Using the Internet to Maximise Liquidity
Today’s highly competitive international business environment makes maximising internal efficiencies in terms of liquidity management a critical element of business success. Nowhere is this more the case than in large organisations with many subsidiaries operating in different countries where too often cash is with the company’s banks rather than being deployed effectively within the group.
Yet the very complexities and costs of achieving this have been major factors in stopping companies from realising these efficiencies. But the paradox of cash management for big companies, operating a large number of international sites, is that the greater the apparent complexities, the higher the rewards.
Traditionally cash flow forecasting has been a sea of inefficiency. Time consumed with collating disparate information from geographically dispersed subsidiaries, often in the form of faxes or emailed excel spreadsheets, could be better spent in analysing how best to manage the business. And an efficient process could help to have a more accurate picture of a company’s liquidity position at any given moment.
The Northern European bank SEB has developed an internet-based cash forecasting information collating tool – Webforecast – that could change this cash forecasting inefficiency. Developed in close consultation with clients, the internet-based tool supports optimised liquidity management and stream-lined processes across multiple banks and countries.
The first step in efficient liquidity management is to consolidate a wide range of geographically dispersed data, only then can a company work up the forecasts it needs to manage its liquidity position to its advantage. Intranet technology plays a critical role here, saving time, improving accuracy and ensuring that the same processes are used throughout the organisation. This dramatically cuts the time and effort needed to consolidate forecasts and allows cut off times to be met.
The key to the practical use of a webforecasting tool lies in its ability to free up time for company treasurers to do more constructive analysis of the business, SEB says.
Erik Zingmark, Global Head of Cash Management Sales at SEB, believes the difference between traditional cash flow forecasting and webforecasting is the ability to get all the information via the Internet in a manner where it is updated. “The difference is that you can access all your bank account information, at all your banks, instantly and through one system – no matter what bank you work with globally. To that you can add the information you have in your Enterprise Resource Planning (ERP) system and add any other information you choose,” he says. This, he says, is what webforecasting is all about. While an ERP system would be needed by an organisation for a range of other information – for a pure liquidity calculation and analysis using a webforecasting approach could be more appropriate it seems.
According to SEB using the internet to deliver a solution to treasurers facilitates instantaneous information consolidation and reporting, allowing a group treasury to get fast and reliable picture of the cash and liquidity position from across its domestic and international subsidiaries.
Zingmark says “Traditionally what happens is the treasurers get some kind of excel report from their subsidiaries, and in some cases they have made a macro which aggregates that information into the parent company’s treasury system.” But there can be different kinds of problems with getting information in this way. Zingmark says “one problem is that the excel spreadsheet itself, sent by the subsidiary, is manually compiled meaning that you have aggregated a lot of errors in your reports.” This he says does not occur with the webforecasting method because you have eliminated most manual entry into the data when setting up the system. And of course you get an online report accessible 24hrs a day, for the whole organisation.”
Zingmark adds “what we have seen is that companies are really trying to move from this excel world into a more efficient, automated way of gathering cash flow information and are trying to make it as efficient as possible so that they can provide a timely and accurate liquidity position to senior management.” He adds that cash flow forecasting is becoming an increasingly pressing matter for companies – but he believes that not all companies had the strength or resources to implement an efficient system.
Zingmark says that the tool has been developed and designed solely for calculating a company’s liquidity position and says that it covers aspects of forecasting not usually available through ERP systems.
Gerth Svensson, Global Head of Cash Management at SEB believes this approach would be of benefit to those companies who have not fully integrated their subsidiaries into their ERP system. And he thinks that harnessing the power of the Internet for cash flow information is a good example of a solution that enables treasurers to streamline their treasury and cash management procedures to make them more cash efficient, and have more control. Contingency reasons and Sarbanes-Oxley compliance too, he says, are other factors driving the demand for sharper liquidity pictures and related controls within all companies.
Using this web-based tool means that all bank account balances are imported into the system and reporting units import information from ledgers giving the group treasury instant access to the raw data. Even though the system, due to its flexible structure, can be structured almost along any organisational dimension, it is often intentionally orientated towards the subsidiaries as these typically have the best information for forecasting purposes. Once all participants have submitted forecasts, the consolidation is performed automatically, allowing the group treasury and the subsidiaries to see projected balances available at each bank. The tool builds upon recognisable windows interfaces. It needs just one installation to make the system available across the entire group’s intranet and there is no need for any form of local installation among reporting units.
Zingmark points out that the webforecasting process makes the liquidity management a two-way dialogue between group treasury and its reporting subsidiaries, which he says could improve the awareness of cash management and liquidity throughout the organisation. According to SEB this is especially important for subsidiaries in terms of performance evaluation – they can clearly see how well they are doing with their forecasts.
Once a week, each subsidiary forecasts its expected inflows and outflows on a daily basis. The period of the forecast can vary but is typically for four weeks in the future with the later weeks reported on a total week basis. SEB collects information on all bank account balances both in SEB and in other banks. Every day the group treasury imports all this information into the system. Each subsidiary can then undertake a short review of its daily forecast early each morning and submit more accurate information to the group treasury.
But of course freeing up time for the treasurers to do more interesting business reporting with their time means that the role of the treasurer in this era of new technology is changing rapidly says Svensson. “The role of the treasury is changing as are the roles of the CFO and the finance function. The new technology really enables the treasurer to be much more involved with business support.” He believes that technology empowers treasurers in a practical sense because instead of spending time on compiling spreadsheets and on manual work they now have more time to focus on business objectives. He is adamant that it is this extra time that will allow treasurers to provide better decision-making for senior management. “I think the move from transactional processing to more automated processes allows better control and decisions to be made.”
The practical reality of having to cut costs in treasury is of course forcing the use of technology in smart ways. “For treasurers to be able to cut costs and at the same time fulfil all the business and regulatory requirements, while having access to succinct decision-critical information, there really is no alternative but to include new technologies, streamline processes and increase the degree of automation within treasury,” says Svensson.
Illustrating this he points to how streamlined and technologically empowered some treasury departments can be, saying they have the ability to provide better information in a more timely manner to senior management – this providing better control over the business. And this must be the aim of any treasury department.
In Svensson’s eyes technological advancement is not the key to cutting edge treasury practices – although undoubtedly they are a part of creating that environment. It is his belief that the essential thing is a proactive mind-set from the company’s senior management. “Implementing a tool is just that – it is not rocket science – but you must have the proactive mind-set to be able to use that tool effectively.” The challenge he says is to turn the function of the finance department around and for it to become more oriented towards business supporting activities. “If you just implement this technology not much will happen. You need someone who understands how to use it and really make something out of it. So it’s not really a technological challenge – it is having the right mind-set – it is the business thinking that is the important factor,” he said.
