Tag Archive for: treasury

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

 

PSD2 – has it hit the ground running?

| 18-01-2018 | treasuryXL |

On the 13th January 2018, PSD2 came into force. In previous articles we have discussed the meaning of this legislation. To recap – it is a directive to regulate the payment market and payment service providers, whilst also opening the market to non-banks. This should lead to a uniformity in products, technical standards and infrastructure. PSD2 will allow customers of banks to voluntarily use third party providers to process and initiate their financial transactions.

In the UK the process has gone even further – Open Banking has been enacted. Fintech companies are now in the position of taking over the ownership of the customer relationship that banks now have – assuming this is what the customer wants. The traditional relationship between a bank and a customer is now under threat. Banks, which have traditionally applied a one shop for all your financial transactions approach, will possibly have to change and look more like an App store from which customers can choose the services that they want.

To effectively compete in this new market will mean focus on data mining and achieving an economy of scale. It is not inconceivable that tech giants such as Google, Facebook or Amazon could start offering financial services on the back of their sizeable databases. Whereas banks have invested heavily over the years in their payment processes, new technology means that the costs are far lower for a new entrant.

But will PSD2 truly open the European market for financial services? Research indicates that we very seldom interact beyond our own national borders. The cost of banking, credit cards, mortgages, car insurance etc. differ greatly within the EU. A survey that was commissioned by the European Commission concluded that 80% of Europeans would not consider purchasing a financial product from another EU member state. Any dreams of one Europe are rudely interrupted by such research and public opinion. This is not to say that public opinion could not change – rather that the current market is not very elastic.

So PSD2 is up and running – how about the banks? PwC published a report in December 2017 after conducting interviews with senior executives in European banks. Just 9% reported they were ready, despite 66% saying it would affect their operations. Furthermore, a report was published today by the Dutch Data Protection Regulator stating that the legislation does not take privacy requirements enough into account. This despite the legislation being passed more than 2 years ago.

Eventually banks that are early to design their products specifically for this legislation and bring them to market could establish a clear lead on their opposition. Also, if the public reluctance to transact cross-border was to diminish, it is possible that – in the future – we could be purchasing our mortgages in Finland, our credit cards in the UK and our car insurance in Hungary!!

If you want more information please feel free to contact us via email [email protected]

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

 

 

E-learning First steps in treasury (7 courses) @ ACT

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Debt Compliance – can you make the grade?

| 01-12-2017 | Paul Stheeman |

Debt ComplianceWe welcome a new expert – Paul Stheeman, who immediately brings us an interesting topic that has not been covered in much detail up to now. It goes to show that there are many facets in the role of treasurer and we can constantly find new subjects that have not been approached. Thank you, Paul.

Depending on the financing method chosen, your company is likely to have debt or some kind of financial obligations to third parties. This can be in the form of loans, bilateral or syndicated, or in the form of a bond issue. In each case, the underlying agreement has to be well-documented and could be very extensive with several hundred pages of legal language which, for a non-lawyer, may be very difficult to understand.

In that documentation there will be clauses stating what the debtor is allowed and not allowed to do. Another important part of the agreement will be around financial covenants. These are usually ratios which the debtor has to regularly fulfil. It is commonly the responsibility of the Treasurer to ensure that the terms of the agreements are adhered to and to report the status of the covenants to the lenders and investors. To be able to do this the Treasurer will have to work closely with the company’s lawyers, the accountants and the Controller. He furthermore has to “educate” key internal stakeholders in the requirements, so that they also are aware of any hurdles which may prohibit them in carrying out their day-to-day business. This whole process is commonly known as debt compliance.

A loan agreement will typically have between one and five financial covenants which need to be tested and reported to the lenders on a quarterly or semi-annual basis. One of many examples of financial covenants is a coverage covenant, which requires the debtor to maintain a minimum level of earnings or cash flow relative to certain expenses, e.g. interest or debt service. Typically, such numbers are prepared in the accounting department, but the Treasurer will have to ensure that these figures are prepared timely and are within the thresholds allowed in the financing agreements. If these criteria are not met, then the debtor will be in breach of the covenant(s) and technically will be in default.

