Overcoming Roadblocks to Accurate Global Liquidity Management

One of the most common roadblocks to managing global liquidity effectively is decentralisation through acquisition. Often when a company makes an overseas acquisition, the acquired company continues to operate autonomously with the banking relationships and processes in place prior to the acquisition. Acquisitions can double the number of banking relationships and bank accounts a company has overnight. Managing numerous accounts can be complex and cumbersome. As the business attempts to adapt to the extended account structure post acquisition, inefficiencies that impact the ability to achieve economies of scale – which are the objective of most mergers and acquisitions – emerge.

In a decentralised environment, corporate treasury teams may rely on emails and spreadsheets to communicate cash positions and track transactions on a daily, weekly, or even monthly basis. Not only is this time-consuming and inefficient; it virtually assures there will be idle cash. The opportunity cost is effective liquidity management.

Another roadblock is divergent goals. Local staff are often focused on increasing sales and being profitable. Treasury is focused on managing the organisation’s global resources to achieve strategic goals. Treasury should manage treasury, not sales teams or field personnel for precisely this reason: they do not share the same goals and motivators. Here are two examples.

Local staff in Germany maintain a higher cash cushion than necessary for their operations because they fear that, should a need for cash arise suddenly, corporate treasury will not provide the needed funds in time. Allowing autonomy, corporate treasury doesn’t question the excess balance nor does it utilise this resource to address a funding need in the UK. To manage liquidity, corporate treasury accesses external financing when it could, instead, create an intercompany loan. Alternatively, treasury may overlook attractive investment opportunities when global cash resources are not readily accessible.

In the second example, corporate treasury relies on the staff of their French subsidiary to repatriate when a target balance is reached. The French staff may view this as a simple accounting transaction. However, if corporate treasury is managing the repatriation of funds from the French subsidiary, they look beyond the accounting transaction to address one of their main objectives – risk management of foreign exchange.

A third roadblock is lack of resources. This can result in outdated processes and systems that divert treasury’s attention and potentially provide an inaccurate cash position. Treasury teams have difficulty focusing on the company’s overall strategic objectives when they spend hours upon hours logging on to multiple banking platforms, working with slow internal systems, and coping with manual processes such as waiting for bank statements in post mail.

Seven Tips to Overcoming Liquidity Roadblocks

If you are a company that finds yourself facing one or more of these roadblocks, don’t be discouraged. Many of your peers are in the same situation and fighting the same battles. To help you overcome these roadblocks and move toward managing global liquidity more efficiently, let’s review several basic and achievable actions you can start implementing today.

1. View the company’s cash position in a centralised, global manner. One way to accomplish this is to concentrate cash in as few accounts as possible. This can help minimise foreign currency exposure, overall cost of funding, and the risks associated with thin capitalisation.
2. Take ownership of global treasury. Increase oversight and control from corporate headquarters. Don’t rely on local staff, especially those in a sales role, to manage local banking relationships and achieve strategic working capital objectives. This is corporate treasury’s role.
3. Maintain a centralised and current list of all global bank accounts, authorised signers, and bankers – even those with minimal activity. With turnover in employees and banking relationships, it is vital to know who and how to contact if necessary.
4. Communicate. Communicate with local staff on a regular basis to ensure everyone in the organisation understands corporate treasury’s goals and objectives and how they can assist in achieving them.
5. A common phrase often overlooked – leverage technology. Convert manual processes to electronic. Minimise the time it takes to collect information by channeling information from financial partners directly into accounting and general ledger systems. You don’t have to have a costly ERP system or software-based treasury workstation to effectively leverage technology and manage global cash. For example, banks now offer online workstations and SWIFT access with minimal barriers to entry. In an environment where treasury staff is shrinking or expected to take on more responsibility, leveraging technology is more important than ever.
6. Know what is available. Attend local, regional, or national treasury events and speak with peers. Meet with your banking partners and keep up to date on products and services they offer to help global companies manage cash.
7. Re-evaluate your global account structure. One size does not fit all. Local in-country accounts, while necessary for some companies, may not be necessary for others. Consider if in-country accounts are truly necessary from a tax and cash management perspective. Can you utilise multi-currency accounts or a combination of both to achieve economies of scale at a global level? Remember that simplicity is key to gaining global visibility, reducing fees, and increasing ROI.

In today’s economic environment, the need for transparency into your global liquidity position is more important than ever. Decisions you make regarding cash management, risk management, and working capital management are all affected when global liquidity is not correctly utilised. Fast and reliable information is necessary for today’s treasury teams. Implementing one or all of the suggestions above can alleviate the frustrations treasurers face daily. With all of your available cash at work, you’ll be free to focus on your organisation’s overall strategic goals.

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