March brought us plenty to think about: The disaster in Japan, Arab protests, creeping inflation, to mention a few. However, the immediate concern for both the US and Global economies is clearly high oil prices which threaten the tepid economic expansion; especially if these high prices continue into Spring. On Thursday, oil rose to just below its highest level all year. The increase in prices, propelled by the Arab Democracy movement are being further energized by positive economic news here at home as we have seen GDP growth for 6 consecutive quarters through Q4 2010 coupled with expansion in the manufacturing sector, and the prospects of a double dip recession become less likely. In addition, the unemployment figures released by the Labor Department show that private sector hiring is on the rise. That said, the American economic system still has plenty of issues to deal with. Notwithstanding, the positive jobs number, unemployment and underemployment remains high and weekly unemployment claims are still above 350,000. An extraordinary number of foreclosures has kept real estate in a market depression, state and local governments are bankrupt and the federal government seems to be incapable of overcoming their spending addiction. As there seems to be no end to the deficit spending, the national debt will continue to rise endlessly as well. The Federal Reserve’s answer to the spending is quantitative easing which has not succeeded in doing anything but monetizing and devaluing our currency and creating somewhat unrealistic expectations on inflation. These expectations have resulted in a favorable stock market performance. It’s all smoke and mirrors and there needs to be an inevitable comeuppance. The market is expecting 3% GDP growth and no more than 2% inflation. Anything less will be viewed as a stalling of the economic expansion and have an adverse effect on the market
Friday, April 1, 2011
Friday, November 19, 2010
Savings Strategies for the Risk Adverse
“We’ve pulled the economy back from the abyss” “We’ve pulled the car from the ditch” There is no shortage of platitudes coming from Washington to suggest that the economic crisis is behind us, that financial calamity was averted and that we now seem to be back on a slow but steady path to fiscal health. While the validity of these assertions is clearly debatable, one thing for sure is that the wounds from the recession have not healed and are having a substantial impact on how Americans think about their finances.
Americans’ endurance has been extraordinarily tested and even those that believe the economy is rebounding are showing little appetite for ratcheting up the risk in their portfolios. Polls show that a majority of families are worried about their job, that pension plans may default on obligations and that Social Security may reduce benefits, debasing retirement income to levels insufficient to accommodate their future lifestyle goals. They have responded by saving more of their disposable income which would indicate that their main concern is that of liquidity; the ability to access the cash necessary to meet their expenses. That said, simply saving more, hoarding more cash in portfolios or relying on liquidating assets at sub-market prices is probably not enough.
With money market and other cash-equivalent investments expected to stay at near-zero interest rates for the foreseeable future, a creative liquidity strategy is required to balance the need for cash, security, and growth. Below are a few things to consider as an alternative to a hyper-conservative saving plan:
Staggering CD’s: With yields on cash investments below the rate of inflation, CDs with a range of maturities can let you obtain more competitive returns without tying up huge portions of your money. Converting short-term CD’s to cash is easy to fund an emergency while maintaining a higher yield on longer-term CD’s for anticipated major expense such as college tuition.
Leverage your portfolio and home equity: Most brokerage accounts allow you to borrow against the account assets by pledging the securities as collateral and can be a flexible liquidity tool by allowing your investment strategy stay in place and avoid capital gains tax on selling investments. For those fortunate enough to have equity in their homes, a Home Equity Line of Credit (HELOC) is another flexible liquidity tool. Most HELOC’s are based on the prime rate which is at a 55-year low. Additionally, the interest might very likely be tax-deductible up to $100K.
Dividend protection: For those that are a bit more adventurous, purchasing stocks from high quality, financially solid, dividend-paying companies can offer a consistent income at a rate above that of cash investments with the possibilty of capital appreciation. This is not a strategy for those wary of the market but for those individuals who are a bit less risk-adverse might find this palatable.
Despite the government’s claims, they have failed to restore public faith in the markets. Shell-shocked Americans have big concerns about where to invest to preserve their capital, minimize risk and re-gain their losses. Until they start spending, the recovery will be slow, as will job growth which will continue to fuel their fears. However, currently they are less about spending and more about saving. The above are suggestions to augment savings plans to help meet one’s financial needs whether it be an unplanned emergency or an anticipated long-term goal.
