Cash Management in the Post-Crisis Era

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?
The report recommends in-house banking because companies could benefit from it, but what are the reasons that they’re not utilising this yet?
Right now, Asia struggles with centralisation versus de-centralisation. A lot of companies are hugely centralised: everything must be in a regional headquarters, and there is a need to have visibility for everything — whereas a lot of other companies say, “We’re made up of a bunch of small companies in [various] countries. Let them have [individual] control.”
What I say is, let’s both win. Either way, somebody at the Treasury level has to have visibility, involvement and guidance on what decisions to make. If you let the staff in each of the countries make their decisions about funding, control their bank account relationships, you still need to monitor them. They’re still part of your company, and you need to be able to take advantage of all the different companies you have, at a group level. If you’re going to centralise it, then you need to find a way that you’re going to meet the needs of all your subsidiaries.
One way that both of these can work together is in-house banking. The reason why a lot of [companies] won’t do it is because it’s not the easiest thing to keep track of. But a lot of Asian companies are coming to us and talking about setting up in-house banking: some charge interest, some don’t. For the most part, they want to be able to keep track of all the inflows and outflows with each of their subsidiaries.
Multilateral netting is also becoming popular. On a weekly or bi-weekly basis, companies are able to have a better understanding of what their net position is. It’s a more complex way of doing it, but by setting up some of the netting centres you’re able to understand each of the subsidiaries’ positions.
We have started seeing a trend: the treasurer getting much more involved with the actual decision-making process, with policy and cash flow management within the company itself. [These compares are] elevating the role of treasurer to look at other things, such as the AR and AP. Twenty-eight percent [of the companies surveyed] are more likely to align treasury as a strategic partner within the business. This is something that’s been quickly picking up in Asia.
The treasurer and the CFO need to make sure they’re protecting their money. If the treasurer’s involved in understanding where the risks come from and are being looked at as protecting the company’s money, and generating cash flows so that the company can grow, I think a company is in the right direction.
 For the companies that just see the treasury as a cost center and aren’t involving them in the process, it’s going to be much harder for the treasury to have any influence on the business.
This new role for the treasurer is quite different from the past.
Not enough. We are seeing a few [treasurers who have taken up this new role], and those are most of the ones who have the greatest impact on the business – the person who comes and has the meeting with the CFO, with the CEO, talking about setting risk policy, talking about which banks they are going to be working with and how to improve the overall cash flow of the company.
One of the requirements in treasury involved as a strategic partner in the business is being able to really understand policy and policy management. There are four steps: setting the policy, monitoring, measuring, and then reporting. There are a lot of companies that have policies in place, but they’re either out-of-date, or never measured or monitored. If it makes you feel good to have a policy in place, but if it’s not the right policy or if no one ever measures it, it’s pointless.
Are treasurers willing to take on the role of strategic partner?
A lot of the treasurers that I’ve met with are quite willing to be involved. They work with the cash and risk every day. Very few treasurers don’t want to move forward. Sometimes, IT and other areas will find reasons to be reluctant to put systems in, or may want to go the route of just using in-house, manual systems or ERP systems. But most treasurers understand the value of having a dedicated system to focus on the treasury, and to be able to monitor cash, risk and compliance on a daily basis.
A lot of them are undermanned in their treasury departments. It’s one of the difficulties for them, to be able to extend and be involved in the strategic conversations because a lot of the treasury departments we deal with are running to the gills just to get the numbers out. They’re running more just as a finance department that is producing reports, rather than making strategic decisions. As soon as a treasurer moves from a company that was forward-thinking into a different company, that will usually spur the change [in that new company]. The treasurer comes in to a new company generally because the CFO or CEO understands.
Sometimes, CFOs can be more comfortable with historical financial reporting, instead of forecasting. Is that the same for treasurers?
For a treasurer, it’s generally not at all about the past. It’s only looking forward, at today, tomorrow and beyond. They don’t want to look back. The CFO wants to be able to look back and forward, to understand both sides of the equation. But for a treasurer it’s, “What’s my picture today, tomorrow, next week, next year? I don’t care about yesterday — yesterday’s done.” A lot of treasurers are dragged into that, where it’s all about yesterday, last week, how did we do last month – and you can’t change it; the treasurer can’t effect any change on last week or last month, they can only do it on next week and next month.
Is there is a possibility that they’re being held back by a CFO who doesn’t understand their role?
I think they’re not being fully utilised. A good business model would be where they’re being brought on as a strategic partner to help the CFO to look forward at what’s coming down the road, and then finance and accounting can help look backwards.
Is this new role for treasurers usually found in the top-performing companies, or is it prevalent in Industry Average (middle-performing) companies too?
I think that a lot of the companies that have gotten to be best–in-class have gotten there because they’ve embraced using the treasurer as a strategic partner. Let the treasurer do what the treasurer does best, instead of just using them as someone to produce reports.

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