Cash Management in the Post-Crisis Era

by Angie Mak, 25 August 2010

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topics:
Finance and Banking Treasury Management

tags:
AP AR cash management changing role of finance organization treasurer

In the aftermath of the global financial credit crisis, increased visibility and control over cash and liquidity has become increasingly crucial to organisations worldwide. CFO Innovation’s Angie Mak sat down with Michael Fullmer, SunGard's senior vice president responsible for strategic vision and business for Asia, to discuss the findings of the financial software developer’s global survey (The 3-Part Balancing Act of Cash Management: Optimizing the Financial Value Chain, published by the Aberdeen Group) on how best-in-class companies are using treasury management to stay competitive in the post-crisis era.

What are the key areas of CFO concern when it comes to cash management?

In the survey, a lot of the responses were from U.S.-centred companies, but a lot of companies that we work with [in Asia] are subsidiaries of U.S. companies. So they look towards the trendsetters in the U.S., Europe, Australia and New Zealand to see what strategies they are using.

One of the biggest areas that I saw as a flashing red light for CFOs is [the response to the question]: “What area can you focus on most to improve your cash management?” Fifty percent of the respondents said accounts receivables (AR). There’s areas of improvement there, as well as in accounts payable (AP) and in cash management, once [that cash] is in the company itself.

Yet very few companies have communication between these different departments. They’re very segregated – you have the credit manager, who’s just looking at the AR side, and the treasury manager, who’s not really focused on AR or AP. He only focuses on these once the cash comes in the door. Not having good communication, shared goals and common understanding can be very difficult for companies in the U.S., Europe and Asia-Pacific.

The easy solution is AR. But even if AR’s getting the money in sooner, what’s treasury doing with it? How can treasury take advantage of it?

Getting the money in sooner isn’t the [only] answer. If you just took ARs earlier and [pay] APs later, the treasurer would have money for an extra 14 days. But especially in Australia, a lot of companies are just sitting on the money by putting it in an overnight fund every night. They spent money to process accounts receivable earlier and payments later, but they’re going to earn fractions of a percent [on the increased cash at hand]?

Why do a lot of companies do it? Because they don’t know when the money’s going to be needed, so they want to have access to it every single day. It’s not that the treasurers aren’t strategic, but a lot of them have their hands tied as to what they can actually do with the funds once they actually have it.

With all three main areas of cash management [AR, AP and treasury], the easiest thing that you can do without any technology is to get them communicating. CFOs are the one point where it all comes together.

What are the trends for cash management in Asia?

We are starting now to see a bit of an uptake in focus on AR, but it’s still at the point where a lot of people don’t know what to do. A lot of companies rely on factoring, on offering discounted money sooner, but some of the top companies and some of the ones that we talked to [have found] that’s not the best way to do it.

A lot of companies in Australia are looking at supply-chain finance, and looking at alternative areas to generate revenue if they don’t need access to those funds right away. Not all companies are dealing this liquidity issue, but [they are interested in] managing that cash.

Asia’s a little bit slower on the AR side, but where Asia has better areas is when it comes to cash, particularly around foreign exchange. When it comes to getting cash visibility and managing bank accounts across several countries, Asia’s companies have already moved well ahead in those areas. But a lot of [Asian companies] are still handling their processes manually, on spreadsheets and on disparate bank systems. The report shows that 33% of the top companies still have paper-based systems.

What I want to ask a CFO is, “Do you have daily visibility of your cash positions, your total exposure?” Most of them would say no – I’d say over 80% of companies, companies above US$500 million in revenue. It’s significant to not be able to have daily visibility of where all my cash is, what currency it’s in, and what my risk exposure is. How can you make decisions?

CFO innovation ASIA

Cash Management in the Post-Crisis Era

Cash Management in the Post-Crisis Era

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