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The 2009 guide to

September 2009

Published in conjunction with:

Deutsche Bank
Standard Chartered Bank
Liquidity management enters a new phase 2-20
By Jack and Wolfi Large

Table 1: Liquidity management survey results 4

Table 2: Nature and quality of the banks’ 8

liquidity management offerings

An integrated approach to liquidity 6


The new liquidity paradigm: 10

Focus on working capital

Working capital and liquidity management: 16
Safety first
Standard Chartered Bank

This guide is for the use of professionals only. It states the position of the
market as at the time of going to press and is not a substitute for detailed local

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Liquidity management
enters a new phase
The global financial climate has forced treasurers to focus on making the best use of resources,
wherever they may be. Technological developments are making that easier, but they are also
having to cope with a tighter regulatory environment. By Jack and Wolfi Large

Liquidity management and counterparty risk are the corporate m An increased move from national to regional liquidity
treasurer’s two biggest problems at present. Over the past 12 months, management;
the global business environment has really focused corporate
treasurers’ minds, with the contraction and scarcity of credit in most l An increasing demand for transparency and control in all
markets and businesses, the difficulties of access to capital markets, FX liquidity management solutions;
and interest rate market volatility, low interest rates and the economic
slowdown. Euromoney’s 2009 review reveals that this new focus, l The so-called ‘flight to quality’ with companies moving funds from
together with the advent of new technologies, is leading to a new small local to larger more secure banks;
phase in the development of liquidity management.
l An increase in the use of cash concentration and sweeping; and
Thanks to the growing range of automated systems and services, the
basic processes are becoming easier: whether they be ensuring the l Banks insisting on ancillary cash and liquidity management
visibility of a company’s or a group’s cash held in bank accounts around business.
the world, forecasting cash flows, setting and managing terms of trade,
concentrating and pooling cash, optimizing investments or minimizing Intra-day liquidity has become a major issue for both
funding. Liquidity management, as a whole, is not, however. Fiscal au- companies and banks as illustrated by:
thorities around the world are tightening the restrictions on the move- l Banks charging extra for payments made at the beginning of the day
ment of cash and counterparty risk is becoming ever more important. as swings in intra-day positions have become extreme with liquidity in
Factoring in company culture, legal and tax structures and company short supply;
business practices will always make it difficult.
l The timing of credit and debit payments within the business day
Trends in liquidity management becoming vital for many companies; and
Over the past 12 months almost all companies, even those rich in cash,
have been reviewing and refining their structures and processes to l Banks managing intra-day credit more tightly.
free up as much liquidity as possible. This, combined with a greater
focus within companies to release as much working capital as possible, Although banks are working on intra-day liquidity solutions, which
has led to overall improvements in the usual external and also internal include the introduction of daylight overdrafts, this type of overdraft
working capital liquidity, the biggest change in liquidity management is unlikely to be on offer any time soon. The costs of development
of the past 12 months. and processing are prohibitive in the current financial climate.

To minimize counterparty risk companies have been: There is mounting evidence of the stabilization of the liquidity crisis,
l Developing contingency banking relationships to minimize their indicated by recent changes in company policies and priorities for
capital, cash and operational risk with any single bank; the investment of surplus cash. During 2008 investment polices
focused on minimizing risk, preserving capital, flexibility and
l Analyzing in depth the counterparty risk of each of their banks; access rather than yield, with surplus cash primarily invested in
banks or government securities. Recent research by Citi’s Financial
l Credit rating their trading partners; and Strategy Group and others shows that companies are increasingly
investing their surplus cash, some up to 50% or more of it, in money
l Tightening their credit guidelines and policies. market funds as they become more confident about the financial
Liquidity management practices evolving over the past
12 months include: Survey results
l The centralization of company liquidity combined with: The questions for this year’s Euromoney magazine survey were
revised slightly to reflect the developments in liquidity management
m Fewer mono-bank global liquidity management solutions over the past 12 months. The 15 banks participating in the survey
include all of the global network and other major cash management and SCB, offering at least 14; the other banks five or fewer. Only two,
banks around the world: Bank of America, Barclays, BNP Paribas, Citi, Deutsche Bank and JPMorgan, have locations in Latin America. Six
Commerzbank, Deutsche Bank, Fortis, HSBC, ING, JPMorgan, Royal have locations in North America and two in the Middle East and
Bank of Scotland, SEB, Société Génerale, Standard Chartered Bank and Africa, HSBC in one location and SCB in nine.
UniCredit. Each completed a questionnaire covering its cash position
reporting services, liquidity management infrastructure, sweeping Sweeping between own branches
and cash pooling services, investment services and liquidity manage- The participating banks’ end-of-day sweep cut-off times for US dol-
ment support. Their responses are shown in Table 1. lars and euros vary considerably. Six do not offer overnight return
sweeps. The number of countries covered by intra-day sweeps varies
Although BNP Paribas completed its acquisition of Fortis Bank in May from zero to 48 by SCB. All offer intra-region target balance end-of-
2009 the merger of its cash management and liquidity management day sweeps and all but two inter-regional sweeps.
services is not yet complete, so a separate entry was accepted from
each. Pierre Frezstand, global head of cash management at BNP Multi-bank sweeping
Paribas, says, “Together we bring a wealth of solutions across the spec- All the participating banks have multiple MT 101 partner bank draw-
trum of companies’ cash management needs, including notional and down agreements, 11 banks have 200 or more. There are consider-
physical cash pooling. BNP Paribas and Fortis are strongly committed able differences in end-of-day sweep cut-off times. The number of
to the success of the new bank. Based on BNP Paribas’ experience countries covered by intra-day sweeps varies from zero to 73 by RBS.
integrating BNL, our clients can expect to see rapid and successful The number of countries covered both by intra- and inter-region
integration and to take rapid benefits from our global offer.” target balance end-of-day sweeps varies from zero to 90 by Citi.

RBS is also reviewing its liquidity management and cash management Notional pooling services
network in the new financial environment. Brian Stevenson, CEO, The participating banks provide a wide range of single and multi-
global transaction services, says, “RBS will continue to be a client- country notional pooling services. All the banks provide tiers in
focused international business with a multi-product, multi-currency their pooling structure, six have more than 11. All offer some form of
proposition. Following our strategic review back in March 2009, we single-currency, single-country notional pooling and multi-currency
are gradually right-sizing our network. However, we will remain a single-country pooling (where all the accounts are held in a single
leading global transaction bank with on-ground presence in over 38 country). The single-currency pools all offer full offset; in the multi-
countries, as well as a vast network of partner bank agreements.” currency, all but three offer partial offset. All but three of the banks
provide single- and multi-currency multi-country notional pools with
The main results of the survey are reviewed below. partial offset in a varying number of currencies.

Cash position reporting services Investment of surplus cash

All the banks provide intra-day transaction reporting and end-of-day The risk profile of all the participating banks is comparatively good, all
bank account balance and transaction reports from both their own with a credit rating of A or greater and a tier one capital ratio of 7.2%
branches and other banks. The number of countries covered by own or greater. Almost all offer a range of investment options, including
branch intra-day transaction reporting varies from the 20 or fewer interest-bearing current accounts, time deposits, corporate sav-
offered by several of the European banks to the 100-plus covered ings accounts and money market funds. The number of currencies
by Citi. The number of countries covered by own branch end-of-day accepted varies from three to 50 and the number of money market
reports is, in several banks, much larger than for intra-day reports with funds offered varies between two and 152. All but one has an invest-
the number of own branch countries providing end-of-day reports ment desk and investment portal and nine offer automated sweeps to
ranging from 18 to more than100. Slightly fewer than half of the money market funds.
banks provide bank account report monitoring and chasing services,
which is in some cases limited to chasing missing items within their Liquidity management support GUIDE TO LIQUIDITY MANAGEMENT
own bank branches. All the participating banks provide dedicated operational and cus-
tomer support for their liquidity management services. Many also
Liquidity management infrastructure provide client-activated liquidity management support analyses
All 15 participating banks now have both global and local cash and tools.
pooling platforms.
Nature and quality of the services on offer
Pool header/master account locations Simple yes/no responses and an enumeration of the participating
All the banks offer single-currency pooling in some countries, the banks’ liquidity management regional and country coverage, mem-
number of locations varying from two or three to 44 from SCB. bership of the clearings, sweeping and pooling facilities, investment
UniCredit can make a single-currency pool available at any IBOS bank- of surplus cash and liquidity management support give little indica-
ing club member bank. tion of the nature and quality of the services the banks provide. This
year’s Euromoney survey also asked the banks to complete a ques-
The number of locations where the banks offer multi-currency pool tionnaire about the advice and consultancy support they offer clients,
header or master accounts varies considerably. Most are in Europe, implementation, customer service and support, liquidity management
but even in Europe two of the participating banks have none. In Eu- services and products, and what they consider to be their bank’s over-

rope the number of locations varies from one to 16 by Fortis. Seven all distinguishing factor. The responses are given in Table 2.
have locations in Asia-Pacific with three, Deutsche Bank, JPMorgan Continued on page 14

