What are the genuine challenges that corporates face in global liquidity management today? J.P. Morgan Treasury Services posed this question to clients worldwide prior to the development of a single global liquidity platform and online portal. In this Product Profile we examine the common liquidity pain points that companies are experiencing today and look at an innovative solution designed to tackle these issues at their core.

Liquidity challenges

In today’s tough financial environment, where bank credit lines are still a precious commodity, one of the most easily accessible sources of funding a company has is its own working capital. While there has been a significant trend among treasurers to revisit internal processes, particularly along the supply chain (reducing DSO and increasing DPO) to free up working capital, addressing the ‘value’ of cash is another matter altogether. As cash is the most liquid asset, it is also the most ‘valuable’ asset. But what is standing in the way of optimal international liquidity management?

• Achieving visibility and control across multiple bank accounts and providers.

  “Being able to navigate between accounts and providers in multiple countries and currencies can be time consuming, and difficult to consolidate into reliable, usable data,” says Dan Dougherty, Executive Director, Liquidity Solutions, J.P. Morgan. “Process efficiency, as well as security and controls are also key issues here,” says Dougherty, “and they apply equally to all treasury structures and company sizes.”

• Establishing and maintaining complex liquidity structures.

  In many of the developing countries, the legal and regulatory framework needed to support notional pooling is itself developing. When virtual and hybrid pooling solutions are used to overcome this inability to pool notionally for example, this can add extra layers of complexity, making it harder to keep track of where the company’s cash actually is.

• Accurate cash flow forecasting.

  Lack of visibility of cash impacts accurate forecasting. If the data on company cash positions is incomplete or simply not available, accurate forecasting is far more difficult to achieve.

• Optimising the value of debit and credit balances in multiple jurisdictions.

  Variance in local liquidity management rules and regulations with regard to credit interest and balance off-set, for example, provides treasurers with additional tasks around jurisdiction assessment.

What can be done?

In order to help overcome these barriers to effective cash management, treasurers are turning to technology. While online platforms were traditionally used to provide an easy means of carrying out simple transactions, banks have been investing significantly into their online capabilities to provide a wider range of functionalities, including multibank liquidity management, investment execution and also liquidity reporting. We spoke to one J.P. Morgan client about his global liquidity challenges and what he expects from an online portal now and in the future:

Case study

Red Hat

Frank Pirozzi

Assistant Treasurer

Headquartered in Raleigh, North Carolina, Red Hat is the world’s leading provider of open source solutions and has over 65 offices spanning the globe. An S&P 500 company, Red Hat provides high-quality, affordable technology with its operating system platform, Red Hat Enterprise Linux, together with virtualisation, applications, management and Services Oriented Architecture (SOA). Red Hat also offers support, training and consulting services to its customers worldwide.

What are the major challenges you face in terms of global liquidity management?

Our treasury operation is completely centralised here in the US. Because of time zone differences, we have one treasury manager based in Singapore to oversee regional activity, but we monitor all global bank account activity from Raleigh.

Right now we are dealing with several challenges. Treasury automation is one. At Red Hat, bank account monitoring is not yet fully automated, which makes pulling information together a time-consuming process. That said, our goal is to fully automate the function and to be a leader in this space. We are also dealing with issues in the emerging markets. First and foremost, you have to comply with local laws, which can make it difficult to maintain cash visibility. In these markets, you are also often dealing with bank reporting in local language, which makes it a challenge to integrate account information.

To help us cope with some of these issues, we need a single online portal where we can view all our bank accounts and have the information we need to manage and optimise our balances globally.

What capabilities would you expect from an online liquidity portal?

The first thing is transparency – I want to see what my balances are on a real-time basis. We do have a large portion of our bank accounts with J.P. Morgan, but in a few geographies we have some local bank relationships. If these banks can report through J.P. Morgan’s multibank functionality, that’s a big step towards making my global liquidity management easier. I want to be able to see what’s going on in my bank accounts across the globe as soon as possible.

The second requirement is security. We need a system that gives us the flexibility to set up our security procedures in a way that works best for our operation and is supported by a security environment that ensures complete protection of our transactions and information.

The last requirement is execution. Being able to do everything online where there is full visibility, full accountability and a full audit trail of what’s happening is paramount.

How important is the bank relationship when considering an online liquidity portal?

I want to work with a bank that is dedicated to international treasury management and expanding their footprint around the world. We have a close relationship with J.P. Morgan for a couple of reasons – the financial environment of the recent past has been a big eye opener in the banking sector and their stability has been very comforting to us. The second thing that we particularly like about J.P. Morgan is the functionality and accessibility of their online portal – J.P. Morgan ACCESSSM. We are able to use it and develop a global process whereby people in countries all over the world can log on to J.P. Morgan ACCESS and can initiate payments and look at bank balances and so on. So that is a very good tool for us.

How do you see liquidity challenges developing over the next 12 months?

I think the persistent challenge for us will be going into more non-traditional based markets and the complexities associated with those new markets. The question really is how can I continue to have my centralised treasury concept and my worldwide visibility and still adhere to the variety of local laws and restrictions?

