One hundred years ago, the Panama Canal opened its doors, or rather its locks. The canal’s impact on world trade was phenomenal, at a time when many ocean-going cargo ships were still powered by the wind and could take months to travel from Asia to North America’s East Coast.
It cut more than 8,000 miles and several weeks off the journey from New York to San Francisco, significantly lowering the cost and danger involved in shipping cargo. Even with the advent of air cargo and cross-country freight trains, today more than five percent of all of the world’s cargo passes through the canal’s six sets of locks.
While advances in engineering – both in ship design and the creation of the Panama Canal – was the catalyst for global trade expansion in 1914, in 2014, it’s arguably technology that is the biggest driver for the internationalization of trade. The need for companies to quickly and efficiently move goods around the planet has been replaced by their need to seamlessly move money across borders. From seeing how much cash an organization has in its network of banks (and managing access to these accounts), to making payments to international suppliers and employees, to daily cash sweeps from volatile currencies, international cash management is a critical part of many business’ financial management. The ability for an organization to do so in the most cost-effective, efficient and risk-free way can be critical to its success. The enabler for this is a treasury management system.
Obviously global trade and currency movement is possible without treasury management systems in place, in the same way that shipping cargo from the Pacific to the Atlantic was possible prior to the canal. However, rounding Cape Horn was time-consuming, expensive and incredibly risky for the shipping companies – more than 100 ships were lost in the waters around Cape Horn in the second half of the 19th century.
Likewise, international money movement has been happening long before the introduction of treasury management. However, without on-demand visibility into cash positions and forecasts, the ability to efficiently transfer funds, or the creation of programs to minimize FX risk exposure – all of which a treasury management system can provide – the business of being a global organization becomes much more burdensome for the treasury department. Instead of treasury being a department that can add strategic value to the entire organization, it spends much of its time and resources on the operational complexities of international cash management.
Consider some of the elements of cash management that international organizations must deal with:
- Global cash visibility: A multinational organization could easily have several hundred accounts with dozens of banking partners across the world. Manually checking each bank’s portal to verify cash balances is a complex and labor-intensive task. Controlling access and signatory rights to all of these accounts can also be a huge headache.
- Consolidated cash forecasting: It’s critical to know that each market and business unit has clear visibility of its anticipated liquidity position via an effective cash forecast. For companies with global supply chains and sales operations, where goods are sold in one market / currency but the suppliers are in another market / currency, this becomes even more important, to ensure there is enough cash and working capital to meet future obligations.
- FX exposure management: The current events in Russia, Eastern Europe and the Middle East, and Argentina’s recent default on its sovereign debt are driving currency volatility (and the ongoing flight from the ruble, in particular). Any company that does business in multiple currencies has a need to minimize the effects of currency rates on balance sheet items and project cash flows. The analyst community does not look kindly on organizations that chose not to project FX exposures and hedge against those risks, leading to unnecessary EPS erosion. Any Treasurer managing cash flows in Argentina already feels this pain.
- Multi-lateral netting: Gaining visibility of payables and receivables can create an opportunity to more efficiently move funds and reduce external transaction costs, including payments and foreign exchange, by implementing a multi-lateral netting program. Visibility is key, as well as centralization of information and control, to ensure such cost efficiencies.
- International Payments: Cross-border payments are an expensive fact of life for organizations participating in international trade. Centralizing payments can yield internal efficiencies as well as offer opportunities to maximize working capital programs such as supplier financing. Further, migrating cross-border payments to local payments in international markets can also deliver significant savings that can drastically reduce the cost of doing business in certain regions.
All of the actions listed above, while not impossible to achieve through manual processes, can often be laborious and prone to a multitude of risks and errors. Implementing a treasury management system enables treasury departments to automate a wide variety of manual tasks, as well as perform a broad range of actions – such as those listed above – through a single interface.
Given that there is a growing movement to treasury centralization, the need for a treasury management system that can scale globally is paramount. This means multiple languages and easy of accessibility regardless of the user’s location or time zone. Companies should also consider the cost and ease of rolling a TMS out in multiple locations. Installing and configuring the software in-house (even for an ASP solution) is complex, time-consuming and often expensive process, and also requires local IT support resource. Organizations who are looking to deploy on an international basis should consider a software-as-a-service (SaaS) solution, which is accessed via a browser regardless of location, and requires no in-house IT capabilities to install or support.
So, if it seems that you face stiff headwinds and a tidal wave of tasks in your daily role as an international treasury professional, maybe you should look to find a solution that allows you to get to your destination in a much quicker, easier and less challenging way. There’s no reason that international cash management shouldn’t be plain sailing.