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Table 1 - Euromoney 2009 Liquidity Management Survey
Bank Name Bank of America Barclays BNP Paribas Citi Commerzbank Deutsche Bank
Cash Position Reporting
Intra-day reporting of
No. of own bank branch countries reporting 24 6 27 101 20 33
Accept/process 3rd party banks’ transactions Yes Yes Yes Yes Yes Yes
End of day reports: No. of own bank branch countries reporting 24 18 52 101 20 34
3rd party report monitoring & chasing service Yes No Yes Yes Yes No
Liquidity Management Infrastructure
Global cash pooling platform Yes Yes Yes Yes Yes Yes
Local cash pooling platforms Yes Yes Yes Yes Yes Yes
Sweeping and Pooling Services
Header/Master Account Locations
Single currency pool: 29 countries UK, Spain, Absa Around 30 countries Eight locations 15 countries Customer’s choice Any

1 location; 5 locations; 2 locations; 14 locations;

13 currencies 9 currencies 11 currencies 16 currencies
1 location; 12 6 locations; 15 locations; 1 location; 14 locations; 13 locations;
Multi-currency notional pool currencies 3 currencies 50 currencies 23 currencies 11 currencies 50 currencies 2
(No. sites & currencies): 1 location;
Latin America:
1 currency
1 location; 1 location;
50 currencies 4 currencies

Middle East & Africa:

Sweeping Between Own Branches

End of day sweep cut-off times - USD - earliest/latest GMT: USD-10.00/21.00 USD-08.00/18.30 USD-07.00/23.00 USD-07.00/00.00 USD-13.00/16.45 USD-14.00/19.00 US
EUR - earliest/latest GMT: EUR-15.30/15.30 EUR-08.00/17.00 EUR-07.00/23.00 EUR-07.00/00.00 EUR-20.10/21.00 EUR-14.00/19.00 EU
Overnight return sweeps No No Yes Yes Yes Yes
Intra-day sweeps (No. of countries) Intra-region: 20 6 39 33 17
Inter-region: 39 33 17
How sweeps triggered: By balance By balance &/or time By time By balance &/or time By balance &/or time
Target balance end of day sweeps Intra-region: 20 6 29 27 33 17
(No. of countries) Inter-region: 4 20 27 33 17
Multi-bank Sweeping
No. of existing MT 101 agreements: >50 101-200 101-200 201+ 201+ 50-100
End of day sweep cut-off times - USD - earliest/latest GMT: USD-17.00/21.00 USD-08.00/18.30 USD-08.00/18.00 USD-08.00/19.30 USD-11.30/11.30 USD-08.00/15.00 US
EUR - earliest/latest GMT: EUR-15.30/15.30 EUR-08.00/17.00 EUR-08.00/18.00 EUR-08.00/16.00 EUR-14.00/14.00 EUR-08.00/15.00 EU
Intra-day sweeps (No. of countries): 21 32 80 90 33 17
How sweeps triggered: By balance By balance &/or time By balance &/or time By time By balance &/or time By balance &/or time
Target balance end of day sweeps (No. of countries)
Intra-region: 21 32 80 90 33 13
Inter-region: 21 80 90 33
Notional Pooling Services
No. of tiers available in a pool: 0-3 11+ 0-3 11+ 11+ 11+
Single country (all accounts in same country)
Single currency - Full off set (No. of countries): 20 4 16 8 16 9
Partial off set (No. of countries): 26 16 28
Multi-currency - Full off set (No. of countries): 2 1 3 16 2
Partial off set (No. of countries): 16 26 16 28
No. of pooling currencies supported: 13 15 50 23 11 50
Multi-country (leave funds in each country)
Single currency - Partial off set (No. of countries): 16 90 16 28
Multi-currency - Partial off set (No. of countries): 16 90 16 28
No. of pooling currencies supported: 50 23 11 50
Investment of Excess Cash
Bank risk profile: Credit rating of bank (S&P or Moody rating) A AA- AA A1 A (S&P) Moody Aa1 / S&P A+
Tier one capital ratio 10.10% 8.60% 8.80% 11.92% 10.00% 10.20%
Investment options: No. of currencies accepted for cash investments 20 50 4 18 11 26
% bearing current accounts Yes Yes Yes Yes Yes Yes
Time deposits Yes Yes Yes Yes Yes Yes
Corporate savings accounts Yes Yes No Yes Yes Yes
Money market funds Yes Yes Yes Yes Yes Yes
No. of funds 6 99 12 129 10 8
Investment channels: Dedicated investment desk Yes Yes Yes Yes Yes Yes
On-line portal Yes Yes Yes Yes Yes Yes
Automated sweep to money market funds Yes No Yes Yes No Yes
Liquidity Management Support
Dedicated operational and customer support: Yes Yes Yes Yes Yes Yes
Analysis of cost of holding cash: Yes No No Yes Yes No
Client activated liquidity management
models - Showing impact of new
Yes Yes No Yes Yes No
Contact Information
Contact name: Lori Schwartz Stephen Pigney Elisabeth Signes Li Zhang Jasmin Maraslioglu Klaus-Bernd Schalkowski P
Country: USA United Kingdom France UK Germany Germany
Telephone number: +1 646.855.5634 +44 7775550183 +33 1 43 16 95 60 +44 20 7500 5234 +49 6913646966 +49 69 910 68436 +

lori.schwartz@ stephen.pigney@ elisabeth.signes@ jasmin.maraslioglu@ klaus-bernd. p

Email address: li.zhang@citi.com
bankofamerica.com barclays.com bnpparibas.com commerzbank.com schalkowski@db.com

Source: Liquidity management banks. Copyright ©2009 J&W Associates

nk Fortis HSBC ING JPMorgan RBS SEB Société Générale Standard Chartered UniCredit

15 70 25 38 52 15 19 48 16

Yes Yes Yes Yes Yes Yes Yes Yes Yes

18 70 25 38 52 15 56 48 19
No Yes Yes No No Yes No No No

Yes Yes Yes Yes Yes Yes Yes Yes Yes

Yes Yes Yes Yes Yes Yes Yes Yes Yes

Where local Available at any

ice Any European entity 25 countries Europe Where regulations allow All regions - 43 countries 25 48 countries
regulations allow member bank
5 locations; 14 locations; 13 locations;
s 23 currencies 26 currencies 50 currencies
16 locations; 5 locations; 15 locations; 14 locations; 2 locations; 10 locations; 2 locations;
s 25 currencies 50 currencies 5 currencies 26 currencies 29 currencies 50 currencies 50 currencies
1 location;
1 currency
1 location; 3 locations; 2 locations; 1 location;
2 currencies 3 currencies 50 currencies 50 currencies
1 location; 9 locations; 50
2 currencies currencies

00 USD-07.00/15.00 USD-00.00/23.59 USD-13.00/13.30 USD-10.00/01.00 USD-00.00/24.00 USD-09.30/18.00 USD-23.59/23.59 USD-00.00/23.59 USD-09.00/17.00

00 EUR-07.00/15.00 EUR-16.00/24.00 EUR-14.00/14.30 EUR-10.00/22.00 EUR-00.00/24.00 EUR-09.30/18.00 EUR-23.59/23.59 EUR-00.00/16.30 EUR-09.00/17.00
No Yes No Yes Yes Yes No Yes No
20 21 13 41 10 16 48 16
7 17 38 41 10 20 48 20
ime By balance &/or time By balance &/or time By balance &/or time By balance &/or time By balance &/or time By balance &/or time By balance &/or time By balance &/or time
16 3 17 38 18 13 15 48 16
3 17 38 21 13 19 48 20

50-100 201+ 201+ 201+ 201+ 50-100 201+ 101-200 101-200

00 USD-07.00/16.30 USD-00.00/15.00 USD-19.00/19.00 USD-01.00/20.30 USD-06.45/22.00 USD-09.30/16.00 USD-17.00/17.00 USD-00.00/22.00 USD-09.00/17.00
00 EUR-07.00/15.15 EUR-11.00/15.00 EUR-19.00/19.00 EUR-01.00/22.00 EUR-06.45/15.00 EUR-09.30/16.00 EUR-15.00/15/00 EUR-00.00/16.30 EUR-09.00/17.00
20 15 15 73 15 10 48 20
ime By balance &/or time By balance &/or time By balance &/or time By balance &/or time By balance &/or time By balance &/or time By balance &/or time By balance &/or time

16 9 15 15 15 48 20
16 15 15 15 48 20

0-3 11+ 0-3 4-10 4-10 4-10 11+ 4-10 0-3

5 7 2 21 14 12 12 48 7
11 26 11 27 3 12 1 25 10
5 7 1 2 12 0
11 26 11 27 3 12 25 12
25 50 5 26 29 50 50 10

16 26 15 14 37 12 48 16
16 26 15 14 37 12 48 16
25 50 5 26 29 50 50 16

P A+ A1/P-1 AA AA- AA A+/A-1 A (S&P) A+ S&P A+ A


10.70% 8.30% 9.70% 9.20% 9.90% 12.0% 9.20% 10.10% 7.20%
40 3 10 4 33 23 0 50 5
Yes Yes Yes Yes Yes Yes No Yes Yes
Yes Yes Yes Yes Yes Yes No Yes Yes
Yes Yes Yes Yes Yes Yes No Yes Yes
No Yes Yes Yes Yes Yes No Yes Yes
2 5 25 152 10 3 20
Yes Yes Yes Yes Yes Yes No Yes Yes
Yes Yes Yes Yes Yes Yes No Yes Yes
No Yes No Yes Yes No No Yes Yes

