BCR Publishing
We are the leading provider of news, market intelligence, events and training for the global receivables finance industry.
Working with industry leading organisations, experts, governments and universities, BCR Publications delivers expertise in factoring, receivables and supply chain finance to a global audience.
BCR has long been a beacon of innovation and excellence in the realm of receivables finance, playing an instrumental role in shaping the industry’s international landscape. Through its comprehensive conferences, insightful publications, and thought leadership, BCR has facilitated crucial dialogues and connections among industry professionals, driving forward the development of receivables finance globally.
Follow BCR Publishing
Free passes
For corporate treasurer roles/functions!
MANAGING MARKET PRICE RISKS OUTSIDE OF PURCHASE CONTRACTS
|4-4-2017 | Sjoerd Schneider |
As commodity prices have become more volatile over the past decade, many procurement departments have been feeling the need to somehow manage market price risks. The most frequently used strategy to mitigate commodity price risks by such departments is using physical purchase contracts: fixing prices over a long term horizon. However, there are more subtle and dynamic ways to manage price risks, which can lead to significant savings and tactical advantages. These can be achieved when dedicated market price specialists get involved.
Market price risks
Product specialists and buyers are well aware of all specifics concerning their products but are often not skilled in managing market price risks. Nevertheless it often happens that they are the ones in charge of mitigating market price risks in the form of negotiating the pricing paragraphs within purchase contracts.
There are several reasons why having buyers in charge of mitigating price risks merely through purchase contracts is not optimal:
Mitigate FX risk
To draw the parallel to a traditional treasury issue: when a European company is a buyer of American machinery and services, would it be the buyer fixing the USD rate with the suppliers’ sales team for just that deal? That would not be the optimal strategy to mitigate FX risk. Hence the same counts for commodity price risks. Hedging through the supplier (let alone by the buyer) should never be the only available option. Literally having more options on the table to mitigate price risks than just asking suppliers for long term fixed prices gives substantial benefits:
Conclusion
Companies of any size should investigate how large their potential savings could be and how much the increased flexibility will help them. The advantages should outweigh the time and manpower that need to be invested.
Sjoerd Schneider
Founder of Insposure
More articles from this author:
Commodity price risks deserve a spot within treasury management
Treasurers to be the strategic super-heroes for their CFO
|3-4-2017 | GTNews | Lionel Pavey | Udo Rademakers |
Treasurers to be the super-hero for their CFO? We found this article headline on GTNews.com so intriguing that we asked our experts Lionel Pavey and Udo Rademakers to comment on it. According to the article the role of the treasurer has to be re-evaluated due to the fact that deal-making (figures of mergers and acquisitions have increased) is high on the global agenda. Traditionally treasurers focussed on informing the C-Suite and the board and integrated systems and processes after decisions about a deal were made. Treasurers started to address this issue, which led to a new role of the treasurer, in fact a much more strategic role. The treasurer was no longer a risk manager, but also a ‘business change enabler ‘. GTNews states: ‘The treasurer who opens this door is truly aligning themselves to the needs of the chief financial officer (CFO).They’ll be a superhero.’
Expert Lionel Pavey added some valuable information on the 4 different stages of a M&A proces.
Targeting
Negotiating
Closing
Integration
Expert Udo Rademakers states:
The posting at gtnews.com points out where treasurers could add value in M&A activities. Unfortunately, in too many cases, treasurers had been brought into M&A transactions rather late: at a stage where the acquisition already had been concluded and where the treasurer only gets involved in “getting the deal done”.
As pointed out in the article, this is often a missed chance for the company and also for the treasurer of not adding more strategic value. Apart from that, the sooner the treasurer gets on board, the better the company can prepare for this kind of rather complicated transactions. It enabled the treasurer as well to act on a tactical level in order to support the M&A transaction in a cost efficient and well documented way.
What strategic value could the Treasurer bring?
If the treasurer has been on board for the strategic part, he is well informed and able to manage the tactical part systematical as soon as the effectuation of the transaction takes place.
The treasurer needs to arrange (if applicable):
Especially in high demanding environments where one transaction takes place after the other, mistakes will be made and processes might not be well documented. Obviously this could lead to higher risk and additional costs and lots of additional (correcting) work afterwards. Having a well prepared, skilled treasurer on board could avoid this.
Hence the comparison with a superhero…
Conclusion
Involve the treasurer from the first step
Draw up a detailed project plan for M&A and ensure that it is signed off by Board of Directors
Implement project plan for every M&A
Identify all costs linked to M&A
Highlight any cost savings and/or efficiencies
Lionel Pavey
Cash Management and Treasury Specialist
Udo Rademakers
Independent Treasury Consultant & Interim Manager
Instant payments for treasurers
| 31-03-2017 | Alessandro Longoni |
As part of further standardization within the union, European regulators mandated the industry to develop an “instant payments” product aimed to making the funds available on the receiving side “within a maximum execution time of ten seconds”. The SCT Inst scheme has been developed to allow for consumer payments (C2C, C2B) in Euro for the SEPA and will be an optional scheme – meaning that PSPs and Banks are not obliged to join.
Practical Use Cases
From a cash management perspective, Instant Payments open an array of new possibilities for merchants, especially for those operating eCommerce operations. Currently if a customer places an order on a friday late afternoon, the funds are made available (earliest) on monday evening, while the order is most likely processed and delivered by Saturday afternoon. With SCT Inst, if the order is placed on friday at 21:00, the funds will be received (maximum) at 21:00:10 and already available to pay suppliers if needed.
From a treasury perspective, Instant Payments will also allow for more transparency on transactions and easier reconciliation, but time needs to be devoted to update the current tools to facilitate for this. As Instant Payments will gain customer adoption, the incoming payments cash account will be filled with hundreds or thousands of transactions per day, as opposed to one per day coming from your Payment Service Provider. Having direct access and insight in each single transaction will make it easier to reconcile it with the relative order, check the amount and book it in the general ledger, but the sheer number of lines in the system requires current tools to be updated to cope with the increased volume and speed.
Pros and Cons
There are several benefits this new payment method brings to the table, including a strong reduction of working capital trapped to fund operations, however, in order to extract all the benefits, ERP systems need to be updated to check the status of transactions in real-time instead of intervals. Without investing in developing the current tools further, companies risk missing out on the new opportunities to deliver better customer service and create additional efficiencies in cash management.
Alessandro Longoni
Managing Consultant at Proferus