Cash Management: What the Emerging Asian MNC Wants

by Cesar Bacani, 11 July 2011

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topics:
Cash and Liquidity Management Finance and Banking

tags:
cash management collection credit payment treasury management

In his 15 years with global bank Citi, Sandip Patil has worked in multiple markets across Asia, including India and Thailand. As the bank’s Managing Director and Region Head, Asia Pacific, Payables and Receivables, he has been assigned to Citi’s regional headquarters in Hong Kong for the past seven years.

“There is a lot that’s happening in the market, practically every year, and even more so in Asia,” he says. This includes the rise of the Asian multinationals, which have unique needs and requirements. Their biggest challenge is not necessarily having “the best-in-class technology and efficient back office,” says Patil. “Their biggest challenge is out there in the market place.”

In Part 1 of a three-part interview session with CFO Innovation’s Cesar Bacani, Patil discussed cash and treasury management among Asian MNCs, how Citi and other global banks are responding to the evolution of businesses of all sizes in the region, and other issues. Excerpts:

Citi works with both Western and Asian multinationals in cash and treasury management. Are Asian MNCs asking for different things compared with their Western counterparts?

If you look at the CFO of a typical Asian multinational, they have a completely different set of challenges. The biggest challenge, for a CFO of an Asian multinational, is not necessarily having the best-in-class technology and an efficient back office. It is having payment and collection structures supportive of the expansion plans in new markets. Their biggest challenge is out there in the market place.

Faced with these issues companies need to ask: How do I distribute my product? How do I grow my distribution? How do I keep my customers happy? What kind of credit appetite can I have?

All of these have a significant impact on the cash cycle, and companies need to understand the kind of payment solutions and collection structures that need to be in place. This is where the bigger challenges lie.

Companies come to banks like us and ask how we can help them manage their growth [in the new markets], manage their customer base and help release credit as early as possible.

Do you find yourself going beyond cash management, then, because those things they’re asking you impinge on other operational aspects of the company?

Depending on the customers that you’re talking to, the challenges vary. For example Asian MNCs, as they start expanding, need a sophisticated collections solution. Imagine you get an outstation cheque, but you don’t see the trail for 10 days or 15 days. Sometimes you get money, but you don’t know which invoices are being paid.

The behaviour and practices of partners in a new market can be punitive. If I’m a distributor and I’m buying from a company which has just entered the market, I’d want to extract value out of it. As a distributor, I’ll be selling new brands and new products that I have never sold, so I want more credit or delayed payments. When I pay, I may want to adjust for returns. Or I may want a discount.

Managing this ecosystem takes a lot of resources for a company and that’s where they look for sophistication and ask: “Can you as a cash management bank help me manage this? Can you collect for me? Can you collect all the information and send all the information to my back office system? Can you automate some of these things? Can you help me release my credit line?”

Credit is a very scarce commodity for a growing company in a new market. Suppose you’re going to pay on Monday, but your credit does not get released till Friday – you lose five days of credit, you lose five days of sales that you could have had. The companies look at the cash management bank and ask: “Can you not do something different?”

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