from Trang Chu Minh and Fausto Marseglia as they discuss fallback and transition data in relation to your bonds portfolio, and the main aspects of ISDA fallback rates.

Watch – Refinitiv Perspectives LIVE: The LIBOR Transition: Fallback & Transition Data

Refinitiv Corporate Treasury Newsbeat

Refinitiv’s Taking FX Trading Mobile: responding to the shift to remote working – with mobile trading apps predicted to be the most influential technology shaping the future of trading – Refinitiv is working with partners to develop a seamless end-to-end FX workflow, accessible by mobile app.

LSEG Automates $7bn Debt Capital Transaction: last month, London Stock Exchange Group (LSEG) successfully priced a landmark syndicated multi-tranche and multi-currency offering, raising $7bn equivalent across nine tranches.

Key transaction steps were conducted on Flow, a digital platform driving end-to-end automation in primary debt markets, developed in partnership with Nivaura.

This is the most complex transaction to use a primary debt capital markets digitisation platform, and a milestone for LSEG, as its largest bond and first USD Reg S/ Rule 144A issuance. Find out more about the landmark transaction.

How to Prepare for a New Era of Real-time Banking and Payment Services

20-04-2021 | treasuryXL | Kyriba |

An active liquidity network allows companies to avoid multiple costs and delays by globally managing liquidity across their subsidiaries. With 500 banks involved and over 40,000 payment formats to use, this is already a reality for over 2,000 Kyriba clients.

I am often asked, what is an “Active Liquidity Network”? Actually it’s the very foundation of the Kyriba platform, but let me use a simple example to illustrate what it is and the difference it makes.

Technology is providing us with so many great options for everyday life activities. Take the humble takeaway. Not so long ago you’d call up, your order would be placed in a manual ordering system, food would be prepared and then it would be delivered. Today the takeaway experience can be very different. You will order on a mobile device or with a delivery service or by voice or Messenger. The delivery service tells the kitchen what food to prepare, conducts all the billing and organises the food to be couriered to you. While the cooking of the food is still manual, everything else is managed by cloud-based technologies, and you have lots of options, each with their own take on how to make your takeaway experience better, faster, cheaper.

The same thing is happening within businesses. SaaS technology enables your corporate teams to work more autonomously with a resource-planning package that is more bespoke to their task. The original ERP is being unbundled and focused on aggregating accounting entries from various other systems. These bring great benefits to your company’s ability to compete in the marketplace, making you better, faster and cheaper. But given that many of these tools are able to instruct or make payments, this introduces a hazardous landscape for currently accepted liquidity management and control practices.

The problem is further exaggerated by the global expansion that has taken place in the last 20 – 30 years. Technology isn’t just providing more options for how a corporate plans its resources. It’s also providing better, cheaper, faster options for how payments are made and received. Each approach has its own pros and cons. The upshot is that there are many more providers today conducting more payments in more innovative ways, but this innovation, while opening up new choices, also makes the payments landscape more complex.

All this hasn’t stopped an explosion in electronic payment volumes. This is an unstoppable trend that demands a more robust way of controlling and managing payments in and out of business of any size, just as a restaurant receiving 1,000 takeaway orders a night will need to move away from servicing orders on pen and paper. The risks, the costs, and the lack of speed and optimisation are all too great.

The challenge you face

Now, let’s look at a corporate example to illustrate the challenge. Let’s assume a multinational group has a subsidiary in Birmingham, in the UK, which needs to make payments for goods and services to suppliers in Romania and Turkey. The subsidiary has its operating bank account with TSB and is using the bank’s SMB portal to manage cash and make payments. Its ERP system is connected with the bank’s portal for automatic payment file upload. At the same time, the company has subsidiaries in Romania and Turkey that also have a similar setup with their local banks. It all looks good and well-automated everywhere.

But to actually make a payment to a Turkish or Romanian supplier, the Birmingham-based subsidiary’s treasurer has to go through the following steps: approve a foreign currency payment; agree to the exchange rate offered by the bank, which is given without reference to a spread of interbank rates; wait for one or two days for the other FX rate to settle; wait one or two days more for the payment to be cleared by TSB via Swift and the corresponding bank network; wait some more until the supplier confirms they have received the funds and made a shipment; and finally reconcile it all manually with the ERP system.

As a result, the subsidiary incurs the FX spread, swap rates on every payment up to 100 basis points, and interbank transfer fees for every payment of £20. There are also three further delays before the funds reach the beneficiary accounts and manual reconciliation of the ERP. And that happens with every payment for every subsidiary every day!

It’s a pity that the Birmingham-based company doesn’t know that group company subsidiaries in Romania and Turkey have plenty of lei and lire in their local bank accounts. Or that they are connected to their domestic clearing systems providing same day or in real-time clearing and automating confirmation, or no fee at all. Or that there was a better, faster, cheaper payment option the corporate could easily connect to.

How an Active Liquidity Network works?

Let’s look at a different way of doing this. Imagine that the group chooses Kyriba and gets on board the Kyriba global SaaS platform. All of its subsidiaries – including those in the UK, Romania and Turkey as well as headquarters – and all of those subsidiaries’ ERP systems – are then connected to Kyriba for payment, invoicing, and cash flow upload as well as for GL entry reconciliation. Over 2,000 customers and 65,000 legal entities are live today. Kyriba offers automated bank connectivity via secure SFTP and now bank API with more than 500 banks worldwide and growing. And our bank format libraries have more than 40,000 formats and variances supporting payment originations from more than 100 countries in payment delivery to more than 130 countries. Using Kyriba, the payments submitted by the UK subsidiary will be automatically converted to the relevant domestic clearing formats and submitted to those banks the same day.

What difference does that make? With the Kyriba platform the group can internalise and optimise its payment flows. It can see cash balances and cash forecasts across all currencies and bank accounts in real time. A treasury team using Kyriba Cash Forecasting and Kyriba In-house Banking Module can net the outflows by currency and use the market to square off or net the currency positions. As soon as the payments are acknowledged by the banks in real-time or (worst case) next morning, the confirmations and automated dual entries can be imported into the UK subsidiary’s ERP for automated reconciliation.

Better still, the company can use offers like Kyriba Pay, powered by partners like NatWest, that offer competitive and transparent FX spreads with no hidden fees attached. They can choose to use the liquidity they have in lei, lire or other currencies to make the payments without FX conversions at all. That means no interbank fees, globally optimising the effects of exposures and costs, and making same-day payments to 130 countries with automatic dual reconciliation.

That’s what we mean by an Active Liquidity Network. Ours is already the largest in the world, and growing by about 30% annually. It is the foundation of the Kyriba platform that enables our Treasury payment factory risk management and supply chain finance applications, as well as many other value-added services. We are already processing 17 million transactions on behalf of our customers on an average day. We will continue to innovate our existing propositions.

The world’s connectivity is moving to open API. We are pursuing that in three ways.

First, Bank API Connectivity: we have completed pilots with two global banks already, and will be delivering many more in 2021. Secondly, ERP API Connectivity, leading to ERP connect on marketplace, and thirdly Kyriba Open API, to turn the Kyriba active liquidity network into an open API platform for customers, partners and fintechs. This is what we call the Kyriba Active Liquidity Network.

It is here right now and you have a choice to make. Deal on your own with the growing size and complexity of managing liquidity at global scale on time, with speed, accuracy and efficiency . . . or join the 2,000 corporations who are doing it by leveraging the Kyriba platform, and really drive the value of your business.