Default can also arise when so-called prohibited transactions are entered into or “basket” limits are overdrawn. In many agreements the debtor is not allowed to enter into any other financial obligation. This may in practice prohibit the debtor in carrying out his normal course of business. For example, he may be required to issue a performance guarantee. This would initially not be allowed under the agreement. Lenders therefore establish baskets with a threshold amount up to which the debtor may have a bank issue a performance guarantee. Again here, it will be the Treasurer’s responsibility to ensure that all such transactions fall within allowed business or baskets.

Being in default due to a breach of a covenant or a basket could mean that the outstanding debt becomes immediately repayable in full. This is usually neither in the interest of the debtor or the lender, so that the lender can apply for a waiver. It will depend on the seriousness of the breach, but these waivers are often agreed to by the lenders. However, there will be a fee which the lender will have to pay for the waiver and this can be quite substantial.

To summarize, debt compliance is a very important part of a Treasurer’s role as the consequences of non-compliance can at best weaken the company’s position towards its lenders and at worst be disastrous as lenders call on outstanding debt to be repaid immediately.

 

Paul Stheeman

Owner of STS – Stheeman Treasury Solutions GmbH

 

The size and shape of your treasury team

| 09-11-2017 | Pieter de Kiewit |

Treasury TeamLast week I received a call from one of my clients. Over the last years, I found several members for their team. Given the transition they are in, they were looking for benchmark information to shape their treasury team and make it future proof. This has kept me thinking and I started gathering information in order to give a proper answer. As to be expected, there is no standard template resulting in an easy answer. Even for more evolved job types like sales or accounting this is a hard question, corporate treasury is too young and small for sound statistics.

To make my analysis workable, I decided to measure the size of the team in a straightforward headcount. When talking about shape, I would like to work with the main functional areas: cash management, risk management, corporate finance and support. Of course this is an oversimplification. I think the following variables are the most relevant.

To start with the obvious: size matters. Size in revenue, number of employees, number of countries active in, number of currencies used, number of payments are all related to size of the treasury team. Not 100%. Senior management requesting detailed and up-to-date information requires a bigger team. We see this especially with organizations in turbulent situations, internally or in dynamic markets. Treasury teams that recently started, do not yet have a focus on efficiency and tend to be bigger. The willingness to invest in modern IT solutions on one hand creates a bigger team: key users and treasury IT managers, on the other hand it replaces staff doing manual work.  Finally improving aspects like segregation of duties and back-up typically create a bigger team.

Moving forward to the shape of the treasury team or perhaps the size of the various functional areas, I observe that the industry and company status have their impact. Typically, companies with a dynamic balance sheet, due to distress or growth (autonomous or take overs) need a bigger corporate finance function. A longer balance sheet in a capital intense industry requires a bigger team. In this area I also see an increase in project and customer finance teams contributing in the structuring of business deals.

Companies with diverse and dynamic payment flows need bigger cash management teams. Especially corporates with an ambition towards strong centralization require extra central staff. They need stronger software support, communicate a lot with subsidiaries and have to understand the business. If achieved, central cash management can be managed by few.

I observe a decrease of number of staff working in FX and interest risk management. Corporates are more risk averse, markets are transparent and ICT enables STP processes. In parallel other types of risk increase the workload: counter party, commodities, insurance, etcetera. Big data and business modeling is having its impact.

This blog does not have the ambition to be comprehensive, the above could be more thorough. Furthermore I could elaborate on aspects like control, IT and especially back office and settlements. Should they even be in your treasury team? I think the topic deserves further attention and could be researched by more than one graduate student.

What are your thoughts? What obvious aspect should be included? I look forward to your reactions,

Pieter de Kiewit

 

Pieter de Kiewit

 

 

Pieter de Kiewit
Owner Treasurer Search

 

 

What do you want to know about Treasury?

| 30-10-2017 | treasuryXL |

It has always been our mission to promote Treasury as a profession and to increase the awareness of Treasury within business. Currently there are more education choices for students to study and appreciate Treasury, but we still felt there was a gap – knowledge for anyone who was genuinely interested in learning more about Treasury.

With this in mind, we decided to proactively launch a new initiative – Treasury for non-treasurers. We consider this as our call to action.

Who are these people?

