Tag Archive for: treasury

3 tips for a successful accounting- and ERP-system roll-out

| 23-3-2017 | Christian van Ledden | Sponsored content |

 

Cloud based accounting- and ERP-systems, i.e. SAP S4-HANA are receiving a lot of attention these days. The result? – Increasingly more companies are considering cloud solutions in their effort to consolidate IT processes and systems. According to a study by Panorama Consulting, in 2015 the share of such ERP-systems increased from 4% in 2014 to 33%.

Cloud is here to stay

From our point of view, this development is primarily driven by two factors: on the one hand, the amount of mature solutions in the marketplace is growing. At the same time, cloud ERP-systems are being positioned more aggressively by their respective vendors. On the other hand, there is a common acceptance of cloud ERP-systems. This is underlined by a study from RightScale, according to which 82% of companies are employing a multi-cloud strategy in 2015, up from 74% in 2014.

The former can also be observed in the cloud revenue figures of SAP and Oracle: SAP increased its revenue from cloud products and services between 2013 and 2015 by a staggering 229% while Oracle recorded similar growth in its cloud segment of 100% over the same period. Oracle’s strategic focus on cloud business is underlined by its recent acquisition of Netsuite.

This development has major advantages for their respective clients. According to a study by the Aberdeen Group, corporates can improve their operating profit margin by up to 21% through implementation of a modern cloud ERP-system. These improvements are achieved through optimized processes, higher standardization as well as a more streamlined IT environment.

Fast implementation and cost savings by using the TIS payment solution

The majority of finance and treasury departments are in one way or another affected by the roll-out of a new ERP-system. Generally, the aim is to standardize processes and systems. This brings its own set of IT-related challenges. These can be split into three major categories: processes, connectivity, and change management.

Processes: In most companies, processes grow historically through (international) expansion and M&A activities. The result is a lack of transparency and control of worldwide processes for central finance departments, contributing to a company’s vulnerability to payment fraud. What can you do? If you are evaluating the roll-out of a global ERP-system which includes your finance department, one should think about the current and desired state of (authorization) processes and goals – especially for the finance and treasury department.

Connectivity: Connecting the ERP-system to third party systems is an important factor to consider in terms of payments. Insufficiently secured interfaces with banks, a high number of manual processes as well as the lack of straight-through-processing of payment files increases your risks and have a negative impact on compliance. Moreover, in this context one should not forget the connection with your respective banks. They can be connected through communication channels such as i.e. EBICS, Host2Host, SWIFT, or CAMT. In addition, one has to develop individual formats for each country and bank. Working with our clients around the world, TIS GmbH has achieved savings of between 200.000€ and 1 million € p.a. by implementing its flexible and scalable cloud solution to connect its customers’ banks. This is possible, as TIS owns the most comprehensive library of formats and bank connectors worldwide. This library is accessible to all its clients free of charge, so that you can focus on scaling your worldwide operations.

Change management: In order to ensure a smooth roll-out of your i.e. SAP S4-HANA ERP-system, you should embark on the journey together with your employees. Inform all involved stakeholders early and frequently about the progress of the project. Additionally, you might want to evaluate during the business blueprint phase whether it is advisable to include a specialized consultant. This will increase your chances of success dramatically and support the team spirit.

What are your experiences with IT-projects? I am looking forward to reading your comments.

Christian van Ledden

Sales Executive at Treasury Intelligence Solutions GmbH (TIS)

 

 

 

For additional information please visit the TIS company page on treasuryXL.

 

Flex Treasurer – Besparing na een treasury quick scan: Nog meer praktijkvoorbeelden

| 22-3-2017 | François de Witte | Patrick Kunz |

Als je ondernemer bent of als financiële professional werkt in een kleine of middelgrote organisatie die geen treasurer of cash manager in dienst heeft, vraag je je wellicht af of je alle treasury taken wel goed geregeld hebt. Iemand aannemen voor deze taken gaat misschien een stap te ver. Maar dat betekent niet dat je geen kosten zou willen besparen of dat er geen mogelijkheden zijn voor bijvoorbeeld funding. Wij hebben jullie al eerder kennis laten maken met onze Flex Treasurers en de Treasury Quick Scan die zij kunnen uitvoeren in een onderneming. In een eerder artikel hebben wij al praktijkvoorbeelden gepresenteerd. In dit artikel nog twee voorbeelden, waaruit blijkt dat een Treasury Quick Scan grote besparingen kan opleveren.

Onderneming C: Internationaal Handelshuis in voedselproducten

Omzet ca 1 miljard Euro

  • C is handelaar in voedselproducten in de B2B markt. Wereldleider in zijn segment en op alle continenten actief. Producten worden standaard in USD geprijsd. C heeft geen treasurer in dienst, de finance managers deden dit erbij.
  • Een treasury scan in 1 dag liet zien dat een besparingspotentieel op treasury processen mogelijk was van minstens EUR 200.000 per jaar (oplopende tot EUR 1.000.000 op jaarbasis)
  • Door optimalisatie van cash management processen en heronderhandeling van transactiekosten is binnen een maand EUR 300.000 jaarlijkse besparing gerealiseerd
  • Door optimalisatie van interne processen en toevoegen van extra banken en een online handelsplatform is op FX hedging een verdere besparing van EUR 100.000 gerealiseerd. Verder is het proces verbeterd waardoor er minder tijd wordt besteed aan de processen.
  • C heeft inmiddels een eigen treasurer, treasury afdeling en treasury management systeem. De flex treasurer is nog steeds betrokken bij projecten.

Onderneming D: vastgoedbedrijf

Omzet ca 125 miljoen Euro.

