Insight & Analysis

Cash management solutions for a volatile environment

Published: Jun 2017

Managing cash in volatile market conditions can be challenging, but there are solutions that can limit the impact of market shocks on cash flow.

In volatile market conditions, it becomes increasingly challenging for corporate treasurers to manage cash. Market shocks can derail even the most detailed plans and as a result, the risk of unanticipated cash flow issues increases exponentially.

It is therefore no surprise that many treasurers around the world have recently placed a greater emphasis on how they are managing their cash to ensure that the business has the cash it needs when it needs it.

This task is not straightforward, however, especially when treasury is highly centralised and is having to manage a plethora of issues across a wide variety of markets in nearly all continents with a limited on-the-ground presence.

In reaction to this trend, J.P. Morgan has launched a new suite of solutions – Just-in-Time funding and Cross Currency Sweeps – that aim to ease this burden for treasurers.

Where cash is needed

In brief, the bank’s Just-in-Time Funding solution works by calculating a corporate’s payment funding needs and automatically moves the right amount of cash when and where it’s needed, so payments get processed on time.

The Cross Currency Sweep solution automatically moves cash into a different currency where there’s a need for it, thus reducing FX exposures.

In isolation, these solutions can offer a corporate some added benefit – and some may already be leveraging similar solutions – but according to Martijn Stoker, Head of Global Liquidity and Escrow Services for Treasury Services in Asia Pacific at J.P. Morgan, when combined they create a truly powerful proposition.

“These solutions are very relevant to corporates today who are dealing with uncertain regulatory changes, stranded cash, complexity of managing multiple currencies and the need for reliable cash flow forecasting,” says Stoker. “By integrating payment, liquidity and FX functions, the solutions will allow treasurers to manage operating cash and payments more efficiently, transact more swiftly while minimising currency exposures.”

What is more, Stoker comments that these solutions will create efficiencies as the treasurer needs to focus and manage just one major account. “When the time comes for a payment to be made in a specific market, the system will automatically calculate the right amount of funding and move cash into the desired currency exactly when and where it’s needed, just in time for the transaction,” he adds.

Hong Kong-based TPV Technology is a company that the solution has been designed in tandem with, especially to assist with its European operations.

Tony Mo, Group Treasurer with TPV Technology Limited comments that it is “a robust cash management and liquidity solution which has delivered value-add through increased automation and improvement in operational efficiency”.

Continued volatility…

With volatility looking likely to continue to dominate the corporate treasurer’s agenda for the rest of the year, it is not only cash management that treasurers will need to focus on. Indeed, earlier this year, a treasurer based in Asia pointed out the four key areas of concern for the year ahead. These include:

  • Hedging:

    The treasurer pointed out that there are many risks to hedge in the current environment – a task which may be made more challenging as a result of the move towards central clearing, as well as the higher costs and reduced availability of risk management tools.

  • Funding:

    In this environment, ensuring an adequate supply of funding will be key – a task that may present some challenges due to regulatory changes which make lending too expensive for banks. The treasurer also noted that “the rising interest rate environment (if, indeed, that is the consequence of Mr Trump’s election) will make bond financing more expensive and scarcer.”

  • Market turbulence:

    The treasurer commented that with all the changes in the markets due to regulations, we are likely to see more cases of markets failing.

  • Cash management:

    The treasurer also noted that cash management may have to be rethought. “The prospect of being charged for the privilege of leaving our cash with some changes one of the most fundamental parameters of cash management. The potential death of tools such as notional pooling does not help. At the same time, however, fintech may finally deliver alternative ways of paying suppliers and moving cash.”

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