Booklet “Treasury for Non Treasurers” developed jointly with the Hogeschool Utrecht

| 09-10-2018 | treasuryXL |


All active in corporate treasury regularly get the question what his/her job is about. For laymen, treasury seems complex, magical, elusive. I assume that this is recognizable to many in the field. Providing a compact, clear explanation is no easy task. This gave us the idea to create a booklet “treasury for non treasurers” and make this available through various channels. Our objective in this in three lines is:

A well-structured, compact text that laymen offers an introduction to corporate treasury. This will be printed in a handy booklet, will be downloadable as a PDF and will be published in sections on in a blog form.

The students of the University of Applied Sciences Utrecht who, obtain the Minor Treasury Management, will write the chapters, divided over various themes that cover treasury as well as possible. The students will be supervised by people from the field. The production of the booklet will be managed by the community manager of treasuryXL. Editorial support will be provided by the Hogeschool Utrecht. The blogs and PDF’s will be published on the website of treasuryXL.

The booklet can be sponsored by companies that are product and/or service providers to the corporate treasury community. Both treasuryXL and Treasurer Search already stepped to the plate. The sponsors will carry the out-of-pocket expenses for the production of the booklet, mainly printing. In return they will receive a number of copies. The expected costs for one booklet are estimated at €1,-.

The supervisors will be field experts with an interest in helping young students. They can be independent, but also employees of the above mentioned sponsors. They are expected to have two (telephone) meetings with one or two students and comment on their input, being blogs / chapters.

Please let us know if you are interested in becoming a supervisor and/or sponsor. We look forward working with you,

Roy Baaten
Community Manager
[email protected] / (06) 21 30 37 44



Commercial Paper – alternative short term funding

| 03-05-2018 | treasuryXL |

Instead of just relying on banks to provide short term funding, large corporations are also able to access the European Commercial Paper market (ECP). This is an alternative market that can assist in meeting short term funding requirements. This provides a good alternative to products previously mentioned – such as lines of credit. In this article we shall look at what ECP is, how it can be issued and what the market for this paper is.


Commercial Paper is a promissory note that is unsecured with a maturity shorter than 1 year. A corporation will, initially establish a CP programme which determines the terms and conditions – such as maximum allowable issuance amount, termination date of the programme or open ended, currencies, bank dealers etc. The issue is subject to a credit rating and the paper is rated. It is also possible to issue your own paper instead of through a dealer, though this is not used as much.


The issuer has 2 approaches: issuing paper as and when funding is needed, or being informed by the dealer that there is demand from the market for additional paper. As the paper is negotiable, clearance and settlement is provided via one of the major clearing houses – Euroclear, DTC etc. Settlement is the same as a spot transaction – taking place two working days after transacting. As ECP is in competition with other forms of short term investment, it is necessary to have an active presence in the market – lenders need to know that there is demand for their funds and issuers are in direct competition with other issuers.


ECP allows issuers to fund themselves in a more flexible manner than traditional bank lending – this can be seen in both the issuance amount and the tenor of the paper. Issuers with the highest credit ratings can often achieve funding below the cost of Euribor/Libor. This allows issuers to fund a significant portion of their total funding requirements on a short term basis. As short term rates are normally lower than long term rates, this leads to a reduction in the average cost of funding. An ECP programme for as little as EUR 250 million can be established, though it is more common to see programmes for more than EUR 1 billion.


An issuer needs to ascertain that there is a definite funding requirement and that an ECP programme can successfully be utilised. There are ongoing costs involved, so it is not just a question of setting up a programme and then leaving it there in place without using it.
An issuer needs to know if there is a true appetite in the market for their paper. No issuer wants to find that having established a programme that there is no demand for their paper.
How does the short term funding fit into the funding requirements of the issuer on the whole? Not only do they get access to cheap funds, they also gain access to potential borrowers who could be interested in supplying alternative long dated funding.


ECP offers a lower cost of funding, flexibility in both issuance timing and maturity, and is unsecured. As the paper is tradable, investors can always sell their paper on in the secondary market. This must be weighed up against factors such as cost of programme maintenance, reduction in lines of credit, and the fact that only top rated issuers are accepted.

For large corporations an ECP programme is attractive, but needs constant maintenance and attention. It offers an attractive bespoke alternative to traditional bank funding.