  • D had een treasurer in dienst welke met pensioen ging op korte termijn. Een flex treasurer is aangenomen om kritsch te kijken naar de treasury processen welke intern en extern gedaan werden
  • Alle terugkerende treasury activiteiten zijn naar intern gehaald. Dit zorgde voor een besparing van ca EUR 50.000 per jaar.
  • Een treasury rapportage werd opgezet zodat (senior) management en lijn management beter geïnformeerd zijn over treasury activiteiten
  • Cash Management en cash flow forecasting is geoptimaliseerd welke het renteresultaat verbeterde. Besparing ca. EUR 10.000 per jaar.
  • Corporate finance activiteiten werden verbeterd waardoor er zeer scherp in de mark geleend kon worden.
  • Treasury kon uiteindelijk afgebouwd worden van 36 uur naar 8 uur per week. Besparing ca EUR 60.000 per jaar.

 

Herken je een of meer situaties uit je eigen organisatie? Heb je een vraag? Onze experts zijn gaarne bereid om met jou in gesprek te gaan. Zij werken als Flex Treasurer en helpen jou graag verder. Overigens ook als je bijvoorbeeld na een treasury quick scan behoefte hebt, om tijdelijk een (flex) treasurer in dienst te nemen.

 

François de Witte 
Senior Consultant at FDW Consult

 

 

 

 

Managing treasury risk: Operational Risk (Part VII)

| 21-3-2017 | Lionel Pavey |

 

There are lots of discussions concerning risk, but let us start by trying to define what we mean by risk. In my last article on how to manage treasury risk I will write something about operational risk. The Bank for International Settlements (BIS) defines this as “the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.  If you want to read my earlier articles on managing the different treasury risks please refer to the complete list at the end of today’s article.

 

Whilst this is the last article in this series, it is actually – potentially – the most significant risk that a company can face, as there are many different ways that a loss could occur, together with the fact that when it happens the amount lost can be very large. Even if the size of the loss could be considered small, there is always the threat of reputation risk which, once identified, is very difficult to erase from the memory.

While it is possible to insure against rogue trading for a company (the risk present in the Treasury function can be quantified and qualified) it is very rare that damage is caused by just one individual – a financial version of the lone wolf theory. Operational risks tend to be interlinked – a fraudulent payment could be initiated by human involvement (either as fraud or human error) and facilitated by weak processes together with insecure technological systems.

There are 2 main areas of operational risk within treasury for a company

  1. Internal
  2. External

There are 3 main categories of operational risk within treasury for a company:

  1. Computer System, Information Technology
  2. Theft and Fraud
  3. Unauthorised Activity

Computer System, Information Technology

A lack of robustness and deficiencies in the technology and systems contribute to circumstances for failures, errors, data losses, corruption and fraud. Internally considerable care and attention should be given to the protocol for Static Data. This encompasses all the relevant reference data for a counterparty and should be subject to at least an input and verification procedure before entering the computer system. Changes to Static Data have to be recorded, together with the proper paper trail and authorization matrix. Externally the risks relate mainly to illegal entry (hacking), together with the complete theft of data.

Theft and Fraud

Both internally and externally main areas include:

  • Theft – both physical and electronic
  • Extortion
  • Embezzlement
  • Forgery
  • Misappropriation
  • Willful destruction
  • Bribes
  • Kickbacks
  • Insider Trading

Unauthorised Activity

From the Treasury point of view, this is an internal activity and mainly relates to 2 types of transactions – unauthorized by transaction and or type; transactions that are not captured in the system and reported. These can lead to monetary losses (though a gain is possible – at the price of an operational risk), together with loss of reputation.
The last category clearly shows where the biggest risk occurs within a company – at the human level. Generally speaking, these are caused by incompetence, lack of knowledge, misuse of power or compulsion to act caused by external factors – extortion.
It is clear therefore that whilst the electronic systems employed by a company can be a liability if not properly programmed or safeguarded, even here, most of the errors can be traced by to human intervention.

So why are the human risks so often underestimated? Naturally a company wishes to have the feeling that its staff can be trusted (within reason). After all, the company felt that the staff were the right people to employ. It is not my intention to formulate the reasoning and thinking of people who perform illegal acts. However certain areas that can be considered include how staff are treated; the demand placed on them; the rewards given; the levels of transparency and inequity within the company; a closed-off attitude (problems in one department are kept within that department and not discussed throughout the company); the role model set by owners, directors and managers; loss of personnel, reduction in morale; disinterested and unmotivated staff.

 Solutions

An effective framework of operational risk management needs to be designed and implemented within the business. This requires input and commitment from all departments within the company, meeting one agreed standard and not being shaped to every individual department’s wishes. The framework has to run and meet the requirements for all different strategies within the company.

I wish to finish with 2 examples of operational risk to illustrate how large they can be.

In 1995 the world’s second oldest merchant bank (Barings Bank) collapsed due to the actions of a rogue trader. Corruption and a lack of internal control led to a loss of GBP 827 million.

Around the same time I was employed as an international money broker working in the interbank market and travelled every day from The Hague to Amsterdam via train. As I knew the route off by heart, I read all the time – magazines, papers, books – anything. I purchased a book called “The Cuckoo’s Egg” as it seemed interesting and would pass the time away sitting on the train.
The synopsis told me that an unreconciled accounting discrepancy of just 75 cents would lead to a world of computer espionage and spies. I highly recommend reading the book to understand how a simple error can grow to show the dangers of ignoring operational risks. If you like acronyms then you will enjoy reading about the FBI, CIA, NSA and KGB – all hacked via a UNIX server at a laboratory linked to the University of California.The story is true and threatened national security.

Trust people – but do not place temptation in their way.