These can be students; career professionals in other disciplines who are curious; people in the finance industry who are considering either a career change or specializing in the field of Treasury; anyone who just wants to understand what a treasurer does on a day-to-day basis.

What is our aim?

Having always written for the professional, we were confronted with the challenge of getting our information across to people who do not have in depth knowledge. After a lot of research and analysis we decided that the best approach would be to attempt to simply explain the workings of Treasury, without going into too many technical details.

What will be in our articles?

With our knowledge, that relies also on the invaluable input of our expert community, we are considering a framework encompassing such topics as:

  • Treasury department – roles and responsibilities
  • Financial products for trading – Spot FX, Forwards, Options, Futures
  • Financial products for liquidity – deposits, loans, commercial paper
  • Financial products for financing – private placements, bond issues, equity
  • Cash flow forecasting – models and procedures
  • Working Capital Management – payables, receivables, inventory
  • Risk management – interest rate, FX, commodity, credit, liquidity, operational
  • Fintech – Treasury Management Systems, inhouse, exchanges
  • Cash concentration – physical sweeps, notional pooling, overlay structures
  • Education – study, on-line courses, sources of data
  • Economic and political – inflation, unemployment, leading and lagging indicators

This is a comprehensive and challenging list – but not impossible – which will, hopefully, increase people’s understanding and perception of the treasury function.

What we need?

Feedback – and plenty of it please.

These articles will not be written chronologically but, if there are certain topics that you wish to have explained then please do not hesitate to contact us. It is only with your input that we can truly create a service to meet your demands. We think we know what you would like to know, but only you can tell us!

What next?

Hopefully, when the series is a success, we can consider publishing e-books. Credit would always be given to those they have taken their time and effort to impart their knowledge and wisdom to others.

Who are you?

Please feel free to contact us and let us know more about you:

  • What is your profession/vocation?
  • What industry do you work in?
  • What interests you about Treasury?
  • Are you interested in making career choices?
  • Need help for your company, but are too small to have in-house expertise?
  • What do you think about the finance industry?
  • What do you think about the EURO?
  • How about Brexit?

So, come back regularly and watch this space!!

Tell me and I’ll forget. Show me, and I may not remember. Involve me, and I’ll understand.

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Treasurer – So what is it that you do exactly?

| 11-10-2017 | Lionel Pavey |

A few weeks ago I took my daughter Charly to the Scouts on a Saturday morning – she goes every week and really enjoys it. I get a couple of hours to myself and normally do the weekend shopping in that time. 2 ½ hours later I went back to pick her up and whilst waiting I got talking to a couple of the parents from the other Scouts, about work, whilst enjoying cups of coffee and hotdogs. They asked me what I did and I explained my vocation as a Treasurer and Cash Manager.

“Yes” one said, “so you are the same as a bookkeeper really. What makes you different? What do you bring that others do not? What makes you special?”

Advantages and benefits of Cash Management

  • Cash is King – profit is an opinion. I can not make you more profit, but I can improve your cash flows and your understanding of them.
  • I can speed up the operations your company uses to administer its cash.
  • I can help you stay solvent.
  • I can address your working capital issues.
  • I can spot fraud.
  • I can estimate your cash position for any time in the future based on your data input.
  • I can obtain better terms and conditions with debtors and creditors.
  • I can warn you when trouble will be ahead if nothing is done.
  • I can analyse the best loan deals for your financing operations.
  • I can make detailed cash flow forecasts that you can show to your banks when negotiating with them for loans or banking facilities.
  • I can reduce costs.
  • I can pay your bills more quickly.
  • I can improve your liquidity.
  • I can reduce your administrative work flows.
  • I can enable you to recycle your cash more quickly.
  • I can reduce your inventory holdings.
  • I can let you know when your future financial commitments have to take place.
  • I can help you maintain good relationships with your creditors.
  • I can optimize your cash at all times.
  • I can reduce your borrowing costs.

You need to generate enough cash from your activities to pay your suppliers, repay shareholders and/or investors and have money left over to invest and grow your business. Be honest, to do all that you need professional support and guidance allowing you to concentrate on growing your business.

They looked at me and said “So you are not really a bookkeeper then.”
I looked at them and smiled – mission accomplished!
“Now you know what a cash specialist can do for you and your company. So, give me a call when you think you need help with any of these issues.”
It is a good feeling when you positively change someone’s perception about what your job actually entails.

