Meet our Experts – Interview François de Witte

07-07-2020 | François de Witte | treasuryXL

After having worked for more than 30 years in banking, our expert François de Witte launched his own consultancy activity, FDW Consult, specialized in finance and treasury consulting. From 2014 to 2016, he was also Solution Partner Treasury & Finance at USG Professionals. Since then he took up several assignments, including one in the automotive sector with Ginion Group and with Ibanity, part of Isabel Group in the area of PSD2 and open banking. He currently is Senior Project Manager Treasury at Gaming1 (part of Ardent-Group). He is also co-founder and CFO of SafeTrade Holding. Key areas of expertise:

We asked him 11 questions, let’s go!

1. How did your treasury journey start?

My roots are not really in treasury, because I have spent 30 years in banking with ING. Mid-2013, I made a major career move to treasury & finance. I could thereby leverage on the expertise I acquired in both Corporate Banking and Payments & Cash Management.

2. What do you like about working in Treasury?

The diversity of topics and people with whom you are in contact. The treasurer monitors the cash & finance, and is in the frontline of the circulatory system of the company. In addition, in view of the technology developments and the globalisation, treasury is a fast moving discipline,

3. What is your Treasury Expertise?

Based upon a gap analysis, during the first couple of years, I strengthened my expertise in the other areas of treasury by self-training. I also started training in some subject matters, at the university and at other training organisations, and this is a good way to keep yourself updated on the latest developments.

4. Do you have examples of risk mitigation, creation of opportunities and/or cost savings?

I have done quite a number of consultancy assignments. In one of them, thanks to a complete review of the processes, including also the business, we managed to gain some 10-15 days working capital management. In another project, we reviewed the account structure and the bank lines and could generate substantial savings. During a treasury scan, I was able to identify foreign exchange risks, which had not been spotted by the management.

5. What has been your best experience in your treasury career until today?

In my current assignment, we have selected a TMS-solution (Kyriba) and are currently finalising the implementation. Simultaneously we created a cash pooling and an In-House bank and streamlined the processes.

6. What has been your biggest challenge in treasury?

When starting in treasury, I did not have experience on the field, and needed to switch from a banker’s approach to a corporate approach. If you want to be successful, you need to also have operational experience. I have spent at the start quite a lot to train myself and to get up to speed in treasury.

7. What’s the most important lesson that you’ve learned as a treasurer?

Cash is and remains king. It is very important to make the management aware of the importance of cash, even if a company is in a cash-rich position.

8. How have you seen the role of Corporate Treasury evolve over the years?

The Treasurer is becoming a business partner of the whole group. As a treasury, you get a good transversal view of the business flows. This is very nice because you are in the cockpit of the finance department.

9. The coronavirus is undoubtedly an unprecedented crisis. In general, can you elaborate on the impact this virus has on treasury from your perspective?

The COVID crisis was a wake-up call. It reminds us that it is important to keep the focus on cash and working capital management. It also highlighted the importance of good well-balanced banking relationships. During the last years, some corporates did not put the right attention to this.

10. What developments do you expect in corporate treasury in the near and further future?

Cash will remain dominant. In addition, we have the automation enabling to work more efficiently. I also see AI (Artificial Intelligence) as enabler, e.g. for cash forecasting. Blockchain will also add value in some areas, such as documentary trade.

11. What is your best advice for businesses without a Treasurer?

 Even if you do not have the critical mass to justify a treasury department, give it the right attention. Try to understand the drivers of your cash generation and to identify the risks. I would also recommend to invest in a treasury management scan.

 

 

François de Witte

Founder & Senior Consultant at FDW Consult

 

 

 

 

Does your business need support in Treasury or a Treasury QuickScan?

We have treasurers available, go to Rent a Treasurer for all information.



Webinar | July 16 | Mitigating Fraud With a Corporate Payment Hub

| 22-06-2020 | treasuryXL | Kyriba |

In today’s changing IT environment, we see more corporates exposed to the risk of fraud, due to legacy controls and manual processes. With many companies applying a new ‘working from home’ strategy, the risk of fraud is bigger than ever before.

In today’s changing IT environment, we see more corporates exposed to the risk of fraud, due to legacy controls and manual processes. With many companies applying a new ‘working from home’ strategy, the risk of fraud is bigger than ever before.

