Treasury Today Country Profiles in association with Citi

Best in class liquidity management: steps to success

Ladder leading out from boring room to blue sky

The scope of the treasurer’s role can vary considerably from company to company. But for all treasurers, knowing where the company’s cash is being held, and making the best use of that cash, is a fundamental concern.

In this challenging market, it is more important than ever for companies to review their existing liquidity management structures and make sure that the processes in place continue to be a good fit for the company’s needs.

Why review your liquidity structure?

Liquidity management structures are not set in stone. Companies should periodically review their structures to make sure they continue to suit the needs of the organisation, and that they continue to provide the expected benefits. In addition to regular reviews, a number of internal and external factors may prompt treasurers to review their existing structures:

  • Internal changes, such as the introduction of new technology.

  • Changes in the tax, regulatory or interest rate environment.

  • Geopolitical events, such as Brexit or changes to global trade agreements.

  • M&A activity.

  • The introduction of internal structures such as a payments factory.

  • Changes to the company’s funding requirements.

  • Changes to the company’s legal entity structure.

Best in class

What does a best in class structure look like? Conor Maher, Head of Cash and Liquidity, Product and Capital Management, NatWest says, “The more obvious attributes include real-time visibility and same-day access to a corporate’s cash regardless of where it is domiciled within a multi-bank or multi-jurisdictional structure, coupled with timely and accurate bank statement reporting for reconciliation purposes.” Other priorities include a “timely and accurate enterprise-wide cash forecasting capability”.

Above all, it is important to understand that there is no one structure that is inherently better than another – the important thing is to adopt a structure that suits the specific needs of the company. “For a smaller or medium sized corporation, the priority may simply be to achieve visibility and control,” says Suzanne Janse van Rensburg, Head of Liquidity, GTS EMEA at Bank of America Merrill Lynch. “A complex multinational may already have these elements in place, but may need a more complex solution such as a global or regional hybrid structure with a combination of physical and notional pools.”

Harnessing technology

While technology certainly plays a part in supporting effective liquidity management, adopting the latest technology may not be a top priority for all companies.

Janse van Rensburg notes that while a lot of banks have focused on offerings such as automated investment sweeps and active investment linked to ebanking platforms, in reality “there hasn’t been a huge amount of take-up of those products”. Nevertheless, she says that technological advances are bringing new concepts to the table with developments such as the use of virtual currencies and consolidated KYC and AML.

Technology can also support liquidity management in other ways. Yera Hagopian, Head of Liquidity Services, Barclays Corporate Banking says that banks are realising the power of the content they capture through the card and payments data flowing through their systems. She adds that with treasurers hard pressed to increase yield in the current markets, there is an increasing trend for platform type aggregators, whereby corporates can consider multiple ‘bids’ simultaneously.

Building a structure

Finally, it is important to be aware that setting up a liquidity management structure is not without its obstacles. David Stebbings, Director, Head of Treasury Advisory at PwC points out that one of the biggest hurdles can be the fact that a cash pooling structure may take cash and banking autonomy away from local businesses, which local CFOs may resist. Treasurers should also avoid over extending themselves, and should take care not to underestimate the difficulties involved in putting in a new liquidity structure, both from a cost and resourcing point of view.

“It’s not a two week project to put in a decent liquidity structure,” Stebbings concludes. “It’s important to get the business case right, be focused about what you’re doing and get the right support from your banks, internal IT and legal, and if required external consultants. This is common sense, but can sometimes be forgotten.”

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