That’s really something that I’m going to look to my bank partner to help me with. I will be looking for them to provide me with guidance and expertise in the countries and areas where I simply don’t know the rules and regulations well enough. I need my bank to have local knowledge about how to make cash management effective within the confines of the law.

Much of the problem revolves around opening up bank accounts and the various documentation standards involved. What we want is a template of all the documentation we will need and a centralised depository for keeping track of authorised individuals for instance. In my mind, consistency can only be a good thing in the business of cash management.

Last but not least, we are trying to do everything electronically and to get rid of paper in our treasury function. A portal could really help us to achieve this paperless aim – and this goes for reporting as well as transactions.

Rising to the challenge

In order to help multi-regional treasurers overcome the challenges outlined above, J.P. Morgan has been investing heavily into its online portal, J.P. Morgan ACCESS Liquidity Solutions. The portal currently enables multicurrency, real-time liquidity management and liquidity structure manipulation, together with cash flow forecasting and global transaction capabilities. With this new investment push however, J.P. Morgan is confident that we will see the birth of a truly global liquidity management platform that will allow not only multibank liquidity visibility, mobilisation and control worldwide but also liquidity execution and reporting through a standardised offering.

The front end of the portal will feature a user-friendly dashboard with a wide range of functions, such as the ability to view cash concentration structures in a diagrammatic way. The user has the ability to click on the individual accounts to view the underlying data.

We spoke to J.P. Morgan’s Dougherty about the bank’s plans for this solution and how its design addresses many of the global liquidity challenges clients are facing:

Interview

J.P. Morgan

Dan Dougherty

Executive Director

How typical is Red Hat’s experience?

We’re speaking to clients every day right across the globe and these experiences are common. The major pain points come down to:

• Managing multiple accounts across several bank relationships.

• Executing liquidity management transactions in a non-standardised multibank environment.

• Optimising value of debit and credit balances across time zones.

• Collating accurate, real-time, standardised reports to feed into cash flow forecasts.

How has J.P. Morgan responded?

We’ve done a vast amount of research to build a comprehensive, scalable solution. We also wanted a standardised solution so that the client experience was homogenous across regions. Our approach was twofold:

Firstly, we completely rebuilt the back-end liquidity platform which supports our cash concentration, investment and risk management propositions worldwide. The new platform will help us to expedite the roll-out of all new client-facing capabilities, as they are developed.

Secondly, we’ve rebuilt the front end, ie we’ve integrated new, standardised liquidity management, investment management and risk management propositions into our online global portal, J.P. Morgan ACCESS Liquidity Solutions.

Clients can use this real-time reporting tool to monitor and execute all liquidity transaction types. They’ll also benefit from innovative on-screen liquidity structure views to help track and manipulate the most complex intercompany structures.

The front end is of course multibank enabled so that clients can do business with all their banks and gain full visibility over cash positions. This is true even in some of the more difficult locations, such as China.

The portal is also fully self-service so clients can initiate investments themselves, booking time deposits for instance, across the globe and across currencies.

With regard to global roll-out of both platform and portal, we’re doing a phased release and Europe is expected to come online in October 2010.

How important is reporting on a global scale?

We have clients who deal in so many different locations and jurisdictions and whether it’s specific regulatory reporting requirements, audit requirements or the control around those requirements, the client has to provide resources within their organisation to do this.

J.P. Morgan ACCESS Liquidity Solutions provides the client with the opportunity to do on-demand reporting. Daily report functionalities include alerts, counterparty exposure vs agreed limits, investment performance and FX activity. These reports are available at group, subsidiary, fund and individual cash account levels and can be exported from the portal in PDF, CSV or Excel formats so that they can be easily integrated into the client’s systems.

Who is this portal suitable for and how is it implemented?

The portal is aimed at all clients who are facing the types of cross-border challenges we have discussed, regardless of size, treasury structure or industry. Clients clearly do not have to bank solely with J.P. Morgan, given the multibank reporting and transaction initiation features. The portal also offers multi-language capabilities to overcome some of the more human barriers that companies face.

Looking to the future

Going forward, treasurers will be looking to their banking partners to help them to make informed treasury decisions based on the ability to analyse company information in real-time. The key to success in the provision of tools that accurately address these needs is two-way dialogue and collaboration.

After all, banks can only address genuine corporate needs if their clients talk to them openly about the problems they are encountering.

Equally, banks need to remain vigilant when developing online solutions, as treasury challenges – as we saw with the financial crisis – can, and do, change. As Dougherty concludes, “It’s not about assuming we have understood the client’s challenges and then standing still. It’s about maintaining a continuous dialogue with the client to ensure that our solution addresses these challenges as they evolve.”

J.P. Morgan

J.P. Morgan has a unique status in treasury and cash management. We are a full service provider offering traditional transactional capabilities, liquidity and investment management, and global trade services across the entire financial and physical supply chain.

We understand you select a banking partner based on a variety of individual requirements. Our continuing investment in quality treasury and supply chain solutions demonstrates our determination to help you succeed.

Operating within a diverse financial environment requires practical answers on a global scale, but delivered with local expertise.

Industry regulation, economic climate and evolving technology present the treasurer with opportunities – and challenges. We understand how to help you take advantage of both.

This is our business.

Contact details:

treasury.services@jpmorgan.com

www.jpmorgan/ts