Optimising liquidity solutions

Rising interest rates are putting the focus back on liquidity. Treasurers need to ask: Do we have global solutions? Visibility? Control? Are we concentrating all available liquidity? Visibility and accessibility of group liquidity will become a top priority, and liquidity optimisation will help treasurers achieve control and improve their working capital. Doing so can help ease liquidity and funding pressures.

It’s estimated that global multinationals tend to hold at least 30% of liquidity in idle cash.³ By running an effective liquidity structure, treasury can free up these surpluses and leverage them to reduce reliance on short-term debt.

Leverage virtual accounts

Treasurers are also turning to virtual accounts for comprehensive cash management. Virtual accounts can help simplify, centralise, and rationalise account structures across regions and entities. Businesses can streamline reporting thanks to real-time visibility across multiple currencies and use data to strategically deploy cash. Additionally, simplified structures can lead to greater control and decreased operational risk, which is paramount in a fast-changing economic environment.

Efficient payment processing

In general, Nordic companies have innovative and efficient payment processes, leveraging ISO XML, Swift centralized connectivity and POBO for the majority of their payments. The focus has shifted to manual payments, where cash management systems and increased treasury management system (TMS) functionality can further increase efficiencies. Mervi Piirainen, former Head of Treasury Operations at Stora Enso and current VP of Treasury Services at J.P. Morgan, said it best: “Using humans as interfaces between systems is not an efficient use of their time.”

Treasurers must also focus on specific payments in local markets, which may be more time consuming than other automated payment types. For example, tax payments are often a manual and time-consuming process. Similarly, cross-border payments in regulated markets are often manual and can require supporting documents, which local finance teams need to provide. Such support is time consuming and inefficient. J.P. Morgan has developed global and regional solutions that can help automate payments for both tax payments and cross border payments in markets like Brazil, Mexico and India.

Securing working capital

As geopolitical tensions rise and the global economy continues to face significant headwinds, implementing a structed working capital solution is of increasing importance to unlocking liquidity and building resiliency within the supply chain. Supply Chain Finance and Inventory Finance are two working capital solutions that can work together to help protect supply chains from turbulent market conditions, providing agility to ensure long-term financial stability for businesses.

With inflation at a 40 year high⁴, consumer buying habits are changing, leaving many businesses with an excess of inventory. Inventory finance can help businesses hedge and expand, moving from inventory “just in time” to “just in case.” One learning coming out of the pandemic is the importance of building inventory buffers, allowing for critical stock levels to be maintained to overcome disruptions by reducing supply chain risk. Though a business may have a surplus of inventory now, it is important to have the inventory available in the event that market conditions rapidly change. Inventory financing solutions provide businesses with the ability to take inventory surplus “off-balance sheet,” freeing up working capital with the assurance that inventory buffer is available to pull in when needed.

Real-time visibility

Nordic companies are typically trailblazers when it comes to treasury and cash management innovations and digitalisation initiatives, but that isn’t the case when it comes to leveraging real-time transactions and API reporting. The main reason these real-time capabilities haven’t been universally adopted by Nordic companies is that they have efficient ERP, TMS and Cash Management System setups for direct connectivity between banks and these systems. They need banks to work with system providers to use real-time transactions and reporting.

One example of successful real-time transaction reporting is Norsk Hydro, which was recently awarded the Adam Smith Award for Best New Technology – Highly Commended.⁵ Norsk Hydro incorporated real-time balance and transaction reporting from their J.P. Morgan accounts directly into their SAP systems via APIs, which increased visibility and improved cash forecasting.

Trapped cash

Unlocking trapped cash is a priority for many Nordic treasurers and cash managers. For example, it is becoming a key consideration for companies expanding their renewables footprint to new markets in Asia where capital controls make funding and liquidity management challenging. Local expertise is becoming critical, and it is even more important to select a partner that can advise corporates in these markets. J.P. Morgan has a history of supporting clients with solutions in such markets, including developing a cross border cash pooling solution in Saudi Arabia.

Direct to consumer

There are many Nordic companies that are on a journey to transition the business model from a distributor model to a direct to customer model. For instance, Volvo Cars has announced that it will sell all cars online in an effort to automate the buying process.⁶This trend isn’t limited to consumers; J.P. Morgan is seeing B2B sales moving away from distributor models to interact directly with buyers. Some, like truck manufacturer AB Volvo, have an online presence to promote their own products. Others like Vestas are creating marketplaces where they sell third party products and services in addition to their own.

Regardless of industry or size, selecting a bank with proven innovation success⁷ can help businesses in the Nordics balance reliability and opportunity while evaluating new business models. From handling third party funds to evaluating global commerce trends, J.P. Morgan is a leader across the payments ecosystem with global reach and local expertise to help support Nordics corporates.