1. Feature | Cash Management
Convergence of cash management and trade
can help provide visibility. Yet is there a genuine
demand among treasurers for such a product?
Ben Poole reports.
Getting
a clearer
picture on
convergence
W
hile the topic of cash to work closely with their banks.
management and trade “In this business, banks actively facilitate and
convergence has been a popular even finance the transactions, while for the
discussion point over the past corporates involved, the cost and formalities of
18 months, it is noticeable that it is the financial traditional trade processes can be done away
institutions have been doing most of the talking. with,” explains Dalmia.
Is there demand from corporate treasurers for That is not to say that every bank has the
this convergence? Or is there any merit to the ability to offer the solutions required, despite
suggestion that this is merely an exercise in appearances. The group treasurer of a global
repackaging existing products by the banks? retailer headquartered in Switzerland, who
According to Sanjay Dalmia, managing director prefers to remain anonymous, comments:
of Fundtech India, the increasing importance “I think a number of banks are pushing it and
of open trade is instrumental in driving the don’t have the skills. But the banks that have
convergence of cash and trade. “Both in-country the patience will prosper. It is definitely one of
as well as intra-regional trade is a significant and those things that you didn’t think was possible
rapidly growing business for many corporates,” five years ago and is now a prerequisite for the
says Dalmia. treasurer.”
Such kinds of trade transactions that are high in The trade flows in a multinational are huge,
volume and relatively low in value compared to and traditionally the treasurer hasn’t had much
Markus Wohlgeschaffen, UniCredit traditional trade transactions require corporates oversight of day-to-day trading flows. But once
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2. Cash Management | Feature
that is online and all of the players in the financial key to that. “Banks are not yet very good at that.
supply chain – logistics, warehouse, treasury and At UniCredit we’re putting together the platforms
boutiques – can see the product flow and the and the product specialists in order to speak to
financial implications, it becomes a powerful tool the customer from one source,” he says.
that shouldn’t be underestimated. “When I see A few banks are able to offer quite effective tools
this information, it is very valuable to me. So I do to manage trade finance flows, but it is taking time
think that the concept is being sold, but only one for them to really understand what the treasurer
or two people seem to be able to deliver at the is looking for. The feeling that the convergence
moment,” adds the Swiss group treasurer. of cash management and trade is still a work
The value of being able to gather an end-to- in progress is supported by the group treasurer
end view of all cash flow from a single source from Switzerland, who notes that their company
is something that Adnan Ghani, head of trade has only had a big breakthrough in the past 12
finance at RBS, has seen first hand from a client. months. “We’ve started using a global trade
The bank was working with a large European finance tool that is provided by a single bank. It’s
confectioner on a pilot of a supply chain finance an online tool where we can issue guarantees,
system for the company in Spain for 32 suppliers. letters of credit (LCs) and documentary credits, for
“They came back to us and said that, as they example,” explains the treasurer.
were already doing payments through us, they The corporate has global pricing arranged, it is
did not want us to have two channels for them, a global facility, and their global entities can go
and instead suggested that we combine the online to input data. Once the data is on the
projects and do both through one channel,” system, the bank approves it under the umbrella
says Ghani. This type of simplification to banking facility the company has, and is able to provide
relationships makes a lot of sense for both banks alerts to group treasury and local finance teams.
and corporates, and it also provides an example “It’s quite a breakthrough, and we’re trying to get
of how both can profit from project collaboration. all our operating entities onto this system,” says
“We’ve seen a 180% increase over the past the Swiss treasurer.
year in our supply chain finance proposition. Even if a bank can provide such a solution, there
It is a trend that is working well for banks and is still a lot of work to do between the bank
corporates,” he adds. and the corporate to get such a scheme up
and running. It is very different, for example, to
Receiving the required support using an online foreign exchange tool, which is a
When it comes to gaining full visibility over total homogenised product. In trade finance there are
cash and managing working capital, corporates many variables in the instruments available, which
need a selection of solutions and support from add layers of complexity.
their banks. Unfortunately, according to Ernie
Caballero, global treasury director of United
Parcel Service (UPS), most banks are unable to
provide corporates with the full smorgasbord of
“We’ve seen a 180%
cash management tools to allow transparency increase over the past
and visibility into bank accounts and the cash in
those bank accounts in a proactive manner. “They
year in our supply chain
don’t offer any platforms that will help, other than finance proposition.”
to look at your bank statement online. Any kind
of tool that you need to understand where your Adnan Ghani, RBS
balances are on any given day on a real time
basis just doesn’t exist,” says Caballero.
