Improving Visibility of Cash During Critical Times: Leveraging SWIFT for Corporates
The current economic downturn has focused immediate attention on the importance of cash management and real-time visibility of accounts among corporations of varying sectors worldwide. During this troubling time, sales among corporates are dropping, stock values are declining, cash reserves are drying up, and banks are placing more stringent constraints on borrowers. All these factors are forcing more corporates, which have poor cash and liquidity management processes, into bankruptcy.
Effective cash and liquidity management is extremely crucial at all times. Corporates must enhance their internal processes and centralise their global treasury functions throughout their geographically-dispersed operations, branches and subsidiaries worldwide to achieve accurate and real-time visibility of their global cash balances and positions. Effective treasurers should be able to identify, in a timely manner, how much cash is available and where this cash is located, ensuring liquidity whenever required and reducing the need for unnecessary borrowing.
It is inevitable that obtaining real-time and accurate financial data within a corporate is critical in assessing its present financial statements and future financial forecasts. This real-time data has a tremendous effect on the business decisions conducted by its management, determining whether a corporate’s operations will continue to flourish or begin to deteriorate.
Centralising global treasury functions, however, can be extremely difficult, especially among large corporates that maintain numerous corporate/bank relationships worldwide. As each bank imposes its own communication channel, whether host-to-host connections, e-banking systems, telex and fax payment systems, etc, integration of accurate and reliable financial data from varying sources into a corporates’ central and global treasury system becomes a great challenge. Corporations maintaining numerous communication channels with their correspondent banks will observe that these heterogeneous channels do not integrate smoothly with their internal applications. On the contrary, they can add great inaccuracies, loss of important financial data and the need for manual re-keying, causing inadequate levels of automation and significant operational risks.
Additionally, it is important to note that the cost for maintaining numerous communication channels and operating different standards and formats that are imposed by each correspondent bank requires a substantial investment. Corporations must therefore seek a cost-effective solution that would improve access to accurate data, while increasing the levels of automation and straight-through processing (STP).
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) offers the ability to overcome these constraints to corporates that operate beyond the financial sector by using the common standards it has long developed, and by offering a one-time admission to a global community of financial service providers. Corporates can now replace their multiple communication setups and use SWIFT as their sole, standardised and secure communication channel, which is already well-recognised by the entire financial community.
In 2008, SWIFT was offering secure and standardised messaging services to over 8,900 institutions globally, carrying an average of 14.5 million standardised messages a day and numerous payment instructions, over its network. As these figures continue to rise, so does the interest of joining SWIFT among corporations worldwide. During the first quarter of 2009, more than 441 corporations were already registered with SWIFT, including Microsoft, Nokia, GE, DuPont, Shell, Total, Ford, T-Mobile and Novartis.
Why Join the SWIFT Network? Some of the key benefits that SWIFT corporate customers receive include:
Maintaining numerous communication channels requires significant investment from corporates. This constitutes the one-time and ongoing cost for purchasing the required hardware and software components, in addition to the substantial hidden costs associated with training, maintenance, support and operating each of the diverse communication channels, standards and formats.
There is, of course, a certain investment involved for corporates joining SWIFT. But this cost can be recouped when communicating with an unlimited number of correspondent banks globally. Additionally, with SWIFT, corporates can free up their internal resources and dedicate their efforts to maintaining one standardised solution and global format.
Corporates are expected to comply with strict and highl- demanding regulations that are constantly evolving. Deploying a single interface is more efficient and secure than using multiple systems, as it simplifies audit processes, enhances STP rates and improves risk management.
As the interest in joining SWIFT among corporates increases, major treasury andenterprise resource planning (ERP) vendors are working on integrating SWIFT with their own applications. ERP and treasury vendors, such as SAP, Oracle, SunGard, WallStreet Systems, etc, are currently capable of generating messages in SWIFT format. This allows corporations to integrate with SWIFT seamlessly and eliminates the need for manual re-keying of data. Corporates that wish to continue using systems that are not SWIFT enabled, may resort to SWIFT-recognised partners for integration services, which can deliver the same level of automation, without the need of altering their existing applications.
By using SWIFT, corporates are capable of centralising their financial data into one system repository in a timely manner. Centralising global treasury functions allows institutions to achieve better visibility of accounts, while treasurers have access to more reliable and accurate data. This helps organisations better understand their cash needs and requirements and allows treasurers to take prompt action for managing their cash efficiently.
Once the initial SWIFT infrastructure is in place, corporates have greater freedom and flexibility in selecting their correspondent banks from a global pool of financial service providers, at no additional cost. This will inevitably put greater emphasis on the quality and competitiveness of the products and services offered by the banks to their corporate customers.
Once you have developed interest in joining the SWIFT network, you will need to select one or more of the three SWIFT corporate access frameworks. Your choice will depend on your current needs and the eligibility in meeting certain criteria. The three SWIFT corporate frameworks are:
Additionally, depending on messaging needs and anticipated volumes, a treasurer will need to consider whether the organisation should join SWIFT directly or outsource its SWIFT connectivity and infrastructure to a SWIFT-certified service bureau provider.