As companies become increasingly global, the number of banking relationships tends to proliferate, resulting in cash accumulating in multiple countries and currencies. Accessing that cash for internal purposes, whether financing seasonal working capital needs, corporate overhead, debt service, dividends, share repurchase programs or financing new ventures and acquisitions, is now more important than ever. In these times of unprecedented financial uncertainty, with the likelihood that credit will be less available and more costly in the foreseeable future, harnessing internal liquidity to reduce one\'s reliance on external funding sources may provide critical to weathering successfully the continuing storm. The corporate treasurer, seeking to become a strategic partner that truly adds value by enhancing financial performance, must look beyond the obvious. Selecting the right banking partner and designing the right banking structure for one\'s company are of paramount importance, but so too are the fundamentals of good project management, such as clarifying objectives, obtaining sponsorship, anticipating cultural resistance and combating resource constraints. This paper suggests ten thought-provoking steps to move today\'s treasurer that much closer to success in optimizing global liquidity.

1. Papers
Ten steps towards maximising
global liquidity
Received: 12th September, 2008
Jane Casey
has been with Blyth, Inc. for 12 years, serving as its treasurer for almost four years. Jane received her BA from Williams College and her
MBA from the University of Pennsylvania’s Wharton School. She began her career in financial services, working primarily in corporate staff
positions at Citibank, N.A. and Merrill Lynch & Co.
Jane Casey, Vice President & Treasurer, Blyth, Inc, One East Weaver Street, Greenwich, CT 06831-5118, USA
Tel: +1 203 552 6619; Fax: +1 203 861 7850; E-mail: jcasey@blyth.com
Abstract As companies become increasingly global, the number of banking relationships tends
to proliferate, resulting in cash accumulating in multiple countries and currencies. Accessing that
cash for internal purposes, whether financing seasonal working capital needs, corporate over-
heads, debt service, dividends, share repurchase programmes or financing new ventures and
acquisitions, is now more important than ever. In these times of unprecedented financial uncer-
tainty, with the likelihood that credit will be less available and more costly in the foreseeable
future, harnessing internal liquidity to reduce one’s reliance on external funding sources may
prove critical to weathering successfully the continuing storm. The corporate treasurer, seeking
to become a strategic partner that truly adds value by enhancing financial performance, must
look beyond the obvious. Selecting the right banking partner and designing the right banking
structure for one’s company are of paramount importance, but so too are the fundamentals of
good project management, such as clarifying objectives, obtaining sponsorship, anticipating cul-
tural resistance and combating resource constraints. This paper suggests ten thought-provoking
steps to move today’s treasurer that much closer to success in optimising global liquidity.
KEYWORDS: global liquidity, global banking, liquidity management, cash management
INTRODUCTION exchange exposure, and the foundation to
Whether working for a multibillion-dollar implement tax planning strategies. As such, it is
global corporation with a presence on multiple important to review and address the numerous
continents or a primarily home-based company component parts of the cash management
just beginning to diversify geographically, process to derive the best overall result.
there are certain guiding principles that will As companies become increasingly global,
facilitate optimal cash utilisation. While the the number of bank accounts proliferates, such
ultimate benefit is self-evident — enhanced that significant cash levels grow in different
financial performance — it is demonstrated in countries and in various currencies. However,
numerous ways, including heightened visibility the demand for cash, beyond seasonal working
to the corporation’s cash position, tighter capital needs, may well be concentrated
control over significant cash sums, improved elsewhere. Cash to fund corporate overheads,
cash-flow forecasting — essential to making debt payments, share repurchase programmes
sound borrowing and investment decisions, and shareholder dividends is likely to be in the
stronger bank partnerships, reduced foreign home country and, while acquisitions may be
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2. Ten steps towards maximising global liquidity
anywhere in the world, if driving strategic and not intervene in matters that will adversely
growth, they are often not where the company affect its day-to-day operations. However, it is
is already generating significant cash balances. equally important to differentiate between true
In the absence of tax-efficient methods to business needs and mere legacy preferences.
