Cash & Liquidity Management

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Coins behind the Cushions: Seeking Liquidity within the Enterprise I’m sure most of us are absolutely sick of the terms ‘credit crunch’ or ‘credit crisis’, since they preface virtually ever financial article, so I will do my very best to avoid them. While we may be slightly more cautious than this time last year, treasurers can minimise the effects of external market turmoil and uncertainty by looking internally for forgotten or trapped liquidity - I’m sure I’m not the only one to try and find a few forgotten coins hidden down the back of the sofa or on my husband’s bedside table when I need to pay the window cleaner, and the situation is very similar for many corporations. In thisarticle, we speak to leading experts from banks and vendors on their observations of companies seeking to enhance their liquidity.

Coins behind the Cushions:

Seeking Liquidity within the Enterprise

Helen Sanders, Editor

I’m sure most of us are absolutely sick of the terms ‘credit crunch’ or ‘credit crisis’, since they preface virtually ever financial article, so I will do my very best to avoid them. While we may be slightly more cautious than this time last year, treasurers can minimise the effects of external market turmoil and uncertainty by looking internally for forgotten or trapped liquidity - I’m sure I’m not the only one to try and find a few forgotten coins hidden down the back of the sofa or on my husband’s bedside table when I need to pay the window cleaner, and the situation is very similar for many corporations. In this article, we speak to leading experts from banks and vendors on their observations of companies seeking to enhance their liquidity.

Treasurers can minise the effects of external market turmoil and uncertainty by looking internally for forgotten or trapped liquidity.

Elyse Weiner, Head of Liquidity and Working Capital at Citi summarises the importance of liquidity management:

“A primary concern for any corporate treasurer is that s/he maintains sufficient working capital to sustain business operations; therefore, access to liquidity where and when it is needed is a key consideration. Recent market events, precipitated by subprime mortgage exposures, have contributed to a contraction of the credit markets. As a result, external sources of funding have either dried up or become more expensive. For example, as events unfolded during the summer, issuers could not find takers for commercial paper and companies had to utilise their bank backstop facilities for short-term financing.”

So what does this mean in practise? How do companies find their coins behind the cushions? Phillip Lindow, Head, Global Treasury and Investment Management, Transaction Banking, ABN AMRO explains:

“Corporates today have a stronger focus on mobilising trapped cash than they did a year ago. We see two important trends: firstly, companies are focusing on liquidity at a global rather than regional level; secondly, they are aiming to increase the visibility, automation and control over their cash without increasing headcount.”

Kevin Grant, Chief Executive Officer, IT/2 Treasury Solutions emphasises that:

“Our clients and prospects were showing heightened levels of interest in working capital optimisation before the present focus on liquidity became headline news. This concern extends to both net borrowed and cash-rich organisations, and is especially clear in the drive to locate hidden pools of liquidity throughout global enterprises. Clearly, treasury best practice includes the utilisation of all internal sources of cash, and this can be a demanding exercise for companies with substantial business activities in countries where banks do not offer SWIFT or other international electronic balance reporting capabilities.”

There are a number of implications of mobilising cash which can be divided into three broad themes: Visibility, Accessibility and Forecasting.

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