Liquidity management has long been a key component of the treasurer’s role – and the current environment, characterised by high inflation and rising interest rates, has done nothing to reduce this focus. The 2022 Deloitte Global Treasury Survey, for example, found that enhancing liquidity risk management was the top priority set by CFOs for their treasury departments – with the top five challenges faced by organisations including visibility into global operations, cash, and financial risk exposures (64%) and liquidity (48%). Likewise, enhancing liquidity management was identified as the top priority for the next 12 months, cited by 56% of respondents.

“This environment is certainly unusual with macroeconomic challenges characterised by very high inflation rates – a situation that some members of corporate treasury teams have never experienced in their careers,” comments Kehinde Dabiri, Co-Founder and CEO of treasury management and trade finance platform Ceviant. “With central banks increasing their policy rates, treasurers are feeling the pinch in terms of higher borrowing costs. On the flipside, this presents opportunities for yield pickup for treasurers who have substantial liquidity.”

Suraj Kalati, Global Head of Liquidity and Investments Products, Global Payments Solutions at HSBC, says that with the monetary policy environment continuing to tighten globally, “Treasurers have heightened their focus on optimising the company’s internal and external sources of liquidity, as the opportunity cost of inefficient utilisation continues to rise.” He adds, “This has brought greater focus on enhancing the cash visibility, forecasting and deployment capabilities of the treasury.”

In the current environment, notes Kalati, responsiveness and resiliency are key characteristics that underpin a successful treasury. “Within a rapidly evolving business and macro-economic environment, the speed of execution is critical,” he says. “Therefore, having the right information and access to the right solutions to execute on decisions become that much more important.”

Seeking visibility and control

An effective liquidity management solution can help treasurers address these challenges. Hannah Boaden, EMEA head of liquidity at Bank of America, says that centralising cash positions into a single location gives treasurers visibility into global cash positions, as well as enabling them to optimise various currency balances.

“In today’s environment, treasurers are very much looking to create an efficient liquidity structure,” she comments. “They want to minimise trapped cash and idle balances in certain jurisdictions, and move those into a centralised location.”

Rene Bustamante, Staff Vice President & Assistant Treasurer, Global Cash Management at FedEx Corporation, likewise highlights the value of an effective pooling solution. “From a liquidity management point of view, I think that having access to a global cash pool is extremely important right now, for a variety of reasons. It simplifies how you move funds globally, guarantees you have access to liquidity when you need it, and allows you to manage working capital in one place.”

Next generation solutions

Liquidity management solutions like cash pooling and notional pooling have long been used by corporate treasurers around the world. But in the last few years, they have continued to evolve, giving treasurers new opportunities to gain more control over their cash balances around the world in a streamlined and efficient way.

“Historically offered and operated as stand-alone solutions, these services are now increasingly integrated into the wider liquidity management ecosystem offered by banks,” says Kalati. He notes that this could result in greater access to data generated from these solutions. Projected flows from liquidity structures can also be used to “provide greater input into the cash forecasting or investment solutions.”

Another notable development is the use of cross-currency sweeping to help treasurers further automate their liquidity management structures. As Boaden explains, “By utilising automated sweeps, treasurers no longer need to manage the conversion manually, which reduces the time spent monitoring positions and making manual payments.” Meanwhile, technology is opening up more self-service functionality, reducing the administrative burden for treasurers and making it easier for them to process strategic changes to their structures quickly. “This enhancement in technology, and allowing self-service, can help to create a more streamlined process for corporate treasurers, compared to what they are used to doing,” says Boaden.

Harnessing technology

New and emerging technology also has a role to play in cash management solutions of the future. “I think the next evolution of this is going to be real-time payments,” says Bustamante. “Banks are increasingly looking to jump on blockchain rails, and APIs will definitely have a role.”

Boaden says that clients today expect a “truly global solution”, and one that provides consistency around the world – “So I would say banks are adapting to these needs. We’re using technology and developing the use of APIs to help transform how we operate these services.” By allowing treasurers to move their liquidity more seamlessly, she says, newer technologies are creating more efficiencies.

She also notes the importance of real-time treasury – “Or as we coin it, ‘on-time treasury’. On-time treasury is more in line with client feedback, whereby clients’ existing technology, infrastructure and processes are far more geared up for batch processing of payments – so it’s more relevant to ensure ‘on time’ structures, rather than necessarily real-time payments.”

Regardless of whether the focus is on real-time treasury or on-time treasury, Boaden says it is important to achieve an efficient liquidity management structure which ensures funds are in the right place at the right time, so that payment activity can be supported around the globe. Another development that is playing a role in pooling solutions is the use of virtual account management, whereby virtual accounts act as a sub-ledger to a physical account.

“Combining a notional pooling structure with a virtual account management structure can help with account rationalisation, while also optimising liquidity,” Boaden explains. “By looking at combined banking structures, we can produce a strategic solution that meets clients’ efficiency objectives, while also being cost effective.”

Getting started

For companies looking to adopt a new liquidity management structure, Kalati says the focus should be on how adaptable the proposed solution is to a forward-looking view of how the treasury is seeking to organise and manage its cash.

“The structure is not only to solve for the here-and-now challenges of the organisation, but should have the flexibility to evolve with the changing needs of the organisation,” he notes. “Examples would be the extent of digital and data capabilities provided with the structure, which could allow the treasury team to access and change the structure with ease, and also seamlessly embed the data it into their wider treasury processes.”

Boaden says that pinpointing the desired outcomes of the structure is key. “What is the treasury function looking to achieve? And how does that tie into the objectives of other internal departments, including tax and legal considerations? In my experience, tax is one of the key topics we are asked about.”

Ceviant’s Dabiri likewise highlights the importance of tax when implementing a cash management structure. “I wouldn’t underplay the fact that global tax authorities are working to reach a convergence,” he says. “But at this point, conflicting tax policies between countries is something that treasurers constantly have in the back of their minds when they’re implementing netting and pooling structures for liquidity management.”

Success factors

Kalati says that identifying the success factors from the outset is critical, as this allows the treasury team to identify and assess the right solution and banking partner needed to implement the liquidity management structure. “This may include factors such as adaptability, resilience, digital-first, amongst other key considerations,” he says.

Other factors that companies should look at when choosing a partner include the bank’s credit rating, global footprint, capabilities and functionality, notes Boaden – “and whether these meet the objectives of the corporate treasurer, and their broader internal department objectives. Of course, the corporate treasurer’s role has changed drastically over recent years, with lots of competing priorities and a more strategic focus.”

As such, she says, it is more important than ever for treasurers to consider the importance of reviewing and maintaining their liquidity management structures. “It shouldn’t get lost or forgotten in everything else they’re expected to have responsibility for,” she concludes.