Yes Yes Yes Yes Yes Yes Yes Yes Yes

No Yes No Yes No No No No Yes

Yes Yes No Yes No Yes No No Yes

owski Peter Pollaert Ian Blackburn Jean Pinte Nicholas Blake Phillip Lindow Erik Zingmark Anne-Claire Gorge Martijn Stoker Jürgen Lutz
Belgium UK Belgium United Kingdom The Netherlands Sweden France Singapore Germany
436 +32 25650020 +44 207 991 8446 +32 3227382386 +44 20 7859 6665 +31 20 3837 042 +46 87638435 +33 33142148087 +65 65170165 +49 498937820779

peter.pollaert@ ianblackburn@ nicholas.j.blake@ anne-claire.gorge@ Juergen.lutz@
j.pinte@ing.be phillip.lindow@rbs.com erik.zingmark@seb.se martijn.stoker@sc.com
com fortis.com hsbc.com jpmorgan.com socgen.com UniCreditgroup.de
An integrated approach
to liquidity
Treasurers believe liquidity management is the area for which they are responsible that offers the
most potential for improvement. Now more than ever they are focusing on how to do this.
By Erik Zingmark, global head of cash management

Liquidity management has always been an integral element of the the activities that contribute to it. SEB takes a holistic view of liquidity
treasury function, but in recent months, it has become many treasurers’ management, and seeks to help companies not only with the activities
top priority. However, according to the SEB/gtnews Cash Management for which treasurers are traditionally responsible, such as FX, debt and
Survey 2008, treasurers believe that liquidity management represents investment, but also the processes that make up the wider financial
the aspect of treasury with the greatest potential for improvement supply chain.
(34%). Liquidity management is not simply a case of fine-tuning
forecasts, it involves securing funds from customers in a timely fashion An area in which many treasurers need to take greater control is trade
and ensuring that key suppliers continue to perform. The difficulty for finance, specifically trade-related flows, to manage working capital bet-
treasurers is not only to identify areas for improvement, but to take ter. According to the SEB/gtnews Trade Finance Survey 2009, only 14%
control over the relevant processes and prioritize the initiatives that will of treasurers have a leading role in trade finance, with a further 65%
deliver the greatest value. This is the essence of SEB’s Corporate Value either partially involved or occasionally consulted. Delays and errors
Chain approach, which explores the financial supply chain as a whole that would not be tolerated for other types of cash transaction flows
to identify, prioritize, develop and deliver concrete solutions to the chal- are common in many trade finance processes. For example, according
lenges facing corporate treasurers today. to SEB’s analysis of companies’ letter of credit portfolio, the average lead
time from shipment to payment is 41 days, against best practice of 10
Theory and reality days, creating a working capital lag of 31 days. There is clearly an op-
Although the tools for liquidity management are often familiar, there portunity for improving the efficiency and visibility of trade flows, but
are invariably challenges which conspire to thwart initiatives to opti- a greater opportunity still is to consider trade flows and cash manage-
mize liquidity. ment flows together: by isolating trade finance and cash management
into separate departments or areas of responsibility, the potential value
Lack of centralization is reduced.
According to the SEB/gtnews Cash Management Survey 2008, a
surprising 28% of companies currently have a decentralized cash Creating a new reality
management structure, although the majority plan to centralize cash With significant potential in many companies for refining financial
management in the future, ideally on a global scale. While there are structures and processes to optimize liquidity, the next challenge is to
inevitable challenges in extracting cash from some countries, prag- identify and implement potential solutions.
matic use of cash management structures such as notional pooling
and cash concentration can deliver substantial benefits. Centralization Improving centralization
takes a variety of forms, and treasurers best equipped to unlock liquid- We are working with our clients to implement not only regional cash
ity are those who seek visibility and control over the cash held in bank centralization, but also global cash management strategies. At a
accounts globally, and the processes that contribute to working capital. regional level, with SEPA (Single Euro Payments Area) now in effect,
we see greater harmonization of cash concentration opportunities,
Lack of control over the financial supply chain leading to treasurers being able to take a more consistent approach
According to the same survey, the majority of respondents believe that to pan-European cash centralization. Although there are some excep-
the processes which contribute to working capital (such as purchase- tions, SEPA has not been a priority for most corporates, and most SEPA
to-pay, order-to-cash and inventory cycle) are average or good, with few flows we see today are cross-border payments as opposed to replac-
considering them to be ‘best practice’. ing domestic euro payments. SEPA presents two key opportunities to
corporate treasurers.
Although there has been a trend towards the expanding role of treas-
ury, only 24% of treasurers, according to the SEB/gtnews Cash Manage- Firstly, most companies today have local cash pools within each EU
ment Survey 2008, have a leading role in working capital management, country, with balances then swept into a central cash pool. Instead,
with 11% having no involvement at all. This creates a serious dilemma flows can be routed directly through a single, pan-European cash pool,
for treasurers: on the one hand, they are responsible for ensuring eliminating the need for local pools and cross-border sweeping, reduc-
sufficient levels of liquidity for the business, which requires a focus on ing costs and enabling far better intraday liquidity management with
working capital; on the other, they are not often in a position to direct more immediate access to funds.
Secondly, and a highly compelling proposition for many firms, is the
ability to centralize financial processes through shared service centres
(SSCs) across the Eurozone, based on consistent processes and message
types. Today, establishing pan-European SSCs and common processes
can be difficult due to the need to support local payment and collec-
tion types with a variety of formats and local requirements.

The opportunities for managing global liquidity are also increasing. In

some cases, this could mean cross-border cash pooling solutions, but
there can be challenges when dealing with non-convertible currencies
and regulatory restrictions in some countries. Achieving a global view
of cash, however, does not always require complex cash concentration
solutions. A treasurer ultimately needs global visibility, timely access and
the ability to mobilize cash globally. Bank connectivity solutions, such as
SWIFT Corporate Access, working with banking partners with the right Erik Zingmark, Global Head of Cash Management
international network and building a relationship with the bank can be
crucial steps towards achieving a global cash and liquidity strategy. payment terms or vendor financing arrangements there are many more
companies that could take advantage of this type of opportunity. There
Enhancing trade flows for process efficiency and are various reasons why treasurers and finance managers have chosen
liquidity optimization not to do so until now. Firstly, there may be a lack of awareness of these
For many companies with a heavy reliance on imports or exports, trade opportunities. Secondly, companies inevitably have limited resources.
finance is a crucial element of the financial supply chain. According to Setting up a financing programme takes time and resourcing, and
the results of the SEB/gtnews Trade Finance Survey 2009, however, only treasurers have to prioritize their activities. Thirdly, companies often
27% of companies take an integrated approach to trade and cash. Op- overestimate their ability to extend payment terms with suppliers, so
timizing trade flows assists considerably in risk management, process they do not consider that alternative financing has value for them.
efficiency and working capital. A payment impacts on the company’s
cash position equally, whether or not generated through open account Grasping the opportunity
or using trade instruments, and treasurers need the same visibility, As we have established, treasurers have a wealth of opportunity available
predictability and efficiency of cash flow to manage liquidity effectively. to them for enhancing liquidity, but they have limited resources available
By becoming an agent of change in cash management, trade flows and to them to deliver these improvements. Furthermore, with the liquidity
potentially also in procurement, the treasurer’s role becomes far more agenda influenced by different departments or subsidiaries, it can be
active in the business as a whole, and essentially becomes that of a difficult to gain internal consensus on what areas to prioritise, and co-
sales support function. ordinate resources from different parts of the business. SEB’s Corporate
Value Chain approach helps treasurers and CFOs gain a pragmatic,
Extracting liquidity from the financial supply objective view of their activities across the financial supply chain, and
chain identify projects that can deliver the greatest value. Since launching the
Every step of the financial supply chain represents an asset which could Corporate Value Chain, we have seen significant interest from clients and

SEB - An integrated approach to liquidity

be used as a means of creating liquidity. For example, invoices, trade implemented projects that have achieved substantial tangible benefits.
receivables or even purchase orders can be used as collateral for financ- With liquidity optimization likely to remain a priority for treasurers of
ing or cash flow enhancement. In an environment where companies of companies of all sizes for the foreseeable future, adopting a methodical,
all sizes have found it more difficult to source credit through traditional consistent and measurable approach to effective liquidity management
mechanisms, alternative financing arrangements can be a valuable tool. is a vital way that treasurers can add value to the business.

Another way in which treasurers can contribute to the core activities For further information, please contact
of the business is supply chain financing, which is an excellent way for
companies with a stronger credit rating to support their suppliers, with
advantages for both sides. Buyers benefit from longer payment terms
and therefore greater cash flexibility; suppliers gain earlier, predictable
payment and effectively a credit line from their buyer’s bank. One SEB
client, for example, a large buyer based in Sweden, has increased its
average payment period from 44 days to 77 days, without compromis-
ing suppliers’ cash flow, and indeed building stronger relationships with
them. For a company with a turnover of approximately Skr40 billion, Erik Zingmark, Global Head of Cash Management
this represents an important contribution to working capital. Email: erik.zingmark@seb.se

However, while we are seeing increasing interest in supplier financ-
ing and sales support financing, which could take the form of external
Table 2 - Nature and quality of the banks’ liquidity management offerings 2009

Bank Name Bank of America Barclays BNP Paribas Citibank Commerzbank Deutsche Bank

Key Advice and Work directly with Through in depth Cash Management Citi provides access We maintain high DB has a dedicated Tail
differentiators consultancy clients to optimize discussions with is strategic to BNP to our in-country professional cash Treasury Solutions det
in the nature support account locations, the business, Paribas. Liquidity and regional product management team th at reviews of t
and quality of ownership and obtain thorough is key. Dedicated and solution experts specialists locally in client account liqu
your bank’s appropriate liquidity understanding of cash management who provide regular each country as well structures, debit/ obj
liquidity management corporate liquidity experts are present industry advice as high professionals interest rates, intra- flow
management: pooling/sweeping flows and locations to at a central level and through client centrally. This enables day/EOD investments Inte
techniques to best determine the most locally to accompany conferences, webinars, us to analyse Treasury options and funding and
meet treasury efficient structure is clients through etc. as well as tailored organisations requirements. They are
objectives. provided to meet all stages of their advice to our clients finding individual analyze services to the
existing and future projects. on a one-to one basis. solutions for their create efficient and effic
demands. cash and treasury integrated working
management. capital solutions.

