As Chinese companies expand overseas, they are looking for ways to improve their visibility over cash in their overseas subsidiaries by employing new technology, says Mingmei Chang, SunGard avantGard.

Mingmei Chang

Vice President, China

Please describe some of the challenges treasurers in China face?

Along with treasurers all over the world, treasurers in China have had to deal with a tightened credit environment over recent years as well as the increased focus on liquidity and risk management. In addition, treasurers in China face the challenge of an ever-changing domestic policy landscape. This is not limited to the policies surrounding the RMB but also applies to policies on borrowing and lending, hedging of risk and many other areas.

As Chinese companies expand overseas, they are looking for ways to improve their visibility over cash in their overseas subsidiaries. They lack effective means and tools to obtain accurate information on foreign exchange exposure as well as to price and value financial instruments. They are still heavily reliant on manual processes, which are not only inefficient but also raise the risk of inaccuracies.

How can you help them to overcome these challenges?

Many Chinese companies are now looking to technology to help to overcome some of these challenges.

Centralising their treasury operations, either on a global or regional basis, can give them greater transparency across their cash flows or improve the levels of audit and compliance. This allows greater flexibility and gives companies the ability to effectively manage their risk and provide better tools for currency hedging.

However, they will face an uphill battle if they do this while still relying on manual processes. Instead, by implementing a treasury management system (TMS), companies can obtain better visibility over their cash and risk exposures. A TMS can replace manually-intensive, spreadsheet-based processes which are error-prone and time-consuming. Processes can be automated and analytical tools provide modelling and easy reporting. By implementing a TMS, companies can strengthen their centralised treasury management, improve cash utilisation and their ability to manage risk.

A TMS allows Chinese companies to be more strategic. It gives them the ability to think ahead and put better planning in place as it frees up employees to handle more strategic tasks instead of spending the time doing manual intensive tasks.

How do payments and receivables work in China – what’s the cycle like?

Payments and receivables are, by their nature, very unpredictable. Companies that have a better handle and visibility over their receivables are able to make more accurate cash forecasts. Suppliers are often faced with the challenge of long receivables cycles. In order to mitigate this, different financing tools are used to ensure that the payment cycle times can be condensed. Financing vehicles such as bank acceptance bills and letters of credit are used extensively in China to mitigate some of the risks that come with being primarily focused on export markets. It is unusual for companies to have a DSO of over 90 or 100 days.

In China, one thing that differs from the US and most of Europe is that the treasury team is usually responsible for all payments, both treasury and non-treasury payments. This allows the treasury to have a good visibility over all the cash transactions in a corporation. They also work very closely with the credit and collections team. While in theory it makes a lot of sense to take this approach, this increases the scope of the treasurer considerably and increases the workload of the team; add to that the amount of manual processes that are in place due to this structure and the result is a very large treasury team, one that is on average twice the size of a similar corporation’s treasury team elsewhere.

Payments tend to be managed by the company’s banking partner. This is usually done through the e-banking portal and is a very manual process involving many steps to ensure the right checks and balances. This also creates the potential for errors and a drawn-out payment process.

What regulations do treasurers face in China?

As mentioned earlier, treasurers in China have to grapple with a myriad of regulations. The most important of these focus on the treatment of hedging, FX and commodity price controls and how new instruments are treated for taxation purposes. This is often not clear making it difficult for forward-thinking treasurers who wish to make use of these instruments.

Treasurers also need to deal with multiple governmental agencies that may have varying regulations related to the same matter.

How will the internationalisation of the RMB affect treasurers going forward?

Treasurers welcome the internationalisation of the RMB as it offers them more flexibility in pricing along with the opportunity to price their goods and services in RMB. This removes some of the inherent risk of dealing in other currencies as it will shift much of the FX risk to the purchaser if they are an exporting company. This also allows for faster payment cycles for exporters. Less dealing with government entities will be a welcome change as this will also reduce the administrative costs currently associated with doing business in China.