RegionsAsia PacificCash Managment in Vietnam

Cash Managment in Vietnam

Vietnam’s ‘Doi Moi’ reform programme, which began in 1986, and the country’s acceptance into the World Trade Organisation (WTO) in 2007 have produced a transformation that is exceeding the expectations of the Vietnamese and the international business community alike. Foreign direct investment (FDI) has grown ten-fold in three years, leaping from US$6.8bn in 2005 to US$64bn in 2008. Vietnam has changed significantly since it opened its doors to the world – it now has a more cosmopolitan, fast-paced and commercially-driven energy that is welcome, but for many unfamiliar.

The transformation extends to the country’s financial infrastructure. As recently as late last year, the centralised interbank payment system was available only in five major cities and provinces. In early 2009, this was expanded to some 20 key areas and, at the time of writing, now covers the entire nation. The widespread availability of broadband services is boosting Internet banking, with small and medium-sized enterprises starting to initiate remittance instructions online instead of filling out paper forms at bank counters. Strong government support for e-commerce and the availability of advanced and inexpensive front-end and back-office technology to support financial transactions and information delivery are also helping Vietnam leapfrog cash payments and bypass cheque payments entirely in favour of e-payments.

However, these indicators belie the challenges faced by both multinational corporations building a commercial presence in Vietnam and also large local companies that are looking to raise their levels of competitiveness. In particular, companies seeking to manage their cash more efficiently will be surprised to find that, despite the progress, many traditional payment practices still remain. The issue of hiring and retaining talent in the executive grade and those with relevant experience also poses difficulties. The impact of these exceptional conditions has been amplified by the recent volatility in the financial markets, creating challenges for company treasuries operating in or overseeing Vietnam and opportunities for cash management banks to provide help with tried and tested solutions.

The Leap to e-Payments

Should a corporate treasury focus solely on its administrative function of expense controls and accounting, or should it take a more active role in business growth by managing financial risk and helping to increase sales and marketing? In more recent times, the latter view has prevailed. Perhaps the most obvious and tangible way that the treasury function can support sales is to ensure that customer or distributor payments are efficiently collected and correctly accounted for in terms of the payment transaction and the entity making the payment.

This is easy to take for granted in a still largely cash-based market like Vietnam. Many industrial companies have dealers, distributors and customers willing to travel to their headquarters and wait in line at their warehouses to pay for wholesale orders with bundles of cash before collecting and leaving with the merchandise. Clearly, in this situation, the need for an efficient collections solution and, consequently, the identification of the buyer and reconciliation of the purchase are not necessary.

However, with Vietnam leapfrogging the cheque era and businesses gradually remitting and receiving commercial payments via electronic bank transfer, the ability to identify payment issuers and the corresponding transactions becomes more difficult. This development is further compounded by the fact that fewer establishments are paying cash upfront due to the tighter liquidity environment. The ability to provide credit terms is becoming a matter of not just keeping dealers and distributors interested, but keeping them afloat and operationally viable.

The process of collecting reconciliation data at the point of customer payment has been challenging for most large companies operating in Vietnam. For one thing, at the bank counter level, many banks in Vietnam are new to performing a data acquisition function in addition to regular deposit-taking services. Consequently, many ad hoc solutions require bank tellers to enter payer and invoice information, which have the additional problem of human error. In some cases, such over-the-counter payment transactions omit any form of captured reconciliation information altogether.

Yet the need for the vendor to accurately and consistently retrieve payment information at the same time as payment is made has a domino effect on counterparties in the supply chain. Take the case of dealers and distributors who have hit the ceiling of vendor-granted credit limits for merchandise purchases and are therefore eager to make payments when sales are brisk in order to maintain their turnover momentum. If payment is made successfully, cash flows into the vendor’s account. But if the data required by the vendor to record the payment and subsequently reinstate the buyer’s credit line is either not submitted or not acquired, the buyer’s credit line remains fully used. Under such circumstances, as far as the vendor is concerned, any additional sales on credit to the buyer concerned will not be forthcoming.

Provided this occurs in isolation, the impact may be minimal. But a systemic data-acquiring deficiency may affect the ability of both the vendor and the distributor to generate additional sales. Furthermore, the overall turnover will slow down, potentially feeding into the entire supply chain, whether in revenue opportunities lost, cash flows bogged down by accumulation of inventory, or other related problems. This underscores the need to make a consistent and accurate data capturing solution an essential part of any collections initiative proposed by any cash management bank in Vietnam.