Implementation Assign dedicated For all stuctures An implementation The Citi team of Successful Implementation Ded
implementation agreed with our team (ISO 9001 project managers is implementation teams are local ma
coordinators as a customers, a project certified) will appoint highly experienced depends on excellent but with global com
single point of contact implementation a dedicated team in cash management project management. counterparts to stat
to manage global manager will lead to coordinate, and banking, covering Commerzbank address all business cov
solutions across all the implementation, implement and areas such as product provides a single requirements. boa
regions. working in integrate their management and contact during the Dedicated tim
conjunction with the customised liquidity development, delivery implementation implementation clie
corporate treasury management project. (operations and process. This will be managers are aligned and
and all areas of the client services) and achieved via close with each project. and
bank to ensure the technology. Each liaison with the Quality, support and
benefits are realised has successfully customer in order timeliness are key
as quickly as possible. managed the full to ensure high level components of our
implementation of implementation. Implementation
major global projects. process.

Customer service Assign dedicated local Through dedicated Our cash Client services All customers receive DB’s dedicated Fro
and support client service advisors relationship team management is involved with exemplary client operations area and acc
who coordinate with with electronic customer service the client during service from our account management in c
our client services access to liquidity is a centralised, the Liquidity team of professionals, services work with our tim
teams across the platform, supported multilingual, implementation whose performance clients to understand sec
globe. by cash management dedicated European phase ensuring a is key to maintaining their liquidity cen
specialist and support for our clients. seamless hand-off to process integrity structures. DB’s state
operational It is also ISO 9001 the team taking on- and security in all of the art technology
management team. certified. going responsibility Commerzbank to view/communicate
for service and systems. Of course we client’s activity on
technical assistance. additionally provide a real time basis.
This ensures our our customers with Extensive on-going
service team builds an help desks. training.
in-depth knowledge
of the liquidity

Services and Suite of global Our offering uses the A range of various Citi’s portfolio of State-of-the-art Extensive regional Con
products liquidity products and latest technology products from products span 100+ services and products: cash concentration pro
services addressing all to provide a full notional to physical countries offering • advanced treasury capabilities Bui
techniques. range of domestic pooling, one to several multi-currency, portal technology integrated into global app
and cross border countries, currencies multi-location, and • sophisticated cross- concentrations rati
liquidity management and banks. A strength multi-bank solutions. border (margin) structures. Full range mu
solutions, providing of the offer is Our clients take pooling of multicurrency, acc
automated liquidity reporting around the advantage of our • virtual accounts notional structures, com
management lending/borrowing ability to aggregate • intelligent payment third party bank glo
and reporting relationships their global liquidity, transaction, routing, integration and poo
functionality. delivered by mail: a create customized • conversion, and investment options to stru
value added service investments, processing compliment client’s for
flexible and adaptable supported by requirements. ma
to all client’s powerful information
configurations. and analytic tools.

The overall factor that distinguishes Bank of America’s A thorough Our global coverage Best-in-class Commerzbank Priority product Ran
your bank’s liquidity management global liquidity understanding of extends our cash solutions: well TREASURY supports area for investment liqu
solutions from your competitors: management liquidity management management over 7000 globally. centralised group and development ban
solutions are from a corporate capacities up to 70 These solutions treasury organisations over the next five acro
distinguished through perspective together countries all over the include access to with integrated years. Global and em
our industry-leading with the range of world. award winning aspects of subsidiaries’ regional connectivity. Tail
single global platform services, both single products including: requirements. In Integrated with ma
approach. and cross currency, to multi-currency combination with our full suite of and
enable our customers pooling (over 20 Dresdner Bank we transaction banking req
to manage their currencies), Citibank are offering an even products.
global liquidity Online Investments broader range of top-
positions. (22 countries/18 class services for all
currencies), and liquidity matters.
(superior analytics and

Source: Liquidity management banks. Copyright ©2009 J&W Associates

ank HSBC ING JPMorgan RBS SEB Standard Chartered UniCredit

ted Tailored solutions. A Dedicated team JPMorgan works with • Specialist liquidity Understanding our Dedicated liquidity UniCredit Group
ns detailed understanding combining short term the client to identify advisors in London, customers’ business management supports it’s customers
ws of the client’s business, and long term need the most appropriate Amsterdam, New York, is a key goal for SEB, specialists and by teams of experts
liquidity management analysis. The analysis solution so that the Chicago, Singapore facilitating personalised consultants to provide covering each cash
/ objectives and financial combines working relative importance of • Cross-regional solutions in cash customised solutions management &
ra- flows is obtained. capital management liquidity risk, yield and approach to management and SEB’s for each client based on e-banking related
ments Interactive pricing approach with convenience can be developing wider services. Our their specific objectives, topic. Based on regular
ding and solution scenarios liquidity management. consistently rebalanced investment strategies unique Corporate Value geographies, operations exchange of know-how
hey are presented listing Expertise and quick alongside their funding, and portfolios; strong Chain approach is a plus tax & regulatory and best-practice cases
to the benefits and answers respecting risk management emphasis on risk structured way to refine considerations to internally, we are able to
nd efficiencies. the risk profile of the and operational management financial structures and ensure viability and provide state-of-the-art
ing customer are our key requirements. • Single contact point processes. optimal benefit for the solutions.
. differentiators for pooling and client.

Dedicated project Implementations are JPMorgan has a global • Dedicated team Thorough project Streamlined & Implementation on
manager and performed by a team liquidity management implements all evaluation, detailed standardised global UniCredit Group
comprehensive of experts, all details are business with dedicated liquidity solutions project scoping, client documentation; level is coordinated
statement of works agreed upon with the teams of specialists in in agreement with disciplined project dedicated global by our customer
ness covering all on- customer and defined Europe, the Middle East, timelines and client management and implementation projects teams, which
boarding activities and in the “Implementation the US, Latin America requirements full accountability are manager as single point are available in each
timelines. Prefilling of charter” -including and Asia Pacific to • Skilled professionals vital components of of contact; professional country. Dedicated
client documentation timing - to avoid design and implement with an average of SEB’s implementation project management contact persons manage
gned and on site consultancy unpleasant surprises. liquidity solutions in 12 years’ experience approach, with methodology. day-to-day queries and
ct. and support. partnership with the implementing continuity of customer complex projects on
and client. complex liquidity knowledge throughout local and cross-border
ey structures. the implementation topics.
our process.

Front line dedicated Concept of Single Point The breadth of • Client service model Every SEB customer Dedicated primary The customer service
and account managers Of Contact (SPOC) expertise in liquidity structured to provide receives a level of point of contact for centres support the
ement in client’s region and is generalised in our across the globe clients with dedicated support appropriate to multi country support sales units and customer
th our timezone supported by organisation to help enables JPMorgan contact points at their needs. We have and 24x7 dedicated projects teams. Each
stand second line operational our customer in all the to provide timely, all levels in their advanced systems to global help desk for service from preparing
centres of excellence questions thay could localised support to organisation – locally, ensure transparency issue escallation; local documents, via internal
tate have around their multiple customer regionally and globally and responsiveness to language support for technical set-ups up to
ology liquidity management. segments including • First-line support support queries, and we local point of contact. reliability of the help-
nicate multi-national and services augmented are proactive in helping desk is managed there.
n regional corporations, by specialist liquidity customers to gain the
governments, central management support maximum benefit from
ing banks and sovereign team. our solutions.
wealth funds.

nal Consistent global As top player in the JPMorgan’s services • Strong heritage SEB has a collaborative Market innovators for Motivated by customers,
on product offering. market, we have enable clients to of innovation and approach to product emerging markets we develop new
Building block develop a large range manage liquidity risk, market leadership development, working solutions; broadest solutions within a short
global approach from account of products and notionally or physically, • Global expertise closely with customers coverage for cross period of time, e.g. being
rationalisation and continue to extend it, consolidate cash to leverage best to ensure that our regional liquidity first bank with cross-
ange multi bank on-line but our main focus is positions, and invest in practices from solutions address their management solutions border cash poolings
y, account reporting to answering customer a variety of instruments. different regions to real-life challenges. We on a single global with Poland (2005),
res, complex regional/ needs. This is where This is to maximize the launch new solutions leverage third party platform including Russia and Romania


global multi currency liquidity management value of cash, regardless around the world resources to help highly regulated (2009). Next to product
pooling and ZBA specialists bring value of treasury size or • Focus on extending refine our products countries; best bank for innovation we focus
ons to structures. Solutions to our customers. structure. services and adding and facilitate global liquidity management intensively on customer
nt’s for highly regulated functionality to meet adoption. in Middle East and support.
markets clients’ evolving needs. Africa.

