Amit Sharma, Director, Bank of America Merrill Lynch, explores the themes and issues around cash visibility and discusses some of the measures corporates can take to gain ground in this complex field.

The Bank of America Merrill Lynch SunGard Asia Pacific Treasury Management Barometer survey identifies improving cash visibility as the top treasury priority over the next two years. What can corporates do to improve cash visibility?

Cash visibility is typically hindered by two factors: firstly, many corporate treasury systems are not integrated with multiple proprietary banking systems. As a result, corporates can’t see where their cash is in real time. Secondly, in many cases treasurers do not know how many bank accounts they have nor where they are, as only their regional or global treasury centres are using the treasury system. Furthermore, there exists many small-scale operations that are not large enough to warrant investing in a treasury application/system. In these scenarios, processes are largely manual – the treasurer has to pick up the phone and ask these small entities for account balances.

In addition, many local banks have technological constraints, placing limitations on an auto-feed of account and balance information on a regular basis. Despite the large international banks providing detailed information to corporates, the key is how to get information from the local banks and small business operations, and then transmit that information back to the regional or global treasury centre.

Most corporates are using Excel spreadsheets to deliver information upstream. As such, there is a real need for a ‘lite’ treasury system or application that automatically sends local spreadsheets to regional or global headquarters for consolidation. Even before that stage in the process, half the problem is receiving information on a manual or semi-manual basis. For example certain banks only provide paper-based statements, meaning the treasurer has to input the information from paper into Excel.

In order to provide our clients enhanced visibility over their cash and balances, Bank of America Merrill Lynch (BofA Merrill) partners with local banks in all countries where the regulators allow partnerships. Local banks provide us with access points for cash disbursement and collections, which give our customers cash balance information. Currently we have 87,000 touch points in Asia through partnership banks.

This banking network addresses two key issues. Firstly, support for local payment and collections; and secondly, mitigating counterparty risk. Counterparty risk is reduced because BofA Merrill opens the local account, not the client, and uses its partnership with the local bank to collect and disburse funds. For clients, the advantages are clear – managing a single banking relationship while achieving greater visibility over their cash flows. Effectively, the client can have a complete local experience without having to open a local bank account.

Yield enhancement is also one of the top priorities, but what can really be done in such a low interest rate/low risk appetite environment?

Yield is a significant challenge for all treasurers operating in this low interest rate environment. There may not be much that treasurers can do to change the situation, but three options come to mind that lessen the impact of below average yields. Firstly, is your bank offering its own internal rate or is it providing a public benchmark rate? Treasurers should ask for the bank’s internal rate to be benchmarked against a publicly traded rate because then they will be able to reap the benefits if interest rates go up, such as in Indonesia recently.

The second point is interest optimisation. If you concentrate your cash in one bank, you are able to enhance the interest you are getting at a global or regional level, as opposed to country-by-country. The third option is to focus on intercompany loans for funding, instead of reaching out to the banks.

Concentrating cash can be a difficult exercise, especially in Asia. Are things improving?

Overall, there have been improvements in cash concentration – particularly in China. China is opening up and, as of late 2012, both the People’s Bank of China (PBOC) and State Administration of Foreign Exchange (SAFE) have granted permission to the first batch of corporates execute cross-border sweep of US dollar and renminbi between the onshore and offshore entities. Malaysia for example, is also going through a period of regulatory relaxation too. In this market, corporates can convert Malaysian ringgit to US dollar and transfer the money out of the country, based on regulatory approval. However, some countries remain relatively closed.

Counterparty risk is still a concern for corporates – how is that affecting corporate-bank relationships?

Before the global financial crisis, we saw several requests for proposals (RFPs) from corporates looking for a single banking partner across the globe or a region. But the credit crisis changed that, and corporates are wary of putting all their eggs in one basket. Although every organisation has different criteria that prescribe its bank selection process, many corporates agree that the optimum number is three banks. Three is a manageable. It is controllable. It also reduces counterparty risk. And consolidating the number of banks down to three is still a considerable effort for many corporates.