Lionel Pavey

 

 

Lionel Pavey

Cash Management and Treasury Specialist

 

 

More articles of this series:

Managing treasury risk: Risk management

Managing treasury risk: Interest rate risk 

Managing treasury risk: Foreign exchange risk

Managing treasury risk: Commodity Risk

Managing treasury risk: Credit Risk

Managing treasury risk: Liquidity risk

Treasury Seminars in Antwerp and Montfoort – a short summary of two successful events

| 15-3-2017 | Treasury Services | PowertoPay | sponsored content |

The last two Thursdays, the PowertoPay, SWIFT and TreasuryServices Treasury Seminar was held in Montfoort and Antwerp. We’re happy to say that it was a success! We got a lot of positive feedback during and after the seminars. Both had the same content but were hosted on two different days. The first one was held in Antwerp, Belgium on the 2nd of March in an old monastery (Elzenveld). The second one was held in Montfoort, The Netherlands on the 9th of March in the Heeren of Montfoort. 

During the seminar several treasury topics were highlighted. After a short opening speech by Bas Huisman, co-founder of PowertoPay, we started with a presentation about the importance of bank independency. Arnoud Doornbos from Treasury Services was talking about financial history lessons but also the current financial situation that makes it really important for companies to look into bank independent solutions.
After that Rob Rühl from Next Markets presented his view of the influences of Brexit on the Dutch and Belgian economy.
Next was a presentation by Hans de Vries, PowertoPay consultant, telling about the end of Notional Pooling and Basel III. He also presented the Payment Hub of PowertoPay and how this is beneficial for companies.
After this Jan Vermeer from TreasuryServices talked about bank independent cash pooling through software, something TreasuryServices developed for companies who wish to operate much less dependent on their banks if it comes to cash management.
Last but definitely not least, we had a client case presented by Michel Steenbergen from DIF. He informed everyone about how the two solutions mentioned above come together in practice. DIF uses a combination of PowertoPay’s Payment Hub  and TreasuryMetrics from Treasury Services and created a perfect solution for their complex cash management processes. After both of the seminars we had a drink and some food with the participants.

Our Treasury Seminar was a great opportunity to inform everyone about the current situation of the financial world and how to participate in changes that are occurring. Being bank independent is becoming increasingly important because of the fast development of financial technologies and changing laws. What we see lately is that components of banking products and services are being redeveloped by the FinTech Industry. These FinTech solutions are smarter, faster and better. As a result we now see that different FinTech companies work together. Individual Fintech products often turn out to be complementary to each other. FinTech companies now recognize that collaboration with other FinTech companies leads to high growth and a better product range.

PowertoPay –  Claire van Ingen

Treasury Services BV – Arnoud Doornbos

[separator type=”” size=”” icon=””]

[separator type=”” size=”” icon=””]

Managing treasury risk: Liquidity Risk (VI)

|13-3-2017 | Lionel Pavey |

There are lots of discussions concerning risk, but let us start by trying to define what we mean by risk. In today’s article I will focus on liquidity risk. Many companies have very significant credit needs and this needs to be formally addressed with a credit analysis procedure in place. In my former articles I dealt with risk management, interest rate risk, foreign exchange risk, commodity risk and credit risk. See the complete list at the end of today’s article.

Liquidity risk comes in 2 distinct forms – market liquidity risk and funding liquidity risk.

Market Liquidity Risk

This relates to assets and potential illiquidity in the market and, as such, can be considered a market risk. In a normal functioning market it is always possible for market participants (buyers, sellers, market makers and speculators) to find each other and negotiate a price for their transactions. Assuming that the transaction is of a normal market size, there should be no dramatic change to the price of the asset after the transaction.

At the time of a crisis, participants could be absent from the market, making it difficult – if not impossible – to trade an asset. Sellers are left frustrated as there are no opportunities to sell the asset they are holding and vice versa for buyers. This can occur due to a financial crisis, changes in legislature, scarcity of an asset or someone attempting to corner the market. An asset generally will have a value, but if there are no buyers in the market that value can not be realised.

Liquidity risk is not the same as falling prices – after all prices are free to rise or fall. If an asset was priced at zero then it means that the market considers its value to be nothing. This is different from trying to sell an asset but not being able to find a buyer.

Markets for Foreign Exchange, Stocks, Shares, Bonds and many Futures and other derivatives are generally highly liquid. Off balance sheet products related to physical settlement can be less liquid as there is a need to actually provide physical settlement. Bespoke products like CDO’s can be considered illiquid as their size is normally small (relatively speaking) and not freely tradeable. Also the complexity needed to value the product affects its liquidity.

Housing is an asset class with very low liquidity – sometimes a property could be sold as soon as it hits the market. At other times the same property could be available for sale for many years and the price reduced regularly, without attracting a firm buyer.
The easiest and quickest way to see if there is a heightened market liquidity risk is via the bid – offer spread. If this is suddenly seen widening, this would imply that there appears to be more risk. In a normal, liquid market, the spreads are fairly constant and small, allowing participants to easily step in and transact. A widening of spreads occurs in a normal market when government data is published – nonfarm payrolls, balance of payment, etc. Within a short time the market will return to a normal spread as the information is properly digested and the market makers return. However, if the spreads widen without a publication event taking place, it is reasonable to assume that the risk has increased.
Additionally, risk could grow if reserve requirements were increased. In markets such as Futures, it is necessary to pay margin to the exchange. If these margin payments were increased, this would lead to transactions being more expensive and so lead to less liquidity in the market.

Market makers can also observe the market depth. This is shown by the quantity available for transacting at a particular price in their order books. When a market is perceived as being deep, it means there are many orders and, therefore, a large number of orders would be needed to move the market price significantly. The deeper the market, the more liquid the market.

Funding Liquidity Risk

This relates to the risk of not being able to settle debts when they are due. Treasury specialists in a corporate environment are acutely concerned with funding risk. Every month wages must be paid, together with tax and social premiums (pensions, insurance etc.) Additionally, it would be advantageous to pay trade creditors on time. Future liabilities also have to be funded after they have been recognized. This could mean arranging external financing.