Range and depth of One trusty advisor JPMorgan provides As a leading global For 150 years, SEB has The best bank for We offer multi-bank-
ent liquidity and wider combined with global liquidity transaction bank, RBS worked with the world’s liquidity management capable solutions,
nt banking solutions operational exellence. solutions to move, continues to be at the most sophisticated in and for Asia, Africa enabling our customers
e across developed and Combined with manage and invest forefront in developing corporations. We & ME with emerging to keep already existing
d emerging markets. our ability to be funds. We offer a broad innovative regional are committed to markets centric, global accounts at third party
tivity. Tailored solutions to the concentration range of investments, and global liquidity understanding our liquidity management banks. Our SWIFTNet
match client’s footprint bank (including the including J.P. Morgan management solutions customers’ needs, so we solutions that are fully for Corporates solutions
and local regulatory concentration from 3rd Asset Management that help clients unlock can tailor solutions to aligned with our clients are unique by having
king requirements. party banks) products and we and leverage trapped address real challenges growth profile. implemented this access
provide specialist cash to optimise their and deliver tangible directly in our new e-
support to clients in working capital. value across the banking software.
every region of the financial supply chain.

The new liquidity paradigm:
Focus on working capital
The economic crisis that has engulfed much of the world in the past two years has prompted
treasurers to take a more strategic view of their activities. While foreign exchange and interest
rate risk mitigation have long been considered central to the corporate finance strategy, in today’s
environment, liquidity risk bears equal significance for both treasurers and CFOs

The past two years have demonstrated that much of the liquidity l Within an industry, working capital patterns largely affect all, so there
previously taken for granted can disappear in an instant. Additionally, are few commercial benefits
the ability to raise funds quickly through money markets or borrowing
from banks is no longer guaranteed. This renewed focus on liquidity l It hurts long-term relationships in the supply chain, with suppliers,
has inspired treasurers to focus on better management of internal re- customers and distributors
sources to reduce reliance on external funding. In alignment with those
efforts, businesses are increasingly focused on leveraging opportunities l Working capital improvement initiatives can be left to individual
to optimize working capital and extract liquidity otherwise trapped business units and does not need a centralized, senior focus
internally within the business cash conversion cycle.
While these notions are widespread, there is compelling evidence to
However, evidence from Citi’s Treasury Diagnostics benchmarking sur- dispel these myths about working capital management.
vey, which collated treasury practices from 150 leading multinational
corporations in its first round, shows that there is a need for greater Citi’s Financial Strategy Group conducted an in-depth analysis of 22
focus. Measuring company effectiveness in the area of working capital working capital-intensive industries, covering 828 of the largest global
management, the survey found that it is one of the weaker performing firms. The analysis determined the following:
functions - relative to other treasury tasks, as well as on an absolute
basis compared to Citi’s research on corporate best practices. This infor- l Investors do care
mation is quite surprising given the heightened emphasis on liquidity
management in recent months and years. The 10% of firms who shortened their cash conversion cycle most
frequently over Citi’s five year analysis (top cash conversion cycle short-
Why improving working capital management eners) were rewarded by an excess return of up to 30%. Companies
is difficult with high liquidity and organic funding capacity relative to peers enjoy
Effective working capital management is the result of strategically coordi- significant equity valuation premiums.
nated initiatives across several processes, functions, entities and geogra-
phies. As you can imagine, this is no easy feat. Even for the most sophisti- l It is possible to grow top line and improve working capital
cated organizations, achieving sufficient levels of coordination is a challenge.
The top cash conversion cycle shorteners enjoyed sales growth of 700
Many organizations also face several self-imposed barriers to achieving basis points more than the worst 10% of firms, i.e., those that suffered
results. While the significance of working capital optimization is em- the largest working capital deterioration over five years (top cash con-
braced in concept – especially in the current environment – concerns version cycle lengtheners)
persist about the broader impact of tightening practices.
l The impact on the bottom line is significant
Some of the common misperceptions about working capital optimiza-
tion initiatives include: The typical company can improve return on invested capital by 84 basis
points by improving working capital efficiency by a quartile relative to
l Equity investors don’t really reward working capital efficiency its industry

l Working capital improvement initiatives (e.g., focusing on DSO im- l It is relevant even for healthy companies with strong access
provement) hurts top line growth to financing

l The impact on the bottom-line is limited The typical investment grade company stands to gain 78 basis points
on return on invested capital by improving working capital efficiency
l It is of limited relevance for healthy companies with strong access by a quartile relative to its industry
to financing
Extracting liquidity from the cash conversion cycle

Extracting liquidity from the cash conversion cycle

Cash management
Procure to payment cycle Order to cash cycle
Processes & structures

Purchase order Invoice Sale Invoice

Cash Payment Cash inflow Cash

outflow issuance Firm application

Streamline accounts payable Streamline cash management Streamline accounts receivable

Supply chain processes Processes and structures Supply chain processes

Release liquidity

l Working capital trends differ markedly across close peers and m Coordination of payment cycles improve cash forecasting and
improvements offer many competitive benefits liquidity management

There is a sizeable disparity in cash conversion cycles within industries. m Automation provides real-time information and analytics allow-
The median difference across industries in cash cycle between the first ing for better decision-making

CITI - The new liquidity paradigm: Focus on working capital

and third quartile is 62 days, with the most tightly distributed industry
having a dispersion of 29 days. In fact, both the top cash conversion The combination of process centralisation and associated technology
cycle shorteners and lengtheners were evenly distributed across support can have powerful impacts.
l Additionally, firms in a stronger financial position than their
Getting results vendors can sponsor supplier financing programmes through a
While there is always a balance to strike between improving working relationship bank partner. Suppliers selected for the programme
capital management and commercial practicalities, once companies
accept the effectiveness and overall benefits of good working capital
management, the next question is how that goal can be achieved.
Relationship banks help firms collect, invest and pay out cash along
the financial supply chain in three broad areas: procure to pay
Citi’s Global Liquidity
(associated with accounts payable), order to cash (associated with
accounts receivable) and treasury and cash management processes.
Management capabilities
Consequently, they are critical partners in the realisation of working
capital management improvements, for example in accelerating the Citi’s Global Transaction Services offers innovative, end-to-end
cash conversion cycle. Doing so involves focusing on the compo- global liquidity and investments solutions that help you centralize
nents of working capital and addressing each individually: and invest your cash. Our solutions link global working capital
management, liquidity management, and a full range of short-term
l Procure to pay refers to the collective set of processes that begins investment services to maximise yields and control risk.
with issuance of purchase orders to suppliers and ends with payment
to these suppliers. Many companies have procurement processes With an on-the-ground presence in over 100 countries, and having
that are managed at a business line or subsidiary level across many implemented more than 7,000 liquidity management client
markets and do not benefit from centralized internal processes and solutions, Citi has unparalleled experience and the capabilities to
technology – for example, shared service centres – and banking ar- help you achieve your objectives – from local to regional to global.
rangements. Doing so generates several benefits:

m Consolidation reduces processing costs, bank fees, and errors

“If you run out of liquidity
you haven’t got much else”
By Elyse Weiner, managing director and global head of
liquidity and investments at Citi
From mid-2007 onwards, as market conditions deteriorated, liquidity
risk rose in treasurers’ and CFOs’ estimation until it became regarded as,
perhaps, the primary risk facing a company.

As access to capital markets dried up, banks simultaneously began to

shrink their balance sheets and many companies had no choice but to
turn inwards to self-fund by improving liquidity and working capital
management practices. Even many highly-rated companies, able
to raise cash through the worst of the financial crisis, demonstrated
a preference to fund internally where feasible. This is a significant
change in mindset from the period before the crisis. Now, there is clear
acknowledgment of the risk - if you run out of liquidity you haven’t got
much else. The key is to retain flexibility to adjust to evolving business
and financial circumstances.
Elyse Weiner, managing director and global head of liquidity
Many companies miss opportunities to release liquidity through and investments at Citi
improving working capital management by not thinking broadly about
the implications for the entire cash conversion cycle. For example, a
take advantage of the creditworthiness of their buyer to access
sole focus on payments efficiency fails to address liquidity implications
relatively cheaper financing through the bank. Export Credit
or supply chain risk. Or, a change in pricing strategy supported by the
Agency financing programmes supported by governments in many
procurement department might impact treasury’s foreign exchange
countries have further helped increase banks’ appetite to provide
risk management and liquidity planning.
such financing.
Treasury has come of age as the owner of corporate liquidity, with
responsibility for applying a corporate finance mindset to drive holistic As a result, the buyer can receive extended payment terms. The
working capital management initiatives across the firm. While it lower-cost financing provided to vendors also strengthens business
remains important not to dictate to operating subsidiaries on issues relationships for the longer term – having the buyer’s relationship
that are best managed at the business level, there is recognition that bank in the chain provides greater comfort to the vendors than
effective liquidity and working capital management is of firm-wide traditional, one-off, factoring programmes. This can feed back
importance. into more advantageous sourcing costs for the buyer. Therefore, a
supplier financing programme has the potential to transform what
Banks are integral to the process of improving these practices. As would otherwise be difficult discussions between a buyer and their
financial intermediaries, banks can intermediate between buyers vendors on better payment terms into a win-win outcome for all.
and suppliers to help both achieve their goals. For example, a trade
financing solution can provide liquidity to suppliers, while allowing l Order to cash refers to processes on the revenue generation
the sponsoring company to conserve cash by extending days payable. side, from customer order fulfilment to the receipt of cash and
Similarly, a global cash centralization and pooling structure enables the application to outstanding receivables. As the number of custom-
company to allocate internal liquidity more effectively across operating ers and distributors involved in cross-border trade has increased,
entities and thereby reduce external funding. many companies have ended up with processes that are even more
fragmented than on the procurement side. By centralising and
At Citi, we leverage our experience and expertise to help clients assess automating this process, firms enjoy several benefits:
and realise potential opportunities, by engaging with them in in-depth
information-gathering on their current practices and operating proc- m Improvement in timeliness and predictability of cash
esses across treasury and commercial activity. The first objective is to collection by eliminating float in internal processes as well as in
identify gaps and risks inherent in their current operating environment. banking procedures
By clearly identifying sources of risk, or areas where performance sub-
optimal as compared to their peer group, we can then help identify m Reduction in internal process costs and banking fees
means by which to mitigate, offset or negate these risks and improve
performance. The solution may involve recommended changes in the m Enhanced decision-making from improved information
client’s internal structures, processes and technology platforms, as well and analytics.
as the application of Citi capabilities to enable the client to optimize
their liquidity and working capital management in an integrated way. Also, through receivables portfolio financing and distribution financ-
ing programmes, firms can support sales growth without extending
Good working capital management is an effective liquidity lever and the cash conversion cycle. The seller partners with a relationship
the impact of improvement is measurable and substantial: we’ve seen bank, which purchases selected customer accounts receivables on an
large multinationals enjoy a reduction in working capital requirements ongoing basis. The bank typically also provides automated servicing
of up to 30%, translating to 2-3% EPS accretion.
Treasury Diagnostics: Measure to Manage
In surveys by Citi, many treasurers expressed a desire to improve Balance Sheet
how performance is defined and measured. With measurement l Financing/capital structure
essential to management, Citi’s Treasury Diagnostics research m Debt, equity, credit rating vs. target