Not surprisingly, very few corporates are satisfied with their cash flow forecasting processes, but how can corporates overcome the main obstacles?

Forecasting comprises of payments and collections. Corporates have greater control over what they pay out because they can hold up a particular invoice or pay it earlier if they choose. But collections are much more challenging as it is the customer that has control. Some customers are delinquent in their payments, which makes it difficult to predict when the funds will come in. The solution is to analyse the customer and its monthly incoming funds, examining historical data in the context of market trends and natural calamities that can impact collections.

Today, cash flow forecasting is largely done on a manual basis: treasurers use Excel, sending spreadsheets via email or fax. This entails rekeying and therefore the potential for manual error increases exponentially. From where we stand, timeliness and accuracy must be the future focus for corporates, whether that is by honing the process or utilising new technologies – or probably both.

Why do you think SWIFT is becoming more popular, despite uptake still being very low?

At its inception, SWIFT was only opened to the banks. In the past decade, SWIFT has increasingly opened up to corporates and is delivering new products specifically for this customer segment. In addition, the key driving factor for change was the general adoption of ISO XML, which is the industry standard file format driven by SWIFT. Previously if a corporate wanted to send a file to a bank, it would need to use the bank proprietary channel; but now it can use SWIFT’s FileAct capability, not just for high value, low volume transactions but also for low value, high volume transactions. SWIFT is also providing the infrastructure for domestic clearing systems, which has raised overall awareness of SWIFT, especially in India for example.

Today, SWIFT’s increased popularity ties into corporates’ top objectives – improving cash visibility, increasing cash concentration and reducing counterparty risk. Even with just three main banking relationships, corporates don’t want to maintain three different bank connections – they want one connection to deliver and access information. Furthermore, SWIFT is lowering the entry barrier of their technology with the launch of Alliance Lite2 – a cloud-based connectivity into SWIFT Network managed by SWIFT.

Why do you think there is such a minimal interest in electronic bank account management (eBAM) in Asia?

The national regulatory bodies in different Asian countries have not uniformly embraced electronic identification, which it a critical component for eBAM, and means corporates have to fall back on manual posting or faxing hard copies.

Although there are a number of countries that are open to eBAM, including Hong Kong, Singapore, Australia and New Zealand, other countries are still examining the concept, albeit at different stages. Many corporates see this as a ‘one-third cooked’ solution, without knowing when the other parts would be ready. The interest is there and everyone is talking about eBAM, but corporates won’t be able to benefit until there is regulatory acceptance across the region as a whole.

In a region that is known for its consumer mobile penetration, why do you think that corporate treasurers have not really engaged with mobile technology?

Corporate treasurers still have the perception that mobile technology is not secure, which is a concern consumers also hold. However, consumer behaviour drives corporate behaviour. This perceived security concern and internal corporate policy of not allowing mobile devices are the biggest hindrance to uptake, and something that we observe on a global basis.

As consumers and corporates become more confident in the security of mobile devices, the advent of bigger screen sizes, such as tablets, will mean that navigation will become easier and the whole user experience will change. Bring your own devices (BYOD) will only drive the adoption of mobile devices being used for performing corporate functions. On-the-go treasurers are likely to embrace non-critical activities first. For example, accessing current balances across US dollar accounts, or removing a signatory if that employee resigns. Treasurers don’t want to bring their full featured online banking services onto their mobile devices – no one would want to initiate mass payments via mobile – but they probably will want to make time-sensitive, critical payments.

Do you think Asia treasuries are on the cusp of moving higher up the value chain in terms of shared service centres (SSCs)?

Although the area of accounts payable (AP) is usually where a SSC starts, accounts receivables (AR) is now coming under this centralisation model. Typically, receivables are done on a local basis, therefore they are usually the last area to migrate into the SSC model. But SSCs have matured enough now to be able to take on this function. We are also seeing treasury back office functions such as bank account opening, and middle office functions like FX hedging, move into SSCs.