When a company decides to operate in a new country or region, there’s a lot of implicit risk. In addition to operational and financial processes, CFOs and treasurers must exercise a level of diligence and attention to detail—and anticipate that any one error or omission could have significant consequences.
Risk Analysis is Well Worth the Time
A good approach is to fully consider every possible risk in advance and produce a plan for how each risk can be addressed.
For example, in a new country you will naturally assume new liquidity risk. So you’ll want to consider access to funding, payment latency, liquidity gates and banking stability.
You’ll assume operational risk, thus you’ll want to consider bank signatories, business continuity planning, and payment controls. Of course, there’s the risk of fraud and cybercrime, so you’ll want to consider sanction lists, technology for real-time fraud detection, and even what it might take to contain the response time of a fraud event, as well as incident response processes.
In a new country, there’s obviously currency and regulatory risk. You’re wise to consider every aspect of the new currency, and how it might impact your payments and FX exposures. Regulatory constraints need to be clearly understood prior to establishing client, supply chain and banking relationships.
And finally, there’s political risk. The political stability of the new country plays heavily into the financial calculus. And sometimes it’s simply not possible to avoid the consequences of trade wars and other external influences, even if the country is deemed to be stable.
A Treasurer’s Checklist for New Country Operations
With the risk assessment at hand, a treasurer can take a step-wise approach to set up efficient, automated financial processes.
Here’s shortlist of tasks to put into play:
- Conduct a bank fee analysis
- Setup (or expand) banking relationships
- Establish bank connectivity and ensure automated format transformation
- Ensure automated account balance and cash visibility
- Confirm payment structure and cross-border latency
- Set up processes to extend into your existing cash pooling structure
- Establish cash forecasting scenarios
- Set up new currency and FX policies and procedures
- Establish automated processes to measure and mitigate currency exposure
- Establish controls and policy in the context of new country constraints and regulations
- Ensure payment and other fraud detection technologies are in place
- Determine cash and liquidity objectives for in-country operations
- Consider a supplier financing program, such as dynamic discounting or reverse factoring
Visibility and Agility
Every new country comes with peculiarities. The mark of a great treasurer is their ability to maintain clear visibility into cash, risk and liquidity at all times, across all geographies. And, the ability to quickly act on the core dynamics that can shape success. Getting the fundamentals right—cash management, risk management, working capital optimization—will serve you well.