Cash & Liquidity Management

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Thinking Outside the Box - Building a Global Multi-Currency Liquidity Management Backbone With over $150m flowing into Ingram Micro subsidiaries across the world on a daily basis, having centralised visibility and control over that cash is a must. A global notional cash pool allows the company the flexibility to move cash swiftly between different legal entities - and without cumbersome intercompany loans.

Thinking Outside the Box – Building a Global Multi-Currency Liquidity Management Backbone 

Thinking Outside the Box – Building a Global Multi-Currency Liquidity Management Backbone  

By Eleanor Hill, Editor


With over $150m flowing into Ingram Micro subsidiaries across the world on a daily basis, having centralised visibility and control over that cash – and being able to move it swiftly between different legal entities is a must. Here, Erik Smolders, the company’s Treasurer, and Bertie Sanders, Managing Director, Clients & Products USA, Bank Mendes Gans, explain how they set up a global notional cash pool that affords Ingram Micro the flexibility to move funds between entities without intercompany loans. They also outline the benefits of this overlay set-up, ranging from significant reduction of FX exposures and costs to working capital improvements – all without ruffling the feathers of existing banking partners.

Cast your mind back to 2007 – the year that Apple launched the first iPhone and Slovenia joined the Eurozone. It was also the year that Erik Smolders moved from Belgium to California to become Corporate Treasurer for Ingram Micro, having previously worked as the company’s European Treasurer. 

Taking up this new role, Smolders was keen to make Ingram Micro’s global treasury operations best-in-class, with central visibility and control over worldwide cash balances. This is understandable given that the group’s cashflows are not only significant in value and volume terms, but also highly seasonal.

“Like every multinational company, we have entities that are cash rich and others that are cash poor. But the seasonality in the cash flows between the different entities varies from day-to-day, from month-to-month, and from quarter-to-quarter,” explains Smolders. As a result, Ingram Micro was performing a high number of intercompany loans in order to meet any cash shortfalls, together with some borrowing from domestic banks. 


Overcoming legacy hurdles

“While it worked to an extent, this set-up was cumbersome and inflexible,” admits Smolders. “Producing the correct paperwork for intercompany loans can be extremely time-consuming, meaning that it is challenging to swiftly alter arrangements in response to borrowing patterns. Also, if we were performing intercompany loans between entities in different countries and in different currencies, then we needed to execute FX swaps – adding yet further cost and complexity.” What’s more, local CFOs do not always want to let go of their surplus cash, in case a strategic investment opportunity arises, he explains.

“So, as soon as I took up oversight of the global treasury operation, I started to look for ways to be more efficient at moving cash around, and to have complete visibility over all of our balances – worldwide – whilst closely managing the group’s FX risk.” Here, Smolders already had some experience, having operated a zero-balancing cash-pooling set-up out of a co-ordination centre in Brussels for all of Ingram Micro’s European subsidiaries. Smolders had also successfully set up cross-border cash pooling between Singapore and Brussels, so he knew that global cash pooling solutions could be made to work in many jurisdictions and was keen to ‘extend’ the benefits of the European cash pooling set-up to Ingram’s global operations.

While the obvious solution may have been to centralise all of the company’s cash management with one global bank, this was not an option Smolders was prepared to entertain. “We have operations spread across 100 or so partner banks, and our core banking group consists of around 20 banks. Because bank funding and cash management ‘wallet share’ go hand-in-hand, I was keen to find a solution that would allow me to reward all of my relationship banks appropriately,” he explains.

“Moreover, Ingram Micro has more than 200,000 customers across 160 countries worldwide, many of whom are small and medium-sized businesses. From a cash collection point of view, we need to be close to the customer and make it as easy as possible for them to pay us. That means we can’t work with one bank across the globe; in some countries, we need local banks with a bricks-and-mortar presence.”

As such, Smolders began looking for a bank that could offer an overlay solution in the form of a global notional cash pool. “I wanted to be able to have a global cash management set-up, but at the same time to allow individual countries to retain relative autonomy in picking a local bank that is appropriate for their needs and retaining a level of control over their cash,” he says.

 

Fig 1 - Global overlay structure Fig 1 - Global overlay structure

 

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