Americans’ endurance has been extraordinarily tested and even those that believe the economy is rebounding are showing little appetite for ratcheting up the risk in their portfolios. Polls show that a majority of families are worried about their job, that pension plans may default on obligations and that Social Security may reduce benefits, debasing retirement income to levels insufficient to accommodate their future lifestyle goals. They have responded by saving more of their disposable income which would indicate that their main concern is that of liquidity; the ability to access the cash necessary to meet their expenses. That said, simply saving more, hoarding more cash in portfolios or relying on liquidating assets at sub-market prices is probably not enough.
With money market and other cash-equivalent investments expected to stay at near-zero interest rates for the foreseeable future, a creative liquidity strategy is required to balance the need for cash, security, and growth. Below are a few things to consider as an alternative to a hyper-conservative saving plan:
Staggering CD’s: With yields on cash investments below the rate of inflation, CDs with a range of maturities can let you obtain more competitive returns without tying up huge portions of your money. Converting short-term CD’s to cash is easy to fund an emergency while maintaining a higher yield on longer-term CD’s for anticipated major expense such as college tuition.
Leverage your portfolio and home equity: Most brokerage accounts allow you to borrow against the account assets by pledging the securities as collateral and can be a flexible liquidity tool by allowing your investment strategy stay in place and avoid capital gains tax on selling investments. For those fortunate enough to have equity in their homes, a Home Equity Line of Credit (HELOC) is another flexible liquidity tool. Most HELOC’s are based on the prime rate which is at a 55-year low. Additionally, the interest might very likely be tax-deductible up to $100K.
Dividend protection: For those that are a bit more adventurous, purchasing stocks from high quality, financially solid, dividend-paying companies can offer a consistent income at a rate above that of cash investments with the possibilty of capital appreciation. This is not a strategy for those wary of the market but for those individuals who are a bit less risk-adverse might find this palatable.
Despite the government’s claims, they have failed to restore public faith in the markets. Shell-shocked Americans have big concerns about where to invest to preserve their capital, minimize risk and re-gain their losses. Until they start spending, the recovery will be slow, as will job growth which will continue to fuel their fears. However, currently they are less about spending and more about saving. The above are suggestions to augment savings plans to help meet one’s financial needs whether it be an unplanned emergency or an anticipated long-term goal.
Friday, October 1, 2010
Will the Small Business Jobs Act Really Create Jobs
With the help of one lone Republican vote, Rep. Walter Jones of North Carolina, the so-called Small Business Jobs Act passed the Congress and was signed into law by President Obama on Tuesday. Despite drawing ample critics, the legislation also has support from some small-business interests and has lots of goodies, which include a $30 billion lending fund and an estimated $12 billion in tax breaks aimed at spurring hiring by small businesses.
The primary provision of the bill is a Small Business Lending Fund that will provide up to $30 billion in capital to financially sound small banks with less than $10 billion in assets to encourage them to lend money to small businesses. It makes changes to Small Business Administration loans, raising the maximum lending amount for certain types of SBA loans.
1) Extends provisions that increased SBA lending guarantee programs and fee reductions but recently expired
2) Increases the maximum loan size for SBA's 7(a), 504, and microloan programs. The 7(a) and 504 loan program maximums would increase to $5 million from $2 million and the microloans would increase to $50,000 from $35,000
3) Loans made under the SBA Express program would be temporarily increased to $1 million from $300,000 and includes a temporary allowance for small-business owners to use 504 loans to finance certain mortgages to avoid foreclosure
The secondary, but perhaps the only cogent component of the bill contains several tax-break measures, including a cell phone deduction and a family health-care deduction for the self-employed. It provides:
1) Small-business investments -- primarily those in corporations with less than $50 million in gross assets and held for more than five years, would be exempt from capital gains tax
2) The general business credit, which now can be carried back to relieve the previous year's tax liability, would be extended to a five-year carry-back
3) The bill would raise new-business expense deduction thresholds for startups from $5,000 to $20,000 in 2010 and 2011
4) Business owners would be able to write off 100% of the cost of acquiring property immediately instead of amortizing over time
5) For 2010 and 2011, Section 179 expensing will allow taxpayers to write off up to $500,000 in capital expenditures. Expenditures over that amount would phase out, up to a ceiling of $2 million and will allow taxpayers to expense up to $250,000 of the cost of qualified improvements on leased property.
