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Refinitiv case study | How LG Electronics reduces operational risk across its FX trading workflow
06-12-2021 | treasuryXL | Refinitiv | LinkedIn |
LG Electronics is a global leader and technology innovator in consumer electronics, mobile communications and home appliances. Following an analysis of the market, LG decided to implement a trading and confirmation solution in order to improve its foreign exchange processes. Read the case study to find out more.
LG Electronics is a global leader and technology innovator in consumer electronics, mobile communications and home appliances, employing 87,000 people working in 113 locations around the world. With 2013 global sales of US$53.1 billion, LG comprises five business units.
The company’s previous foreign exchange had several inefficiencies and risk of manual errors, and was difficult to audit. Too much time was spent on simple and mundane processing rather than value-added functions. The task for LG was therefore to find a solution that would allow the company to solve these inefficiencies and allow its staff to focus on other areas of the job.
As a solution, LG decided to implement a trading and confirmation solution in order to improve its foreign exchange processes. The system ensures that the best price will be available and LG can then execute on the platform electronically. With this innovative technology, LG has been able to really reduce its operational risk across their FX trading workflow.
The new platform LG has implemented has greatly increased the efficiency of the company’s FX process while at the same reducing the risk the group was exposed to. On top of these advantages, LG has benefited from much-improved control as a result of implementing the solution.
Key benefits
Does Your Business Need Protection from FX Uncertainty?
| 02-12-2021 | Xe | treasuryXL | LinkedIn |
Don’t have a bank account? Want to have cash on you? In those cases, cash pickup could be the money transfer method for you.
One of the most interesting aspects of what the XE Business Solutions team does is having relationships across a broad range of industries. It helps our team curate unique insights into the various pressures and financial models being used by all the businesses we work with. The relationships our foreign exchange sales consultants build fine-tune their understanding of regional business sentiment and common international best practices.
There are many viewpoints on how to treat fast-moving FX rates. Some simply hope that the market will self-correct over time. Others make best-effort forecasts to try to understand all possible currency value directions of currency prices. From our vantage point, we see that businesses which are exposed to significant risks are more likely to achieve their objectives by employing a hedging program.
Foreign Exchange Volatility is a Universal Business Challenge
Big brands are just as susceptible to market movements as any other business segment. Currency volatility can impact profit margins if not managed correctly. Earnings reports are replete with warnings to shareholders pertaining to the value of assets and cash flows being affected by unmanaged or unexpected shifts in values of currency.
Looking deeper into hedging behaviours, enterprise-level businesses have a tendency to employ rich hedging programs and while it is by no means necessary to emulate their level of complexity; certainly the point regarding ‘best practices’ is clear.
Here are some insights on how the ‘big guys’ see ForEx risks across the globe as a result of their survey of corporations (Deloitte 2016 Global FX Survey and IMP Exchange Rate Risk Measurement and Management working paper: Issues and Approaches for Firms):
The top three reported ‘Primary hedging objectives’ were defined as:
Reducing income statement volatility
Protecting cash flows
Protecting consolidated earnings
In terms of strategy, the breakdown of risk management strategies is as follows:
8% of those surveyed employ a static or annual hedging programme (buying once a year)
31% use a rolling hedge but a flat amount (buying monthly, quarterly etc)
28% actively hedge using a rolling hedge strategy increasing over time to seek to average rates
33% use ad hoc or hedging by situation
The survey found that global corporate hedging strategies consist of these approaches:
Hedging using a financial instrument like a forward contract or option – 89%
Naturally hedging through balancing buying and selling in the same currency (some or all of the exposure) – 58%
Passing costs to suppliers or customers – 28%
No FX risk management practices at all – 2%
These breakdowns further:
Using a FX forward or Non-deliverable forward – 92%
Using FX Options – 30%
Using specifically FX Option collars – 15%
It is always interesting to get a look into the strategies employed by others and particularly the way that large, professional companies approach managing a key part of their risk program.