During this webinar we will hear:

  • How does a payment hub support you in mitigating fraud?
  • What is rules based fraud detection?
  • Why is machine learning an important part of our fraud detection?
  • How does fraud detection fit in your overall payment processes?

Paul Simpson, Strategic Payments Director at Kyriba, together with Value Engineer, Alroy D’Cruz, will discuss these most important questions and will give you an insight on how Kyriba is supporting over 2,300 of your peers worldwide with our SaaS Payment Fraud solutions.

Presenters:

 

 

 

PAUL SIMPSON

Strategic Payments Director, Kyriba

 

 

 

 

 

ALROY D’CRUZ

Value Engineer, Kyriba

 

 



Submit on the registration page and save your place.

 

About Kyriba

Kyriba empowers CFOs and their teams to transform how they activate liquidity as a dynamic, real-time vehicle for growth and value creation, while also protecting against financial risk. Kyriba’s pioneering Active Liquidity Network connects internal applications for treasury, risk, payments and working capital, with vital external sources such as banks, ERPs, trading platforms, and market data providers. Based on a secure, highly scalable SaaS platform that leverages artificial and business intelligence, Kyriba enables thousands of companies worldwide to maximize growth opportunities, protect against loss from fraud and financial risk, and reduce costs through advanced automation. Kyriba is headquartered in San Diego, with offices in New York, Paris, London, Frankfurt, Tokyo, Dubai, Singapore, Shanghai and other major locations. For more information, visit www.kyriba.com.

7 Experts on Activating Liquidity – a Guide to Leveraging Technology to Generate New Growth

| 11-6-2020 | treasuryXL | Kyriba |

Managing liquidity has never been easy, but new technologies are making it easier. With ease comes speed, accuracy and efficiency, enabling treasury to more effectively see, move and protect cash and generate increased business value. However, activating liquidity while navigating volatile markets can be difficult. So how does treasury leverage technology to activate liquidity and generate new growth, and what does it gain by doing so?

‘7 Experts on Activating Liquidity’ is a Mighty Guide, sponsored by leading global cloud treasury and finance solution provider Kyriba.  In this guide the question of how to leverage technology to optimise treasury and finance, extend visibility and controls, and maximise enterprise value is explored by asking seven treasury management experts from different industries the following questions:

  1. How does expanding the scope of treasury to be inclusive of cash, risk, payments and working capital increase enterprise value?
  2. How do you most effectively manage FX risk exposure, and why is it important to do that?
  3. What are the advantages of centralizing and standardizing global payment processes through a single system?
  4. What are the advantages of centralizing the management of free cash flow and liquidity in your organization?
  5. What level of integration is necessary to get a true, real-time view of cash and liquidity, and how would that real-time data enhance decision making and performance?

Their insights are collected in the five chapters of this eBook. In reading them, David Rogelberg, Editor, was struck by how different the challenges are for each of the expert’s business, and how they all benefit from greater visibility into cash, payments, risk and working capital.

CFOs have a tough balancing act – trying to pursue strategic growth initiatives while minding the right level of risk. And recent global events have exacerbated this challenge. The answer to solving this problem lies in Active Liquidity – an approach to treasury and finance that elevates the impact of liquidity to generate new market value, even in volatile markets.

Kyriba is excited to sponsor this eBook, in which seven treasury leaders lend their expertise to the concept of Active Liquidity and the key pieces that it encompasses – optimizing cash, payments and risk to generate business value.  Activating Liquidity puts organizations on a path to new value creation, enabling them to:

  • Expand the abilities of treasury and finance, using liquidity as a lever to build value
  • Extend visibility and controls to see, move, protect and grow cash
  • Transform data into intelligence and drive action to maximize enterprise value

This Mighty Guide aims to provide a holistic view and credible advice by exploring, comparing and contrasting a variety of viewpoints from top experts.  The insights given by these treasury executives will give a deep understanding of the benefits of Active Liquidity and how insight into global cash, liquidity and exposure can help execute treasury strategies more easily and efficiently.

