Cash & Liquidity Management

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Optimising Cash & Liquidity Management in Europe In 2008, MeadWestvaco made the decision to optimise cash management and placed a European Treasury Director in Switzerland. This article explores the background of the cash management optimisation project, achievements so far, and plans for the future.

Optimising Cash & Liquidity Management in Europe

by Lawrence S. Estrop, European Treasury Director, MeadWestvaco

MWV global operations are supported by three treasury hubs located in the United States, Brazil and more recently, Switzerland. Initially, the European treasury operation was a relatively small business function, as most treasury activities were managed from the United States. In 2008, the company made the decision to optimise cash management and placed a European Treasury Director in Switzerland. This article explores the background of the cash management optimisation project, the achievements so far, and plans for the future.

Legacy cash management

Although MWV had mature cash management processes in Brazil and the United States, there were limited streamlined or centralised activities in the European treasury location. Cash was managed locally, with over 130 bank accounts with 31 banks. Account balances were obtained through 19 various electronic banking systems, recorded by the business unit financial controllers and reported to treasury who would consolidate pan-European information into a global cash position report. The process often took several days with considerable opportunity for errors or omissions.

At that time, many activities were conducted manually in the European treasury, which was labour-intensive. For example, we had a significant number of intercompany loans in place to fund both working capital and long term investment, which took substantial effort to manage.

Catalyst for change

MWV recognised that a fragmented cash management structure compromised our objective to demonstrate industry best practices in everything that we do. Our fragmented cash management structure limited our ability to leverage economies of scale with key banking partners, resulting in additional cost, and to achieve visibility and control over cash balances and group liquidity, resulting in higher borrowing costs.

The 2007-8 financial crises also emphasised the importance of managing counterparty risk proactively. With large balances typically held on local current accounts at any one time, we were subject to both opportunity cost and counterparty risk. We therefore identified the following objectives:

  • To achieve greater visibility and control over cash across our European business;
  • To reduce working capital by decreasing bank balances held by our subsidiaries at local level;
  • To establish stronger relationships with fewer banking partners in Europe, and achieve greater economies of scale;
  • To manage our counterparty risk more strategically;
  • To improve our cash management reporting for our European entities to permit more informed decision-making.

In addition to optimising our European cash management, we had a series of parallel projects under way. Although these projects placed additional strain on our internal resources, they were also complementary and increased our incentive to enhance our cash management. For example, we have established a European Headquarters (EHQ) to improve business processes, work more effectively across all of our businesses and, as a result, make better and timelier decisions for MWV, our customers and our shareholders. While the EHQ model positions our business for more effective regional management, it also represented additional complexity from a cash management perspective with the substantial increase in the number of legal entities created and therefore bank accounts required in each country. This greatly added to the business case for rationalising our banking partners and automating our cash management processes.

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