Cooke Aquaculture Inc. nets impressive IHB and payment factory solution

The challenge

Cooke realised the need for a best-in-class treasury function servicing the business efficiently and effectively with the following aims: operate scalable solutions; unlock cash to fund growth; manage currency exposures more effectively; reduce manual effort in both treasury and finance, related to payments and collections; increase IT security around bank connectivity and payment processes.

The treasury transformation was kicked off in 2019 with the selection of two new global transaction banking partners.

“Our mindset was to improve all related treasury, accounting, finance and fiscal processes and do it right the first time,” explains Rob MacNeil, Group Treasurer.

The project scope included the implementation of an automated in-house bank (IHB) and payment factory solution on top of a new cash management structure at one of the banks for CAD and USD and the other for EUR, GBP, and other currencies. The IHB and payment factory was created within Cooke’s incumbent cash management solution and needed to integrate with three different ERPs.

There were three further complications: Cooke operated a multi-layer fiscal structure; some recent acquisitions had ring-fenced financing structures; some cash management banks were not willing to offer multi-currency cash pooling solutions.

The solution

Each IHB participant operates in its functional currency only. When an operating entity participates in a cash pool in a non-functional currency, the Intercompany Current Account (ICCA) will be updated for the zero-balance account (ZBA) transaction at the prevailing accounting FX rate.

All currency exposure resulting from cash holdings is transferred to treasury, allowing it to manage liquidity and FX risk independently, enabling operations to focus on payables and receivables rather than treasury and cash management issues.

The ICCA is configured such that next to administrating the ZBA transactions it also processes:

• Intercompany payments and collections in real-time.
• Payment-on-behalf-of (POBO).
• Settlement of internal FX and formal lending.

By doing so the ICCA has become the main, if not single, source of liquidity.

Cooke has also started an internal hedging programme whereby cash flow exposures at operational unit level are covered by intercompany FX transactions.

Best practice and innovation

This project demonstrates that cost-efficient and effective in-house bank solutions are also available to smaller-sized corporations. Standard treasury software can be configured in support of advanced in-house bank operation, realising material benefits in terms of: unlocking liquidity; process streamlining and automation; securing integration between ERP and transaction banks; adapting to alternative tax and financing structures (eg ring-fencing requirements); increasing transparency and (tax) compliance reporting; future proofing and scalability of operations.

Key benefits

• Overdraft facilities unlocked.
• Improved liquidity.
• Reduced need for FX and hedging costs.
• Eliminated local currency conversion.
• Credit risk reduced.
• Improved tax compliance.
• Process efficiencies.
• FTE savings.

“Arguably, the biggest challenge has been the execution in times of COVID-19. The business case had been created just prior to and during the initial stages of the pandemic. Executive management approved this treasury transformation project including hiring two additional treasury staff in the middle of great uncertainty. Furthermore, this transformation had to be done in new and untested ways, as the project team of internal and external resources could not physically get together in one location at any point in time; not when creating the business case, not during design and also not during configuration and testing,” concludes MacNeil.

The Adam Smith Awards is the industry benchmark for best practice and innovation in corporate treasury. The 2021 Awards attracted a record-breaking 309 nominations spanning 40 countries. To find out more please visit: https://treasurytoday.com/adam-smith-awards.