If there is a liquidity crisis in the market, it becomes difficult and expensive to arrange to borrow the necessary funds. The price may be so high that the intended profit provided by selling the goods, is negated by the increased cost of funding. A reduction in the credit rating of a company can also lead to increased costs and a reluctance to lend.
If a company is known to have problems making payments, then the liquidity risk is specific to the company – the rest of the market will function normally.

Funding risk can also occur if creditors fail to pay you, or if an unforeseen event has occurred that leads to an outflow of cash from the company.
A company can initially perform a quick spot check to ascertain its current ratio. This shows if a company can meet its current liabilities with its current assets. A ratio of less than 1 would imply that the company can not meet all its obligations at the same time. However, this could also be because there is no short term finance arranged at that moment.
It is possible to arrange a line of credit with a financial provider. He defines a maximum loan (line of credit) that can be extended which the company may utilize. While it is normal to pay a standing charge for the balance of the line that is not being used, this can be offset by the knowledge that it is possible to drawdown against the line when needed (in normal circumstances). There is greater flexibility with a line of credit than with a traditional bank loan.

Other methods include –

i)                    Sell assets like stock that are slow moving and tying down cash

ii)                   Analyse all overheads – office equipment, expense claims

iii)                 Increase efficiency in the debtors’ administration. Be proactive

iv)                 Renegotiate with suppliers – better that you talk to them before it is too late

v)                  Design contingency plans

vi)                 Subject your business to stress testing

vii)               Apply the techniques of ALM (asset and liability management)

 

Some very well known companies have fallen to liquidity problems – Bear Sterns, Lehman Brothers, Northern Rock, ABN Amro, AIG, etc. While the risks were prevalent before the crises, the main liquidity problems occurred when it was determined that there was no more time allowed for the situation to remain.
Time is the soul of business.

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist 

 

 

 

More articles of this series:

Managing treasury risk: Risk management

Managing treasury risk: Interest rate risk 

Managing treasury risk: Foreign exchange risk

Managing treasury risk: Commodity Risk

Managing treasury risk: Credit Risk

Making the most of excess cash: The optimal balance between safety, availability and profitability

| 9-3-2017 | Pieter de Kiewit | TreasuryXL|

We came across this article from our expert Pieter de Kiewit in co-operation with a candidate on De Kiewit Treasurer Search and thought it interesting enough to share it with you.

To get inflation to its target of close to 2%, the ECB has launched an unprecedented package of measures. It cuts borrowing costs, expanded its QE programme and reduced bank deposit rate into negative territory. Interest rates are expected to remain at present low levels for an extended period of time. Great for those who need to borrow money, but depressing for the return on savings or excess cash.

Many commercial banks effectively already charge a negative interest rate on checkable deposits. They charge fees in excess of interest payments (if any). The new Basel rules may involve certain costs or risks, some banks may choose to pass these to their customers. Regulatory shift will have wide-reaching implications on cash pooling, cash deposits (distinction between operating and excess cash deposits) and Money Market Funds (liquidity fee and redemption gates will be imposed). The Basel Committee postponed the meeting scheduled for Jan. 8 on new capital standards. The good news is that it will take some time (2018/2019) before new regulations become fully operational.

Many companies now hold larger cash balances due to their growing sensitivity to the economic cycle and continued need for operational funding. Excess cash is a luxury and isn’t always a problem. However, keeping it on the book is often not the answer for a company’s long term health. Excessive non-earning cash balances create opportunity costs and decrease the rate of return on equity and the firm’s value.

What are your options after minimizing the cash balance in non-interest-bearing accounts? Each business has its own goals and financial outlook. The best thing to do with excess cash is manage it appropriately in line with strategic objectives and for the best risk-adjusted return possible, without sacrificing liquidity. You can sit on it, use it to buy property or assets, or invest it in commercial paper, money market funds, other mutual funds, bonds or stocks—or some combination of these things. Whatever you may choose, the process of investing excess cash should be integrated in overall cash management, with the same fundamental principles of keeping risk low and having the right amount of cash on hand for short-term and long-term needs.
Companies tend to have very low appetites for risk when it comes to investments. It’s not their business. Their primary objective is capital preservation and maintaining liquidity, and yield is third on the priority list.

Are you looking for investment solutions spanning a range of currencies, risk levels and durations, designed to suit specific operating, reserve and strategic cash management needs? Whatever your investment goals may be, a treasurer might be able to assist you in making the right decision with your excess liquidity. If hiring a treasurer is one step to far for your organisation, you might want to consider a Flex Treasurer. TreasuryXL can bring you in contact with treasury professionas of different disciplines.

Pieter de Kiewit

 

 

Pieter de Kiewit

Owner at Treasurer Search

 

Cash forecasting 2.0

| 8-3-2017 | Nicolas Christiaen | Cashforce | sponsored content |



Cash forecasting has been a hot topic in 2016 and it looks like it will keep this status in the years to come.  As Cash Specialist, I’m frequently asked about my vision on this subject. About a month ago, I presented my thoughts to an audience of Group Treasurers & CFOs at the ACT Smart Cash conference in London. During the Q&A, I was asked an intriguing question: “How does a cash management platform, such as Cashforce, differentiate itself from old school Treasury Management Systems in terms of cash forecasting?”

TMS vs. Cash Management/Forecasting platform

Classic Treasury Management Systems (TMS) are focused on inputting, maintaining & managing complicated financial instruments and managing bank connectivity. In other words, they focus on cash optimization from the treasury side.
Cash management & forecasting platforms, on the other hand, focus on cash optimization from the business side. Hence, they typically connect to a company’s ERP systems, in which you’ll find 90% of the company’s cash flows.
And guess what, it’s this refreshing vision on cash optimization that is now attracting the attention by more and more Corporate Treasurers worldwide: they call it “connecting treasury with the business”.

