Cash & Liquidity Management

Driving Innovation in a Global Economy SEBís Head of Global Transaction Services offer an overview of the articles found within this SEB Guide to Treasury Innovation.

Driving Innovation in a Global Economy

by Lars Millberg, Head of Global Transaction Services, SEB

For virtually every company, of every size, the demands and opportunities of globalisation have had an indisputable effect on the way that business has been done in recent years. While ten years ago, trade with emerging markets may have represented a relatively small proportion of revenue, today over 50% of trade from the Nordics and Germany, for example, is in emerging markets. For imports, exports and services alike, the new economy is global and companies in all industries, and of all sizes, need to structure their business to meet these changing needs. This has implications for sourcing, manufacturing and distribution, but also for treasury, which is becoming ever closer to the business as risks and liquidity management requirements become increasingly complex and the need for a robust and sustainable supply chain is accentuated. Typically, the further the company’s lines of supply and demand, the greater the operational and financial risk, unless treasurers have put in place efficient organisational, technology, risk and liquidity management structures, establishing central control over cash and risk as far as possible.

While effective cash flow forecasting has been on treasurers' 'to do' list for many years, it is now a business imperative.

The changing demands on treasury, and approaches to addressing these, form the basis of this Guide to Treasury Innovation brought to you by SEB. Erik Seifert explores the evolving role of treasury, not least since the financial crisis accentuated pressures on liquidity and counterparty risk, and ongoing currency and commodity volatility sharpened treasurers’ focus on minimising exposures. Hakan Aldrin and Jonny Sander describe the importance of collaboration, both internally and externally, and the vital role that both structured and ad-hoc exchange of information has to play in equipping treasurers with the means to fulfil their transactional and strategic function. A new environment requires a new approach to optimising processes and information flows across treasurers’ expanding horizon, and as Sigrun Fredriksson and Tom Lea outline, the Corporate Financial Value Chain™ pioneered by SEB provides a structured approach to identifying, prioritising and delivering the initiatives that will deliver the greatest value.

The importance of liquidity

Globalisation and the ongoing repercussions of the financial crisis do not only impact on liquidity processes and risk decision-making, however. In an environment where money is more expensive and difficult to obtain, the right capital structure and long-term, sustainable funding are essential to business continuity, as well as working capital. With Basel III approaching, we are seeing a price put on liquidity for the first time, as opposed to being considered an almost costless commodity; today and in the future, however, maintaining access to liquidity is, and will continue to be a key priority for treasurers. This has a range of implications. For example, it is now imperative that treasurers know exactly how much cash they have, where it is located, and how they can make use of it to minimise overall borrowing requirements. While effective cash flow forecasting has been on treasurers’ ‘to do’ list for many years, it is now a business imperative. Treasurers are also increasingly seeking to make better use of their financial assets, using invoices and receivables, for example, as an alternative way of financing the business.

The need to gain visibility, control and access to liquidity has proved a catalyst towards centralisation for many companies, and growing numbers of treasurers and CFOs are recognising that financial decision-making and related transaction processes are typically best conducted on a centralised basis. The boards of many companies are also taking a greater interest in treasurers’ activities, as Erik Seifert explains, now that treasurers’ areas of responsibilities have been so clearly demonstrated to be essential to the ongoing success of the business. Senior managers now recognise the importance of clearly identifying risk, determining an appropriate risk appetite, and managing risk within this framework. While treasurers may have added value through risk-taking in the past, the value they add now is by providing transparency over, and controlling risk.

Banks such as SEB are investing heavily in treasury dashboard tools that give comprehensive visibility and control over key treasury information.

The role of banks has changed fundamentally in the new environment. They are no longer providers to corporate treasurers but close business partners, who need to understand and respond to the specific needs of each client organisation. Treasurers need the confidence that their banks will support them over the long term, not only by lending their balance sheets, but by providing financing and liquidity management tools that are designed the meet changing market conditions. The provision of both cash and trade tools in an integrated way is an essential element of this, and SEB was ahead of many banks by combining these divisions into a cohesive service offering, anticipating and responding to our clients’ global needs and aspirations.

Enabling visibility over risk and liquidity, and providing the tools to manage them, is also an essential requirement, and banks such as SEB are investing heavily in treasury dashboard tools that give comprehensive visibility and control over cash positions, FX risk, trade positions, receivables and other key treasury information. Integration of key data flows is essential to the success of these initiatives; to ensure that clients’ needs remain at the forefront of development plans it is important to invite clients to take an active role in product design and functional priorities.

Evolution and innovation

Looking ahead, we see that treasurers’ emphasis on liquidity and risk will continue, and some of the initiatives which treasurers are undertaking now to secure access to liquidity and visibility over risk will progress further still. There are still considerable uncertainties with issues such as how trade flows will be treated under Basel III, and inevitably, treasurers and their banks need to consider the worst as well as the best outcomes in this respect, and plan accordingly. However, whatever the future holds, treasury evolution and innovation will continue unrelentingly, and both treasurers and their banking partners need to review constantly how their operations and strategy can be improved. As a bank that has always prided itself in pioneering approaches to financial management, across treasury, cash and trade, we look forward to leading a new era of innovation to meet the needs of the many of the world’s most respected and successful companies.

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