ERCO wanted to improve the management of its foreign exchange exposures by gaining more visibility and control over group cash flows. Commerzbank provided an innovative solution that allowed the company a complete overview of its global accounts across multiple banking partners, and same day retrieval of account and transaction data which automatically feeds back into the ERP system.

ERCO is a family-owned medium-sized company headquartered in Lüdenscheid, Germany. The company was founded in 1934 and has grown to become one of Europe’s leading manufacturers of architectural lighting and lighting control, with a footprint in a number of major markets including the US, UK, China and South America. In the 2012-2013 financial year the group recorded consolidated sales figures of €135m.

Problem…

With more than three-quarters of group revenues generated abroad and volatile cash positions in each country, managing currency risks is of vital importance to the continued financial health of lighting manufacturer ERCO. Before taking into account natural hedges, the company’s foreign exchange exposures amount to approximately €20.1m. The treasury department at ERCO is aware that, when it comes to managing an exposure of this scale, visibility into the cash positions of business units is almost as important as hedging itself. “Being such a global business, with a different and strongly fluctuating cash situation in each country, we needed to optimise our cash and information management,” says Urs Müller-Ortolf, Head of Finance and Controlling at ERCO.

Cash pooling, of course, is the most efficient and cost-effective means for corporates to allocate group liquidity. However, ERCO, with multiple banking partners across the globe was looking for something that would provide treasury an overview of accounts held with, not just one, but all its banks. Complicating matters further, the finance department insisted that the preferred solution should allow processed account information to be made available electronically for straight through processing (STP) in the company’s SAP R/3, eliminating the need for the company to employ and maintain multiple systems.

…Solved

“We decided to go with the solutions offered by Commerzbank, as these are flexibly tailored to our company’s specific requirements,” says Müller-Ortolf. The first milestone towards a more efficient cash management operation was made through the establishment of a global information management system. Cash pooling involves far-reaching changes to intra-group processes, but with the help of Commerzbank, the set-up and transmission procedure for electronic account information from third-party banks in Germany and abroad was implemented quickly and with minimum disruption.

The data provided via the SWIFT MT 940 standard was made available for ERCO to call up along with the account information from Commerzbank. Here, ERCO adopted Commerzbank’s electronic banking application, Commerzbank MultiCash. With Commerzbank’s MultiCash, booking and value data balances, cash pooling transactions and operational account transactions on all accounts included are made completely transparent at the click of a mouse. In addition, Commerzbank MultiCash functions as the ‘source’ for STP in SAP R/3. This has also enabled much of the routine work in accounting to be automated.

The data quality of individual accounts that could be viewed by calling up electronic account information also had an impact on the approach taken in the cash pooling project. An assessment of the current situation was made, which included looking into which entities in which countries could be included in the cash pool, and with which accounts. As a result of this assessment, ERCO and Commerzbank set priorities together and divided the project up into different implementation phases.

In a short space of time, either zero balancing or target balancing was put into place – depending on the business unit, with ERCO able to set the target balance individually where appropriate. “Ultimately, the solution enables us to increase our net cash flows, because liquidity can now be transferred same-day to where it is needed,” Müller-Ortolf adds. “This has brought great improvements in terms of the efficiency of our foreign exchange transactions and financial management as a whole.”