identified some of the key performance indicators used by l Internal liquidity

leading treasuries: m Cash, short-term investments, and long-term investments

vs. target
Income statement l Working capital utilisation efficiency vs. target
l Interest income vs. benchmarks m Mobilise and centralize cash for all fungible currencies

m Money market funds (benchmark set by currency) m Minimise trapped cash in regulated countries

m Bank time deposits (by currency and tenor) m Bank overdrafts – minimise frequency and amount

m Demand deposits (by currency)

l Interest expense vs. benchmarks Other

m Short Term Debt – mostly floating rate l Counterparty exposures vs. limits
m Long Term Debt – fixed and floating rate l External liquidity
l Bank fees vs. budget m Bank credit lines utilized vs. available

l Foreign exchange gain/(loss) – Realised and unrealised l Internal funding vehicle financials

l Contingent liabilities (parent company guarantees, bank

guarantees, surety bonds)

and reporting tools. The seller may also choose to give its customers l Limited global visibility into cash positions and flows, which
more advantageous payment terms, in turn enabling them to extend makes it difficult to do effective cash forecasting, liquidity planning
their days payable outstanding to the seller. and risk mitigation

The use of financial intermediaries can create a win-win situation l Ad-hoc funding and repatriation of cash between subsidiaries,
and strengthen relationships in the supply chain. The seller is usu- which hinders efficient up-or down-streaming of cash within the
ally able to increase sales to existing customers without maintain- organisation and leads to unnecessary external funding costs or
ing and financing more and more receivables on its balance sheet. foregone yield.

CITI - The new liquidity paradigm: Focus on working capital

The related technology tools also enable the seller to better moni-
tor and mitigate credit risks. The seller can also offer its customers Where these sub-optimal practices exist, the consequence is that
more competitive payment terms, which enables customers to pools of liquidity are trapped within the system and firms struggle
continue to buy using the liquidity gained between purchase with monitoring and mitigating foreign exchange, interest rate,
and payment. and counterparty credit risks. To overcome these inefficiencies,
treasury departments are working with global banking partners to
Cash Management consolidate financial institution operating relationships, rationalise
Leading treasuries are taking the lead in driving working capital im- and integrate cash management processes, and using bank
provement initiatives. As a first step, this is about embedding ‘cash and technology platforms to support global cash visibility and
flow’ and ‘liquidity risk’ thinking into the responsibilities and incen- centralization.
tives of business functions across the firm. But many treasuries also
need to look inward to assess the adequacy of its own operations.

Most companies have centralized decisions relating to corporate For further information, please contact
finance, capital markets activity, and foreign exchange hedging.
Cash management, on the other hand, has often been regarded as
a tactical function that is best managed at in-country levels for rea-
sons of commercial considerations. With the increasing importance
of liquidity, more and more treasuries are moving toward fully cen-
tralized approaches to cash management. In doing so, companies
are eliminating many persistent sub-optimal practices, such as:

l Too many operating banks, which limits purchasing power and

fragments internal liquidity


© 2009 Citibank, N.A. All rights reserved. Citi and Arc Design and Citibank are trademarks and
service marks of Citigroup Inc. or its affiliates, used and registered throughout the world. All
other trademarks are the property of their respective owners.
Figure 1: Nyrstar local USD pooling and overnight investment sweep
US cash concentration account structure Global USD cash concentration

Local cash Local cash

Global USD Local partner-bank
concentration & concentration
cash concentration relationship in Australia
investments in New York in Singapore

4 3 2 1


Investment of
excess cash

Nyrstar Finance Nyrstar Finance

International NV International NV
(operating a/c)
ZBA into ZBA into
concentration concentration
account account
Nyrstar Sales Nyrstar Nyrstar Sales & Nyrstar
& Marketing Ltd Clarksville Inc Marketing Ltd account’s
(operating a/c) (Operating a/c)

Deutsche Bank Trust Company Americas New York Deutsche Bank AG Singapore DB Partner bank Sydney
Source: Nyrstar

Advice and consultancy support Asian energy company

All of the banks claim they work closely with their corporate clients to A fast-growing energy company headquartered in Asia with opera-
determine the most appropriate liquidity management structure and tions in the US, Europe, Asia, Latin America and the Middle East has
processes to meet the company’s objectives. Examples of the advice recently rationalized the account structure and cash flows of about 20
and consultancy support they offer include ongoing industry advice, a of its Asian and European entities. Before the new structure was im-
focus on the client’s end-of-day investment and funding options, build- plemented the company had managed around 60 US dollar accounts
ing their clients’ attitudes to risk into the liquidity management solution, held with multiple banks, which failed to optimize its dollar position
developing company-specific customized solutions and having a close across entities and time zones.
regard for differing tax and regulatory considerations around the world.
The company implemented a cash concentration account structure
Implementation with JPMorgan for US dollars from its Asian and European operations,
Cost-effective liquidity management solutions require high-quality, opening one account for each of its 20 entities. The accounts are
speedy implementation. All the participating banks provide dedi- maintained with JPMorgan in New York and are used primarily for pay-
cated implementation managers and teams using well-proven project ments. The company also maintains local currency accounts in Asia, as
management techniques. BNP Paribas offers an ISO 9001 certified im- well as some dollar accounts. Cash from the regional dollar accounts
plementation team. Other banks stress the importance of experienced is swept into the concentration account in New York each day and
staff to carry out implementation and the balance between local and surplus cash is invested overnight.
central implementation staff.
This classic liquidity management structure has enhanced the visibility
Customer service and support of cash flows from the group’s regional entities, improved the manage-
Once a liquidity management solution has been implemented, cus- ment of cash flows across time zones, reduced the number of banks
tomer service and support are vital. BNP Paribas offer centralized, multi- by more than 60% and improved the yield on dollar cash balances by
lingual, dedicated, European, again ISO 9001 certified, support. All of the centralizing investment. The company is now looking to extend this
banks appoint a single customer service contact point for each liquidity solution to cover all its entities in the Western Hemisphere.
management solution. Considerable emphasis is put on the provision
of ongoing training and the integration of specialist liquidity manage- Global metals group
ment support into the customer service team and on 24/7 support. Nyrstar is a leading global multi-metals business, producing significant
quantities of zinc and lead plus other products including silver, gold
Services and products, and distinguishing factors and copper. Nyrstar claims to be the world’s largest producer of zinc,
The liquidity management services and products the participating with plants in Europe, Australia and the US.
banks provide are all very similar. The descriptions of their overall
distinguishing factors therefore offer the only insight into their thinking Nyrstar is introducing a new business organization, in which the metal
and strategies. (from the concentrate to the finished product) is owned by a central
commercial entity. The metals business is primarily US dollar-based
Global liquidity solutions and dollar accounts have been set up for making and collecting pay-
The basic model of classic global sweeping, either with or against the ments in Australia, Singapore and the US. Nyrstar uses a Belgian legal
sun, and multi-currency pools typically located either in New York or entity to manage centrally the local collections and payments and to
London, provided by the large global network banks is now beginning concentrate globally and invest the funds in the US market. The funds
to be being used innovatively in the Middle East and Asia-Pacific. are managed by the group’s corporate treasury HQ in Belgium using
Deutsche Bank’s db-direct online portal to monitor all dollar accounts visibility of cash required to support expansion and achieve scal-
and transmit payment instructions. able growth so TAQA began restructuring its treasury management
function. Early in 2008, as part of this exercise, Pricewaterhouse-
The group’s daily cash concentration processes and flows, Coopers was appointed to help TAQA set up a Global Treasury
as shown in Figure 1, are as follows: Centre to cover all countries and currencies. A treasury centre was
l surplus US dollar cash at partner banks in Australia is transferred established in Amsterdam to handle operations, including all cash
via db-direct to Deutsche Bank Singapore; payments and receipts, though invoices are still processed locally.

