It’s prime time for real-time liquidity management

Treasury And Cash Management

KGrant

Kevin Grant

Mar 3, 2022

Bottomline conducted a global study surveying executives from financial institutions of various sizes and across a range of roles within those FIs. One of the study’s sections covered treasury, and the findings show that FIs have some runway when it comes to improving the automated processes that can advance cash management and increase efficiency for banks. When asked how satisfied they were with their treasury automation only 30% claimed a comfort level with cash flow forecasting. For liquidity planning, the number dropped to 27%.

It’s evidence that to make better financial and strategic business decisions, organisations need to achieve real-time, end-to-end visibility across their entire liquidity landscape. To take full advantage of what ‘real-time’ can do for treasury, it’s important to focus on three specific areas: real-time liquidity, real-time visibility and real-time reporting. This approach can help companies make the most efficient use of their cash flow and can release capital often trapped by traditional banking infrastructure.

However, for companies that operate in multiple countries and currencies, and hold accounts with different banks, managing liquidity can be particularly complex.

We sat down with Bottomline’s Kevin Grant, managing director of treasury management, to get a better understanding of why a real-time approach to liquidity is critical.

BT: What’s driving the increased focus on real-time liquidity (and subsequently, visibility)?

KG: With the emergence of the pandemic in March 2020, the first concern of leaders, including CFOs, was on employee well-being and safety.  As they turned to running business, often in a new remote world order, the question turned to, “What is our current cash position?”.  Cash visibility became a daily focus for treasurers as concern continued to grow around customers’ ability to meet financial obligations. Also at play were the questions of how FIs were going to react to changing economic conditions, and how companies were going to fund daily operations. 

While this focus on real-time visibility is not new, the need to manage cash flows and data more dynamically has never been more at the forefront than now. Historical data is no longer a predictor of future cash flows. 

BT: What does ‘real-time’ really mean? 

KG: The ability to achieve actual real-time visibility from faster payments and settlements will bring many efficiencies to treasury teams globally as they move away from traditional cut-off times and end-of-day processing.  Treasury teams no longer have to wait until the start of the next business day to check on whether cross-border transactions have been successfully processed or received. This will help reduce foreign exchange (FX) exposure.  Other benefits include a reduction in intra-day limits and associated bank fees. 

For many treasurers, the ability to make decisions based on “just in time” cash flows will strengthen country, currency and bank counterparty risk management practices while improving working capital optimisation. 

Whilst banks may be promoting their real-time liquidity solutions, the demand for real-time cash visibility has always been customer-driven as they strive to see real-time settlements occur in not only domestic payments but also cross-border.  This visibility will also highlight errors as they occur, allowing corrections to be processed the same day before penalties are applied. However, not all banks have been equally motivated to deliver real-time liquidity positions to their customers.  Each bank’s back-office infrastructure has to be up to the challenge, and the appetite and ability to fund this change is constrained in some banks. 

BT: How can real-time liquidity be transformative?

KG: Corporates already benefit from intra-day cash reporting, cash pooling, and in-house banking arrangements. An enhancement to each of these offerings is real-time liquidity banking solutions, which help corporates leverage cash positions across all accounts without having to manually fund any accounts. Time is saved on the administration of these accounts, as well as potentially unnecessary external borrowing when the group position has sufficient funds to cover a subsidiary at short notice.     

BT: How can real-time liquidity be achieved?

KG: Companies and banks, along with their technology and infrastructure partners, all need to be motivated to operate in real-time. Companies need to embrace technology to automate day-to-day treasury activities that enable control and mobilisation of group cash. With a centralised treasury function, and a TMS which connects with the ERP systems, treasurers will have stronger cash visibility. This removes the reliance on manually produced reports -- which are time-consuming, prone to errors and quickly become out of date.    

BT: What are the biggest challenges to achieving real-time liquidity?

KG:
Achieving real-time liquidity includes several challenges from the number of different banks being utilised, to the number of bank accounts and currencies in which they monitor and manage cash flows.  Geographical challenges also exist for multinational corporates with time-zone misalignments as well as the cut-off times imposed by financial institutions in some countries. 

It’s even more important to review treasury processes and procedures as well as back-office systems; centralisation of the treasury function can minimise some of these challenges by creating efficiencies and greater control and visibility over cash.  Working closely with technology providers to automate the day-to-day treasury activities is a key component in achieving that visibility. Fragmented technology and fragmented processes are the real blockers. Fintechs are ready to solve these by using APIs to bridge technology gaps and hosted private or public cloud environments to centralise global processes.

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Liquidity
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