Cash & Liquidity Management

Boost your global payments and receivables IQ

Published: Mar 2015

So much is happening in the world of corporate treasury that it can sometimes be hard for the treasurer to know where to focus their efforts. In this article, we examine why global payments and receivables deserve some extra attention, and outline practical steps and solutions to help treasurers on the path to optimisation.

Portrait of Ireti Samuel-Ogbu, EMEA Head of Payments and Receivables, Treasury and Trade Solutions, Citi

Ireti Samuel-Ogbu

EMEA Head of Payments and Receivables, Treasury and Trade Solutions

Portrait of John Murray, EMEA Head of Corporate and Public Sector Cash Sales, Treasury and Trade Solutions, CitiJohn Murray

EMEA Head of Corporate and Public Sector Cash Sales, Treasury and Trade Solutions

Portrait of Hemant Gada, EMEA Head of Channel and Enterprise Services, Treasury and Trade Solutions, CitiHemant Gada

EMEA Head of Channel and Enterprise Services, Treasury and Trade Solutions

In the search for growth, corporates continue to expand their operations across the globe. This is not limited to Western companies looking to Asia and Africa; emerging markets companies are also spreading their wings towards the developed markets. The potential benefits and opportunities in each market may differ, but the overall globalisation challenge is the same: any corporate expanding its global footprint must do so in a streamlined manner, whilst remaining connected to their end markets. Otherwise, they risk top line gains being eroded by process and structural inefficiencies.

“For corporate treasurers, this means embracing centralisation and rationalisation to ensure an optimal payments and receivables global set-up,” says Ireti Samuel-Ogbu, EMEA Head of Payments and Receivables, Treasury and Trade Solutions, Citi. The first step on this centralisation and rationalisation journey, she says, should be the establishment of a shared service centre (SSC) – something which is not new, but is most definitely evolving.

The new shared services model

“But don’t be fooled into thinking that this is a ‘lift and shift’ exercise of yesteryear,” notes John Murray, EMEA Head of Corporate and Public Sector Cash Sales, Treasury and Trade Solutions, Citi. “As corporates get smarter about cutting costs, delivering value and reducing risks against a backdrop of geopolitical and market uncertainty, they are putting a lot of time and energy into deriving financial and control benefits through optimising their SSCs.”

Take the example of Mondelēz International, one of the world’s largest snacks companies, which streamlined its treasury and business services to release resources within its European Business Services Centre (EBSC) to focus on more value-adding tasks. The EBSC faced challenges in working with multiple banking providers and using multiple electronic banking channels. These arrangements were complex, leading to high levels of banking fees and resource-intensive supporting functions and limiting the ability to take advantage of improved banking technologies.

With the help of Citi, the Mondelēz International treasury team embarked on an ambitious ‘One Bank’ project in order to bring simplicity, consistency and transparency to treasury operations – with the goal of rationalising the number of accounts it held and to reduce its overhead variable costs. In addition to collaborating with just one bank across the entire European region, the company also wanted to move to a bank-agnostic delivery channel and a single global file format, namely ISO XML.

“As the Mondelēz International case highlights, the greatest levels of optimisation and rationalisation are being achieved by those corporates prepared to go ‘under the hood’ of their SSC and really challenge the status quo,” says Hemant Gada, EMEA Head of Channel and Enterprise Services, Treasury and Trade Solutions, Citi.

Doing it in-house

Taking this rationalisation drive one step further, in-house banks (IHBs) are also becoming increasingly popular among forward-thinking corporates. Rather than taking a payments factory approach (where each subsidiary retains its own bank account), the SSC model is evolving towards a very streamlined or even single account approach, thanks to the IHB.

“Furthermore, the in-house bank set-up lends itself very nicely to payments-on-behalf-of (POBO) and receivables-on-behalf-of (ROBO) structures, which can help an organisation move to the next stage of operational efficiency and risk management control,” adds Samuel-Ogbu.