If you have any questions, please feel free to contact us.


Basis Swap – how to convert your exposure

| 10-04-2018 | treasuryXL |

At the moment, there is a growing movement within interbank markets to replace all the existing interbank offer rates that are used to price a myriad of financial instruments. The motivation for this movement has been the revelation that these indices have been fraudulently priced by banks delivering inaccurate prices for the daily fixing. At the moment the markets are first looking at secured overnight lending indices – but these are not complimentary to all the existing instruments that regularly reference a longer tenor on an unsecured basis. These can lead to problems with the asset and liability management of a portfolio – not just for banks, but also for corporate clients.

So, what is a basis swap and how does it work?

A basis swap is an interest rate swap where both legs reference a floating rate – either in the same currency or on a cross currency. Examples would be a 3 month Euribor exposure against a 6 month Euribor exposure, or 3 month USD Libor versus 3 month GBP Libor. In a normal positive yield curve the interest rate for a longer tenor is higher than for the shorter period – 3 month USD Libor is 2.33746% and 6 month USD Libor is 2.47219%. There are 2 main reasons for the difference in price – the tenor is longer, therefore the risk of repayment is lengthened and the individual credit rating of the counterparty is also affected.

Before the financial crisis of 2008, basis swaps were traded, but not given much attention. Their primary function was for transforming the asset and liability management in the same currency. It was actively used in the cross currency market where a bank might raise long term funds in Japanese Yen, but needed to convert the proceeds into USD. Furthermore, the consensus at the time was that 1 master curve could be built to price all products – this used short dated deposits, 3 month interest rate futures and long date interest rate swaps to build the single curve.

This meant that a 6 month deposit was built on the basis of a 3 month deposit and a 3m v 6m FRA (Forward Rate Agreement) . In such an instance there would be no arbitrage possible and the market did not really look at the basis risk. But the basis risk was inherent and certain market players exploited this misconception – particularly banks that received fiduciary funding via Switzerland.

Today, there is far more awareness of the basis risk. 3 month Euribor is -0.329% and a 3v6m EUR FRA is -0.33/-0.31%. However the 6 month Euribor is 0.270% (we will leave you to do the calculation)

As a longer tenor has a higher interest rate (in normal market conditions) a basis swap referencing a 3 month versus 6 month payment would see the 3 month period being quoted as flat rate plus a premium, and the 6 month period being shown as a flat rate. A typical quotation for a 1 year EUR basis swap referencing a 3 month against 6 month Euribor would be priced around at about 5 -6 basis points premium. This means if you were to pay the shorter period of 3 months you would pay the base of 3 month Euribor plus 5-6 basis points every 3 months for 1 year, against receiving the 6 month Euribor flat every 6 months.

This product allows you to transform your position, but also gives insight into how the market sees the continuous 3 month and 6 month curves, together with their inherent basis risk.

An interest rate swap curve that references a 6 month floating leg, will normally be built from an interest rate swap curve built off a 3 month floating leg, with an adjustment for the 3m v 6m basis swap to reflect the higher price on a 6 month curve.


Financing your international trade – documentary collections

| 04-04-2018 | Lionel Pavey |


Acquiring the right goods at the right price can eventually lead a company to overseas markets. International trade has certain barriers – buyers and sellers have never met and are reluctant to completely trust each other; drawing up documentation can be difficult and time consuming due to difference in law between 2 countries; agreement has to be made on the settlement currency; documentation that implies ownership needs to be sent, but the seller is hesitant to have these released to the buyer before payment has been made. This article looks at 1 of the 3 main financial instruments used in international trade – the documentary collection (DC).

What is the process?

1 – Buyer and seller agree terms and conditions for a trade to take place – the means of payment, the collecting bank (this is usually the house bank of the buyer), a detailed description of the set of documents that have to supplied.

2 – The seller (exporter) arranges for shipment of the goods to the buyer (importer) via a shipping agent and receives a transport document (usually a bill of lading) that is negotiable.

3 – The seller prepares the agreed documents into 1 package and presents these to his bank (the remitting bank). This will include the bill of lading, certificates of origin, inspection notices, a collection order stating the terms and conditions under which the bank can release the documents etc. and a draft.

4 – The remitting bank will send these documents to the collecting bank instructing the collecting bank to present the documents to the buyer and to collect the payment.