repatriate or aggregate this cash where it is Longstanding relationships with local
needed, companies need to find ways to harness bankers may be difficult to unravel. Further, if
the underlying value. The following ten steps local operating units are measured on operating
may not capture every consideration relevant results, they have little incentive to focus on
to the individual organisation, but they interest income. In fact, they may even be
certainly provide a good foundation from willing to sacrifice yield to minimise the
which to go forward. banking fees that do affect their measured
results. While one must be sensitive to the
1: CLARIFY OBJECTIVES AND customer service benefits of local relationships,
this must be weighed carefully against the
OBTAIN SPONSORSHIP
opportunities provided by leveraging the
Before embarking on a liquidity management
banking business.
initiative, articulate the objectives clearly and
ensure the requisite sponsorship from both
corporate management and key operating unit 3: COMBAT RESOURCE
personnel. Having clear objectives will facilitate CONSTRAINTS
the formulation of a project plan and allow Management focus and IT support are two areas
accurate measurement not only of the overall in which resource constraints are likely.
results, but also key interim milestones that Management support and sponsorship should
must be met to keep the project on target. In largely address the management focus issue. To
addition, the treasurer will be in a better reinforce that commitment, however, one
position to communicate clearly objectives and should demonstrate to stakeholders how the
desired outcomes to the stakeholders whose project benefits them, either directly by
cooperation is critical to the project’s success. enhancing their bottom line or indirectly by
Similarly, once management understands and benefiting the company overall, thereby freeing
supports the project’s objectives, it can be relied up other resources that can be directed to
upon to address the issues that will arise, such meeting other stakeholder needs. Overcoming
as prioritisation, cultural resistance and resource IT resource constraints requires financial analysis
constraints. to demonstrate a bottom-line impact that
justifies either making the project a priority for
2: ANTICIPATE CULTURAL internal IT resources or bringing in outside
resources to supplement the IT team. More often
RESISTANCE
than not, it will be difficult to divert internal IT
Size matters, whether negotiating credit lines
resources away from projects driving revenues
or seeking enhanced yield on net credit
or reducing costs, whatever the business.
balances, so concentrating funds will lead to a
However, a well-constructed analysis of the
better economic outcome. However, human
beneficial financial impact of improved global
nature suggests that operating unit personnel
liquidity should justify the cost of obtaining
will be reluctant to embrace anything that
external resources to expedite the project.
reduces their control, especially over the cash
that funds working capital requirements. As
such, a dual strategy that provides both 4: CHOOSE BANKING PARTNER
incentives and requirements will likely be CAREFULLY
needed. It is of utmost importance to Banks’ solutions to their customers’ needs are
understand the operating unit’s business needs evolving rapidly so it is important to
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3. Casey
understand how much experience one’s selected reference checking — preferably not only those
partner has in implementing the organisation’s provided by the bank, but also those identified
solution within its specific geographies. While through networking. Further, gain an
one will be able to rely more on the partner understanding of the reference’s objectives to
with demonstrated expertise in the relevant understand better the relevance of their
solution, another option is to forge a new path experience to your circumstances.
together — a perfectly acceptable approach as Once the banking partner has been chosen, it
long as realistic expectations are maintained. is also important for the organisation to be a
When selecting a banking partner, there are good partner. Recognise that the global banks
several key factors for mid-market companies. have invested heavily in their banking
Possibly the most important is to choose a platforms and deserve to earn a fair return on
banking partner that focuses on customers of a that investment. Consider the organisation’s
similar size. When assessing whether other banking needs, such as foreign exchange,
prospective partners will provide the requisite mergers and acquisitions advice, credit, etc and
level of customer service, it may be tempting consider what might be offered to them when
to gravitate towards the big global providers, negotiating pricing. Stepping back to consider
which generally claim to have a middle- the big picture with regard to the
market-focused group. However, it is organisation’s profit profile will likely assist in
important to follow one’s instincts (and query arriving at terms that are fair to both parties.
references). Any treasurer with doubts about a
potential partner’s commitment during the sales 5: CHOOSE THE RIGHT BANKING
process can count on being disappointed later. STRUCTURE
When evaluating a potential bank partner, Although it may be possible to improve the
consider how it presents itself. Are its banking structure of one’s organisation, it is
marketing materials focused on the bank’s important to remember that there is no one
capabilities, about building relationships, or right banking structure. In addition to the basic
meeting its customers’ needs? Taglines convey capabilities of the partner bank, it is important
attitude, and sometimes the subtle nuance of to consider the various operational, regulatory,
messaging reveals volumes about what kind of legal and just plain practical considerations.
