Liquidity & Cash Management - Growing Demands & Challenges
I think we can see that the major challenges for bankers will continue to come from greater regulatory scrutiny (one could say it is the regulators top priority for banks following the liquidity drought of autumn 2008), the escalating needs of sophisticated corporate clients, and the age old balance between investing in new solutions and keeping costs down.
On the corporate side of the market, probably the most chilling phrase for treasurers will be "the information vacuum". The ongoing challenge of keeping close control on information as well as money and future claims is proving more complex than ever. Recent industry surveys have illustrated a significant number who do not have properly integrated information across their organisations. Clearly there is a need for further investment by the corporate sector in agile software that can account for new markets, the proliferation of payments systems, and the proper monitoring and valuation of outstanding positions. This underlying technology platform needs to be flexible and scalable if corporates are to maintain proper controls.
In addition there will be an increasing use of "off balance sheet" mechanisms, which are needed to record contingent claims that are currently often not properly monitored or factored into future forecasts. Cash cycle analysis is also likely to be another area that sees a leap forward as the more sophisticated corporates use predictive algorithms to forecast future cash flows, liquidity, hunt down "trapped cash" and potential trouble areas.
I think that all of this adds up to a management and cost challenge of huge proportions against the backdrop of a slowing growth in the world economy and underlying fears about general financial solvency.
The most important of these are as follows:
Key Liquidity Management Challenges
• Legacy and inflexible systems are still prevalent in many treasury operations. Systems that are scalable, flexible and able to integrate with latest enterprise payment systems, data warehouses, collateral management, credit line monitoring, custodian systems et al are going to be in huge demand. The days of simple spreadsheets and manual operations are coming to an end.
• The fragile global economy and the determination of regulators to ensure financial solvency and stability are going to put further pressure and outside scrutiny on bank treasurers. Also for corporates they will feel increased pressures from both clients and shareholders who will frequently judge their suitability as a business counterparty in terms of efficient settlement of transactions.
• The concept of an efficient Financial Supply Chain has still not taken hold in all corporates. Businesses that carefully manage their stocks and distribution networks are still being left behind by failing to adopt similar techniques in their finance function. Paradoxically this might mean some real laggards have a chance to leapfrog to the leading edge.
Final Thoughts
Borrowing from the old 1940's poster advice, every Treasurer's guiding principle should be "Keep Cash & Carry On!" Or perhaps more precisely keep the cash to be able to carry on - the liquidity management business is being transformed, laggards and those who don't upgrade and invest not only risk the wrath of regulators and dissatisfied clients, they also are courting commercial oblivion. The liquidity management game is being raised - everyone will have to improve with it.
Discussion Points
• Who will pressure bankers the most? Regulators, Customers or Shareholders?
• What is a "risk free" investment these days?
• Treasurers have to balance Liquidity, Credit Risk & Return - Is it realistic anymore to try and achieve high results in all three?
On the corporate side of the market, probably the most chilling phrase for treasurers will be "the information vacuum". The ongoing challenge of keeping close control on information as well as money and future claims is proving more complex than ever. Recent industry surveys have illustrated a significant number who do not have properly integrated information across their organisations. Clearly there is a need for further investment by the corporate sector in agile software that can account for new markets, the proliferation of payments systems, and the proper monitoring and valuation of outstanding positions. This underlying technology platform needs to be flexible and scalable if corporates are to maintain proper controls.
In addition there will be an increasing use of "off balance sheet" mechanisms, which are needed to record contingent claims that are currently often not properly monitored or factored into future forecasts. Cash cycle analysis is also likely to be another area that sees a leap forward as the more sophisticated corporates use predictive algorithms to forecast future cash flows, liquidity, hunt down "trapped cash" and potential trouble areas.
I think that all of this adds up to a management and cost challenge of huge proportions against the backdrop of a slowing growth in the world economy and underlying fears about general financial solvency.
The most important of these are as follows:
Key Liquidity Management Challenges
• Legacy and inflexible systems are still prevalent in many treasury operations. Systems that are scalable, flexible and able to integrate with latest enterprise payment systems, data warehouses, collateral management, credit line monitoring, custodian systems et al are going to be in huge demand. The days of simple spreadsheets and manual operations are coming to an end.
• The fragile global economy and the determination of regulators to ensure financial solvency and stability are going to put further pressure and outside scrutiny on bank treasurers. Also for corporates they will feel increased pressures from both clients and shareholders who will frequently judge their suitability as a business counterparty in terms of efficient settlement of transactions.
• The concept of an efficient Financial Supply Chain has still not taken hold in all corporates. Businesses that carefully manage their stocks and distribution networks are still being left behind by failing to adopt similar techniques in their finance function. Paradoxically this might mean some real laggards have a chance to leapfrog to the leading edge.
Final Thoughts
Borrowing from the old 1940's poster advice, every Treasurer's guiding principle should be "Keep Cash & Carry On!" Or perhaps more precisely keep the cash to be able to carry on - the liquidity management business is being transformed, laggards and those who don't upgrade and invest not only risk the wrath of regulators and dissatisfied clients, they also are courting commercial oblivion. The liquidity management game is being raised - everyone will have to improve with it.
Discussion Points
• Who will pressure bankers the most? Regulators, Customers or Shareholders?
• What is a "risk free" investment these days?
• Treasurers have to balance Liquidity, Credit Risk & Return - Is it realistic anymore to try and achieve high results in all three?