5 – The collecting bank will inspect the documents and the contract, ensuring that they are in compliance with the collection order.

6 – The collecting bank will contact the buyer stating that the documents are in order, or what discrepancies have been established; and inform the buyer about the terms and conditions of the collection order.

7 – The buyer will be shown the documents and asked to accept them. Acceptance is recognised by signing the draft. When the documents are accepted, and payment is made then the documents are handed over to the buyer.

8 – Release of the documents occurs in  2 ways – documents against payment is when payment is made at sight of the documents; and documents against acceptance is when payment is made at an agreed date in the future.

9 – The buyer takes possession of the documents allowing them to receive the goods from the warehouse or port where they are being stored.

10 – The collecting bank arranges to pay the remitting bank either immediately in the event of a sight bill, or at the agreed future date in the event of an acceptance bill.

11 – The remitting bank arranges to credit the account of the seller.

So it is a letter of credit?

No, a documentary collection is an alternative to a letter of credit. In a DC, the banks undertake no guarantee role – they merely advise, release documents and effect payments. If a buyer does not agree to the documents, they do not receive the goods, the banks do not effect payment and the seller is out of pocket. Therefore a DC is normally far cheaper than a LC.

Why use a DC?

Both buyer and seller know each other and are happy with their existing relationship.

The collections are for a one-off transaction – there is no open account between the parties.

The seller has faith in the economic and political characteristics of the importing country.

A LC is not acceptable to both parties.

Documentary collections are governed by the Uniform Rules for Collections as issued by the International Chamber of Commerce.

Lionel Pavey


Lionel Pavey

Cash Management and Treasury Specialist


Credit Default Swap: What is it – good or bad?

| 26-03-2018 | Lionel Pavey |

A decade ago it was one of the financial instruments that was identified as causing the financial crisis. It had been one of the most popular financial products before the crisis with the market turnover growing by more than 50 times over a period of 7 years. It started out as a simple financial instrument to aid bond holders in obtaining protection from the risk of default. So what is a Credit Default Swap (CDS) and where did it all go wrong?

The buyer of a CDS pays regular premiums to the seller of the CDS – expressed in basis points. These payments are normally quarterly in arrears and the total value of the payment is dependent on the nominal value of the contract. This nominal value relates to the par value of the underlying bonds – if you hold bonds with a par value of EUR 5 million and wanted to buy protection for the full amount, then the CDS contract would be for EUR 5 million.

The seller of a CDS would receive these regular payments and would only pay out if the bond issuer defaulted. At the time of a credit event (default), the CDS seller would assume ownership of the bonds and pay the CDS buyer their par value. It can be likened to comprehensive insurance that we buy for our cars – we pay an annual premium and the insurance company covers us for the costs of any damage to the vehicle in the event of an accident.

What is a credit event?

The definitions of a credit event are set out in the contract and defined by referencing terms agreed by the International Swaps and Derivatives Association (ISDA). The major credit events, in European contracts, are bankruptcy, failure to pay on its debt obligations, and restructuring.

A contract will contain standard terms and conditions –

  • effective start date
  • scheduled termination date
  • the agreed price
  • payment dates
  • the reference entity (normally a bond issuer)
  • the reference obligation (usually an unsubordinated bond)
  • substitute reference obligations (if the original was repaid earlier than the termination date of the contract)
  • calculation agent

As previously stated, when the CDS market started it was seen as a product to protect bond holders and, in the event of a default, the CDS buyer could deliver the agreed reference obligation and receive its par value. In 2005, the limitations of this system were first recognised; Delphi – a manufacturer of auto parts – defaulted. The par value of their outstanding bonds was USD 2 billion – the sum of CDS contracts was USD 20 billion. As original bonds had to be tendered to validate the contract, a run ensued on the bonds and, whilst defaulting, the bond price went up!

This led to the next phase – cash settlement. Here, in the event of default, the CDS seller paid to the CDS buyer the difference between the par value and the market price – facilitated by an auction process to determine the fair market value.

However, an unintended consequence was the discovery and creation of different trading strategies that had not be envisaged when the CDS was designed. Before the introduction of CDS contracts, if you were bearish on a company you would need to short-sell their bonds. This is a sensitive process as the short position needs to be covered via bond lending to maintain the settlement position. With CDS it now became possible to purchase protection on a specific entity at a relatively cheap price – the CDS premium. It was therefore possible to replicate a physical short position with a derivative position.