6) Allows the self-employed to deduct their health insurance costs as a business expense for payroll tax purposes for 2010.
Probably the most promising of the foregoing are the expensing rules for equipment and property improvements as those expenditures tend to drive job creation. Currently, plans for capital spending are at a 35-year low
Now this legislation also has some provisions that could have some small-business owners worried. Some provisions intended to pay, or help pay, for the bill, in the form of higher Internal Revenue Service penalties, could end up biting small-business owners who are viewed by some as a group that tends to stretch federal tax rules:
1) The bill increases penalties for failure to file timely information with the IRS. Not just returns but all of the voluminous paperwork currently required and newly required under this and other bills
2) The bill increases Penalties for failure to file information returns to payees, such as 1099s and W2 forms
3) The bill increases the minimum penalty for each failure due to intentional disregard from $100 to $250
4) The bill increases penalties for failure to file returns as follows:
- First-tier penalty from $15 to $30, with the calendar-year maximum from $75,000 to $250,000.
- Second-tier penalty from $30 to $60, with the calendar-year maximum from $150,000 to $500,000.
- Third-tier penalty from $50 to $100, with the calendar-year maximum from $250,000 to $1.5 million
The provision regarding 1099 forms is a source of special concern as new reporting requirements included in the Healthcare Act may dramatically increase the number of 1099s businesses need to process beginning in 2013. This provision requires every business which spends in excess of $600 with a merchant, vendor, contractor, or supplier to issue a 1099 substantially increasing the amount of paperwork and potential penalties.
This bill also provides for a new bureaucracy purported to increase support to the Office of the U.S. Trade Representative to promote U.S. exports, creating staff positions there and at the Department of Commerce. Additionally, it increases funds to promote U.S. exporters and fund export grants available to industry associations and nonprofit organizations.
While promoting the bill, Mr. Obama stated that "this is important because small businesses produce most of the new jobs in this country," He went on to proclaim that the bill "will provide incentives to invest and create jobs for 4 million small businesses." and "It will more than double the amount some small business owners can borrow to grow their companies." Whether these claims will come to fruition is certainly up for debate. However, the administration has now realized that small business is the main engine of job creation – and that might be a good thing.
What might help is that the bill contains some good tax benefits for small business and may result in some capital investment and create a few jobs if businesses take advantage of them. Particularly, the elimination of the alternative minimum tax (AMT) limit that has been preventing businesses from taking general business credits like the R&D credit. Investing in one’s business rather than the IRS is always better. Whether it warrants the $12 billion price tag, no one knows. What we do know is that the tax incentives are temporary but the bureaucracies and government spending are permanent.
However, the popularity of the $30 billion small community business lending program is exiguous. Now that the legislation has been passed, its centerpiece provision faces one big challenge: many of the banks and businesses it is supposed to help don't want it. Less than 5% of small business owners cite a lack of financing as their main problem. Most say that the sluggish economy has chilled expansion plans and that unless demand increases, there is no reason to take on debt to expand. Additionally, many banks don’t believe that the money is worth it because it comes with too many regulatory strings and Bankers do not want to have their primary regulator also be their banking partner. The treasury will decide which banks qualify for the money and the banks that do receive it will need to pay a 5% annual dividend to the Treasury for 10% investment in the loan. There really is no appetite or demand for the program.
In any event, there is no shortage of opinions on the bill. Supporters say the bill will create untold millions of jobs, opponents say it’s simply another "bailout”. The Whitehouse would have probably gained more traction by offering something simple like a payroll tax holiday or extending the Bush era tax cuts that can be written in one page and then taking his opponents to task. This bill, however, is another voluminous spending bill whose benefits are really unclear.