Request and download free e-book:

Kyriba is a proud sponsor of this Mighty Guide.  Kyriba empowers CFOs and their teams to transform how they activate liquidity as a dynamic, real-time vehicle for growth and value creation, while also protecting against financial risk. Kyriba’s pioneering Active Liquidity Network connects internal applications for treasury, risk, payments and working capital, with vital external sources such as banks, ERPs, trading platforms, market data providers, and other financial institutions. Based on a secure, highly scalable SaaS platform that leverages artificial and business intelligence on an API-enabled architecture, Kyriba enables thousands of companies worldwide to maximize growth opportunities, protect against loss from fraud and financial risk, and reduce costs through advanced automation. Kyriba is headquartered in San Diego, with offices in The Netherlands, London, Paris, New York, Tokyo, Dubai and other major locations.

For more information, visit www.kyriba.com.

DELOITTE & KYRIBA WEBINAR | Today’s Payments Landscape: Reducing Costs & Fraud, Increasing Productivity

| 11-05-2020 | treasuryXL | Kyriba |

Register today!

When? Thursday, May 14, 2020

Start: 3.00 pm – 3.45 pm CET

Duration: 45 minutes

From CFOs to controllers to treasurers, financial leaders are constantly looking for ways to improve their payment processes as inefficient workflows can inhibit supply chains, cash flow, and profitability, not to mention increase fraud risk.

Deloitte and Kyriba have joined to discuss the current payments landscape in the Netherlands, and how technologies and centralised and standardised payment processes can dramatically increase productivity, lower costs and enhance fraud prevention.

In this 45-minute webinar, we will discuss:

  • Deloitte Treasury Advisory Services.
  • Key drivers for Payment Projects & Challenges for Treasurers.
  • The payment landscape today.
  • Challenging the Status Quo.
  • Panel Q & A

Submit on the registration page and safe your place.

 

About Kyriba

Kyriba empowers CFOs and their teams to transform how they activate liquidity as a dynamic, real-time vehicle for growth and value creation, while also protecting against financial risk. Kyriba’s pioneering Active Liquidity Network connects internal applications for treasury, risk, payments and working capital, with vital external sources such as banks, ERPs, trading platforms, and market data providers. Based on a secure, highly scalable SaaS platform that leverages artificial and business intelligence, Kyriba enables thousands of companies worldwide to maximize growth opportunities, protect against loss from fraud and financial risk, and reduce costs through advanced automation. Kyriba is headquartered in San Diego, with offices in New York, Paris, London, Frankfurt, Tokyo, Dubai, Singapore, Shanghai and other major locations. For more information, visit www.kyriba.com.

treasuryXL announces partnership with Kyriba to strengthen dissemination of the latest trends about treasury

| 22-4-2020 | treasuryXL | Kyriba |

VENLO, The Netherlands, April 22, 2020 – treasuryXL, the community platform for everyone who is active in the world of treasury, and Kyriba in the Netherlands, the global leader in cloud treasury and finance solutions today announced the signature of a premium partnership.

The partnership aims at offering a continuous flow of treasury content, making treasury knowledge available. This partnership includes:

  • collaboration on messaging, content production, and visibility
  • mutual distribution on select items of interest
  • collaboration on larger themes: event promotion, speaking and experts contribution, publications

Treasury management is currently experiencing a revolution under the effect of digital transformation. With this partnership, treasuryXL and Kyriba are striving to make sure that treasurers are always up to date with the latest news and events in their field.

According to Kendra Keydeniers, treasuryXLWe are happy to welcome Kyriba in our community. Kyriba is recognised by leading analyst firms, treasury and finance trades for its innovation and its leadership in cloud finance solutions. Kyriba will have a prominent role in the Treasury Topic environment with coverage in Cash Management, Risk Management, Treasury Software, Payments & Banking, Fraud & Cyber security and Working Capital Management which is a considerable contribution to our ecosystem.”

With an increasing focus on digital transformation, financial leaders must be empowered with insights into all the latest treasury trends. They need rapid access to on-the-pulse information around the latest industry news, plus new services and products to support their initiatives for innovation and competitiveness. With this partnership, treasuryXL, Kyriba has access to a well -established communications forum and a wide treasury ecosystem.says Luuk Linssen at Kyriba.

