View the Roundtable Participants [1]
Business Finance:
Are treasurers changing the number of banking relationships their companies maintain, and if so, what is driving these changes?
Mike Fossaceca:
Large companies are reducing the number of banking relationships quite significantly. Corporations are looking for economies of scale and efficiencies. Dealing with fewer banks makes visibility into transaction flows, balance management and reconciliation processes much easier.
Daniel Rosenstein:
As a result of Sarbanes-Oxley, treasury groups have been forced to get a better handle on where their cash is and what it's doing. One effective way of taking control of cash is reducing the number of banks they are dealing with.
Joe Broce:
Being a public company, we continue to reduce our cost structure and staffing size. The fewer banks you have -- as long as they're providing the services you need -- the less work it generally takes.
David Fuller:
We have seen a lot of account consolidation within companies. [Corporate clients] are looking at their account structure and saying, "we don't necessarily need to move these from banking relationship to banking relationship but simplify our structure overall."
Greg Cicero:
Many of our customers tell us that their treasury staffs are getting leaner, but at the same time, their scope of responsibilities is broadening. Hence our customers are asking us for more comprehensive working capital management solutions.
Tom Gildea:
We consolidated substantially two or three years ago. Now some of our smaller subsidiaries are working with non-relationship banks, and undoubtedly we're going to consolidate some of those relationships, as well.
BF:
When allocating business among banking partners, how much depends on credit relations, technology or global presence?
Craig Mondschein:
The entrée to the cash management business with Honeywell is through our credit facility. Within the credit facility it's tiered, and the top two or three tiers are able to provide responses to every RFP issued by Honeywell.
Ricardo Lowe:
The challenge is when you have a large syndication with more than five or six banks. It's difficult to feed the hungry. And I'm of the belief that you want just one bank on the cash management side. It's difficult to have one bank for receivables, one for collections, and to have to send wires in between.
Mondschein:
We believe in having one bank per country, on both the receivables and payables side with our customers. Then, for example, in the euro zone, we pool up into a euro-zone structure. In Latin America, the goal would be to have a mini-euro zone, but that doesn't exist because of regulation. The larger banks that are banking with us around the world hopefully end up in our credit facility, as well.
Jim Abel:
When it comes to credit, our needs are likely to increase dramatically over the next three years. I have to keep enough banks in the game to provide credit when it is relatively cheap and accessible, in anticipation for a tighter scenario down the road.
Cicero:
A question for the corporate practitioners: How often do you find yourself looking for a solution that isn't provided by one of your credit banks? More and more, our customers are asking us to fill product niches that banks have not traditionally dealt with.
Broce:
In Europe, we have a Pan-European overlay with a large U.S. bank with substantial foreign capabilities, and established a euro ZBA [zero balance account] with that bank. But it still wasn't as efficient as we needed, so we searched for a national pooling bank. The only one that really met our criteria was a Dutch specialty bank, Bank Mendes Gans.
BF:
Is there a minimum number of banking partners with which you're comfortable?
Fuller:
We're hearing from our clients that they're being asked to do more with less. While it makes sense to have redundant capability, customers are saying, "We understand the need, but we can't get it all done with the number of FTEs [full time equivalents] we have."
Gildea:
Three years ago we had a strategy to go to one cash management provider. We changed our minds, primarily for redundancy and contingency purposes. Fortunately, we standardized the data format to and from our banks -- e.g., lockbox transmission -- which would enable us to switch banks rather quickly in an emergency.
BF:
What level of knowledge and control do treasurers have over all their bank accounts?
Mondschein:
Just over four years ago, we went through a complete survey of our bank accounts and put in place technology that allows us to get electronic feeds. Today we receive electronic feeds from about 90 percent of our bank accounts into our SunGard Quantum treasury workstation. We have enough information on our balances to take that, compare it to the balance sheet and come very, very close on a country-by-country basis. So we have a lot of control over the bank accounts.
Lowe:
A couple of years ago, we started with 150 accounts, but we didn't know exactly how many Mexican pesos or Russian rubles we had, or whether we had an account in China or in Japan. Our knowledge was based on the person in the local office sending me an e-mail saying, "I have 10,000 yen."
We downsized the number of relationships and accounts and then we went to a treasury workstation, with 99 percent of accounts feeding into it. Now I know exactly how much money there is on any day.
Abel:
When we went international, I realized early on that we can't be on the ground in the U.K. and in Latin America, and [the employees in those countries] have to have the flexibility to operate their own day-to-day banking business. Ultimately, it's about old-fashioned policies and procedures, which are under my direction. For example, a bank account cannot get opened without my signature.
BF:
When do treasurers turn to their bankers for advice and expertise?
Rosenstein: One of my responsibilities is to encourage customers, even those who think that their treasury group is working perfectly, to respond to the question: "How is your business going to change in five years?" For instance, if your firm launched a new product that is going to exponentially increase your sales in the next three years, what does that mean for treasury?
Fuller: Our clients are looking for their banks to help create schematics for them by asking questions such as, "How does that money get from here to there, and why have you done it that way?" Often, processes have just happened over time, and when you step back and take a look, together with the client, you detect things that don't make the best sense for them.
Cindy Murray:
Driving a lot of the conversation with our clients is their desire to migrate from paper to electronic payment practices. Many of their systems have been built around generating checks and performing associated tasks. Companies are now looking to their banking partners to help them build a strategy that will allow them to reduce paper-based processes and realize the efficiencies of electronic payments.