l end-of-day Singapore time, all available funds are zero balanced In October 2008 Citi was appointed as the single global liquidity
into a local concentration account; management structure and processes bank provider, which were
implemented in the spring of 2009 and include:
l surplus cash is transferred intra-day to the pool at Deutsche
Bank USA early morning New York time, so these funds can be used l domestic cash management services in each country of opera-
for daily payments or overdraft cover; and tion covering almost 30 legal entities;

l end-of-day New York time all available funds are zero balanced l a global liquidity structure with a multi-currency notional pool
to the local concentration account. Excess cash is invested in London;
l daily sweeping of cash balances to optimize returns and reduce
This new Global USD Cash Concentration structure has achieved financing costs;
Nyrstar’s objectives of increasing the efficiency of its collections
and liquidity management, maximizing straight-through processing, l host-to-host payment and reconciliation connectivity to TAQA’s
reducing the cost of processing, and improving the overall visibility SunGard treasury system; and
of its cash management.
l the use of the CitiDirect Online Banking platform to provide full
Major Middle Eastern energy company visibility and management of group liquidity.
Abu Dhabi National Energy Company (TAQA) is a leading United
Arab Emirates company with revenues of $4.5 billion in 2008. It has The solution, which includes both intra- and cross-regional concen-
a portfolio of businesses in the Middle East, North America, Europe tration of currencies, has enabled TAQA to pool both UAE and core
and India in upstream oil and gas pipelines, gas storage, power currencies, see Figure 2. It is the first major global liquidity structure
generation and water desalination. TAQA has grown rapidly over in which the Middle East is central, both as a source of liquidity and
the past two to three years through overseas acquisitions and has through the extensive use of the local currency, UAE dirhams. Doug
ambitious plans for further expansion. Fraser, chief financial officer of TAQA, says: “By choosing Citi, we are
– gaining access to its high-calibre expertise, global footprint and
Figure 2 TAQA liquidity management organisation, funds flow and pools
In 2007 existing decentralized treasury organization systems and Source: Citi local knowledge. Citi was able to provide us with a solution that
procedures were failing to provide the liquidity management and was flexible and matched the needs of our company.”

Figure 2: TAQA Liquidity management organisation, funds flow and pools

Global treasury centre Cross currency notional pooling

based in The Netherlands London


Treasury Treasury Treasury Treasury Treasury GUIDE TO LIQUIDITY MANAGEMENT
TAQA Entity
North EUR
UKPJSC Netherlands






➟ 15
Source: Citi

Continued on page 18
Working capital and
liquidity management:
safety first
Losses in the US sub-prime market have had a global impact on corporate liquidity, which has
driven corporate treasuries to take measures ranging from squeezing internal liquidity to tighter
risk management of banking relationships. These and other initiatives were discussed during
the ongoing series of thought leadership forums organised for senior Asian corporate treasury
personnel by Standard Chartered Bank’s Transaction Banking team

The sub-prime debt crisis has obviously had a profound effect on If corporates are moving their surplus cash to the short end, the exact
economic activity, which in turn has fundamentally affected the way in opposite applies in the case of their borrowing, where the overwhelm-
which corporations are managing their working capital and liquidity. In ing trend is to lock in liquidity for as long as possible. This has become
many cases, existing approaches to risk, investment and funding have particularly apparent in areas such as trade finance, where companies
had to change radically to cope with a new and very uncertain world. that typically roll their requirements over on a three or six month cycle
are now trying to fix rates and commitments beyond three years.
Bank liquidity
One of the most noticeable environmental changes for treasurers over Liquidity structures
the past 18 months has been the drastic reduction and repricing of bank Other sources of liquidity, such as commercial paper and bond issuance,
liquidity. One consequence of the government bail-outs of certain global have also been drying up. As a result, treasuries have again been focus-
banks has been the pressure on those banks to concentrate their lending ing on maximizing the availability and utilization of internal liquidity.
in their domestic markets. In conjunction with the more general decline
in lending confidence among banks, this has resulted in refinancing rates However, attendee consensus at the forums was that only those compa-
increasing, despite lower base rates. nies with intercompany loan and in-house banking structures already in
place could quickly implement processes to enhance internal cash flow.
Against this backdrop, treasurers are taking various steps to protect their Unfortunately, many corporations that considered establishing in-house
existing bank liquidity sources. A common strategy is to increase the banks in recent years decided that the expense could not be justified, as
frequency of contact and disclosure with banks in order to enhance their bank lending was then cheap and accessible.
comfort factor. Another strategy is to pre-empt the possible withdrawal of
unused credit lines by drawing on them even if they are not immediately With the benefit of hindsight, any review of the merits of such projects
required. The negative margin achieved after depositing this surplus cash would be wise to take into account both the prevailing environment and
is seen by some treasurers as a liquidity risk premium well worth paying. a stressed environment. It would have been easier to get such projects
approved if the benefits of such a structure were considered in the con-
One bright spot amid the current liquidity gloom is the role of local text of a liquidity drought.
banks. Many local banks in Asia had minimal or no exposure to sub-
prime and also have strong retail deposit bases. (For example, in China Trapped cash
local banks hold some 90% of all retail deposits.) They are therefore in The question of trapped cash was inevitably a significant part of attend-
a stronger position as regards both liquidity and lending appetite. As a ees’ discussions and there was a fairly immediate consensus that in Asia
result, both multinationals and large Asian companies are supplement- this was simply a fact of life. Nevertheless, there were various courses of
ing some of their global bank relationships with additional local banks action open to treasury that could help minimize the problem. One basic
for both funding and transactional business. requirement was to remain abreast of current regulation in each country;
no small task in view of the fact that it was constantly changing and that
Liquidity timelines frequent shifts in interest rates were increasingly unpredictable.
Given the uncertain market conditions it is perhaps understandable
that treasuries have become very focused on maximizing the immedi- The next step lay in understanding how this mix of shifting regulation
ate availability of liquidity. To some extent this goes hand in hand and interest rates affected what was actually possible in terms of liquid-
with risk management, but the overriding concern is to have as much ity management. In this respect attendees identified the overwhelming
instantly-deployable cash as possible. Short-term balance sheet cash need for a tool (possibly bank-provided) that would allow them to model
levels that would have been seen as inefficient two years ago are now the benefits of a regional/global pooling structure incorporating what-
regarded as provident. ever was permissible in each country.
Trapped capital The major shift to the short end of the yield curve
While the question of trapped cash is a common concern for treasuries
in Asia, the forum attendees also discussed the problem of trapped capi-
tal in considerable detail. Corporations hold substantial inventories in
restricted countries as well as plant and equipment, which they regard as
trapped capital. As liquidity from global banks has evaporated, treasuries
have turned to local/regional banks and have been able to leverage the
value of their trapped capital assets as collateral to support new local
lending from these banks.

The discussions also covered the question of how the trapped capital
issue might influence the choice of business models for new markets.
The conventional model of putting plant, people and equipment in a
restricted country to expand the business might be ill advised at present,
as the valuable capital involved would then be trapped. A possible alter-
native was the distributor/agent model, which would support expansion
plans but without needlessly tying up capital.

Bank advisory
The discussions relating to trapped cash and capital also covered the
advisory role that banks needed to play in these areas. One attendee
outlined her corporation’s approach to this. “We have two categories of of such profiling has increased significantly, with several forum attendees

STANDARD CHARTERED - Working capital and liquidity management: Safety first

bank: day-to-day transaction banks and relationship banks,” she said. “We now monitoring their counterparties on a daily or intraday basis.
expect the latter to network with governments and regulators on our
behalf. Local banks can help to influence local regulation, which is invalu- This increased frequency has been accompanied by a change in the data
able - especially in countries such as India and China.” used. Conventional credit ratings are now largely seen as irrelevant by
larger corporations, as they are far too lagging an indicator to be of prac-
There is an expectation that relationship banks will also provide early tical use. Stock prices, market caps, general daily news and (especially)
warning of pending or proposed regulatory changes. In the current credit default swap rates are generally seen as far more relevant for this
environment, with governments likely to be making more frequent purpose.
changes to protect tax revenues, this is particularly critical. As a result, a
corporation’s overall opinion of a banking partner tended to be heavily Conclusion
influenced by its perception of its regulatory relationships. If a bank was Current treasury liquidity strategies give an overwhelming but entirely
frequently in the headlines for infringing regulations then this did not understandable impression of extreme caution. Yield is of far less im-
bode well for the quality of its regulatory relationships, to say nothing of portance than it was, and in virtually every respect cash availability and
the potential risk of ‘guilt by association’ when using that bank. de-risking are the main priorities.

Customer liquidity risk That aside, for corporations active in Asia, trapped cash and capital
With liquidity tight, most corporates are experiencing opposing settle- remain major priorities and this is where they increasingly look to their
ment pressure from suppliers and customers. Apart from attempting to banks. Whether it is in encouraging more relaxed regulation to release
shorten credit terms, more suppliers are requesting letters of credit and existing cash or providing early warning of tighter regulation to avoid
advance payments. On the other side of the fence, customers are seeking further cash/capital entrapment, banks are expected to deliver. With
longer credit periods. liquidity currently at such a high premium, those that do are likely to find
themselves rewarded.
This has been a factor in growing concern over the liquidity implications
of customer settlement risk. To minimize this, some corporates have
been keen to increase direct debit usage by their customers. As a result, For further information, please contact:
there has been growing interest in bank outsourcing tools that relate to
large-scale management of direct debit portfolios.