At the end of the day, the tax provisions may encourage some businesses to invest and the lending program will do little or nothing. Banks don’t want to participate and businesses either don’t want loans or can’t qualify.. What we do know is that it will create more bureaucracies at the IRS and Commerce Departments and increase penalties. So, the real question is does it warrant the $42 billion estimated cost and will it overcome the uncertainty that is suppressing demand for the products and services that small businesses need to bring customers in the door and create the need to hire additional employees?
The primary provision of the bill is a Small Business Lending Fund that will provide up to $30 billion in capital to financially sound small banks with less than $10 billion in assets to encourage them to lend money to small businesses. It makes changes to Small Business Administration loans, raising the maximum lending amount for certain types of SBA loans.
1) Extends provisions that increased SBA lending guarantee programs and fee reductions but recently expired
2) Increases the maximum loan size for SBA's 7(a), 504, and microloan programs. The 7(a) and 504 loan program maximums would increase to $5 million from $2 million and the microloans would increase to $50,000 from $35,000
3) Loans made under the SBA Express program would be temporarily increased to $1 million from $300,000 and includes a temporary allowance for small-business owners to use 504 loans to finance certain mortgages to avoid foreclosure
The secondary, but perhaps the only cogent component of the bill contains several tax-break measures, including a cell phone deduction and a family health-care deduction for the self-employed. It provides:
1) Small-business investments -- primarily those in corporations with less than $50 million in gross assets and held for more than five years, would be exempt from capital gains tax
2) The general business credit, which now can be carried back to relieve the previous year's tax liability, would be extended to a five-year carry-back
3) The bill would raise new-business expense deduction thresholds for startups from $5,000 to $20,000 in 2010 and 2011
4) Business owners would be able to write off 100% of the cost of acquiring property immediately instead of amortizing over time
5) For 2010 and 2011, Section 179 expensing will allow taxpayers to write off up to $500,000 in capital expenditures. Expenditures over that amount would phase out, up to a ceiling of $2 million and will allow taxpayers to expense up to $250,000 of the cost of qualified improvements on leased property.
6) Allows the self-employed to deduct their health insurance costs as a business expense for payroll tax purposes for 2010.
Probably the most promising of the foregoing are the expensing rules for equipment and property improvements as those expenditures tend to drive job creation. Currently, plans for capital spending are at a 35-year low
Now this legislation also has some provisions that could have some small-business owners worried. Some provisions intended to pay, or help pay, for the bill, in the form of higher Internal Revenue Service penalties, could end up biting small-business owners who are viewed by some as a group that tends to stretch federal tax rules:
1) The bill increases penalties for failure to file timely information with the IRS. Not just returns but all of the voluminous paperwork currently required and newly required under this and other bills
2) The bill increases Penalties for failure to file information returns to payees, such as 1099s and W2 forms
3) The bill increases the minimum penalty for each failure due to intentional disregard from $100 to $250
4) The bill increases penalties for failure to file returns as follows:
- First-tier penalty from $15 to $30, with the calendar-year maximum from $75,000 to $250,000.
- Second-tier penalty from $30 to $60, with the calendar-year maximum from $150,000 to $500,000.
- Third-tier penalty from $50 to $100, with the calendar-year maximum from $250,000 to $1.5 million
The provision regarding 1099 forms is a source of special concern as new reporting requirements included in the Healthcare Act may dramatically increase the number of 1099s businesses need to process beginning in 2013. This provision requires every business which spends in excess of $600 with a merchant, vendor, contractor, or supplier to issue a 1099 substantially increasing the amount of paperwork and potential penalties.
This bill also provides for a new bureaucracy purported to increase support to the Office of the U.S. Trade Representative to promote U.S. exports, creating staff positions there and at the Department of Commerce. Additionally, it increases funds to promote U.S. exporters and fund export grants available to industry associations and nonprofit organizations.