It also led to the creation of “synthetic” instruments – synthetic CDS’s and CDO’s (Collateralized Debt Obligations). The sum of actual tradeable financial instruments were limited by their issue – synthetic products allowed banks to create products to meet the demand from clients to gain exposure to entities. It was a this stage that the market truly grew – it was possible to replicate any exposure that the client desired. When the financial crisis hit, all the “over the counter” derivatives compounded the problems. No one knew what the potential exposure of their counterparties was. These counterparties could have easily sold CDS contracts that could have a potential exposure to the par value of the underlying reference entities of bonds, CDO’s etc.

Is there a future?

CDS are useful financial products – most of the trades now take place on exchanges. However, the genie is not yet back in the bottle. There are now lawsuits – initiated by hedge funds – claiming that defaults are now being prearranged (Hovnanian Enterprises Inc.). The main problem is still who holds the potential risk and for how much. The essence of the product is viable and the original demand is still there. But, as with many financial products, as soon as they become commoditised, market turnover far exceeds the actual underlying market.

Lionel Pavey



Lionel Pavey

Cash Management and Treasury Specialist


Basisbeginselen Beursgang – Treasury for Non-Treasurers

| 21-03-2018 | Pieter de Kiewit |

Cash PoolingMet het huidige nieuws rond beursgangen (IPOs = initial public offering) heb ik gezocht op het steekwoord beursgang op treasuryXL en vond geen resultaten. Wellicht omdat de treasury beroepsgroep communiceert in het Engels. Voor Non-Treasurers ga ik bij deze kort in op de basisbeginselen van een beursgang en waarom hier zoveel aandacht voor bestaat.

Om maar te beginnen met waarom er zoveel aandacht voor bestaat. Dit is omdat het natuurlijk over het algemeen over heel veel geld gaat. En wat is zo’n beursgang eigenlijk? In den beginne is een bedrijf van één of enkele aandeelhouders. Dit zijn de oprichters, de familie of investeerders die een één op één deal hebben gesloten met de oprichters. Aandeelhouders besluiten zelf of en aan wie ze willen verkopen. Totdat de beursgang er is en aandelen vrij worden verhandeld op de beurs. Oprichters kunnen niet meer bepalen wie hun eigenaar is, iets dat Akzo Nobel en Unilever recent duidelijk hebben gevoeld.

Redenen die worden aangevoerd om naar de beurs te gaan zijn, niet uitputtend:

  • Er is kapitaal nodig voor verdere groei;
  • De eigenaren willen hun bezit te gelde maken;
  • Een notering aan de beurs geeft het bedrijf aanzien;
  • Middels een notering is het gemakkelijker in de toekomst andere soorten financiering te verkrijgen;
  • Aandelen- en optieplannen voor werknemers zijn gemakkelijker vorm te geven.

Een beursgang is niet zaligmakend. Veel van bovenstaande doelen kunnen ook via een andere manier worden bereikt: een banklening, verkopen aan een strategische partij en obligaties bij institutionele beleggers. Er komen ook zeer nadrukkelijke nadelen in beeld bij een beursgang: de rapportage eisen zijn veel hoger. Dit levert hogere kosten op. Je moet inzicht geven in je onderneming en haar plannen. Dit kan de concurrent zeker waarderen. Als je verkoopt, verlies je zeggenschap. Wie betaalt, bepaalt.

Voor treasurers is een beursgang vaak het hoogtepunt van zijn/haar loopbaan.
Weet dat als je als aandeelhouder wilt instappen, dat dit niet zonder risico is. In de hausse van beursgangen bij Facebook, AliBaba en anderen is er meer geld verloren dan verdiend. En zoals een investor laatst zei in het FD: “Waarom zou een private equity huis verkopen als de kansen voor de business case heel sterk zijn?”. Onderzoek waar je instapt en wat de motieven zijn van de verkopende partij.

Binnenkort staan er een aantal nieuwe bedrijven genoteerd aan de beurs. Ik ben benieuwd hoe de noteringen zullen verlopen. Later zullen we hier vast dieper op ingaan.

