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

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

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