While promoting the bill, Mr. Obama stated that "this is important because small businesses produce most of the new jobs in this country," He went on to proclaim that the bill "will provide incentives to invest and create jobs for 4 million small businesses." and "It will more than double the amount some small business owners can borrow to grow their companies." Whether these claims will come to fruition is certainly up for debate. However, the administration has now realized that small business is the main engine of job creation – and that might be a good thing.
What might help is that the bill contains some good tax benefits for small business and may result in some capital investment and create a few jobs if businesses take advantage of them. Particularly, the elimination of the alternative minimum tax (AMT) limit that has been preventing businesses from taking general business credits like the R&D credit. Investing in one’s business rather than the IRS is always better. Whether it warrants the $12 billion price tag, no one knows. What we do know is that the tax incentives are temporary but the bureaucracies and government spending are permanent.
However, the popularity of the $30 billion small community business lending program is exiguous. Now that the legislation has been passed, its centerpiece provision faces one big challenge: many of the banks and businesses it is supposed to help don't want it. Less than 5% of small business owners cite a lack of financing as their main problem. Most say that the sluggish economy has chilled expansion plans and that unless demand increases, there is no reason to take on debt to expand. Additionally, many banks don’t believe that the money is worth it because it comes with too many regulatory strings and Bankers do not want to have their primary regulator also be their banking partner. The treasury will decide which banks qualify for the money and the banks that do receive it will need to pay a 5% annual dividend to the Treasury for 10% investment in the loan. There really is no appetite or demand for the program.
In any event, there is no shortage of opinions on the bill. Supporters say the bill will create untold millions of jobs, opponents say it’s simply another "bailout”. The Whitehouse would have probably gained more traction by offering something simple like a payroll tax holiday or extending the Bush era tax cuts that can be written in one page and then taking his opponents to task. This bill, however, is another voluminous spending bill whose benefits are really unclear.
At the end of the day, the tax provisions may encourage some businesses to invest and the lending program will do little or nothing. Banks don’t want to participate and businesses either don’t want loans or can’t qualify.. What we do know is that it will create more bureaucracies at the IRS and Commerce Departments and increase penalties. So, the real question is does it warrant the $42 billion estimated cost and will it overcome the uncertainty that is suppressing demand for the products and services that small businesses need to bring customers in the door and create the need to hire additional employees?
Tuesday, September 7, 2010
The Domino Effect of the Credit Crunch
Return on equity (ROE) refers to the relationship between a company’s profit and the shareholder’s equity and is arguably the most important metrics in measuring the company’s profitability and growth potential. The owners of businesses with a high ROE and little debt are able to withdraw cash and reinvest it to grow without large capital expenditures.
Companies that enjoy a favorable ROE have generally achieved this position through effective cash management which undoubtedly relies heavily upon vendor financing (open account terms) which ideally allows them to sell their merchandise before they have to pay their suppliers. This enables them to carry and, therefore, sell far more inventory than they could have otherwise which in turn creates more jobs and produces more profit for the owners.
Although these companies may have little or no debt, their suppliers generally rely on a bank line of credit to stabilize fluctuations in their cash flow. If they did not have this borrowing power, they would be unable to offer terms. Consequently, by making credit unavailable, the company would need to pay the supplier cash upfront seriously expanding their cash gap.
This lack of vendor financing requires the company to infuse a lot of cash into the business for inventory and supplies that could be invested elsewhere. The obvious choice is to reduce inventory on the shelves which reduces the customers’ selection and consequently, sales. This results in the need to cut fixed expenses to maintain profitability so the logical choice is Payroll. This, in turn creates less tax revenue to Federal, State and Local governments, less consumer spending, etc. etc.
So even if you have done everything right; you pay your bills on time, own your building, limited your borrowing, have a healthy savings account and ample inventory, a chain is only as strong as it’s weakest link. At the end of the day, the credit crunch hurts everyone as it takes necessary capital out of the system. Until borrowing becomes more accessible, even those who are debt-free will be adversely impacted. The most well-run businesses can still fall victim to external forces unless they have instituted an adaptable cash management system.
Companies that enjoy a favorable ROE have generally achieved this position through effective cash management which undoubtedly relies heavily upon vendor financing (open account terms) which ideally allows them to sell their merchandise before they have to pay their suppliers. This enables them to carry and, therefore, sell far more inventory than they could have otherwise which in turn creates more jobs and produces more profit for the owners.