Cicero:
One of the trends we're seeing is the broadening strategic view of treasurers. Treasury professionals no longer focus solely on tracking and reporting cash flow. They are commonly challenged to address issues such as regulatory compliance, risk management and reporting and to provide guidance on issues that impact their companies' strategies and investments. But some treasury professionals don't have the background necessary to tackle these broader issues on their own. So they're looking to us for assistance and guidance.
Fossaceca:
In addition to their "day jobs," many treasury organizations actually play the role of internal consultants to help their business units optimize processes that impact working capital. Because treasury staffs sometimes tend to be small in numbers, they often rely on the expertise of the bank to help them keep up-to-date on best practices and to round out areas of expertise that they lack.
Corporates should also look to use their bank as a voice to make change and affect industry practices. The banks often sit on the regulatory boards and committees, such as NACHA [The Electronic Payments Association], The Fed, SWIFT [the Society for Worldwide Interbank Financial Telecommunication], etc., and should act as the voice of the client.
Gildea: We want to hear ideas from the bankers so we can select what we feel are best. For example, as a midsize company, when it came to implementing an internal lockbox, we didn't have the subject matter expertise internally, and didn't want to spend the capital on equipment. This is where the banks came in.
BF:
What obstacles prevent treasurers from gaining greater insight into their companies' cash flows?
Abel:
When we're talking about the data that we need over the next 15 or 30 days -- that comes out of the ERP systems. And in trying to get that information flow as soon as possible, an obvious solution is to have a digital mailroom. That will facilitate quick data capture of invoices, so that they are made available to treasury and the front offices. That way, they're not sitting on someone's desk for three weeks before treasury is aware of the obligation.
Fossaceca:
Often the business units are measured very differently than the treasury group. This sometimes causes the business units to not place the same importance on cash flow that the treasury group does, which can make forecasting cash flow very challenging. It is important to get everybody on the same page with regard to measurement.
Broce:
If you have an organization that's decentralized, the heads of those business units are making decisions about their working capital. The expectation is that they can do what they want to meet their business goals, and it's treasury's responsibility to make sure the funding is there. That has to change through the establishment of strategic partnership arrangements with the business units.
Rosenstein:
I often see that the technology our customers need to get a good handle on cash forecasts is already in place. It's the organizational structure and political issues that can get in the way.
Abel:
Our industry hit a credit bump several years ago, and suddenly senior management was concerned about the kind of cash flow metrics that we deal with. We used that as an opportunity to push the visibility of those issues and get the business line presidents and the operating departments more focused on cash flow metrics. We were moderately successful. But it took an outside influence.
Lowe:
We've been lucky. We haven't had downturns. The challenge I have is creating those cash flow metrics and doing the internal educating. I like to worry now, as opposed to having to worry when we don't have the funds.
BF:
When it comes to technology and cash flow visibility, one topic that inevitably arises is spreadsheets. Do many treasury areas still use spreadsheets to gain visibility into cash flow?
Mondschein:
We've gone to a treasury workstation. But in speaking to other corporates, a lot are still using Excel and e-mail to come up with cash positions.
Rosenstein:
Ninety-five percent of our clients probably have a spreadsheet somewhere in their accounting and forecasting process. The issue is that a lot of our clients don't feel the tools out there give them the flexibility they need to do the proper analysis. But I believe the industry will move away from spreadsheets, prompted by Sarbanes-Oxley compliance concerns.
Broce:
It depends on the organization, too. The treasury departments are at the mercy, for the most part, of the IT departments and the type of ERP they have. Depending upon what they have, spreadsheets may still have to be used.
Murray:
Research conducted with our clients indicates that approximately 80 percent use spreadsheets for cash positioning. Based on this finding, we developed a solution that allows companies to receive automatic downloads of their bank account data directly from our online banking system into their spreadsheet.
This data automatically populates the client's spreadsheet, reducing the potential for errors associated with manual data entry. And the data fields are protected, meaning the encrypted figures in the spreadsheet can't be altered. Companies that don't have a consolidated ERP system or don't have the bandwidth to implement a treasury workstation can continue to use spreadsheets with more confidence that the data is accurate.
BF:
What drives your forecasting process? Is it strictly compliance issues?
Lowe:
It's a partnership with the business segments, showing them who's using cash and who's generating cash and measuring the return on working capital.
The value-add is sitting with a commercial guy and saying, "You know, the 30 days that you give to this customer is impacting our returns." Or "The five days we're getting from this particular supplier is a no-no because you're using cash instead of generating cash."
Mondschein:
Cash flow forecasting is important primarily because Wall Street is looking at that number. As a public corporation, we have to get it right. The treasury department has the tools to tell what cash has come in.
Broce:
You're really talking about two types of forecasts. There are strategic cash forecasts, which are for rating-agency and budgeting purposes. And there are cash forecasts for liquidity purposes, because you're still running an operation day-to-day, in which case many companies rely upon bank or capital markets funding.
Abel:
Short-term, day-by-day forecasting, while important, comes down to the potential for reducing interest expense or increasing short-term investment returns. The tools that we've had available for 20 years, such as credit lines or commercial paper or sweep accounts -- they work. In today's flat yield environment, there's not much to be gained by improving the accuracy of this information.
However, when we go to the rating agencies with our strategic forecasts, we better be accurate. As a publicly held company, we're starting with an accrual-based budget. Our ability to convert that effectively into cash is very important, and we've made great strides. We take our five-year cash flow forecasts to the rating agencies. They're focusing predominantly on the next 12 months, but they will circle back and see whether we were reasonably accurate.
Links:
[1] http://businessfinancemag.com/files/misc_file/BigPushforCashManagementEfficiency.gif