Risk Management

Key steps to improved foreign currency management

Published: Jan 2017

Wim Grosemans

Wim Grosemans

Head of Product Management – International Payments & Local Offer EMEA Region, Cash Management

Adrian Brown

Adrian Brown

Head of Commercialisation – FX+

BNP Paribas

Globalisation continues to drive the need for international flows

Adrian Brown set the scene by emphasising the presentation’s focus was on operational FX rather than strategic FX, the latter being well understood and well served. He went on to pose questions around some commonly misunderstood themes, including, “do you know there is a margin and do you know what that margin is?”

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Making effective cross-border payments

Wim Grosemans offered some interesting advice around how to identify delays and errors in the cross-border payments process and steps to take to improve efficiencies. He also highlighted some tips when sending US dollars to the US, RMB to China and RUB to Russia. He explained, “including the BIC and IBAN in your payment is the standard, but not for all currencies or countries.” BNP Paribas offer a practical guide to making payments in over 130 currencies: see cashmanagement.bnpparibas.com/

Grosemans then discussed the new SWIFT gpi initiative scheduled for 2017 and mentioned its key benefits: Transparency on fees, same day use of funds, track and trace feature and full payment information.

Optimising receivables

This section highlighted two main operational challenges:

  1. While SEPA has contributed to harmonising formats for credit transfers and direct debits, treasurers still face disparate payment behaviours in the Eurozone where clients tend to insist on using legacy payment methods – like the RIBA in Italy. Outside the Eurozone this is obviously a problem as well.
  2. As transaction volumes and client numbers go up, it is becoming increasingly important to allocate funds automatically in the right place.

The BNP Paribas Virtual IBAN solution enables corporates to combine the following capabilities:

  • Allocation of a unique IBAN account number to each of a company’s clients. Clients will pay using this IBAN which corresponds to a BNP Paribas branch. The funds will end up in a single physical bank account with this virtual IBAN showing in reporting.
  • Allocation of a virtual IBAN per collecting business unit, helping to allocate the funds automatically in the right place, again using one physical bank account.

Grosemans explained, “should you wish, you could also use such a structure to automatically reallocate funds to an account in another currency. BNP Paribas can offer this in an expanding number of countries and payment instruments, domestic and cross-border alike.”

Liquidity management

The major challenges and opportunities BNP Paribas would identify in an international corporate environment are:

  • Improving the accuracy of treasury forecasting – this depends on organisational set-up and infrastructure.
  • Improving global visibility on cash – this gets more difficult as the number of partners a company is working with are multiplied and if it is addressed as global or regional.
  • Optimising yield on the consolidated cash position – interest rates on long and short positions are not quite the same.
  • Centralising global liquidity and unlocking any “trapped” cash.

Grosemans concluded: “The chances are you will be better off with a combination of cross currency notional and/or physical pooling. Bear in mind that by implementing a strategy to manage currency mismatches in liquidity management, ultimately you will further optimise your overall working capital management – avoiding the need to reach out to external financing, mobilising short-term investments and eliminating inter-bank margins for the offset positions.”

Five steps to conclude:

  1. Conduct an operational audit of FX.
  2. Find the right balance between maintaining currency accounts and using international payments.
  3. Use international payments effectively.
  4. Review reconciliations process.
  5. Evaluate transaction flows and balances across currencies and countries.

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