Are you corporate clients demanding a more holistic treasury solution?

The global economy is in a state of flux. International trade has been beset by the extreme volatility of currencies. Following the US government shutdown, the US Dollar fell to an eight-month low. This was preceded by the weakening of currencies in emerging markets such as India, Brazil, Turkey etc. With increasing globalization, few corporates can remain insulated from exchange rate fluctuations.

Currency fluctuations have a direct and obvious impact on the international trade, profits and working capital of corporates with significant multi-country operations. In such a scenario, efficient cash and debt management by corporate treasuries becomes exceedingly critical.

Typically, treasuries of corporates with international operations are responsible for maintaining adequate visibility and mobility of cash across organizational units and subsidiaries across multiple geographies. To achieve this, they need to efficiently manage payables and receivables and monitor the risks associated with international trade. This, in turn, necessitates the creation of a superior infrastructure for reconciliation of invoices and payments, creation and management of a robust collection structure, and compilation of best-in-class analytics/data intelligence on cash management for efficient reporting, future cash flow forecasting and decision-making.

Banks servicing these multi-national corporates need to understand what their customers are trying to achieve from their treasury operations, their long-term strategy and the prevailing market landscape. Based on this understanding, they can suggest an effective treasury model–either a centralized treasury and trade or decentralized treasury operations. Following the 2008 liquidity crisis and the ongoing global exchange rate fluctuations, working capital optimization has become the key for corporate treasurers, and optimization of working capital can be facilitated by reorganizing the siloed business functions of corporates to operate in a more centralized manner for greater transaction visibility and cash mobility.

Automation is the key for cash and trade convergence. Typically, the cash management function, particularly domestic and foreign exchange payments, in most corporates is adequately automated through collaboration with banking partners. In international trade, however, the operations are still largely paper-based and manual, due to the stringent contractual documentation requirements for shipping, customs, warehouses etc.

However, with the advent of e-invoicing, supply chain finance, ICC-BPO, SWIFT MT-798 (A SWIFT message designed to connect corporates and bank) or through third party software, corporates can integrate their ERP solution with multiple banking partner solutions as well as trading parties and ocean carriers.

This convergence helps in real time execution of trade transactions as well as cash management transactions, enabling prompt reconciliations of payments with invoices, effective monitoring of cash flows and proactive investment and financing decisions through a global view of cash positions and working capital on a single screen. Cash and trade convergence will offer corporate treasuries a holistic view of their working capital and cash availability status. It can help corporate treasurers in payment reconciliation, allowing them to pool the cash and earn income on surplus cash.

From a bank’s perspective, cash and trade convergence will allow them to capture corporate activity comprehensively and to offer a holistic treasury solution in a single platform. It will also improve cost efficiency by optimizing the different operational functions of the bank. Banks that have an integrated transaction banking platform can seamlessly execute the two legs of the transaction. It will also enable them to devise the appropriate financing solution (open account finance–purchases/import, sales/export, distributor finance, invoice discounting and factoring) based on the contractual document and access to information on procure-to-pay cycle of buyer and invoice-to-cash cycle of seller.

However, just offering an integrated treasury and trade solution for cash and trade convergence does not suffice. Banks also need to offer their multi-national corporate customers the combined benefits of a global reach and a strong foothold on local regulations. Local network and distribution channels will help address the requirements of the payments and collections business verticals while a global exposure and reach will enable the trade and supply chain verticals with a holistic view of the cash situation. Multi-national banks that do not have regional arms can also offer local support by investing in the right infrastructure and by collaborating with local banks.

In conclusion, the increasing preference for cash and trade convergence in corporate treasuries provides banks an opportunity to offer an integrated transaction banking platform that delivers the essential transaction banking capabilities combined with cash flow management and forecasting capabilities within a single system.