About treasuryXL

treasuryXL started in 2016 as a community platform for everyone who is active in the world of treasury. Their extensive and highly qualified network consists out of experienced and aspiring treasurers. treasuryXL keeps their network updated with daily news, events and the latest treasury vacancies.

treasuryXL brings the treasury function to a higher level, both for the inner circle: corporate treasurers, bankers & consultants, as well as others that might benefit: CFO’s, business owners, other people from the CFO Team and educators.

treasuryXL offers:

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

About Kyriba

Kyriba empowers CFOs and their teams to transform how they activate liquidity as a dynamic, real-time vehicle for growth and value creation, while also protecting against financial risk. Kyriba’s pioneering Active Liquidity Network connects internal applications for treasury, risk, payments and working capital, with vital external sources such as banks, ERPs, trading platforms, and market data providers. Based on a secure, highly scalable SaaS platform that leverages artificial and business intelligence, Kyriba enables thousands of companies worldwide to maximize growth opportunities, protect against loss from fraud and financial risk, and reduce costs through advanced automation. Kyriba is headquartered in San Diego, with offices in New York, Paris, London, Frankfurt, Tokyo, Dubai, Singapore, Shanghai and other major locations. For more information, visit www.kyriba.com.

Release your Working Capital and Treasury potential

| 26-09-2019 | treasuryXL | Cashforce |

Deriving meaningful information from extremely large volumes of data from multiple sources is time-consuming and inefficient for any finance or treasury function; whether that be to provide financial data or forecasts to the market, banks or internal stakeholders, the challenges are myriad. But the department cannot forecast without that insight.

To compound the problem, in a world where volatility and uncertainty have become the norm, treasurers are now part of their organisation’s strategic leadership and must increasingly find ways of bolstering their approach to gain a much-needed competitive edge.

This article considers three of the most common challenges for finance and treasury departments today, and explores how the Cashforce platform solves them:

  • Harnessing big data
  • Advanced cash flow forecasting
  • Implementing new technology.
HARNESSING BIG DATA: THE BIG PICTURE

Like many other departments within a business, most treasury functions have large volumes of consolidated data in complex spreadsheets, very rarely providing easy access to transactional data. Decision making is difficult as the answers are often buried in complicated formulas and countless links to excel templates. The problems caused by an inability to identify relevant data are compounded by any number of missed opportunities and risks. To put the big data problem into perspective, a report from McKinsey & Company suggests that a typical organisation uses less than 1% of the collected data to make decisions.

“A typical organisation uses less than 1% of the collected data to make decisions”

A major British retailer faced this very challenge — large volumes of data embedded in 10 different ERPs and no consolidated view on what was really tied up in working capital. To unlock the potential that already existed within the retailer’s own data, they asked Cashforce to implement a cloud-based solution with detailed dashboards to drill down from a consolidated position to core data by integrating with ERP systems. Within three weeks, this opened up over 20 million transactions per month, ready for analysis.

Cashforce‘s big data engine accesses vast volumes of data quickly and easily via a library of APIs and connectors which take raw data from multiple sources (including ERPs, Treasury Management Systems, data warehouses and banking platforms) and transforms it into meaningful, easy to understand dashboards — empowering the user with the big picture.

ADVANCED CASH FLOW FORECASTING: ML AND AI FOR INTELLIGENT SIMULATION

If cash is king, then accuracy in cash forecasting is the prodigal son. PwC‘s 2017 and 2019 Global Corporate Treasury Survey shows how forecasting accuracy is key to managing and running a business efficiently, and it continues to be a high ranking C-suite priority. A lack of transparency over data means that output from generic treasury management systems inaccurate and unfocused. To maximise predictive, trend-based behaviour you need access to the raw data. But how?

Far from the futuristic concepts, they were perceived to be, machine learning and artificial intelligence are being deployed right now, with stunning results. Smart algorithms are providing proactive optimisation actions to generate highly accurate forecasts, and intelligent simulation engines enable companies to consider multiple scenarios and measure their impact. Cashforce is unique in that the platform can be set up quickly, even in the most complex environments, seamlessly connecting with any ERP system. As a result, finance departments can be turned into business catalysts for cash generation opportunities throughout the company.

“If cash is king, then accuracy in cash forecasting is the prodigal son”

In the case of education company Pearson, CFO James Kelly was looking to improve the cash forecasting abilities of a TMS that was the equivalent of an Excel spreadsheet.