Certainly challenges exist in trying to link and Challenges for banks and corporates
provide solutions across the entire working For corporates, the challenges of managing
capital spectrum of days payable outstanding, a combined cash and trade proposition can
days inventory outstanding, days sales come from their need to have a much more
outstanding and operational risk and efficiency. strategic relationship with their suppliers. This
If a customer looks at the entire supply chain, was particularly evident during the crisis, where
banks need to provide solutions by bundling the companies were looking to make sure that
relevant business offerings that may have been their suppliers were financially stable and able
previously sold as separate products. to continue the supply relationship. Corporates
Markus Wohlgeschaffen, global head of trade would even go beyond this level and check on
finance and services at UniCredit agrees that the who was supplying the suppliers.
conversion of cash and trade and FX is certainly Ashutosh Kumar, global head of corporate cash
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3. Feature | Cash Management
“Looking at China, providing a local currency
solution in that market is definitely more difficult
if you are a foreign-located supplier.”
Jeremy Shaw, JP Morgan
and trade product management at Standard central bank requirements around know your
Chartered, agrees that companies want supply customer requirements for clients. South Africa
chain finance to go further down the chain: “Just has some exchange control requirements that
financing the tier one supplier is not enough, makes client onboarding a bit more difficult.
companies want the finance to go to the tier two Shaw also picks out the jurisdictional and
supplier.” governing law issues that exist in certain
This can be difficult to arrange. If you start markets: “If you look at Saudi Arabia, there
onboarding the tier two supplier, things can are potential challenges around Saudi law
become complicated to manage. This has led to and shariah components. They are not
companies asking their banking partners to look insurmountable, but it does mean that they
at pre-shipment finance and similar tools. Pre- present additional obstacles to ramping up
shipment finance percolates down to the tier two programmes in a quick and efficient manner.”
suppliers, because what you are effectively doing Lots of businesses are focussing on Sub-Saharan
is paying off the tier two supplier for their sales Africa following the interest of China and India
to the tier one supplier – or the tier one supplier in building relations there. Each country in
procuring from the tier two supplier – using the Sub-Saharan Africa itself, outside of Nigeria and
pre-shipment finance to pay off their suppliers. South Africa, has its own independent challenges
Kumar explains: “I’ve seen corporates really around issues such as legislation, governing law
value these relationships with the banks when and enforceability. This provides many challenges
they are able to work not only on post-shipment in terms of fully implementing and ramping
finance but also pre-shipment finance. It shows successful cash and trade programmes.
the supplier that this corporate and their banks
brought real value to them and have been able to Moving to a closer relationship
finance them even before the goods have been While corporate treasurers can see the value
produced for shipment.” provided by the convergence of cash and
Post-shipment finance is simple to do, but pre- trade, and banks appear eager to provide this
shipment finance can be a real challenge. Banks breadth of functionality, there is still room
need to understand the supply chain linkage for improvement in the relationship between
between the large company and their suppliers. corporates and banks.
It is important to understand the difference The group treasurer of the Swiss global retailer
between running a supply chain finance finds that most of the slack is due to poor
programme and financing a supplier on a communication between the people that develop
bilateral basis, which is purely based on the the tools and the account officers and sales
strength of balance sheets. This is an area where people who are actively selling the product. “It
treasurers can struggle, because there are not really needs a long-term vision, both from the
many banks that can understand these linkages. bank and from the corporate. Putting a payment
Challenges in cash and trade convergence can factory in Asia for us is a two-year project. There
also differ depending on which area of the world is a tendency for the banks, once they’ve sold
you are dealing with and the markets that your something, to move onto the next sale,” says the
cash is flowing into. Jeremy Shaw, head of global Swiss group treasurer.
trade Emea at JP Morgan, points out that some Businesses challenges still exist in areas such
of the bigger markets can pose some interesting as cash flow forecasting, supply chain financing
challenges for corporate treasurers. and regional cash managing. Corporates should
“Looking at China as a major market, providing a be asking their banks if they can deliver what
local currency solution in that market is definitely many are promising from the convergence of
more difficult if you are a foreign-located cash and trade – namely that they will give
supplier,” says Shaw. Russia is generally quite a corporates full visibility over their end-to-end
difficult market because there are very specific cash flows through one pipe. GTR
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