Although these companies may have little or no debt, their suppliers generally rely on a bank line of credit to stabilize fluctuations in their cash flow. If they did not have this borrowing power, they would be unable to offer terms. Consequently, by making credit unavailable, the company would need to pay the supplier cash upfront seriously expanding their cash gap.
This lack of vendor financing requires the company to infuse a lot of cash into the business for inventory and supplies that could be invested elsewhere. The obvious choice is to reduce inventory on the shelves which reduces the customers’ selection and consequently, sales. This results in the need to cut fixed expenses to maintain profitability so the logical choice is Payroll. This, in turn creates less tax revenue to Federal, State and Local governments, less consumer spending, etc. etc.
So even if you have done everything right; you pay your bills on time, own your building, limited your borrowing, have a healthy savings account and ample inventory, a chain is only as strong as it’s weakest link. At the end of the day, the credit crunch hurts everyone as it takes necessary capital out of the system. Until borrowing becomes more accessible, even those who are debt-free will be adversely impacted. The most well-run businesses can still fall victim to external forces unless they have instituted an adaptable cash management system.
Wednesday, August 25, 2010
Outsourcing: Where Automation Meets Innovation
Whether it's funding daily operations, acquisitions, reducing debt or investing, the core objective of the corporate treasury function is to make the best use of incoming cash. This involves assiduous analyzing and managing of collections, payments and concentration structures.
For companies that operate globally, centralized, cash concentration is even more crucial to ensure the efficient transferring of cash among operating units, bank accounts, and funneling funds into master accounts to ensure maximum monetary productivity. Treasurers who have a solid concentration strategy find that they enjoy reduced idle cash balances, reduced costs, improved banking relationships and enhanced ROI.
The first step is to know what the objective is and what needs improving. To ensure that funds are effectively mobilized and directed, treasury professionals must take a comprehensive approach to their concentration strategy which requires a thorough examination and understanding of the company’s infrastructure. This includes visibility and accessibility to the AP and AR processes, the Legal and Tax structures and M&A activity. Further, the appropriate quality and quantity of banks and bank accounts are essential to achieving optimum efficiency of any cash concentration system.
Technology is a key element in the development of synergistic treasury and cash management which is why bank technology has been driven by demand for enhanced functionality in the execution and reporting of transactions. Treasurers have made hefty investments in treasury management systems with flexible banking platforms that provide holistic solutions that will integrate seamlessly with their ERP systems providing straight-through processing and enhanced data and analytics.
Many companies have responded to the financial crisis by across-the-board cuts without considering the long-term impact of these cuts. We have found that as restrictions continue to grow on money and internal resources, our clients are looking for projects that require limited capital outlay and offer quick efficiency paybacks. Some clients are looking to us to take over the entire process. Others have a very specific project that they want integrated to enhance their current system. Whether the project is designing a cash forecasting model, implementing a global cash management network, automating payments or managing short-term investments, the first point of order is to gather all the critical players at the onset and map out a comprehensive strategy that addresses everyone's needs and concerns.
Though treasury workstations and other treasury management systems can cost $1 million or more, it is quite possible to implement a system for as little as $25,000 or even less depending on what is required. Price is not the key. Expertise and automation are. We've found with our clients that those who electronify 60% or more of their payables and receivables cut their processing costs (checks, invoices, postage, manpower, etc,) by 50% or more. In addition, treasury departments that have implemented commercial cards or single-user accounts into the A/P transaction flow have experienced much better controls, improved reconciliation and attractive financial returns.
It is important to engage a knowledgeable treasury consulting company like TreasuryMasters that can provide practical, realistic solutions that meet their client's unique requirements. Next, choose a bank that will partner with their client by providing products that automate the operations. Banks that offer a treasury workstation as an augmentation to their online portal can be more cost effective. At the end of the day, now more than ever, companies need to leverage the experience of extraneous professionals that will add value by adopting enhancements to cut costs, improve working capital and provide access to off balance sheet liquidity
For companies that operate globally, centralized, cash concentration is even more crucial to ensure the efficient transferring of cash among operating units, bank accounts, and funneling funds into master accounts to ensure maximum monetary productivity. Treasurers who have a solid concentration strategy find that they enjoy reduced idle cash balances, reduced costs, improved banking relationships and enhanced ROI.