relationship is likely. One of the most basic, and important, decisions
Of nearly equal importance is the practical is whether to pursue a notional pooling
consideration of how the bank’s footprint structure or one of cash concentration. The
matches up with that of one’s own growth of the euro zone and the trend towards
organisation. It is generally preferable to work centralising treasury functions has led to the use
directly with the banking partner rather than of both of these strategies in a cross-border
through affiliate banks, from both a service and solution.
ease of technology perspective. In addition, it Notional pooling does not involve the
will likely affect costs negatively if third parties physical movement of funds; rather, it relies
are involved. If the company is expanding, try upon notional set-off. However, even though
to select a banking partner that offers services there is no comingling of funds, it may create
in locations into which the firm is likely to the presumption of back-to-back lending in
expand. Ask about and evaluate the prospective some jurisdictions. Accordingly, the
partner’s growth plans. The ability, or lack implications should be understood fully before
thereof, of its representatives to articulate a implementation. In addition, notional pooling
cogent strategy will say a lot about its requires all participants to agree to set-off and
commitment to serving its customers with both cross-indemnity provisions that may be of
a physical presence and the necessary concern to some participants, particularly those
technology. Finally, do not give short shrift to for whom such arrangements would risk
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4. Ten steps towards maximising global liquidity
violating any covenants they might have with prove problematic if no MT101 coverage is
local credit facilities. Furthermore, regulations available and funds need to be transferred
in various countries may not be aligned manually. Simply put, it is important to make
sufficiently to give the banking partner its sure a local bank will support fully any
requisite security. Generally speaking, notional regional or global solutions and ensure that
pooling is better suited to decentralised they adhere to certain accepted standards, such
treasury and where both credit and debit as ISO 20022 XML, the communications
balances exist. standard for Single Euro Payments Area
Cash concentration does involve the (SEPA) credit transfers and direct debits, and
comingling of funds and gives the appearance SWIFTnet access. A two-step approach may
of intercompany lending. This may run afoul prove a pragmatic solution wherein the local
of thin-capitalisation regulations in some banking relationship initially remains in place,
jurisdictions and give rise to withholding taxes sweeping funds to the banking partner,
in others. It operates under a standard target enabling effective investment management.
balancing agreement and is generally better Through experience with the banking partner,
suited to centralised treasury where only credit it may subsequently become apparent that the
balances exist. In addition to not requiring the local banking relationship is duplicative and
cross-guarantees of notional pooling, multi- unnecessary. That said, when there is a high
bank cash concentration offers numerous volume of transactions, it is important to
benefits, including: improved control of understand and respect local management’s
balances, regardless of currency, location or perspective and concerns. For example, some
banking partner; facilitating efficient investing companies process thousands of cheques on a
or funding; the ability to be fully automated; daily basis and handle significant cash on
reduced need for short-term cash-flow delivery volumes that necessitate the
forecasting; and retention of local banking geographic proximity of their bank and/or use
relationships while maximising return on of a postal account.
consolidated cash. It may, however, give rise to
more accounting complexity than pooling, so 6: EXHAUST GLOBAL NETTING
the reporting group must fully understand POTENTIAL
these transactions. Fortunately, today, the Large, complex organisations will realise
challenges can be mitigated somewhat by significant foreign exchange (FX) cost benefits
advances in treasury management or enterprise as well as a significantly reduced number of
resource planning (ERP) systems. commercial transactions by implementing a
Once the decision whether to pursue global netting process. Netting involves the
notional pooling or cash concentration has been settlement of intercompany obligations (third
made, other questions will emerge surrounding parties can also be included) on a predetermined
whether or not to move operational accounts date, whereby each participant is subject to one
to the partner bank or merely set up overlay debit or credit transfer in its functional currency
accounts and sweep excess funds from the via a global netting centre. The netting centre
organisation’s local bank to the partner bank. can be managed in-house or outsourced to a
In-country accounts offer certain benefits, such banking partner. Netting has both financial and
as a later cut-off for domestic transactions, non-financial benefits, including reduced FX
maximising liquidity management. This allows volume, transaction fees and float, as well as
local management to keep its funds in-country, streamlined administrative and transactional
which may facilitate local ‘buy-in’ and processes. A good netting system will
represents a more simplified structure as it does accommodate multiple data-entry methods,
not require mirror accounts. However, including online entry and file imports, be
maintaining local banking relationships could sufficiently flexible to interface with various
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5. Casey
ERP or accounting systems, and demonstrate predict future banking consolidations, give
the necessary reporting capabilities. some thought to (and ask some questions
about) the potential likelihood of major
7: CUSTOMISE THE SOLUTION changes with the banking partner — one’s IT
Most companies are unlikely to find an off-the- staff may be grateful later.