“If you don’t have predictability, you can end up overriding your forecast and saying ‘nine days out of ten I’m spot on, but there’s the risk that one day out of ten I’ll be miles out’ – so you decide to hold a lot of cash back just in case,” Kelly said.

Pearson partnered with Cashforce to deploy an AI-supported forecasting solution which integrated with the group’s systems, replaced manual keying with robotics, and provided multiple AI algorithms offering unprecedented insights into cash flow. AI-based forecasting unlocked significant amounts of trapped cash overseas, and balances were reduced by over £100 million — freeing up cash to invest elsewhere in the business instead of drawing down on credit facilities.

IMPLEMENTING NEW TECHNOLOGY: A NIMBLE APPROACH TO ONBOARDING

When it comes to the universal challenge of onboarding, the focus must be on simplification and streamlining. Central to this is the alignment of a library of connectors to data sources. This is why Cashforce’s working capital module integrates with multiple ERPs to provide granular detail within operational transactional data.  And because the user organisation may be running different or multiple ERPs in different regions, we recommend an ERP-agnostic solution.

The operational data in an ERP only provides half a story so our solution also sits on top of treasury systems to provide a holistic cash flow forecast combining both treasury and operations with data based on a client’s unique reporting requirements.

End-user flexibility is a key feature of any financial system today, so user roles can be defined and users added or removed by a client administrator.  The additional benefit of a SAAS platform means no heavy lifting is required by your IT department.

“With Cashforce, finance departments can be turned into business catalysts for cash generation”

In the course of a recent implementation, British manufacturer was faced with the challenge of Brexit-related contingency planning, when it decided to stockpile certain FDA-approved products destined for the US market.  The firm’s initial focus was on cash management and forecasting but refocused mid-way on working capital management with a major focus on inventory and traceability. Such a change in scope can often lead to significant delays in delivery, but with Cashforce driving the process, the project was delivered on time.

About Cashforce

Cashforce is a smart cash flow management and cash flow forecasting platform for working capital intensive businesses. Our technology is helping Finance departments save time and money by offering cash visibility & pro-active cash saving insights. CFOs and Finance departments can drill down to the cash flow drivers and smart algorithms are applied providing pro-active optimization actions. An intelligent simulation engine enables companies to consider multiple scenarios and measure their impact.  As a result, finance departments can be turned into business catalysts for cash generation opportunities throughout the company.

Cashforce is unique because it offers full transparency into what exactly drives the cash flow of complex (multinational, multi-bank, multi-currency, complex ERP(s)) enterprises, typically with revenues between € 50 million and € 10 billion.  It is the first cash management platform that builds a bridge between the treasury department and the actual business departments such as sales, logistics and purchasing. Unlike other enterprise software players, the Cashforce platform can be piloted within a few hours in complex environments, seamlessly connecting with any ERP system.

Currently users in over 40 countries are using our platform to streamline their cash management processes. Cashforce has proven its value in various complex environments, including environments where in-house banking, cash pooling, POBO, ROBO, etc. are used.

Cashforce is headquartered in Belgium with an office in New York City, serving customers such as Hyundai, Portucel, Alcadis among many others worldwide.

 

 

IBOR phase out – a serious challenge

| 17-9-2019 | treasuryXL | Enigma Consulting

For the last 40 years IBOR (interbank offered rates, including LIBOR and later also EURIBOR) have been a fact of daily life in the financial services industry. They have been the benchmark for lending, hedge contracts, current accounts, valuation models etc. for a long time till the regulators, central banks and market participants decided to seek alternatives as from 2012.

Besides the switch to new reference rates, it now seems that alternative rates will be fixed afterwards based on a daily fixing component while the LIBOR Rates are now published at the beginning of each interest period.

Transitioning to alternative rates and calculation methods will be challenging, and it will have serious implications for both financial institutions as their customers on how lending and hedge contracts are priced and how treasurers manage risks and their working capital.

Although a lot of about detailed timing and specifications of the new reference rates is still unclear, we strongly recommend our clients  to be pro-active and not to follow the ‘wait and see” approach as the impact is expected to be substantial and the demand for resources to support these changes will increase in the coming months.

Bas Kolenburg: “Although this transition seems to be in the distant future, now is the time to start preparing! The impact can be huge….”

