“Cash is King” I recall my first manager said to me early on in my career. At this time I was a junior portfolio manager. Back then yield was a priority for our customers and with high interest rates the bank was also taking a handsome spread, everyone was happy. The expression seemed an obvious one, with banks placing money out on behalf of their customers in the market rather than leaving money on the bank’s balance sheet, where they would earn close to zero or even negative interest, and this was easy revenue for customers.
So, 23 years on, through the dot com crash and the global financial crisis, as well as the ongoing challenges due to the current pandemic, my understanding of that expression has matured. What matters is liquidity, rather than just being cash rich. It is about security as well as yield. Customers are looking for this middle ground and expect banks to provide solutions supporting their requirements.
Cash should not only be available, but working hard until the time it is required. It is about having sufficient, reliable liquidity to address everyday settlement and operational demands. Having cash available at the right time, in the right place sounds simple. However, for many corporates cash management is often complicated by their size and geographical spread. Multi‐nationals typically operate across a number of time zones, dealing with different legal and regulatory regimes, and having to manage a number of data formats and reporting requirements.
On top of that, the pandemic had a number of impacts on both banks and their customers, when it comes to cash and liquidity management. Corporate customers were looking to their banks more than ever to provide timely access of information, transparency on cash positions across multiple entities and markets to effectively manage liquidity across the group. The more digital the corporate treasurers were, the better equipped they would have been to manage their operations.
What the pandemic has shown is the agility to adapt to changing circumstances is achievable, and that remote treasury is something that works, is practical and provides flexibility. It has also highlighted, digital needs to be front and centre, manual operations need to go.
The corporates who most successfully navigated the initial challenges will have been with banks who were also best prepared and were already providing a digital service to their customers. Such banks offered the best of breed cash management solution to support customers of all sizes through both assisted and unassisted channels.
As corporate customers evolve so too will the future of working capital management. While the pandemic has highlighted the importance of effective working capital management, we are a long way from “post-pandemic”; so the full impact is yet to be seen. But it remains a top priority for companies to have efficient working capital strategies in place to ensure they have available liquidity at the right time in the right place, 24/7.
It is critical to ensure corporates are operating as efficiently as possible by increasing visibility into its assets and liabilities. By monitoring these factors in a proactive, real-time way, businesses put themselves in a better position to make sure they have the cash flow necessary to meet both debt obligations and short-term operating costs. By analysing the data, banks can develop robust insights to issue not just timely alerts but also contextual recommendations. This will help free up working capital, mobilise cash and reduce FX exposures.
The impact of the pandemic will also make treasurers rethink how they maintain optimal levels of cash. Prior to the pandemic these levels would have been much lower to keep the company running during a regular business cycle. However, they may need to keep additional liquidity to survive these types of events in the future. Managing cash levels isn’t easy though, supply chains are a complex ecosystem of suppliers and buyers. Companies need to understand their supply chains well to be able to proactively manage any disruptions and mitigate impacts on working capital.
No two companies are created in quite the same way – the working capital needs of all organisations will naturally differ, meaning there’s no one-size-fits-all approach to working capital management. The size of a company, its structure, and its long-term business strategy will all impact working capital needs. As treasurers around the world struggle with the challenges of liquidity management, they are turning to their banks for support to leverage new technologies in treasury and play the role of true partners. Banks with truly digital services will not only be best positioned to support corporates through changing circumstances but will be considered a strategic partner. And the right strategic banking partner should be able to give a corporate access to a wealth of transactional and account information, enabling the customer to optimise processes and costs.
Banks in over 100 countries rely on Finacle’s industry-leading Cash Management Solution suite to fast-forward their digital cash management strategies.