Guazi’s rapid expansion created a cash placement challenge for the treasury function. Its operating cash was unpredictable, whilst its liquidity needs were extremely high. The company has huge outlays to acquire used cars (worth approximately 80% of the cars’ value), receiving cash back only at the point of sale.
With such volatile cash flows and rapid vehicle turnover, Guazi was able to forecast cash flows for only a few days. Furthermore, while the company was rapidly expanding, its treasury department was only just getting established, with neither an investment policy nor a treasury framework in place.
“Our concerns intensified in 2019 when Guazi received a sizeable Series D funding round from overseas,” says Jim Huang, Treasury Director. “For such a large sum, this triggered an urgent need for multi-currency cash management solution, combined with the treasury department’s existing domestic RMB liquidity management needs.”
The funding added FX, interest rate and credit risk to its liquidity risk. Amid continuing timing uncertainty and cash flow volatility, Guazi also needed the ability to convert foreign currency for domestic use at any time. In addition, Guazi also had to prepare for the sunsetting of guaranteed investment products with the new asset management products rules in China set to take effect in 2020.
The company realised the crucial importance of developing a mature internal treasury management framework and needed to attain expertise and build an understanding of global standards to meet these challenges.
Guazi therefore needed a financial services provider and a solution to address credit, liquidity and counterparty risks, coupled with investment capabilities. Furthermore, the company also wanted a provider with a track record of supporting the growth of unicorns and chose J.P. Morgan Global Liquidity and its solutions.
“We benefitted from our chosen provider’s experience with multinationals and unicorns which helped us establish best practices in cash investment,” says Zhaojun Deng, Treasury Manager.
Guazi became quickly educated about best practices in liquidity management being used by other leading corporates. From not being able to forecast its operating cash beyond three days, Guazi moved to establish an investment policy and cash segmentation process, allowing it to meet its needs for security, liquidity, readily available FX and competitive yield. Its robust credit and risk management processes are now best practices and meet international standards.
Best practice and innovation
As they continue to grow, China’s unicorns face new, rapidly emerging urgent cash investment challenges. As such, it is crucial to overcome them in order to maintain a leadership position – indeed, just to survive – in their often highly competitive industries.
In recognising these challenges, Guazi acquired the awareness early on of the need to build a mature treasury function, choosing to partner with a global financial institution that could help it achieve its vision. By setting up internal investment guidelines and an investment policy in line with global standards, it makes Guazi a unicorn well ahead of its peers, allowing it to mature into a multinational corporate in its own right.
- Understanding of best practices in liquidity management.
- Improved credit, liquidity and counterparty risk management.
- Same/next day liquidity and seamless redemption.
- Multi-currency solution with competitive yields.
- Single platform.