Pieter de Kiewit
[email protected] / +31 6 1111 9783

Pieter de Kiewit



Pieter de Kiewit
Owner Treasurer Search




Looking back after 10 years of SEPA

| 26-02-2018 | Paul Stheeman |

Cash Pooling


Last month we saw the anniversary of several historical moments. 1000 years ago, in January 1018 the Peace of Bautzen ended the German-Polish War. More recently, in January 1998, American President Bill Clinton surprised the world by denying in a press conference that he had sexual relations with Monica Lewinsky. More importantly for Treasurers and the citizens of Europe January 2018 marks the tenth anniversary of the establishment of SEPA, the Single European Payments Area.


In Europe we have become used to SEPA. Initially we all groaned at the idea of having 22-digit long bank accounts numbers called the IBAN, nicknamed as “IBAN the Terrible”. But the introduction of SEPA in January 2008 has brought a number of benefits to over 520 million citizens in Europe. Not only are the 19 Eurozone countries members of SEPA. All other EU countries participate as well as countries such as Norway or Switzerland.

The main benefit is that we now have one payment zone. Previously, making a transfer from Italy to the Netherlands was a cross-border payment. This meant that a whole week could pass between the time when the payer initiated the transfer in Italy and the recipient actually received the funds on his Dutch bank account. In addition, banks in both countries would charge considerable fees for making the transfer. Payment is now done within 24 hours and banks should not charge more than for a domestic payment.

SEPA not only covers transfers. Direct debits and debit cards also are handled in a similar manner through SEPA. And a new instant payment scheme is currently being rolled out, allowing payments to be completed within seconds on a 24/7/365 basis.

SEPA is also strongly regulated. The European Commission established the legal foundation through the Payment Services Directive or PSD. Payment products are overseen as are technical standards.

In the last ten years SEPA has established itself as being the platform for payments in Europe. Due to its wide acceptance and success in its first decade it is likely to accompany us for many years ahead as new payment methods are developed in the digitalised world.


Paul Stheeman

Owner of STS – Stheeman Treasury Solutions GmbH


Cash Pooling – where is the money

| 01-02-2018 | François de Witte |

The main objectives of the cash & liquidity management are to:

  • Have the cash funds available to meet all known and unknown commitments
    • In the right currency
    • In the right place
    • At the right time
  • Optimize the return of the cash and/or minimize the cost of the short term financing
  • Minimize external financing by using internal funding

One of the most important techniques to achieve a better utilization of the available cash is the “cash pooling” or, in other words, the concentration of the cash to make it centrally available. The commonly used techniques in the market are the following:

  • Manual cash concentration: Intercompany payments
  • Automated Cash Concentration: requires physical movement of funds
  • Notional Pooling: without movement of funds

In the present article, we will outline the current types of cash management tools, their advantages and the attention points.

Manual cash concentration: Intercompany payments

For companies, who have only a limited number of accounts to overview, it is recommended to set up a manual cash pooling. In this case, the treasurer overviews daily or weekly the balances of the different accounts, and when there are important debit or credit positions, he will initiate manual payments to balance the positions, and or to concentrate them on the central treasury account. If during the day, important movements take place, the treasurer can make some additional intra-company payments to balance the debit and credit positions. In order to avoid float, it is recommended to use the urgent payments clearing.

The main advantages of the manual cash balancing are the following:

  • The easy set up
  • The possibility take into account the cash forecasting
  • You do not always make daily movements, which facilitates the intercompany loan administration.

However there are some drawbacks / attention points:

  • There is a daily / weekly need to make manual interventions. However some treasury software packages provide a solution to automate this process (bank independent cash pooling)
  • The banks take additional charges for use of the urgent payments clearing, except if the payments are processed within the same bank
  • The overdraft credit lines of the participants are qualified as full lending limits, and hence for the banks there is a higher capital weighting
  • When different legal entities are involved, you create a lending /borrowing relationship between the participants. Hence there are legal and tax issues:
    • You need to foresee a intra-group lending agreement
    • There are possibly withholding tax, transfer pricing and thin capitalization issues
    • Within your group, you need to manager the intercompany loan administration.

Automated cash concentration

The automated cash concentration, also called cash balancing, is a pooling technique requiring a physical transfer of funds to or from the participating accounts to concentrator account. The pooling movements are operated automatically by the bank

The most commonly used cash concentration is the zero balance cash balancing, as illustrated in the drawing down below. In this solution, the balances of the participants are daily or weekly swept to a concentrating account.