The key takeaway is that almost all of the companies Deloitte surveyed are hedging using some kind of financial tool specifically designed to provide consistency and protect cash flows.
Probably a much higher percentage than many would think are using Options products and rolling hedges over on a regular basis as part of a specific policy that guides them in virtually any market condition. Some real food for thought there….
Currency Market Analysis
Here is today’s market recap:
GBPEUR – The Pound maintained its position yesterday and this morning against the Euro as many traders await details on what steps Members of Parliament will take when it opens next week. Labour has indicated they will seek and emergency debate on Brexit next week but no information regarding a no-confidence vote is yet available.
GBPUSD – The pound is expected to come under pressure in general as the suspension of parliament is seen as increasing the chances of a no-deal Brexit. With this in mind, it appears likely that we could test and break the 1.2060/1.2015 level downwards, which likely will open up losses against the Dollar of some significant ground.
EURUSD – While the trading calm remains in the pair, there is a chance hard economic data will begin to outweigh hard sentiment from the ECB. Germany reported a decline of 2.2% in Retail Sales in July (on top of a downward revision). Consumption is largely propping up the German economy and this is slowing as well. A potential risk for euro weakness exists.
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How does BRITA GmbH use Nomentia Payments in Germany?
| 01-12-2021 | treasuryXL | Nomentia | LinkedIn |
BRITA GmbH, a German water filter manufacturer with total sales of 617 million euros in the business year 2020 and 2,205 employees worldwide at the end of 2020, is the market leader in drinking water optimization and individualization. The company is represented by 30 national and international subsidiaries and branches as well as shareholdings. Brita has manufacturing facilities in Germany, Italy, China and the United Kingdom.
The challenge
Brita has a complex business. The company’s products are distributed globally in over 70 countries on all 4 continents.
Brita’s treasury department was facing the following challenges:
– The used multibank payment tool was discontinued.
– Lack of a system that is independent of banks.
– Lack of centralization of treasury and cash management.
Currently, cash management is not centralized in the company. But there are group requirements setting a minimum standard for banking systems. However, rolling out the project in Germany was the first step to evaluate the possible adoption also by the subsidiaries.
To roll out Nomentia worldwide and achieve the goal of having one system for all payment transactions, first, Brita needs to take a few vital strategic moves, such as ensuring that all subsidiaries are using a group bank and the same ERP system, as well as setting up connectivity with all the group banks to be able to handle also those payment types that cannot go through Electronic Banking Internet Communication (EBICS).
The solution
Instead of working with as many as 7 different banks just within Germany to process payments, Brita chose to use Nomentia, as a single tool that is independent of banks.
Currently, Brita is connected to two major global banks and a few local banks through EBICS. They are currently discovering the possibility to add more connections, like a host-to-host connection to a major global bank.
In the beginning, Brita’s treasury and IT departments had to work closely with Nomentia to set up the project that required a lot of communication from both parties.
Nomentia’s Payments solution is currently used by almost all Brita’s German branches and they are currently in the middle of rolling out the solution in Italy. In case that’s a success, they may look at starting to use Nomentia in other countries as well.
The benefits
Rolling out a new product for treasury management can often be a challenge. It requires strategic planning from the department, cooperation with IT, and working closely with the solution provider. In addition, aligning the group in different countries also requires a lot of paperwork as well as training.
Brita has realized three key benefits of working with Nomentia. These benefits can be even further realized after further adoption of the solution.
1. One system for all in Germany for better processes and decreasing the number of errors
The biggest benefit has been that German branches can use one tool to communicate with all German banks. Without Nomentia, Brita would be working with several systems from several banks. Now all transactions go through Nomentia which makes the process less error-prone.
2. Automated processes
The processes have been automated for the German branches and this saves a lot of time for the accountants. As Nomentia is also integrated with SAP, they can see all the invoices from SAP, too.
3. Avoid fraud
With having just one system in place, it’s easier to have the highest level of transparency of the transactions and access rights.
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