Difference No 1: Transparent cash forecasting

With a classic TMS, a Corporate Treasurer will typically consolidate cash forecasts from the different OpCo’s,  which are already consolidated from the underlying business transactions. So, there is no drill-down available into the business drivers, no assurance on the quality of the data/input/manipulations. This blurs a treasurer’s view on what’s actually happening on the business side, taking away the cash visibility into the company’s different OpCo’s.  Full drill down isn’t offered by a classic TMS due to two main reasons:

  • It is simply not designed for carrying millions of transactions on a daily basis, while cash management/forecasting solutions use a ‘big data’ approach and have built-in engines to process millions of transactions daily.
  • Connecting to each single ERP requires deep knowledge of each of these systems (to avoid long implementation times) and traditionally, Treasury Management Systems didn’t have a need to develop these connectors.

 Difference No 2: Collecting the data in a smart way

One of the pain points often linked to Cash Forecasting, is the lacking ability to merge all relevant data and apply smart logics to it. Indeed, it might be a challenge to connect to all data sources and, at the same time, to do this in a smart way. At Cashforce, our reaction to this issue is twofold: A smart logics engine takes care of the forecasting algorithms, while easy connections to ERPs and other systems (like HRM, CRM..) ensure the continuous supply of rich data.

Defining and applying smart logics are often a challenge to overcome and have an enormous impact on the accuracy of the cash forecast. For example, well-defined smart logics help you to better estimate actual payment times and hence improve the accuracy of a forecast. A TMS system often lacks this powerful ability and has no built-in smart engine for forecasting rules.

Difference No 3: Cash saving from the business instead of treasury optimizations

Finally, driving action from forecasts should be the main objective. Intelligent simulation engines enable companies to consider multiple scenarios and measure their impact. This gives users the power to report on cash saving opportunities and compare options to ultimately pick the better one. As a result, finance departments can be turned into business catalysts for cash generation opportunities throughout the company. In contrast, Treasury Management Systems are not designed to perform complicated business-driven cash simulations.

Complementary or Competitors?

New, often innovative cash management platforms, like Cashforce, are complementary to a TMS and tend to bring a lot of value in working capital intensive businesses. They are complementary, as they have a different focus: Treasury Management Systems look at the entire treasury spectrum in order to improve treasury processes. Cash Management/Forecasting platforms start from the business and want to enable finance departments to become a strategic partner on one of the key growth indicators, cash. On the other hand, for smaller companies, these platforms might be a good alternative for an often expensive TMS, when only limited financial instrument management functionality is required.

Nicolas Christiaen

Managing Partner at Cashforce

 

Treasury & amp; Working Capital Quick Scan Methodologie – Voorbeelden uit de praktijk

| 7-3-2017 | François de Witte | Patrick Kunz | treasuryXL

 

Als je ondernemer bent of als financiële professional werkt in een kleine of middelgrote organisatie die geen treasurer of cash manager in dienst heeft, vraag je je wellicht soms af of je alle treasury taken wel goed geregeld hebt. Iemand aannemen voor deze taken gaat misschien een stap te ver. Maar dat betekent niet dat je geen kosten zou willen besparen of dat er geen mogelijkheden zijn voor bijvoorbeeld funding.

 

 

Heb je al eens gedacht aan de mogelijkheid van een treasury quick scan?

Wij bieden je aan om deze quick scan voor je uit te voeren.
Een ervaren hands-on treasurer maakt een scan van jouw organisatie om te kijken of het de moeite waard is om te investeren in treasury. En vaak blijkt dat je door deze quick scan flink geld kunt besparen, zoals de volgende praktijkvoorbeelden laten zien.

Onderneming A: Productie onderneming in de verpakkingssector

(omzetcijfer ca. 150 miljoen euro)

  • A gebruikte voor zijn financiering een combinatie van EUR 5 MM met straight loans aan 2,25 % en EUR 3,5 MM met factoring (totale factoring faciliteit : EUR 10 miljoen) aan een rente van 0,75 % + 0,15 % flat op het omzetcijfer (of 225.000 euro op jaarbasis).
  • Een treasury quick scan maakte snel duidelijk dat er een besparingspotentieel was indien de onderneming een deel van zijn bankfinanciering verschoof naar de factoring. Het beroep op de factoring werd verhoogd naar EUR 7,5 miljoen, wat toegelaten heeft een jaarlijkse besparing toe realiseren van EUR 60.000.
  • De facturen werden niet altijd tijdig opgesteld en werden per post opgestuurd. De quick scan maakte duidelijk dat er besparingspotentieel was. Dankzij een strikter facturatieproces en het overgaan op e-invoicing is de onderneming er in geslaagd 3 dagen te winnen in de Order to Cash Cyclus of een besparing van ca EUR 1,25 miljoen aan werkkapitaal en ca. 30.000 euro aan financiële lasten.

Onderneming B: Groep die een aantal autoconcessies bezit

(omzetcijfer ca. 175 miljoen euro)

  • B gebruikte voor zijn korte termijnfinanciering (ca. EUR 13 miljoen) korte termijn kredietlijnen bij banken (financieringskosten voor van 1,90 %) en bij de financieringsmaatschappij van de importeur (financieringskosten van 1,10 %).
  • Een treasury quick scan maakte duidelijk dat er een besparingspotentieel was indien men een deel van de bankfinanciering verschoof naar de importeur financierings-maatschappij. In casu besloot de onderneming EUR 7,5 miljoen meer op te nemen bij deze, wat een jaarlijkse besparing aan rentelasten heeft toegelaten.
  • B had regelmatig credit saldi op een aantal bankrekeningen, terwijl ze debetsaldi op andere bankrekeningen had. Een van de aanbevelingen van de quick scan was het invoeren van een dagelijkse opvolging van alle banksaldi. Hierdoor is onderneming B erin geslaagd het gemiddeld uitstaand bedrag aan bankleningen te doen dalen met EUR 1,6 miljoen, wat een rentebesparing oplevert van 30.000 Euro.
  • B ondervond regelmatig vertraging in de incassering van facturen op leasingmaatschappijen, omdat de dossiers niet in orde waren (ontbrekende documenten, etc.). De quick scan maakte duidelijk dat een striktere opvolging van de procedures en keurige dossiers (first time right) zou toelaten de gemiddelde incassoperiode te reduceren van 23 naar 18 dagen. De onderneming heeft uiteindelijk een besparing van werkkapitaal van 800.000 Euro en een jaarlijkse rentebesparing van meer dan 15.000 Euro gerealiseerd.