Enigma Consulting support both financial institutions and their clients to adapt to these new market circumstances. For financial institutions, Enigma Consulting provides project management support for the migration activities and client communication. For (corporate) clients, Enigma Consulting is performing impact analyses, that result in an action plan/ heat maps for the short and medium term. These action plans can then be used to prepare the organization for the expected changes and communicate with internal and external stakeholders such as your banks, market data suppliers, TMS & other systems suppliers and accountants.

 

Senior Consultant at Enigma Consulting

The link between financial performance and working capital metrics

| 10-07-2018 | Theo Paardekooper | treasuryXL

Managing working capital is an important task for treasurers in order to reduce the financial risk of a company and to improve the financial stability. In various studies the costs and benefits of working capital have been claimed.

According to Blinder and Maccini (1991), supply costs and price fluctuations can be reduced by larger inventories and this can prevent loss of business due to scarcity of products. However, there are also effects of investment in working capital, which may lead to a negative impact on firm value. Firstly, keeping stock available imposes costs such as warehouse rent, insurance and security expenses, which tend to rise as the level of inventory increases (Kim & Chung, 1990). Secondly, larger investments in working capital, involves opportunity costs and financing costs (Kieschnick, Laplante, & Moussawi (2013) and this will increase credit risk. Summarizing, working capital management affects the perational performance of the company and external circumstances can influence working capital management accordingly. The corporate treasurer is the key person to create working capital policies and initiate managerial focus on this topic. In order to define the added value of a treasurer in the perspective of working capital management the main question is:

Is there a link between the financial performance of a company and its working capital metrics?

This question can be mathematically rephrased as

Where the working capital metrics are defined in the Cash Conversion Cycle (CCC)

Several studies conclude that a faster rise in the cost of higher investment in working capital relative to the holding of more inventories and or granting trade credit to customers may lead to a decrease in corporate profitability (Deloof 2003) and Shin and Soenen (1998) find in a comprehensive study a strong negative relationship between working capital metrics and corporate profitability for US corporates. Most studies focuses on the linear relationship between financial performance and working capital metrics, however a non-linear relationship between financial performance and working capital metrics is at stake. On top of the non-linear relationship industry specific effects might play an important role. After investigating the statistics of a database containing the financial information of 39.052 non-US listed corporates in a time period between 2010 and 2017 2 samples of scatter charts below give a view on the data

  • The results indicate that in 50% of the industries a relationship between financial performance and working capital metrics is confirmed, and this relationship is non- linear. A certain optimum for financial performance is at stake.

  • The cash conversion cycle is industry driven as we see a wide range of different cash conversion cycles over various industries.
  • Working capital management can improve the financial performance, however based on the data, we see a lot of different results in the working capital metric compared to financial performance. This can indicate there is room for more focus on working capital management

 

Theo Paardekooper

Independent treasury specialist

 

How to improve your working capital with Trade Finance instruments

| 22-5-2017 | Olivier Werlingshoff |

Trade finance instruments are developed especially for companies that deal with  export and/or import of goods to reduce risk but also to improve the working capital. Before going into the working capital part first let us refresh the theory.

If you are an importer of goods you would like to be sure the goods you will receive are the same as the goods you ordered. How can you be sure that the exporter sent you the right quality of goods and the right quantity, or that he sent them at all? One of the possibilities you have to reduce that risk is to pay after receiving the goods. If the quality and the quantity do not match with what you ordered, you simply do not accept the goods and do not pay the invoice.

At the same time the exporter of goods is worried that after sending you the goods, the invoice will remain  unpaid after the agreed payment period. What if the client does not accept the goods in the harbor? He would then have to arrange for new transport to return the goods or try to find new clients in a short period of time.

There is a lot of risk for both parties especially when they do not know each other very well or if they are located on different continents.

Letter of Credit

In this case a Letter of Credit could be a solution. With a Letter of Credit you make agreements with the exporter about the quality and the quantity of the goods that you buy, and how, when and where the goods will be shipped to.  Only if all terms and conditions of the Letter of Credit have been met the bank will pay the invoice. A lot of paper work will be part of the agreement for instance a Bills of Lading, a commercial invoice, a certificate of origin and an inspection certificate. As an additional security, the exporter can have the Letter of Credit confirmed by his bank.
In a nutshell this is the basic of how Letters of Credit (L/C) works.

