Photo of Oleg Williamson, Parker Hannifin and Deborah Mur, Citi.

This is a classic multi-currency notional pooling (MCNP) structure which incorporates seven currencies located in Singapore; this location being chosen for its proximity to the regional treasury centre (RTC) providing time-zone benefits and a favourable tax treaty jurisdiction.

The challenge

Parker Hannifin operates a decentralised business structure across Asia, where much of treasury management, including liquidity management is the responsibility of the Financial Controllers at the individual country level.

Regional treasury was looking to transform liquidity management across the enterprise to achieve greater visibility and control over the company’s accounts. By concentrating fungible cash to a central location, credit balances could be offset against debit balances, thus improving working capital and reducing costs.

The solution

The company implemented an end-to-end liquidity management solution across nine countries in Asia Pacific including target balancing arrangements integrated into a multi-currency notional pool (MCNP) located in Singapore.

Parker Hannifin chose a header entity which established bank accounts with Citi in Singapore.

Oleg Williamson, Global Treasury Services Manager explains, “We chose Singapore as the header location due to a number of reasons including proximity to the regional treasury centre (time zone benefits) and a favourable tax treaty jurisdiction list.”

The MCNP structure comprised:

• Singapore as the Asian Treasury Centre.
• Countries in scope include Australia, New Zealand, Singapore, Japan, Hong Kong, Malaysia, Indonesia, Taiwan and China.
• Currencies include AUD, CNY, HKD, JPY, NZD, SGD and USD.

Best practice and innovation

This was a significant automation project due to the size of the business, scope of countries and tight implementation schedule. Parker Hannifin incorporated numerous business units in the scoping including treasury, tax, legal, local subsidiaries financial controllers, and accounting to maximise productivity gains and process efficiencies. The regional solution was implemented within six months from development to execution.

“We were thrilled to be nominated in only our first full year with a regional based treasury presence in Asia. This is a testament to the best in class perspective we have taken as the treasury team works together to define and implement strategy across the Asian region.”

Oleg Williamson, Global Treasury Services Manager, Parker Hannifin

Williamson concludes, “Our automated regional liquidity management solution uses best in class liquidity management tools to consolidate balances across nine countries with no loss in end-of-day value, replacing manual processes that the company was undertaking on a domestic basis. Treasury now has full visibility at both regional and local level. Reliance on bank financing has been reduced, lowering borrowing costs (overdraft and short term), whilst improving credit interest conditions.”

Additionally, Parker Hannifin has full access to their entire cash wallet for the region in one central location (Singapore) where they are able to invest in various short-term investment options. This solution has provided the Regional Treasurer and the local Financial Controllers with operational efficiency, visibility, improvement in cash flow forecasting and reduction in previous manual work. The solution is scalable and able to address the company’s future needs as it grows in the region.

Key benefits

• Automation

  Reduction in manual work, including daily intercompany transactions between legal entities.

• Accurate forecasting

  Improved visibility of balances across the region, enabling more accurate forecasting.

• Cash flow optimisation

  Reduced risk of being overdrawn and reduced overdraft costs. By offsetting debit and credit balances within the pool, Parker Hannifin’s net position should always be positive.

• Operational efficiency

  Centralised and simplified solution that is managed at regional level, removing duplication of tasks for each of the markets in scope.

• Interest optimisation

  With balances netted within the pool, treasury is able to review in real-time, how best to utilise surplus net cash in a timely manner for yield enhancement.

Key learning points

A high level of communication is required within the company to get all the stakeholders on board and keep everyone up to date on the progress. Plan sufficient time for documentation completion and legal review of the agreements. Stay close to your partner bank to understand the time constraints and goals.