The on-behalf-of (OBO) model offers numerous benefits. On the POBO side, the liabilities of each local business unit can be discharged out of liquidity owned centrally at the IHB (even though they remain on the balance sheet of the business unit). As a result, treasury can better design and deploy optimal liquidity structures. Meanwhile, the ROBO structure provides a significant incentive to improve straight through reconciliation rates, minimise errors, and provide a full audit trail from the IHB back to each subsidiary.

Leveraging the IHB set-up, it is also possible to simplify the management of foreign currency balances and transactions through the use of a multi-currency account. And as Samuel-Ogbu observes, “using a streamlined or single account set-up to process multi-currency payments – in up to 100 different currencies – can dramatically reduce FX administration and the associated costs.”

Increasing control, reducing risk

Operating a centralised treasury with a streamlined payments and receivables structure also aids 360 degree cash visibility. “Right now, clients need real-time visibility over their flows from every perspective, including at a country level,” says Murray. “Take Russia and Ukraine, for example. Treasurers with operations there need to know they have sufficient funding in those markets to pay their local teams and meet local supplier payments. This is where having the single view over your balances, and working with the support of a knowledgeable banking partner that you trust, can help you to honour your obligations to your employees, and to the company from a working capital perspective,” he explains.

Embrace digitisation

“The right technology can further improve visibility on all fronts – whether you’re trying to get money in or out of a country, or simply want real-time balance information,” says Gada. “In this respect, banks such as Citi are developing a range of new mobile and tablet tools which give treasurers greater transparency on their account information, together with analytics on-the-go. The resulting ‘snapshot’ enables them to take quick decisions on where cash is most important – globally – at any given moment.”

The analytics that Citi currently offers include balance information across accounts at the bank – and third-party bank accounts. The data can also be cut by currency and by country to monitor exposures in that way. And if a trapped liquidity concern does arise, then the client can easily act upon that data, or get in touch with their liquidity provider for support. “The true value of analytics lies in enabling treasurers to be better informed and to work smarter,” adds Gada.

“As an example of this ‘working smarter’ theme,” says Murray, “this kind of analytical data also assists greatly with benchmarking and achieving best practice in liquidity management. It allows clients to examine whether they might be able to invest their money more wisely; pay down debt; reduce risks; or see if there is any liquidity that they are not capturing, for instance. In short, it provides a catalyst for clients to think differently.”

A collaborative future

Aside from analytics, the big transaction banks are also helping clients to embrace technologies which are perhaps less ‘exciting’ but equally fundamental to overcoming the globalisation challenge. For example, by leveraging cloud innovation and format standards such as XML, treasurers could not only reduce their IT costs but also implement a single core technology base that should improve transaction and information flows to and from their banks.

These flows include transparency around pricing data. “And this is where the XML comes into its own as it allows the bank to gather data from all of its global applications and present a coherent picture to the client that says precisely what we charge them for their transactions and what we collect from their subsidiaries,” Gada observes.

The underlying message here is that clients’ ecosystems and banks’ ecosystems no longer need be distinct. “Today, a treasury can leverage the bank’s ecosystem to help them get their job done – whether this be analysing bank fees, or even streamlining bank account management (BAM), through eBAM. A co-operative model, potentially with the bank embedded in the client’s ERP, has to be the way forward in terms of efficiency and productivity,” he adds.

This collaborative approach also rings true on the advisory side, with Murray keen to work alongside corporates to help them “explore other ways to digitise payments to suppliers, through commercial and virtual card solutions, for instance.” These might not be the traditional payment instruments treasurers are familiar with, he says, but corporates need to consider alternative methods in order to achieve an optimal payments and receivables set-up.

Samuel-Ogbu agrees, saying that: “Whether it be virtual accounts, multi-currency accounts, or POBO and ROBO structures, it is the responsibility of the treasurer – in conjunction with their banking partner(s) – to implement the best tools, processes and structures to optimise global payments and receivables.” Furthermore, as globalisation continues, geopolitical and macroeconomic uncertainties remain, and cost pressures increase, an intelligent approach to payments and receivables will no longer be ‘nice to have’, it will be essential.

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