Figure 1: Outline of the zero balance cash balancing

There are also other forms of cash concentration:

  • Target cash balancing, to keep a specific amount in each account
  • Threshold cash balancing, to move funds only when an account moves in excess of a figure
  • Trigger cash balancing, whereby the movements are only initiated if the balance of an account (debit or credit) exceeds a certain amount
  • End-of-day or intraday cash balancing
  • Domestic or cross-border cash balancing.

There are several advantages to this system, such as:

  • There are no manual interventions, as the system is automated
  • Several features are possible (multi-layer, domestic and cross-border, target balancing, …)
  • There exist a possibility to integrate accounts from third banks
  • The system discipline to participants
  • With several banks, the intra-day lines, and the intra-day debit positions do not require a capital weighting.

However there are also drawbacks / attention points:

  • For value-based cash balancing, there can occur reconciliation issues with ERP systems or treasury management systems, as they usually work on accounting balances
  • The cash balancing works only within the same currency. When you manage different currencies, different physical cash balancing structures need to be set up for each currency
  • When different legal entities are involved, you create a lending /borrowing relationship between the participants – see also point 2 hereabove
  • The automated cash balancing can only work within the same currency (mono-currency).

Notional cash pooling

The Notional cash Pooling is a cash pooling where there is no movement of funds. In such a pooling the credit balances of the participants are offset against debit balances of the participants. Hence the net balance of the group is used to calculate the debit or credit interest paid or received.

The system has a flat structure, which means that all the participating Accounts are basically equal to each other. However usually corporates designate one account as the treasury Account, which is then used to manage the system.

Figure 2:  Outline of the notional cash pooling









The main advantages of the notional pooling are the following:

  • The notional pooling does not require to move funds, and hence:
    • No intercompany loan administration
    • Less legal and tax issues
  • In some jurisdictions (e.g. the UK and NL) the notional pooling can, under certain conditions improve the balance sheet by offsetting surplus balances against group debt
  • The notional pooling can include different currencies.

However there are also attention points:

  • The full legal offset of debit and credit positions of different legal entities is an issue in several countries
  • In some countries notional pooling is not allowed
  • Basel III does not always allow that liquidity ratios are calculated by means of netting the outstanding balances of accounts in the notional pool. This means that banks must calculate their ratios based on the gross balances of the individual accounts. Hence they will also look to translate this cost in the pricing of the notional cash pooling.

Legal and tax aspects of cash pooling

Setting up a pooling requires some preparation, and some legal and tax issues need to be addressed, such as:

  • Is automated cash pooling (cash balancing or notional) authorized ?
  • For cash balancing with different entities
    • Transfer pricing issues – Arm’s length rule
    • Is debit interest an allowable deduction?
    • Withholding tax issues
    • Is thin capitalization an issue?

When setting up such structures, in particular when different countries are involved, you need to foresee a due diligence with legal/tax advisors and banks

For cash balancing with different legal entities, a requirement is also to be able to manage intercompany loan administration. There are banks and providers who come up with solutions in this area.


François de Witte

Founder & Senior Consultant at FDW Consult and Senior Expert – Product, Business development and sales manager at Isabel Group



Liquidity Management – show me the money

| 31-01-2018 | treasuryXL |

Treasury is a function which entails many different roles and responsibilities. The main task is to monitor and manage the cash within a company ensuring there is sufficient liquidity. This means monitoring all the cash flows – both inflow and outflow, together with the sources of the flows – current operations, investments, borrowing etc. There must be enough liquidity to maintain the daily operations, whilst excess funds need to be invested. At the same time, Treasury must ensure that excess funds are invested in a safe and prudent manner and that future assets and liabilities are hedged where appropriate.

It has been said many times over – for a company cash can be compared to blood in the body or oil in an engine. Without it, a company ceases to be. When liquidity management is properly exercised, it allows a company to establish the maximum benefit from its cash flow, for the minimum of expenditure.

So, what happens to a company when liquidity management is not implemented?