Herken je een of meer situaties uit je eigen organisatie? Heb je een vraag? Onze experts zijn gaarne bereid om met jou in gesprek te gaan. Zij werken als Flex Treasurer en helpen jou graag verder. Overigens ook als je bijvoorbeeld na een treasury quick scan behoefte hebt, om tijdelijk een (flex) treasurer in dienst te nemen.

 

Patrick Kunz

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

 

 

 

MEER INFORMATIE

Wil je gebruik maken van een treasury quick scan of een Flex Treasurer of heb je een andere vraag?
Of wil je je aansluiten als Flex Treasurer?
Pieter de Kiewit helpt je graag verder.

[email protected]
+ 31 (06) 1111 9783

 

Blockchain: Accelerated activity in trade finance

| 24-2-2017 | Carlo de Meijer |


Last year August I wrote a LinkedIn blog on blockchain and trade finance. There I described the various pilots and plans for using this technology in the trade space. In that month, the bank-backed R3CEV blockchain consortium revealed that 15 of its member banks had participated in a trial involving trade finance. Since then activity in this area has accelerated. It signals that enterprise banks are increasingly interested in the application of the blockchain to trade finance. The idea is that a distributed database like a blockchain can form the basis for a wholly digitized supply chain.

“Blockchain lends itself easily to the trade finance industry, which heavily rely on the settlement of sensitive information. This technology could be used to digitise sales and other legal contracts (smart contracts), allow the location of goods to be monitored and facilitate payments in close to real time. Potentially, business transactions can be executed directly on the platform itself through the use of “smart contracts” embedded in the platform and the platform could be further connected to payment systems and distribution networks for smoother flow of payments, goods and services.” – I wrote in Blockchain and trade finance: projects and pilots

Moving from the proof-of-concept stage into production

It is also becoming all the more clear that blockchain technology is moving from the proof-of-concept stage into production, especially for cross-border payments and trade finance. Last week seven European banks announced their plans to develop a trade finance platform based on blockchain technology. Let’s have a look – there are more examples.

European banking consortium: cross-border trade platform

Seven of Europe’s biggest banks (Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale and UniCredit) signed a Memorandum of Understanding in Brussels under which they intend to collaborate on the development and commercialisation of a new product called Digital Trade Chain (DTC). A shared cross-border trade finance platform for small and medium-sized using blockchain technology.

The product is based on a prototype trade finance and supply chain solution originated by KBC and tested to ‘Proof of Concept’ stage. The aim of the project is to simplify trade finance processes for SMEs by addressing the challenge of managing, tracking and securing domestic and international trade transactions by connecting all of the parties involved (i.e. buyer, buyer’s bank, seller, seller’s bank and transporter), online and via mobile devices. They thereby hope to accelerate the order-to-settlement process and decrease administrative paperwork significantly. The group plans to initially focus on building critical mass in seven European markets.

S7 Airlines and Alfa-Bank pilot the first Russian blockchain LoC transaction

Two Russian companies, S7 Airlines, and Alfa-Bank, have successfully closed a deal using a smart contract to settle and record a Letter of Credit (LoC) on a blockchain. Deloitte in Russia provided legal support to the project. Only the people with information about the original parameters of the deal can view the status of the letter of credit in the blockchain record. In this transaction, in addition to Alfa-Bank and S7 Airlines, the information is available to a service company that receives money under the letter of credit. Legally, this transaction meets all the requirements for a letter of credit as a form of bank settlement, and demonstrates the potential of smart contract application in the framework of Russian legislation.
“The transaction enabled us to test the capabilities of smart contracts and understand how the technology helps to improve business processes and document flow efficiency. We are planning to continue cooperating with Alfa-Bank in this area.” – Dmitry Kudelkin, Deputy General Director, S7 Group

Barclays enabled first global trade transaction trial

Barclays announced that it had successfully completed the first global trade finance transaction trial using blockchain technology. The test enabled two partners, Ornua, an Irish agriculture co-operative (formerly the Irish Dairy Board), and Seychelles Trading Company, a food product distributor, to successfully transfer trade documentation via a blockchain platform created by its accelerator program graduate, Wave. A blockchain-based letter of credit closed a transaction between Ornua and the Seychelles Trading Company, guaranteeing the export of almost US$100,000 worth of cheese and butter from Ireland to the Seychelles, facilitated by Barclays. Meanwhile, the funds for the transaction were transferred via Swift.
Wave has worked with Barclays in developing new solutions for trade finance. The start-up’s blockchain-based technology connects all members of a supply chain to a decentralised network, allowing them direct exchange of documents. Wave’s blockchain-based system allows all parties to see, transfer titles, and transmit shipping and other trade documentation through their decentralized network. The new platform helps optimise internal processes for banks and reduces the risk of documentary fraud, while speeding up the time it takes to complete a trade transaction – from as many as 20 days, to just a few hours.
“Blockchain is a very good solution to eliminate the pain in international trade, because you have an industry that combines all industries, because all industries are either importers or exporters at some level. You have the carrier, the bank and the customer and it’s hard to find one centralized entity everyone can work with.” – Wave founder Ruschin

IBM promotes Blockchain Trade Finance In India

In India, IBM is hoping to promote mainstream adoption of blockchain by collaborating with multinational company Mahindra, which operates Mahindra Finance. IBM and Mahindra are developing a blockchain-based trade finance solution to offer banks in the country. The cloud-based tool will look to facilitate trade finance transactions between buyers and suppliers, and could overhaul trade finance for SMEs in particular.
The companies have already completed a proof of concept that “represents a significant step forward in blockchain, a more compelling and efficient supply chain solution for Mahindra Finance’s small and mid-sized enterprise loan business”. IBM and Mahindra will explore other use cases for blockchain including applications for Mahindra’s car and tractor manufacturing operations.