The ideal is to have a consolidated enterprise-wide picture of all cus-

tomer direct debits that allows portfolio-level metrics on risk exposure.
This obviously also provides early warning of any likely defaults and
liquidity shortfalls.
Richard Challinor
Managing Director, Transaction Banking
Bank liquidity risk Standard Chartered Bank
When it comes to investing surplus liquidity, the emphasis is now very Email: Richard.Challinor@sc.com
much on SLY (security, liquidity, yield - in that order). To minimize the Tel: +44 20 78857134

default risk of deposit-taking institutions (as well as customers), treasur-
ies have radically overhauled their risk profiling methods. The frequency
New specialist solutions balances via multi-bank sweeps with pool surpluses swept to the home
Well-established basic structures, processes and systems are now being country to minimize short-term debt. The company also had a large
applied to solve differing liquidity management problems such as mini- overdraft limit and even larger intra-day credit limit including some
mizing the severest impacts of the credit crunch and the development intra-country limits.
of the first Islamic liquidity management solution.
The solution RBS now provides has led to the company enhancing its
Surviving the credit crunch internal processes and cash flow control to reduce the use of intra-day
Over the past 18 months RBS has been helping corporate clients to credit limits and bank pre-funding and the earlier release of funds to
adapt their liquidity management structures and procedures to cope fund the company’s European pool. The company’s in-country limits
with the changing liquidity environment. have been considerably reduced but still cover 90% of cases with the
modification of in-country ZBAs to work on an intra-day basis and,
One client was able to preserve its liquidity structure, enable its subsidi- where suitable, the replacement of automated structures by manual
aries to maintain access to liquidity and remain in full control of its cash structures.
balances even though bank funding was greatly reduced.
Phillip Lindow, head of global treasury and investment management
Before the credit crunch the company had a euro and US dollar at RBS, says, “For each of these clients we were able to work with them
notional pool in Europe with a significant overdraft limit, in-country ac- to identify ‘pain points’ in their cash pools during the day, and adapt
counts in several countries in Europe with an overall material intra-day our solutions to assure that intra-day and end-of-day liquidity were
limit and an end-of-day ZBA to a central pool. The impact of the credit deployed as needed.”
crunch was decreased spend and a weak short-term outlook, which
led to a downgrading of the company’s credit rating and a significant The first Islamic banking liquidity management
reduction to its bank group’s credit support. solution
In mid-2009 Standard Chartered Bank (SCB) developed the Middle
The solution RBS provided includes preserving the company’s liquidity East’s first fully Islamic liquidity management solution for a Middle
structure using its credit balances to cover the reduction in its overdraft Eastern conglomerate with diverse business interests including auto
facility, in-country cash balances replacing intra-day credit lines ena- dealerships, real estate, leasing, interiors, logistics and IT consultancy
bling subsidiaries to maintain access to liquidity and ZBAs remaining across the region. The conglomerate’s liquidity management objectives
end-of-day but with early morning automated funding transactions to were to implement single-point, real-time visibility of all bank account
send cash from concentration to operating accounts. balances, streamline account structures to improve operational ef-
ficiency and optimize liquidity management through cross-border cash
A second client suffered a major business slowdown, which meant it concentration and enhanced yields.
needed to reduce its use of bank facilities. Working with RBS it was able
to enhance its processes, achieve greater control of intra-day funding These are not unusual objectives for a liquidity management structure.
requirements and eliminate dependence on overdraft limits. The challenge for SCB lay in developing a notional pool made up of Is-
Figure 3 – Middle East Conglomerate lamic
’ s Islamic Liquidity accounts.
Management Thisand
Structure required significant changes to SCB’s systems and
Funds Flow
Before the credit crunch the company had dozens of accounts in a calculations. SCB’s dedicated Islamic banking product team advised
global overlay account structure in RBS branches and other local banks on the changes required to the core banking, liquidity management
around the world, a cross-currency notional pool into which the com- and reporting systems to make them fully Shariah-compliant with the
pany’s RBS branch balances were swept via ZBAs and other local bank Islamic banking concept, murabah.

Figure 3: Middle East Conglomerate’s Islamic liquidity management structure and funds flow

Islamic A/C Dubai


Islamic A/C Overdraft level Islamic A/C Islamic A/C Islamic A/C

Zero balance or
target balance
Sub A A/C Sub A A/C Sub B A/C Sub B A/C sweep Sub C A/C Sub D A/C Sub D A/C

UAE, Dubai Oman Qatar

Source: Citi

Source: SCB
Figure 4 – The Expanding Range of Liquidity Management Solutions

Figure 4: The expanding range of liquidity management solutions


Complete global FSC liquidity management solution

covering all organizations’ cash flows and liquidity

Integrated liquidity management across Integrated liquidity management across


many companies in supply chain many companies in supply chain

Integrated liquidity management across Integrated liquidity management across

a few companies in supply chain a few companies in supply chain

Integrated liquidity Integrated liquidity Integrated liquidity

management/company management/company management/company

Internal External Internal External Internal External

liquidity liquidity liquidity liquidity liquidity liquidity
Solution range

Source: J&W Associates © Copyright 2009

The liquidity management structure, shown in Figure 3, has an overall range of regional liquidity solutions;
Islamic holding account with an overall credit limit shared between the
lower-tier Islamic accounts. The Islamic accounts are held in Dubai. l asset-based funding instruments, such asSource:
J&Wchain finance
Associates and 2009
© Copyright
The solution operates as follows: other collateralized trade instruments, providing new sources of
liquidity; and
l regular payments and collections are made from the standard
transaction bank accounts (called sub-accounts); l increasing use of real-time cash visibility services as demand for
intra-day control of liquidity grows.
l the sub-accounts are zero balanced at the end of day and the funds
transferred to the Islamic accounts; and Overall, liquidity management is likely to change little over the next
12 months as the full implications of the credit crisis continue to work
l the Islamic accounts participate in the notional pool with fully their way through the corporate sector. There are two things every-
offset debit and credit balances. one seems to agree on. The first: the significant benefits of surplus
cash not only in reduced financing costs but also in higher sales and
This new fully Shariah-compliant structure has enabled the Middle growth, and higher equity valuations; the second: the establishment
Eastern conglomerate to simplify its account structures and manage- of a new norm for best practices in liquidity management.
ment, and to offset its credit and debit balances in different countries
and currencies without incurring FX costs. The key elements to this new-style liquidity management are slowly
emerging. Liquidity management solutions already cover both the GUIDE TO LIQUIDITY MANAGEMENT
The future of liquidity management external and internal liquidity of a company or group, but new solu-
There is more or less general agreement that over the next 12 months tions do not stop there, they are beginning to cover the liquidity and
developments in liquidity management structures and practices are cash flow management of other organizations in the financial supply
likely to include: chain, as shown in Figure 4, though they still have a long way to go.

l financial service regulators having a greater impact - eg, new regu- Banks are beginning to focus on working capital and liquidity across
lations from the Singapore authorities on moving monies off-shore; the financial supply chain. As Erik Zingmark, global head, international
cash management, SEB, explains, “Our SEB Corporate Value Chain is a
l continuing contentiousness of the tax and regulatory validity of structured approach to help companies identify, prioritize and deliver
sweeping and pooling structures; improvements to processes across the financial supply chain, from
supplier to customer, releasing working capital and creating additional
l increased bank charges; value.” Combine this ‘corporate value chain’ with the classic liquidity
management structures and processes described in Euromoney’s 2009
l the wide use of notional pooling; liquidity management survey and here lies the future. Other banks
call it total global liquidity management or comprehensive liquidity

l the continuing decline of the mono-bank global liquidity management but, whatever the name, it has now become the ‘wholly’,
management structure, replaced by growth in the number and as in the whole financial supply chain, grail of liquidity management.
Leading the way...
…for more than a decade Euromoney Magazine’s annual Technology
in Treasury Management Supplement has been the leading annual
review of developments in international cash and treasury
management services.

The supplement includes a review of the international cash

management services offered by the seven global network banks,
leading regional cash management banks, numbering at least 60, and
the banking clubs, providing unparalleled information on the products,
services and strategies of the banks in all five regions of the world.
For many corporate treasury departments it is the starting point for
researching the banks they will choose to provide their international
cash management services. In the 2010 supplement, several new banks
will be added to the survey, which will also include a review of how
companies are managing to survive the current credit crisis.

The 2010 supplement will again focus on the opportunities for

corporate treasury departments to exploit the new and emerging
technologies and services to improve their cash and treasury
management efficiencies. The reviews of the latest developments
in payment systems and of cash, treasury and risk management
technologies, and in the financial supply chain will describe
opportunities for companies to cut cash management processing and
operational costs, and reduce their exposures to the various types of risk.

Euromoney Magazine‘s Technology in Treasury Management

Supplement is an essential reference document for all companies
whatever the scale of their cash and treasury management

Published: March 2010

For more information:

Visit www.euromoney.com
Call: +44 (0) 20 7779 8882
Email: mcarrodus@euromoney.com

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