The first step is to know what the objective is and what needs improving. To ensure that funds are effectively mobilized and directed, treasury professionals must take a comprehensive approach to their concentration strategy which requires a thorough examination and understanding of the company’s infrastructure. This includes visibility and accessibility to the AP and AR processes, the Legal and Tax structures and M&A activity. Further, the appropriate quality and quantity of banks and bank accounts are essential to achieving optimum efficiency of any cash concentration system.
Technology is a key element in the development of synergistic treasury and cash management which is why bank technology has been driven by demand for enhanced functionality in the execution and reporting of transactions. Treasurers have made hefty investments in treasury management systems with flexible banking platforms that provide holistic solutions that will integrate seamlessly with their ERP systems providing straight-through processing and enhanced data and analytics.
Many companies have responded to the financial crisis by across-the-board cuts without considering the long-term impact of these cuts. We have found that as restrictions continue to grow on money and internal resources, our clients are looking for projects that require limited capital outlay and offer quick efficiency paybacks. Some clients are looking to us to take over the entire process. Others have a very specific project that they want integrated to enhance their current system. Whether the project is designing a cash forecasting model, implementing a global cash management network, automating payments or managing short-term investments, the first point of order is to gather all the critical players at the onset and map out a comprehensive strategy that addresses everyone's needs and concerns.
Though treasury workstations and other treasury management systems can cost $1 million or more, it is quite possible to implement a system for as little as $25,000 or even less depending on what is required. Price is not the key. Expertise and automation are. We've found with our clients that those who electronify 60% or more of their payables and receivables cut their processing costs (checks, invoices, postage, manpower, etc,) by 50% or more. In addition, treasury departments that have implemented commercial cards or single-user accounts into the A/P transaction flow have experienced much better controls, improved reconciliation and attractive financial returns.
It is important to engage a knowledgeable treasury consulting company like TreasuryMasters that can provide practical, realistic solutions that meet their client's unique requirements. Next, choose a bank that will partner with their client by providing products that automate the operations. Banks that offer a treasury workstation as an augmentation to their online portal can be more cost effective. At the end of the day, now more than ever, companies need to leverage the experience of extraneous professionals that will add value by adopting enhancements to cut costs, improve working capital and provide access to off balance sheet liquidity
Friday, August 20, 2010
Bullish on Bonds
Just two days after Economist Jeremy Siegel and Wisdom Tree research director Jeremy Schwartz said that there's a bubble brewing in the bond market that will cost investors dearly, Morgan Stanley, the most bearish among government securities traders, acknowledged that its forecast that Treasury yields would rise this year was misguided.
“We got our rates call wrong and missed a great opportunity to be long on bonds this year,” said James Caron, head of U.S. interest-rate strategy at Morgan Stanley in a note to clients yesterday. “The market is currently rife with tactical relative value opportunities and that’s what we will focus on going forward.”
Warning of continued weakening in the economy, the Fed recently announced its plan to buy additional long-term Treasurys which would indicate a more aggressive policy. As expected, they also kept the fed funds rate near 0%. This is the central bank’s primary weapon to stimulate the economy by spurring spending and has not been hiked since December 2008
We are still reeling from the collapse of the credit and housing bubbles. US banks have written down about $1 trillion of bad mortgages while failing to write adequate new loans. This has seriously hurt small businesses who rely heavily on bank credit. Banks have found that buying Treasuries with their free government money makes more sense than lending it out to small businesses and individuals. With unemployent hoovering near 10% and the real estate and industrial markets weak, the deflationary pressures in the economy are so great that it is doubtful the Fed will start raising interest rates anytime soon barring some catestrophic event.
