Single entity multi-currency notional pool solution and virtual accounts with OBO to follow
The challenge
Sysco operates within a multi-bank environment including six countries in Europe and a Luxembourg-based in-house bank (IHB) to support its regional liquidity and cash management activities.
- Sysco has been on a multi-year centralisation journey to enhance its cash and liquidity management and to increase operating efficiency. The company faced numerous issues related to increased funding costs across six IHB currencies due to a decentralised environment.
- Inefficient and costly manual workload supporting IHB activities related to:
- Purchase, distribution and cross-charging for FX dealing on behalf of operating entities.
- Intercompany position management related to tracking, interest calculation, settlement and reporting for multi-currency physical cash pools.
- Inefficient working capital management to support balances in decentralised subsidiary operating accounts.
Underpinning the transformation project were the following aims to:
- Optimise funding management across six IHB currencies through cross-currency balance off-setting via notional pooling to reduce liquidity buffers and to optimise interest yield on consolidated balances.
- Achieve end-to-end automation of IHB activities related to FX dealing and intercompany management through virtual accounts.
- Optimise working capital management and eliminate local operating accounts by leveraging IHB physical cash pools and centralised on-behalf-of cash operations.
The solution
Throughout 2019 and into 2020 Sysco is completing the second phase of a three-phase project to realise an automated best practice treasury structure by applying sophisticated liquidity solutions and the newest technology innovation to resolve challenges and inefficiencies.
Phase 1: Sysco completed its single-entity multi-currency notional pool (SEMCNP) in Luxembourg across its seven IHB currency accounts.
Phase 2: In 2019 Sysco completed expansion of its six IHB currency accounts with a multi-entity virtual account structure where, for each currency account, Sysco assigned one virtual account for each of its 11 participating European operating entities.
Best practice and innovation
In this project Sysco seamlessly incorporated an existing single-entity, multi-currency notional pool with virtual account technology to gain significant operating efficiencies through elimination of manual work. With its chosen bank’s virtual account management (VAM) solution, Sysco designed and implemented a multi-tier and multi-entity virtual account hierarchy that centralised funding movements through one physical bank account per currency while automating FX dealing and intercompany management without investing in any additional treasury software.
Sysco represents one the first adopters of intercompany loan management using virtual accounts (instead of the intercompany loan module of a TMS) by leveraging the intercompany interest features of the VAM solution.
Not only did the solution automate IHB operations and intercompany reconciliation through segregated virtual accounts, but it also allowed additional balances to be brought into the notional pool structure, further extending the benefits of balance offset and interest optimisation while reducing liquidity buffers and freeing-up working capital.
Key benefits
- Improved working capital position and reconciliation rates.
- Increased operational efficiencies.
- Reduced year-on-year liquidity required across the currency accounts within the notional pool to manage IHB operations by 25%.
- Reduced functional currency balances held in country by 29%, with a further 10% reduction expected once “on-behalf-of” structure takes effect later in 2020.
- Reduced work hours by 22 hours per month.
Additional benefits are forecast to be achieved in 2020.
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Matt Lawson