Microsoft and BAML to Test Blockchain for Trade Finance

Microsoft and Bank of America Merrill Lynch (BOML) announced a collaboration on blockchain technology to fuel transformation of trade finance transacting. The companies have teamed up to implement blockchain technology in trade finance to facilitate faster, safer, cheaper and more transparent transactions. The main objective of the collaboration is to develop and test blockchain technology and establish best practices for blockchain-powered exchanges between businesses and their customers and banks, before commercializing it. Microsoft’s own cloud-based platform Azure will be utilized to test the project. Microsoft Treasury experts will serve as advisors and initial test clients. Development and testing of the initial application, built to optimize the standby letter of credit process, is currently in progress.

CBA, Wells Fargo and Brighann Cotton pioneered blockchain trade finance transaction

The Commonwealth Bank of Australia (CBA), Wells Fargo and trading firm Brighann Cotton have successfully completed the “first” global trade finance transaction experiment in October between two banks using blockchain, smart contracts and the Internet of Things (IoT).
“The interplay between blockchain, smart contracts and the Internet of Things is a significant development towards revolutionising trade transactions that could deliver considerable benefits throughout the global supply chain.” Michael Eidel, CBA. The trade involved the shipment of 88 bales of cotton worth approximately $35,000 from Texas US to Qingdao, China. The transaction mirrors a letter of credit, executed through a collaborative workflow on a private distributed ledger – Skuchain’s Brackets system – between the seller (Brighann Cotton in the US); the buyer (Brighann Cotton Marketing Australia); as well as their respective banks (Wells Fargo and CBA).
By connecting Brighann Cotton’s container to the internet of things (IoT), both CBA and Wells Fargo have been able to “track a shipment in real time”. It was the geographical location which triggered the smart contract to release the payment for the cotton (which happened via the traditional Swift system, allowing the banks to avoid having to win the approval of prudential regulators for the deal).

Major banks from India and Dubai complete blockchain trade finance transaction.

ICICI, India’s largest private bank, and Emirates NBD,  recently announced successful international transactions for both trade finance and remittance purposes using blockchain technology.
This pilot transaction was executed to showcase confirmation of import of “shredded steel melting scrap” by a Mumbai-based export/import firm from a Dubai-based supplier, and to exchange and authenticate original international trade documents. The blockchain trade application co-created by ICICI Bank “replicates the paper-intensive international trade finance process as an electronic decentralised ledger”.
The information contained in the blockchain transaction included a purchase order, an invoice, shipping and insurance papers. Each participant was able to access and view a single dataset, to authenticate ownership of goods digitally, transmit their trade documents, check the status of their applications, and transfer their titles, while maintaining confidentiality. Further, it allowed each participant to check online the status of the application, transfer of title and transmission of original trade documents through a secure network, while preserving client and commercial confidentiality. The application is designed to work with existing banking systems and processes, allowing banks to “plug in their systems and process.”
“I envision that the emerging technology of blockchain will play a significant role in banking in the coming years by making complex bilateral and multi-lateral banking transactions seamless, quick and more secure.” – Chanda Kochhar, ICICI MD & CEO

CGI rolls out blockchain lab for trade finance

CGI, a leading IT and business service provider, has launched a lab, a digital sandbox dedicated to helping its trade finance and supply chain clients harness the efficiencies of blockchain for new and existing products. The formal launch took place at Sibos, Geneva, and is part of the company’s rapidly increasing use of Ripple’s distributed ledger solutions. But, the lab itself will soon explore the benefits to trade finance more broadly.The Trade Innovation Lab is a three-tiered “sandbox” that begins with platforms that could include Ethereum, BigchainDB, Ripple, Corda and Eris Industries, then works with CGI’s blockchain developers to build messaging workflows via the Intelligent Gateway that can be integrated via APIs to new blockchain applications. As part of the digital sandbox offering, the company will let its clients experiment with how various blockchains interact with its new Digital Intelligent Gateway, which allows for the sending of a wide range of supply chain messages.

UBS and IBM test blockchain for trade finance

Swiss UBS and IBM have collaboratively designed a project that replicates the entire lifecycle of an international trade transaction on Hyperledger`s Fabric blockchain. Aim is to simulate a complete international trade transaction incorporating stages such as trade finance, cargo inspections, bills of lading, customs inspections, release and payment. The trade finance project is in its earliest stages and focuses on just a single aspect of the process, combining payment transactions, foreign exchange payments and more, into one single, elaborate smart contract.
By programming that process into a smart contract on Hyperledger, both parties expect to be able to cut the processing time down from seven days to one hour. Besides the letter of credit process, the project also aims to incorporate the account opening process, to build a user-friendly interface, “capable to operate on the go, from a transportation vehicle for example”. It remains unclear how long it will take to complete the international trade project.

