Corps cash visibility becomes a ‘virtual’ reality

Liquidity management remains a challenge for treasurers operating in a heavily-regulated region like Asia, but several key treasury solutions are able to boost transparency in cash forecasting.

  • 11 Mar 2013
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Corporates in Asia are finding it difficult to navigate through the heavily regulated jurisdictions in Asia, making cash forecasting a headache, there are several ways to overcoming these hurdles.

Treasurers in the Asia Pacific find it difficult to get access and transparency to all their funds, especially as they continue to expand to emerging markets, highlight experts in a webinar hosted by Reval on the topic ‘Gaining visibility through strategic cash flow forecasting’ on March 7.

In a poll question asked during the webinar, 37.5% of corporate chief financial officers (CFOs) and treasurers highlighted that liquidity management is by far the most difficult to manage, followed 31.3% who found collections management tricky.

Around 25% find issues in managing bank information and getting information to support cash forecasts while 6.3% are unable to manage domestic and cross-border payments, cheques and cash vendor queries.

“This is not surprising. Liquidity management is one of the key issues that our customers have problems with,” said Tarek El-Yafi, global head of cash transformation at Standard Chartered in the webinar. “The visibility of funds and notional pooling of funds are issues that are fairly common with large corporates that have operations and banking activities in the West. This is starting to emerge [in Asia] for large corporates too.”

One notable issue that continues to impact the functionality and predictability of treasurers’ cash flow across Asia is ‘trapped cash’. Ideally, treasurers would like to have a good visibility of their cash balances across geographies in real time, but this has now become impossible due to cross-border capital restrictions that exist in developing markets throughout the region.

“The matching rate between payment and receivables gets tricky. On the payment side, there are not so many issues but there are problems with receivables and getting cash on time,” said El-Yafi. “Also, there are ‘pain’ points are around information management. This is not just a single bank, but multi-bank platforms. The biggest issue is timeliness and accuracy of that information.”

Other issues include invoice reconciliation across the region, meaning that treasurers are finding it challenging to keep track of who has paid them as well as the reason for the payment, note experts.

Alteration of treasury ecosystems

Changing the treasury ecosystem of managing cash flows is one of the solutions to avoiding problems like these. For example, corporate treasurers have been moving away from dealing with trade payments in cheque-format to transacting electronically.

“A long time ago, physical cash is the way trade was done, then it was cheques and now it’s done electronically. The electronic shift of cash like mobile transactions impacts how businesses collect and pay,” said El-Yafi. “However, governments also have a say in how this information is being tracked. There’s a much higher scrutiny now of how this money is being moved around. Banks have to ensure that the money moving isn’t originated by the bad guys.”

For collections, moving to an electronic platform reduces the time needed by corporates to record and manage the cash received as well as accurately match the information to the right customer, note experts. It also mitigates the credit and operation risk via the introduction of ‘virtual’ accounts.

“This it the way to help clients reconcile receivables as they will be able to knock-off receivables without doubt,” said El-Yafi. “Treasurers should move payments to an electronic mode rather than cheques as this helps in reconciliation and decreases the amount of time it takes to collect that money. Cheques will take days and will be expensive to reconcile.”

For payments, engaging in electronic transactions enables straight through and accurate processing of transaction, also mitigating regulatory concerns.

Also, treasurers can unlock additional liquidity by improving both days sales outstanding (DSO) and days payables outstanding (DPO). However, improvement in the DSO and DPO will come from the strong partnerships established between customers and vendors. This ensures that the supply chain remains intact, note experts.

Overall, cash forecasting can be time consuming and very manual when it comes to pulling data together. But there are some answers to how corporates can boost their mid-term and long-term liquidity.

For example, corporates can learn how to manage their refinancing programmes by planning it a few years – at least one year – in advance instead of a few months as treasurers would then be able to look out for favourable borrowing and investing conditions.

“People spend most of their time messing around with the excel spreadsheet, making sure that the currency conversion is correct, spending a lot of time pulling the data together instead of taking a good look at the data and basing their predictions on it,” said Günther Peer, regional vice president solution consulting EMEA at Reval in the webinar.

Reval is the provider of a software-as-a-service solution for treasury and risk management.

  • 11 Mar 2013

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