shelf solution that will deliver the best results. It is also important to recognise the changes
There are many factors to consider, such as how to the payment landscape in other parts of the
many and which countries and currencies are world that might affect the organisation’s IT
involved, fluctuations in seasonal working resources. For example, with the introduction
capital needs, opportunity to net FX exposures, of SEPA, companies will be able to make
and jurisdictional tax and legal considerations. payments more efficiently within the euro
However, a well-chosen banking partner can zone. As such, it is important to make sure that
help navigate through the various alternatives one’s local banks in Europe can support and
to reach an effective solution. As discussed accept SEPA payments. In addition, if working
earlier, both notional pooling and cash with a global payment system, ensure it can
concentration have their challenges and offer support SEPA payments. If not, then additional
advantages that must be understood and time and money will need to be invested in IT
explored. The optimal solution may involve development to meet these requirements.
different approaches by region, as the ease of
implementation varies greatly from the USA 9: CONSIDER A PHASED
where sweeping has become the norm, to APPROACH AND MANAGE THE
Europe where its implementation has been PROCESS TIGHTLY
eased by the birth of the euro zone, to Latin Two of the more obvious attributes of a phased
America where volatile currencies are approach are that it allows the prompt
frequently exchanged for US dollars, and, resolution of issues that were not anticipated
finally to Asia where exchange controls in some within a limited sphere and it drives acceptance
countries make implementation more difficult. through the example of success. Taking the
time for a phased approach, while prudent,
8: REMEMBER GOOD SOLUTIONS may conflict with timing imperatives. As such,
ARE SCALABLE the layered phased approach may be a suitable
While it goes without saying that the solution compromise. Similar to ‘Row, Row, Row
must work for the organisation’s business as it your Boat’, the popular round sung by
is today, it is also important to make sure the children, the layered phased approach engages
solution is scalable for the company’s most each new market after meeting interim
likely growth scenario. Failing to consider milestones in the implementation process, such
likely future events will reduce the solution’s that each successive market initiates
effectiveness and necessitate efforts that might implementation activities in a staggered
be easily avoided if such thinking is fashion, rather than waiting until the previous
incorporated into the original solution. One market’s implementation is complete. Given
area to focus on in particular relates to systems the sheer volume of paperwork required by
capabilities. If selecting a banking partner banks in today’s compliance-focused
whose footprint is relatively congruent with environment, this approach will cut months off
that of one’s own organisation, consider where the traditional phased approach timeline while
the organisation is likely to grow and whether delivering the vast majority of its benefits.
or not the banking partner is likely to be in Once the approach has been decided and the
concert with that. If not, it will be necessary to stakeholders have all agreed to it, be sure to
consider what types of workarounds can be employ sound project management practices.
implemented. And, while it is difficult to On the bank side, select an implementation
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6. Ten steps towards maximising global liquidity
manager who will best meet the needs of the performance and partner with the reporting
relevant markets, reflecting on such group to navigate the increasingly complex
considerations as geographic location, language valuation and accounting landscape. A possible
fluency, cultural familiarity and ability to solution is to explore opportunities to automate
articulate requirements clearly. Within the the investment of operational cash, making this
organisation, select a project manager with a as passive a process as possible so that treasury
proven track record of project management staff can focus on the investment management
success. Of critical importance is the project of excess cash. Further, determine whether or
manager’s ability to partner with the business not it is economical to outsource the
units to provide support during management of excess cash. A professional
implementation, facilitating issue resolution and fund manager may be able to deliver superior
marshalling additional resources when needed, results, net of the associated outsourcing costs.
