UPS has become an innovator in harnessing data to drive critical decisions and improve complex processes. The solution showcased here has put future-proof processes in place too.

In-house bank and state-of-the-art TMS delivers for UPS

The challenge

In order to manage the enormous logistical challenges of this global business, UPS has become an innovator in harnessing data to drive critical decisions and improve complex processes. So, it was only logical that the company’s treasury team decided to rely on a TMS to organise and consolidate key data and utilise SWIFT to execute payment processing more efficiently, ultimately to enable the successful move to a new cash pooling structure.

The solution

The physical cash pooling is overlaid by a single entity, multi-currency notional pooling structure in the name of the IHB entity.

One of the critical objectives of the in-house bank and revised pooling structure was to implement a robust, long-term solution that would allow UPS to maximise investment decisions and be in line with the various regional impacts from Basel III regulation.

Treasury turned to Reval, a global provider of cloud treasury software, to implement an innovative treasury management system linked to the multi-currency physical pooling structure. As part of the TMS, UPS utilised SWIFT to automate the execution of payments more efficiently and to consolidate both MT940 and MT942 reporting into a single location.

UPS also uses Reval virtual accounts to track the short-term intercompany loans created between the in-house bank and the entity from physical pooling. The physical pooling structure is also unique in that it offers complete rate transparency to its entities at a true ‘arm’s length’ basis. The interest methodology is based on UPS’ internal entity credit rating model as well as bank deposit rates by currency and all rates are based entirely on market-derived benchmarks.

UPS uses Reval to calculate the interest earned/owed by the physical pool participants to the IHB and automates the capitalisation of interest on a monthly basis.

In addition, the rates for the single entity notional pools are based on market-derived benchmarks and are mapped into the TMS, allowing the treasury team to gain a more accurate benchmark on the company’s liquidity and a better understanding of its position at the end of the day in order to improve investment returns. UPS has also incorporated the interest calculation for the notional pools in order to reconcile interest on a monthly basis with the interest posted to the bank statements in a completely automated way.

Parv Gill, Regional Treasury Director explains, “As of April 2017 we have successfully incorporated approximately 275 accounts into the new physical pooling and in-house bank structure, this spans 118 entities in 35 countries internationally.”

UPS will continue to build upon this strong foundation to develop the treasury and banking strategy in conjunction with enhancing its payment factory approach. The future scope is to remove users from banking platforms onto the TMS and to implement POBO and ROBO where possible.

Best practice and innovation

By implementing an in-house bank and state-of-the-art treasury management system, UPS has dramatically streamlined treasury, eliminating manual interventions, and speeding up payments processing and significantly improving reporting.

Treasury has leveraged critical insights from data around its payments processes to guide it in putting best practices in place that are instrumental in supporting the business’s global ambitions.

Parv concludes, “Delivery of a synchronised and robust technical solution has resulted in significant efficiencies and advantages. By leveraging essential resources and developing solutions the transformative changes to the treasury structure has enabled UPS to put future-proof processes in place.”