Last week, Ehren Moeller of EY Global Treasury Services and I presented a webinar on global treasury management–Going Global: What Treasury Needs to Know– to over 600 registrants. While the recording of the webinar is available here, I thought sharing my top six questions (and answers) might be of interest. There were a lot of good questions, but these were my favorites.
Question 1: What about FX non-bank providers that also offer treasury management tools? For example, using Vostro bank account information from a third party provider to conduct international operations?
Answer/ Bob Stark, Kyriba: Using Vostro (or Nostro) accounts is more of an internal policy decision. Technically a Vostro account is still a bank account; that being said, such accounts may not be the appropriate tool for your own organization, considering where the accounts are held and whether the counterparty risk is in line with internal limits.
Additional reading: Kyriba: Your Trusted Global Partner for Treasury Management Solutions
Question 2: Do you see blockchain tech and open ledgers changing international payments in a significant way?
Answer/ Bob Stark, Kyriba: I personally do, although the jury is still out on whether blockchain technology will stimulate non-bank peer-to-peer payment channels. Most news we hear relating to blockchain talks about financial institutions finding ways to incorporate blockchain technology within their existing infrastructures to support their current systems. This assumes that there will be many ‘private’ blockchains, as opposed to the leveraging of the bitcoin blockchain (or similar public blockchains). It is really too early to tell exactly how blockchain will be brought to market, but it is very likely that who brings it to market in a meaningful business application for corporate treasuries will be the determinant of how valuable and disruptive blockchain will be.
As a side note, Kyriba and EY are planning a blockchain webinar in June where we will debate these very topics!
Question 3: What documentation issues are most common when opening bank accounts in China, and making payments in RMB?
Answer/ Bob Stark, Kyriba: There are a lot of variables when doing business in China, not the least of which are how (and where) to set up legal entities to smooth the onshore/offshore sweeps in-and-out of RMB. Documentation is extensive, to say the least, which doesn’t fully answer the question, but hopefully gives an idea that performing this exercise on our own without expert guidance is a dangerous proposition.
It is also a good idea to do your research on whether opening accounts in China (as well as at an offshore clearing center) is necessary, or whether investigating how to remit payments to China in RMB is all that is needed. The impending availability of CIPS offers new opportunities to pay Chinese suppliers in local currency, which for some may alleviate the need to create RMB accounts onshore in China.
Question 4: To get cash visibility, doesn’t SWIFT connect to all banks? Why would you use something else?
Answer/ Bob Stark, Kyriba: As discussed in the webinar, SWIFT is a fantastic technology that offers connectivity to pretty much all banks that a corporate would require reporting from and payments to. That being said, many banks offer multiple choices to connect and the best choices (in terms of automation, security, and cost) always depend on your profile with that bank. The profile means the number of accounts, number of transactions, payment details, etc.
The best way to determine the right technology for bank connectivity is to look at what you do with each bank. That will determine whether SWIFT is ideal – and if so (which is often the case) which solution from SWIFT, as there are choices there as well.
Question 5: How do I know if our treasury is complicated enough for a multilateral netting program?
Answer/ Bob Stark, Kyriba: As Ehren Moeller of EY Global Treasury Services responded during the webinar, the benefits of multilateral netting include reduced numbers of transactions, including FX trades. While this result always translates to reduced costs, whether your organization finds value in a netting program is determined by the amount of foreign currency we are talking about as well as the number of transactions. Those two variables drive the benefits that would be received, so that the value can be more easily measured.
Additional reading: Four key takeaways: currency and risk management
Question 6: We find forecasting is nearly impossible because we are relying on non-treasury personnel in each region. Information we get is sporadic and providing feedback will not change behaviors. How can we improve our situation?
Answer/ Bob Stark, Kyriba: It sounds like the CFO may be able to offer some guidance here as one would assume that the “non-treasury” people are still in finance. If that’s the case, up-managing the CFO on the opportunities that can be afforded by having a more accurate forecast (and those opportunities should be quantified as much as possible, by the way) will often translate to more cooperation with peers within the global finance team.
In addition, being able to offer detailed data on where the variances are occurring can help stimulate better behavior. For example, if you were to tell me that my 30 day forecast was 72% accurate, my immediate reaction would be, “what part wasn’t accurate?” Being able to provide specifics, by line item and by time bucket, will also shape the right behavior.