Now, it’s no secret that the responsibility for a huge amount of private-sector debt has been transferred to the taxpayers and will ultimately need to be paid. However, at this point, short of a massive selloff of bonds by foreign investors, the inability to auction off Treasury-bonds by the Fed or macroeconomic conditions starting to show some significant signs of improvement, a precipitous hike in interest rates and and a large capital loss in bonds is unlikely in the near term
“We got our rates call wrong and missed a great opportunity to be long on bonds this year,” said James Caron, head of U.S. interest-rate strategy at Morgan Stanley in a note to clients yesterday. “The market is currently rife with tactical relative value opportunities and that’s what we will focus on going forward.”
Warning of continued weakening in the economy, the Fed recently announced its plan to buy additional long-term Treasurys which would indicate a more aggressive policy. As expected, they also kept the fed funds rate near 0%. This is the central bank’s primary weapon to stimulate the economy by spurring spending and has not been hiked since December 2008
We are still reeling from the collapse of the credit and housing bubbles. US banks have written down about $1 trillion of bad mortgages while failing to write adequate new loans. This has seriously hurt small businesses who rely heavily on bank credit. Banks have found that buying Treasuries with their free government money makes more sense than lending it out to small businesses and individuals. With unemployent hoovering near 10% and the real estate and industrial markets weak, the deflationary pressures in the economy are so great that it is doubtful the Fed will start raising interest rates anytime soon barring some catestrophic event.
Now, it’s no secret that the responsibility for a huge amount of private-sector debt has been transferred to the taxpayers and will ultimately need to be paid. However, at this point, short of a massive selloff of bonds by foreign investors, the inability to auction off Treasury-bonds by the Fed or macroeconomic conditions starting to show some significant signs of improvement, a precipitous hike in interest rates and and a large capital loss in bonds is unlikely in the near term
Wednesday, August 18, 2010
Surviving the Credit Crunch Through Self-financing
Since the beginning of the economic crisis, liquidity has taken on an importance that outweighs earnings or growth. Consequently, treasurers have increased their focus on optimizing working capital and enhancing liquidity that has been trapped within their cash conversion cycles. Accordingly, the corporate perception of liquidity and risk has been revamped and treasurers are now seeking more diversity for their short-term cash flow.
As access to capital markets has dried up and bank financing becomes scarce and expensive, many treasurers have turned to self-financing to reduce their reliance on external funding. This requires treasurers to more actively manage working capital through vendor and supply chain financing, liquidity management solutions, improved cash flow forecasting and refinancing. The primary objectives for enhancing these areas is to improve process efficiency and reduce the risk of error and fraud. Therefore, optimizing operational and financial efficiency are among the primary objectives for corporate treasurers as any enhancement within these areas is likely to result in both financial advantage and process efficiency, and also mitigate the risk of error and fraud.
To be successful, treasurers must get key financial players and business partners onboard. Establishing a partnership with internal business units and adopting a single banking relationship will establish better banking communications improving terms and visibility over cash, payments, collections and daily cash management.
Once the internal cash gap has been diminished through better use of financial resources, the right banking partner will be able to streamline the sweep process and provide more secure, diversified and liquid investment vehicles for a company’s short-term cash flow
As access to capital markets has dried up and bank financing becomes scarce and expensive, many treasurers have turned to self-financing to reduce their reliance on external funding. This requires treasurers to more actively manage working capital through vendor and supply chain financing, liquidity management solutions, improved cash flow forecasting and refinancing. The primary objectives for enhancing these areas is to improve process efficiency and reduce the risk of error and fraud. Therefore, optimizing operational and financial efficiency are among the primary objectives for corporate treasurers as any enhancement within these areas is likely to result in both financial advantage and process efficiency, and also mitigate the risk of error and fraud.
To be successful, treasurers must get key financial players and business partners onboard. Establishing a partnership with internal business units and adopting a single banking relationship will establish better banking communications improving terms and visibility over cash, payments, collections and daily cash management.
Once the internal cash gap has been diminished through better use of financial resources, the right banking partner will be able to streamline the sweep process and provide more secure, diversified and liquid investment vehicles for a company’s short-term cash flow
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