I told them what I can do, but did not say how. Are you interested in the how? Go to Rent a Treasurer.

 

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist

 

 

Does your treasury have a digital mindset?

| 25-9-2017 | Patrick Kunz |

 

In an previous article I have talked about the IT changes that make life easier for a treasurer in the future (or now already). In this article I want to talk about the digital mindset of the person using the IT – the treasurer. Treasury is a numbers game. We treasurers use these numbers to optimise the cash or risk of the company. We make money with money. These numbers have to come from somewhere in the organisation and it is usually never treasury itself.

BIG data

Big data is a hot topic in treasury but for treasury it was around longer. The treasurer needs to get their input information for all over the company. Cash inflow from sales, cash outflow from procurement and investment teams, HR etc. All this data needs to be gathered. The digital minded treasurer thinks about optimal ways of gathering this data: automatically. The treasurer starts its day with the actual cash balances and then looks forward. He/She basically needs to predict the future. How great would it be if all this data would be available with the push on a button. An ideal world ? Maybe, but it is possible. Bank statements can be automated to be loaded collectively or in a Treasury Management System. The treasurer starts the day with up to date cash balances, and he has not started working yet as this was automated. He then updates the cash forecast. How? By pushing update in his cash forecasting system. Sounds too easy? True, it took weeks to find out where to find the needed input information and to automate getting this data grouped together and in a structured way. But a digital minded treasurer knows that the data is somewhere in the organisation; it only needs to found and linked to the treasurers information recourses so it is always available. The treasurer only has to check the validity and the quality of the data and see if it needs improvement. In this way the digital minded treasurer can automatically create a cash forecast and continually improve it. A cash forecast should be ready before the second morning coffee. In an ideal world it would be ready with a push on a button. Artificial intelligence makes it possible. The digital minded treasurer is steering it.

Process improvements

The digital treasurer looks at ways to improve its document flows and payments. Not only looking at costs but also looking at how many (manual) interventions are needed. FX deals can be setup to straight through processed (STP) while blockchain would make it possible to improve the speed of payments or document flows globally. Everything is connected, as payments go from a process to straight through and instant it has an immedicate effect on the cash availability and forecasting. While now the bank is the place to go for bank accounts and payments this might not be the case in 10 years. The digital treasury might be able to setup his own bank in the future. By using technology.

The future

The treasurer makes sure that he is on the steering wheel while technology makes it possible for him/her to check his surroundings so he does not crash. A bigger front window makes for a better view forward (forecasting), a higher max speed makes for quicker travel (updating changes in forecasting), adaptive cruise control saves effort on speeds control (automatic updating and AI, STP). The treasurer knows he needs to keep the engine running to keep moving. He also realises that he does not need to be a mechanic to do this; however he needs to be able to tell the mechanics quickly why the car is not moving as the treasurer wants it to be so the mechanic can fix this. Or maybe the digital treasurer might change the car for a plane in the future, or even a rocket?

It is clear that technology and treasury are interconnected. Already now and even more in the future. A treasurer therefore needs a digital mindset to survive and keep up with the information needs of his department and the company as a whole. And it’s not rocket science (yet).

Patrick Kunz 

Treasury, Finance & Risk Consultant/ Owner Pecunia Treasury & Finance BV

 





 

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How much are you paying your bank?

 

First 100 days of a treasurer

| 11-9-2017 | TIS (Treasury Intelligence Solutions GmbH) – Sponsored content |

When a government official enters into office, the 100 days in the new role are closely observed by all. Similarly, the first impressions left by a new treasurer are often long lasting and critical to success further down the road. In most cases, after the first three months, all stakeholders have formed their opinion.

Sounds familiar? We know that the first 100 days in a new job are known to be crucial in setting the right course. The challenge facing treasurers is to acquire a quick overview, identify company-critical risks, introduce necessary measures at short notice and, at the same time, convince the new boss that they are also able to set the right strategic course.
In our Executive Briefing, our treasury experts share their experiences and provide tips and insights to support you in the first 100 days of your latest position.

TIS (Treasury Intelligence Solutions) GmbH