while maintaining the authority and respect Once an investment strategy has been
necessary to keep the project on track. formulated, before investing in less liquid
Obviously, a formal project plan must be investments, the strategy should be stress-tested
drafted, and regularly scheduled status meetings not only for shortcomings in the cash
must be held with key stakeholders. In keeping forecasting process, but also other unforeseen
a project moving, frequency of meetings is developments. Every once in a while, you will
generally more important than duration, and be thrown a curve ball, and while it is not
stakeholders will appreciate their time being obligatory to hit it out of the park, no one
used wisely. Finally, be prepared to modify the wants to strike out. As such, one must
project plan as needed to reflect both the reality determine how the company will compensate
of the implementation experience and the for unanticipated liquidity shortfalls. Ask any
unique requirements of specific countries. corporate that was invested heavily in auction
rate securities earlier this year and they will
10: REVISIT INVESTMENT confirm that it is a worthwhile exercise.
STRATEGY
Once a company has improved the visibility, CONCLUSION
control and efficiency of global cash, it should Implicit in the preceding approach is the
review its investment strategy to explore premise that optimising global liquidity by
opportunities for enhanced yield. Many moving to one global banking partner (or
companies must forego some investment yield fewer than today) provides the best overall
to provide for the shortcomings of their cash results. And, while most US multinationals
forecasting. As such, it makes sense for there to tend to put all their eggs in one basket,
be opportunity for improvement once the European corporates tend to favour a regional
forecasting achieves a higher level of accuracy. approach. As such, one of the first
Nevertheless, the basic tenets remain the same. determinations to make is whether the singular
First, determine liquidity needs, then evaluate approach is acceptable, particularly in light of
risk tolerance while ensuring that any the ongoing financial crisis. While many
additional risk offers commensurate reward participants in and observers of the financial
opportunity. One of the challenges facing services industry raised concern about the
today’s treasurer is dealing with increasing potential implications of certain business
excess cash balances without a corresponding practices (eg the excesses in subprime lending),
increase in personnel to manage the situation. fundamental accounting changes (eg mark-to-
Dealing with alternative investment market accounting) and changing financial
opportunities will likely require additional staff market rules (eg short selling without the
attention to identify and qualify suitable uptick rule), no one predicted the freezing of
investments as well as monitor their the $300bn auction rate securities market, the
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7. Casey
collapse of Lehman Brothers, the impending effective trade financing, or reverse factoring if
failure of Bear Stearns, Merrill Lynch and importing from the developing world, may be
Washington Mutual had not a knight in easier to obtain from local or regional banks.
shining armour galloped in, perhaps not even Under either approach, assess the extent and
willingly, to save the day and . . . the end of implications of any complexity and be
this story is still unfolding. prepared to focus on its challenges.
Over the next 12–24 months, business The corporate treasurer seeking to be more
leaders must make decisions for their than a utility player in the financial infield
companies in an environment of unprecedented must keep their eye on the company’s strategic
challenge and uncertainty, where actions have objectives and focus on those initiatives that
unforeseen results and where the likely have the potential to deliver the maximum
outcomes of what appear to be reasonable benefit for their efforts. In today’s challenging
decisions are far more difficult to discern. lending environment, where credit is
Business leaders must therefore test their becoming less accessible and more expensive,
organisation’s tolerance for ambiguity and risk. improving, if not maximising, global liquidity
While the advantages of a single banking will reduce the corporation’s reliance on
partner are fairly clear, one must not forget outside funding sources. Harnessing global
that diversification, although perhaps less cost- liquidity is a key step to evolving into a
effective and less efficient, has its advantages, strategic partner that truly adds value by
such as minimising counterparty risk, enhancing financial performance. And,
increasing competition among providers, and whether one is a truly global player that seeks
broadening access to liquidity sources. In to ‘follow the sun’ or an emerging newcomer
addition, there could be additional advantages striving to implement best practices, focusing
to local banking depending on the overall on the fundamentals will improve the
financing needs of the company, as some cost- probability of success.
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