  • Cash tied up in operational processes
  • Unable to define the bank balance
  • Difficulty in managing the existing bank accounts
  • Impossible to project cash flow forecasts accurately
  • Volatility in actual cash flow versus expected cash flow
  • Reconciliation is a time-consuming process
  • Inability to optimize the cash flow for working capital
  • Lack of agreed procedures for risk management, hedging policies and cash management
  • Banks are averse to lending the company money as there is a lack of control
  • Failure to comply with operational, accounting and governmental regulations
  • Difficulty in funding internal operations and investments

Advantages of liquidity management

  • Improved cash flow
  • Awareness of all bank balances
  • Ability to aggregate bank balances efficiently
  • Internal investment and funding operations for subsidiaries
  • Reduction in external borrowings
  • Faster payment of creditors
  • Optimization of working capital
  • Netting and cash concentrations can be applied
  • A heightened appreciation and recognition of cash within the company
  • Less reliance on short term external funding to meet day-to-day needs
  • Increase in profits
  • Increase in efficiency within the whole business cycle
  • Staff can devote more time to projects and procedures that have a higher value
  • Able to implement and monitor agreed risk policies

Designing and implementing liquidity management

  • Inspect and document existing procedures
  • Discover the short falls and dangers
  • Design specific procedures to enhance and capture the processes
  • Create an action plan and implement
  • Review constantly

Everything needs to be documented and signed off by the directors – it must be a policy. One of the greatest – if not the greatest – dangers for a company is not being able to forecast and maintain liquidity. However, in many companies the policy is only lightly enforced. Difficulties in forecasting cash flow are well known and documented, but the consequences are potentially very severe. It should be part of the monthly management reporting cycle and critically observed. Where necessary, actions need to be taken by the directors to ensure that the whole company is aware of the liquidity risks and procedures.

Next: Risk Management

Lionel Pavey


Lionel Pavey

Cash Management and Treasury Specialist


Planning & Operations – a clear vision and purpose

| 15-01-2018 | treasuryXL |

Planning & Operations
Treasury is a function which entails many different roles and responsibilities. The main task is to monitor and manage the cash within a company ensuring there is sufficient liquidity. This means monitoring all the cash flows – both inflow and outflow, together with the sources of the flows – current operations, investments, borrowing etc. There must be enough liquidity to maintain the daily operations, whilst excess funds need to be invested. At the same time, Treasury must ensure that excess funds are invested in a safe and prudent manner and that future assets and liabilities are hedged where appropriate.

Due to the complexity of the task, it is very difficult to give a short description of all the different roles. This is an overview of the main roles that Treasury undertake:

  • Planning and operations
  • Liquidity Management
  • Planning and operations
  • Risk Management
  • Funding
  • Stakeholder activity
  • Corporate Governance

Planning and Operations

This relates to the routines that Treasury perform to ensure that a company can move forward from day to day.

Payments – ensuring that a company meets its financial obligations – specifically to debtors, banks, tax authorities etc. It is very important for a company that it is seen by its counterparts to be secure, organized and that debts are paid on time.

Cash flow forecasting – this is the main planning element within Treasury. Information must be gathered from the entire organization both at head office level and subsidiary level. Information can come from accounting, capital investment budgets, operational budgets, loan maintenance records, tax and dividend records, etc. It is the responsibility of Treasury to ensure that there are sufficient funds within a company to meet all its operational requirements.

Risk assessment – Treasury needs to develop and maintain the risk matrix. This means not only identifying the risk, but also ascertaining the appetite within the company for the risk. A clearly defined matrix will ensure that all risks are recognized, and the correct procedures are carried out to mitigate the risk to the agreed level.

Treasury systems – how is data received and stored? If a decision is made to purchase a dedicated TMS, then Treasury is involved in discovering the criteria to meet the company mandate, the search for a relevant supplier, the implementation and maintenance of the system, together with the operation of the system. A good TMS system should enhance workflow, lead to more concise reporting and lead to financial savings.

Banks – banks and other financial service providers are an integral part of Treasury and their operations. This requires analysis, negotiation and selection of the preferred supplier. Treasury needs to keep a close eye on the costs charged against the service that is offered. This can mean regular appraisals and renegotiation of the fees. Ultimately, a company needs to know that the operations are performed smoothly, timely and accurately.

Strategic development – Treasury are responsible for the operational risk that have been agreed by the Board of Directors. Treasury needs to liaise, inform and alert the Board when issues arise – be they internally or the result of changes in legislation that have an impact on the smooth day to day operations that they perform on behalf of the company.

Next: Liquidity Management

Lionel Pavey


Lionel Pavey

Cash Management and Treasury Specialist