Collections Efficiency During Rapid Expansion

Even corporations with an experienced workforce and appropriate systems in place for efficient cash collection and reconciliation of receivables can still face problems. Unless these are replicated across the country in line with a business’s expansion, any business looking to capitalise on economic growth in Vietnam may run into delays in benefiting from the opportunities arising in areas outside their main operating sphere.

There are two possible scenarios. The first arises when dealing with one or two banks that, collectively, have limited coverage in Vietnam (especially the case of a foreign bank). Should a company choose to expand its business in an area not yet serviced by its existing banks’ branch networks, it is advisable to establish a new relationship with a bank that has a presence in or close to the target area. However, for minimal disruption, the new bank should be able to provide the same collections services as the company’s core banks. In a country where most local banks are still coping with the rudiments of providing cash management services, encouraging companies to change banks could be a challenge.

The second scenario is where, rather than dealing with another bank, the treasury manager chooses to wait for the existing banks to set up an acceptable arrangement with the new bank for sweeping funds back and providing information on the new collections transactions. Essentially, this will allow replication of the existing satisfactory working arrangements, which is the preferred situation. While this could prove the most successful option in the long run, if the existing banks have no existing arrangements in place with the newly appointed bank, this could take time and effort from all parties to implement, potentially slowing business expansion and wasting time and resources.

Looking at both scenarios, the best solution may be to adopt an overlay bank structure, whereby the company appoints a single bank as an overlay bank to manage the receivables from a number of local collections banks. The overlay bank manages the operating arrangements with the local collections bank and provides an efficient collections flow and standard-format data feed to the company. This is particularly effective if the overlay bank has already established working arrangements with a good number of local banks, resulting in a larger network of alliance-based branches.

Hiring and Retaining Talent

The issue of employing quality staff, although not specific to cash management, is faced by almost any company operating in Hanoi, Vietnam’s capital and political centre, or in Ho Chi Minh City, its financial and commercial hub. The difficulty of sourcing and retaining talent is less related to supply – Vietnam has a long and excellent academic tradition – than to demand, with more than 771 global corporations setting up in Vietnam in 2007 alone. This has put a strain on Vietnam’s supply of skilled and white-collar workers, and has resulted in a scramble for capable managers and executives, resulting in very high employment turnover among their ranks.

Aggravating this problem is the difficulty of retaining talent already in place, owing to the absence in the local market of trust-based loyalty and pension management funds. If such funds were introduced by companies on behalf of their employees, this would be a compelling incentive to long-term staff retention.

In the absence of both professionally managed funds and appropriate investment outlets, some banks have started to offer simple term deposit-based services, which provide a straightforward administrative outsourcing option rather than professional fund management and yield maximisation. Given the lack of diversity and sophistication of investment options, any reasonably competent company treasury could manage its employees’ investment portfolio in this manner with relative ease.

In addition to offering such term deposit-based fund administration services, other banks in Vietnam commonly work with their corporate customers’ human resources divisions to provide employees with financial benefits that otherwise only employees of banks could take advantage of, e.g. subsidised personal loans, preferential account services and enhanced payroll services. For the company, this broadens the spectrum of benefits that they can offer their employees, giving them a wider range of tools for making both staff recruitment and retention more effective. From the bank’s point of view, offering such programmes to corporate customers can lead to the acquisition of individual customers, thus boosting its retail customer base. These programmes benefit everyone – the corporate customer, its employees and the bank.


With management skills in short supply in Vietnam, retaining experienced staff is becoming an issue for most, if not all, multinational companies and some large local companies. A range of employee benefits such as loyalty funds and preferential banking services (e.g. asset acquisition financing) offered to employees, in partnership with a bank, can offer an edge in retaining talent.

In addition, since cash-based transactions have been the norm in Vietnam for decades, little if any urgency has accompanied the concept of delivering information for effective reconciliation of collections transactions. However, with rapid growth hastening the migration to electronic transfers and tight liquidity giving rise to lags in the collection of payments, the need for building effective post-payment reconciliation into any collections solution can no longer be ignored.

Companies operating in Vietnam and building a nationwide sales presence would do well to consider an overlay collections bank model, which, while more typically associated with regional or global treasury centre activities, can be applied to resolve the problems of inconsistent cash collection and data gathering by a host of different banks throughout Vietnam.

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