In today's global economy, maintaining visibility and control of dispersed cash can be a challenge. Faced with the complexities of managing cash globally, treasurers and CFOs find themselves facing a myriad of issues, including the need to centralize cash, multiple systems that don't provide a consolidated view of balances, trapped cash, and the need to rationalize bank accounts and providers.
Reviewing your global treasury structure can reap many benefits, including increased visibility of global cash for reporting purposes and for forecasting; a simplified account structure; enhanced efficiency; freed working capital or idle cash, which allows for self funding; and cost savings from lower bank fees; reduced operating costs; headcount savings; and reduced technology costs.
Here are some steps to take to gain maximum impact from a review of your treasury structure:
- Build the business case — with quantified benefits and milestones. Begin by assessing the current state in your organization, including staffing levels by location, gaps or challenges, (such as countries or entities not supported) or decentralized processes. Areas that often lend themselves to centralization are FX, interest rate and commodity risk management; funding and investments; bank relationship management; and intercompany netting.
- Obtain key stakeholder support. Senior management, local legal entities and risk management should be committed to establishing a centralized global treasury structure - and be involved early in the process. Highlight potential opportunities for savings and their associated quantitative and qualitative benefits.
- Identify the right resources and scope the project. For centralization to have a clear impact on your organization, it's important to have the right people on board; a cross-functional team, which includes information technology, legal, risk management and others, is essential. Clearly outline the resources that will be needed. Work with subject matter experts to complete the structure design — then vet it with tax and legal advisors. Once you have established policies, set up guidelines and clearly communicate them to all stakeholders.
- Rationalize bank account structure. Narrowing the banking group to global and regional credit providers is a key step to achieving efficiencies and cost savings.
- Establish your benchmarks. Take an inventory all operational and/or financial processes. Assess the potential cost savings, expanded capabilities or efficiencies expected. Set targets with milestones for periodic assessment of progress versus quantitative and qualitative goals.
- Standardize and automate processes, including cash concentration. To enhance efficiencies, it may be necessary to eliminate manual processing and subsequently realign resources from manual tasks to more strategic ones. An automated cash concentration structure can also help ensure your company has the cash it needs, where it needs it.
- Employ a phased implementation strategy. Many companies approach implementation on a regional basis to gain a better understanding of best practices before rolling out a solution globally. They first test the effectiveness of different models and then roll them out to similar markets.
How It Can Work: A Real Life Example
When a diversified multinational mining corporation with a presence on six continents wanted to increase control over its global cash, it had several goals. These included better management of its liabilities; reducing borrowing facilities and bank accounts; ensuring compliance with Sarbanes-Oxley; controlling cash balances from a central location; and having access to real time cash balance reporting. Before embarking on its global restructuring, it performed a detailed account structure review of a single country as a pilot. The corporation's plans call for:
- Implementing a cash concentration structure up to its parent company, will free up over $60 million in idle cash for reinvestment in the business, equating to $8.7 million in annual savings.
- Centralization to a global or regional hub. The company is consolidating its funding and investment, FX risk management and intercompany loan management structures. FX spread savings are expected to reach $150,000 a year. The centralization also increased the efficiency of its management structure, which will add over $400,000 in potential annual savings.
- Relocating all global USD balances to the U.S., which will result in about $140,000 in Days Sales Outstanding savings.
- Reducing the number of bank providers and bank accounts. The company reduced the number of bank accounts by more than 30 percent, achieving a $58,000 annual reduction in bank fees.
- Reducing the amount of operating cash. The company has reduced its operating cash by more than 80 percent.
The end result: The company has identified potential annual savings totaling over $9 million.
For More Information
Knowing where to find the cash in your organization is essential to monitoring, managing and controlling cash, especially in today's low interest rate environment. A comprehensive review of your organization's treasury structure can help meet a number of objectives - perhaps the most important of which is ensuring that your company has the liquidity needed to manage your business as a going concern.
If you would like more information on how to conduct a comprehensive review of your treasury's structure, contact J.P. Morgan Treasury Advisory Solutions at 212-552-0766 or your Treasury Services representative.