Working Capital

Now you can ask the question how could this improve your working capital?

Firstly you will have more security that the payment will be made, therefore the risk of nonpayment will be reduced.

With trade finance you could also set up a line of credit based on your security and overall financial situation.

For the importer, he can finance the gap between paying the exporter and selling the goods to a buyer or use it for manufacturing purposes.

For the exporter, he can fund the gap between selling the goods and receiving payments from the buyer.

If there is not enough equity or there are no sufficient credit lines available, there is another option. Transaction Finance, hence the goods you will sell. [Export L/C] are used to fund [collateral] the buying of these same goods [Import L/C] This is called a Back to back L/C.

There could be a fly in the ointment, however! What happens when there is a mistake made in the paperwork? If this is a small mistake both parties would agree the transaction will go forward. But if during shipment the prices of the goods drop the importer will maybe not be very collaborative and will grab this opportunity to refuse the goods and not to pay the invoice!

Since the credit crisis the use of L/C’s went through the roof. If you need consultancy advise on this topic, drop us a line!

Olivier Werlingshoff - editor treasuryXL

 

Olivier Werlingshoff 

Group Treasury Director

 

 

 

More articles from this author:

How can payments improve your working capital?

Managing cash across borders

How to improve cash awareness without targets

How can payments improve your working capital? Part I

| 6-4-2017 | Olivier Werlingshoff |

Working Capital is the term for the operating liquidity of a company that can be used and is needed to continue the day to day business. To calculate the working capital you have to deduct the current liabilities from the current assets. By managing your account receivables, accounts payables and inventory you can fluctuate your cash position and optimize your working capital so that the cash “trapped” in the company can be lowered to a minimum while you are still able to meet your payment agreements.

The way you are making or receiving payments can have influence on the trapped cash and therefore can influence your working capital.In a few articles we will dive into the world of payments and explain the influence on working capital. In this first article we will discuss the wire transfers within the EU and cross border.

Wire Transfer

SEPA
With SEPA all payments in the EU are considered as a local payment. To minimize your banking process time with bank transfers you don’t need to open local bank accounts in the different countries in the EU anymore. If you have a customer in, let’s assume Spain and you agreed on a payment term of 30 days, you send your invoice by mail as soon as the  client signed the contract. At that moment your working capital will increase with the amount until the moment the amount is paid into your bank account.

You can mention on your invoice that payments can be done by transfer to your IBAN number in The Netherlands. The maximum processing time will be one banking business day if you send the payment instruction before the cut off time of your bank. This means that if the client is doing the payment on Friday before the cut off time, mostly 3.30 PM, the amount will be on your account on Monday. Otherwise you will receive it on Tuesday.

Risk of non-payment
With wire transfers you still have the risk of nonpayment by you customer. Within the SEPA area you can also use Direct Debits. With this type of payment you can be the one who initiates the payment and if your client accepts, your money could be on your account after the agreed payment term of 30 days. Furthermore Direct debits can’t be reversed by your client when you use the Business variant.

Cross border
If you have a client in the US, you will also send him the invoice by mail to skip the postage process. You can ask him to transfer the amount to your IBAN number. The client will probably convert the amount in his own currency and make an international transfer. With a cross border transfer you will have different costs: the outgoing transfer cost, the incoming transfer cost and also even sometimes correspondent bank costs. Besides the high costs, payments can even take a week before reaching your bank account.

What is the effect on your working capital? Because it takes a long time before you get paid, your accounts payables will increase and the “days sales outstanding” will be longer than the 30 days you agreed on.
When you have a lot of international clients in one specific country you can make a calculation whether opening a local account in the country of your clients could be profitable for you. To avoid correspondent cost you can choose a bank that has connections with your main bank.
After receiving the money on your local account there are some instruments you can use to sweep the balance to your main account in The Netherlands, those products are called pooling techniques.

In the next articles we will focus on payments by internet, credit – and debit cards but also payment on delay and trade products.

Olivier Werlingshoff - editor treasuryXL
Olivier Werlingshoff

Owner of WERFIAD

 

 

 

More articles from this author:

Managing cash across borders

How to improve cash awareness without targets