The challenge

Solvay has made multiple acquisitions in past decades and while these acquisitions have extended Solvay’s reach into APAC, they brought with them legacy issues of paper-intensive processes and several bank accounts and other connections. At the heart of the problem was a complex operation in APAC. Different FX regulations across the region meant that profits were often too costly to repatriate, trapping cash in markets where Solvay was seeking to build its presence. China, where Solvay has more than 50% of its APAC business, raised very specific regulatory challenges for the company.

Solvay put out a request for proposal (RFP) for APAC which it subsequently awarded to Bank of America (BofA).

“Personally speaking, I believe that banks are an extended business partner of any company,” says Pritesh Patel, Treasury Manager APAC. “It was critical to ensure that we had a very good banking partner that understood our business and could help the engine of growth at the group.”

The solution

The bank implemented a multi-tier liquidity management structure covering 20+ entities, nine currencies across eight markets, including free and restricted markets.

The first tier involves domestic sweeps where surplus cash is centralised at country level. It also includes the use of reference accounts so Solvay’s customers can pay directly into the pool under a receivables-on-behalf-of (ROBO) structure, helping reduce the number of bank accounts and improve ease of reconciliation.

Surplus cash is then automatically swept into its regional multi-currency notional pool structure in Singapore where positive balances in one currency are used to notionally offset negative balances in another currency to achieve net notional positions, resulting in lower FX conversion cost.

A final cross-regional sweep is then used to repatriate cash from Singapore to Solvay’s headquarters and in-house bank (IHB) account in Belgium where cash can be deployed globally.

As part of the solution, BofA provided Solvay an intraday limit to support intraday payment needs, backed by an overnight overdraft that can be used in conjunction with the liquidity management structure. It also implemented a process to automate posting and reconciliation of transactions by mapping BAI codes in bank reports directly to its ERP system. Ultimately, the liquidity management structure has resulted in real savings by reducing the number of bank accounts by 50%, consolidating 65% cash in Asia for repatriation to its headquarters. Automation, cost savings and a reduction in regulatory hurdles are now firmly part of its treasury’s operating landscape.

Cash is king and money saved is money earned.

Best practice and innovation

Its new regional cash management structure – in particular its cash pooling operation – has finally brought centralisation to a mosaic of smaller operations, helping to release a significant amount of trapped cash for the group.

Through the comprehensive liquidity solution, Solvay has centralised and consolidated cash in free and restricted markets and maximised cash repatriation to HQ. Moreover, it is fully automated, flexible and scalable.

By leveraging direct system connectivity and customised mapping of BAI codes in bank reports to its ERP system, Solvay has further achieved enhanced visibility and end-to-end auto-reconciliation. A reference account is incorporated to optimise the structure and minimise the number of physical bank accounts.

The solution also includes the establishment of an uncommitted credit facility in which short-term credit is subject to the discretion of the borrower and the lender. This, according to Solvay, was a complex operation in 2020 when much of the world was in lockdown. With the facility now in place, it has unfettered access to near-term liquidity whenever it needs it most.

Key benefits

• Cost savings.

• Process efficiencies.

• Return on investment (ROI).

• Increased automation.

• Risk mitigated.

• Improved visibility.

• Number of banking partners/bank accounts reduced.

• Manual intervention reduced.

• Increased system connectivity.

• Future-proof solution.

• Exceptional implementation (budget/time).