Consortium rolls out blockchain trade finance app in Singapore

Bank of America Merrill Lynch, HSBC and the Infocomm Development Authority of Singapore (IDA) have jointly developed a prototype solution built on blockchain technology that could change the way businesses around the world trade with each other. The consortium used the Linux Foundation open source Hyperledger Project blockchain fabric, which development was supported by IBM Research and IBM Global Business Services.
The application mirrors a paper-intensive letter of credit (LC) transaction by sharing information between exporters, importers and their respective banks on a private distributed ledger. This then enables them to execute a trade deal automatically through a series of digital smart contracts. Each action in the workflow is captured in a permissioned distributed ledger, giving transparency to authorised participants whilst encrypting confidential data. With this concept, each of the four parties involved in an LC transaction – the exporter, importer and both of their banks – can visualise data in real time on a tablet and see the next action to be performed.
“A letter of credit conducted on blockchain enables greater efficiencies and visibility in trade finance processes, benefitting multiple parties across its value chain,” – Khoong Hock Yun, assistant chief executive of the IDA’s Development Group. The consortium now plans to conduct further testing on the concept’s commercial application with selected partners such as corporates and shippers.

Remaining challenges

As evidenced by the recent announcements of successful international trade finance transactions via blockchain, promising to transform trade finance over the coming decade for business around the globe, streamlining the trade finance process, cutting time and expense from the process, the real-world use of the technology in trade finance will see a growing trend. It however could take a while before the technology will take off in a massive way and will fundamentally transform trade finance.
Going forward, the big challenge for banks wanting to employ blockchain at scale for trade finance will be the interoperability of different blockchain or distributed ledger systems. Another issue that needs to be addressed seriously is integration. How will buyers, sellers, and any required trusted third party/intermediary, interface to the network? Without having to implement an entirely new technology infrastructure, the parties involved in the trade finance process will need flexible tools to map and process documents and payments.

“The introduction of blockchain in your company will require the well needed time. You will have to address the enterprise issues around transaction audibility, visibility and integration into existing business functions. Without this, a profitable integration of the blockchain in the company will prove to be a difficult story” .

 

Carlo de Meijer

Economist and researcher




More articles about blockchain from Carlo de Meijer:

 

 

Managing treasury risk: Credit Risk (Part V)

| 23-2-2017 | Lionel Pavey |

 

There are lots of discussions concerning risk, but let us start by trying to define what we mean by risk. In my fifth article I will focus on credit risk. Many companies have very significant credit needs and this needs to be formally addressed with a credit analysis procedure in place. In my former articles I dealt with risk management, interest rate risk, foreign exchange risk and commodity risk. See the complete list at the end of today’s article.

Credit Risk

Credit Risk occurs when there is a risk of default from money that has been lent to a borrower, or funds that have been invested.
The risk can be caused by:

  • Trade credit extend to a client, who does not pay
  • Inability to make a payment on a loan
  • A company going bankrupt
  • An insurance company not paying under a policy
  • A bank becoming insolvent
  • A company not paying wages to employees
  • A government defaulting

Main categories

The main categories of credit risk are:

Default risk
Counterparty risk
Sovereign risk
Legal risk
Concentration risk

Default risk:
occurs due to the default on monies owed either from lending or investment. The counterparty could be unable to repay. Sometimes they could also be unwilling to repay. The default risk is therefore on 100% of the outstanding balance, unless some form of recovery (be it full or partial) was possible.

Counterparty risk:
occurs when counterparties have to perform an action on a contractual commitment.
This can happen at both the time of settlement and also before settlement, but after entering a contract. Since the start of the financial crisis settlement risk is a major factor for banks. If at settlement a counterparty fails to meet its obligation, this can potentially lead to large losses and, eventually, to a systemic risk as you are therefore unable to meet your own obligations. A default before settlement can be alleviated by substituting a new contract though this could occur at prices far less favourable.

Sovereign risk:
entails the political, legal and regulatory exposures arising from international trade and cross border transactions. It can relate to a government failing in its obligation to repay or to new laws that prohibit free movement of funds – exchange control. Any contracts entered into with nondomestic counterparties should be analysed for the embedded sovereign risks and potential political instability.

Legal risk:
can occur if the counterparty is not legally allowed to enter into certain trades – especially derivative trades. We see in the media stories of companies that have experienced difficulties with derivatives leading to losses and court cases are started to either enforce or negate the contract. Also special purpose vehicles are formed purely to enter into certain transactions like securitisation issues. These are companies with no staff, fixed abode, or assets other than the underlying collateral of the issue.

Concentration risk:
 arises from lack of diversification. Too many loans from 1 or 2 banks, too many products purchased from 1 or 2 suppliers, too much revenue generated by 1 or 2 customers. This risk is a bit of a paradox as many companies become successful through concentrating their resources in key niche areas, whilst having to diversify their underlying risk at the same time.

Measures

There are, of course, measures that can be undertaken to identify and minimize these potential losses.

The first approach is counterparty ratings. Certain criteria can be examined – credit rating agencies, examination of financial statements, good knowledge of the counterparty, political, geographical (are they situated next to a volcano?) and legal status.

Notional exposure reveals the full amount outstanding with a counterparty – all the money that could potentially be lost.

Aggregate exposure netts the exposure with a counterparty between monies to be received and monies to be paid.

Clear picture of the replacement costs – the costs involved to replace the existing transaction with a new counterparty.

Techniques of measurement

Measurement of credit risk requires quantitative techniques to measure and model the risks.  An example would be Basel III that places a regulatory framework on banks to ensure adequate capital ratios. Eventually the techniques being used will trickle down to commercial companies. This should result in the creation of risk tools that are more sophisticated and improvements of the techniques used to report and measure risk.

However, as the financial crisis has clearly shown, over-reliance on sophisticated computer models appeared to lead to false comfort with the results generated by the modelling systems. This was caused by underestimating the risks in new financial products and the great assumption that is always prevalent in economic theory – people behave rationally at all times! Any model is a snapshot of the world and can only contain a few variables that are perceived as critical. All others are discarded to ensure that the model can work quickly and efficiently.

Lionel Pavey

 

 

Lionel Pavey

Cash Management and Treasury Specialist

 

 

 

More articles of this series:

Managing treasury risk: Risk management

Managing treasury risk: Interest rate risk 

Managing treasury risk: Foreign exchange risk

Managing treasury risk: Commodity Risk