Photo of John Halpin, Doosan Bobcat Inc. and Atsushi Suzuki, J.P. Morgan.
Doosan Bobcat is an industry leader in the engineering, manufacturing and marketing of construction equipment, including world-renowned brands such as Bobcat, Geith and Doosan.
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Doosan Bobcat’s continuing strong global growth led to its treasury team seeking to improve operating efficiency and reduce costs. Key objectives for the team included:
Reducing the number of physical bank accounts to lower administrative overheads, reduce risk and simplify funding activities.
Establishing an efficient liquidity management structure to centralise liquidity for treasury to gain visibility and control over intragroup liquidity.
Improving reporting by cash flow type through virtual account sub-ledgers to automate inefficient manual reconciliation processes for commercial flows.
Future-proofing the cash management operating model in an uncertain regulatory environment in Europe.
In an effort to support Doosan’s journey towards achieving optimal control and visibility at currency level, automated physical cash concentration was implemented to consolidate Doosan’s multi-currency cash. That provided the platform for the treasury team to implement innovative single-entity and single currency virtual account management (VAM) structures in Luxembourg and Frankfurt. Each VAM structure rationalised multiple physical operating accounts per entity into one single physical account, whilst maintaining integrity in reporting.
Each group company’s commercial flows, comprising accounts receivable (AR) collections as well as accounts payables (AP), payroll, tax and treasury payments, continued to book against a respective physical account. However, using VAM, each physical account was sub-ledgered by a set of virtual accounts that segregated transaction reporting in support of the operating and accounting requirements for the various departments of each business unit. Virtual account level reporting provided the mechanism to identify discreet cash flows by type, something that previously could only be achieved using multiple physical bank accounts.
The virtual accounts of the single-entity virtual account structure were aligned to the company’s enterprise resource planning (ERP) configuration. In support of the integration, Doosan took the additional step of developing internal middleware to further optimise cash allocation with ERP systems.
Doosan’s treasury team conducted extensive due diligence – exploring, testing and refining the VAM solution prior to implementation. Its treasury team worked closely with banking partner J.P. Morgan to implement a VAM solution and migrate a cash pool from London to Luxembourg to mitigate the uncertain regulatory environment in Europe.
As a result, Doosan now has seven structures totalling approximately 40 virtual accounts for payroll, tax, AP, AR, and finance functions, including a special-purpose account per structure to manage exception transactions. These structures have completely streamlined the segregation of cash flow by type and entity without maintaining separate physical bank accounts, while simultaneously achieving very high levels of automation for accounting reconciliation. Treasury achieved its objectives of reducing the cost and administration associated with physical accounts while delivering the accounting department with an operational tool to effectively manage reconciliation.
The VAM solution has been an overwhelming success for Doosan. As a result of its implementation, treasury is able to manage intra-group liquidity more effectively. The dramatic reduction in the number of accounts means treasury no longer has to manually fund multiple accounts.
The solution also enabled treasury to aggregate cash flow by type and reports transactions via discreet virtual account reporting, something formerly only possible in a single bank account statement. Now, Doosan leverages the virtual accounts to automatically identify the cash flows by type which allocate or reconcile directly into the general ledger, thereby replacing previously highly manual processes.
Overall, the improved efficiency of the treasury organisation, notably streamlined bank account administration, along with the efficiencies generated by automating allocation and reconciliation, have allowed Doosan to redeploy treasury and accounting resources to better value-adding business services.