According to a survey by Treasury Strategies, a division of Novantas, the most common obstacle to optimising working capital for Treasurers is the quality of data used (for forecasting).  As the saying goes "garbage in, garbage out".  The next biggest challenge for treasurers was forecasting accurately when their customers (debtors) will pay.  Part of the problem is knowing who will not pay cash owed on the due date (default) and what percentage will never pay the cash (resulting in a write-off).

For some treasurers, variance analysis was their biggest challenge.  This process involves analysing the difference between what working capital balances were forecast and what balances actually occurred, and understanding why the differences arose and trying to reduce them in future.

Some treasurers might be hampered in managing their working capital by relying on indirect working capital forecasting methods prepared by FP&A versus preparing them within Treasury and using the direct and simpler Receipts and Payments method of cash forecasting.

Poor working capital management caused by poor cash forecasting can result in significant amounts of cash  unnecessarily tied up in a company's working capital, such as its debtors or over-stocking.  That cash could be better deployed in producing positive cashflow or reducing interest unnecessarily being paid on debt outstanding.

To discuss Cash or Treasury management for your company, including interim Treasury management, funding, and financial risk management, contact me for a free, confidential chat without obligation.

US based Treasury Management consulting firm, Treasury Strategies (a division of Novantas Inc) has released its "Annual State of the Profession" Treasury Management survey.  It makes for interesting reading of the latest thinking of many corporate treasurers, in particular what changes in Treasury Management were permanent and what were temporary?

Covid 19 triggered permanent changes in how treasury departments work, i.e., remote staff and the technology to support that were permanent features of change in some corporate treasury departments, but for others (that transitioned back to office work) these changes were temporary.

Another permanent change was eliminating paper, automating treasury processes, and (a perennial task in a treasury) cash forecasting.

The dramatic increase in liquidity funding was a temporary response to Covid for treasury teams.

To discuss Cash or Treasury management for your company, including interim Treasury management, funding, and financial risk management, contact me for a free, confidential chat without obligation.

US based Treasury Management consulting firm, Treasury Strategies (a division of Novantas Inc) has released its "Annual State of the Profession" Treasury Management survey.  It makes for interesting reading of the latest thinking of many corporate treasurers, in particular what are the opportunities for Treasury Management?

With low interest rates and the threat of them rising, now is the time for treasurers to raise debt according  to the survey.

The time is also ripe for using technology to improve treasury processes such as payments, data-driven decision-making, and automation, and eliminate paper.

Perennial treasury management tasks are also seen as current opportunities but they're not the main ones: liquidity, staffing, banking, cash conversion cycle, forecasting, and alternative (non-bank) payment methods.

Treasurers need to be alert to opportunities and take them when they arise.  The survey shows there is much to improve current treasury management practices and opportunities exist for the corporate treasurer to add further value to the financial management of their company.

To discuss Cash or Treasury management for your company, including interim Treasury management, funding, and financial risk management, contact me for a free, confidential chat without obligation.

US based Treasury Management consulting firm, Treasury Strategies (a division of Novantas Inc) has released its "Annual State of the Profession" Treasury Management survey.  It makes for interesting reading of the latest thinking of many corporate treasurers, in particular what they think are their primary and secondary risks.

With the pace of development of treasury technology and Treasury department employees working remotely, not surprisingly, the risk of fraud and cyber security, and personnel management, are high on the list of primary risks facing treasurers. 

Reflecting the investment and raising of funds, another risk for the treasurer is the rate of return received or paid on funds.  Though the interest rate environment that has been low (a concern for investors) interest rates are threatening to rise owing to inflation and so inevitably means higher interest costs for treasurers to pay on borrowed funds.

Secondary importance risks for the corporate treasurer included internal and external operational processes and controls; volatility of commodities, foreign currency rates, and interest rates; replacing LIBOR; upgrading the Treasury Management System because it cannot cope; and restructuring bank loans.

To discuss Cash or Treasury management for your company, including interim Treasury management, funding, and financial risk management, contact me for a free, confidential chat without obligation.

US based Treasury Management consulting firm, Treasury Strategies (a division of Novantas Inc) has released its "Annual State of the Profession" Treasury Management survey.  It makes for interesting reading of the latest thinking of many corporate treasurers.

As expected, cash forecasting tops the list of priorities for the Treasurer, with liquidity and working capital management making a comeback into second place.  Optimising banking services remain a factor high on the list.  The top three priorities are all cash-related activities, reflecting the critical importance of cash to a company and the most important task for a Treasurer.

Perhaps surprisingly, optimising or replacing the Treasury Management System and enhancing controls against cyber and fraud risks have jumped from 11 and 10th places to 4 and 5th places respectively in 2021.  These upward shifts might reflect the rapid development of technology in Treasury and the increased risks such developments present (for example, faster payments and processors might mean less time to detect and avert payment fraud and cyber attacks).

Support for acquisitions or divestments, replacing LIBOR, debt finance, and improving the payments process, were also on the list but farther down.

To discuss Cash or Treasury management for your company, including interim Treasury management, funding, and financial risk management, contact me for a free, confidential chat without obligation.

Rothesay, a pensions insurer that is exposed to long-term pension liabilities, has partnered with a mortgage lender to invest in 40 year residential mortgages. 

Investment and Treasury management says reducing cash flow or reinvestment risks is possible by matching the cash flows of long term liabilities with offsetting long term assets.  That asset and liability management strategy can however backfire if a Treasurer or fund manager fails to recognise the early redemption options embedded in the mortgage contracts.  Just because a mortgage says it is for 40 years does not mean Rothesay won't be exposed to reinvestment risk years before the agreed 40 year  term is reached. 

If, for example, interest rates do rise as expected because of rising inflation, then homeowners probably won't redeem Rothesay's loans.  If interest rates again fall, and far below the fixed rate paid on mortgages, then borrowers probably will redeem their relatively high interest rate 40-year mortgages. 

In that case, Rothesay faces the cash impact of having to reinvest the cash at a lower market interest rate than the original fixed mortgage rate.  The consequence is reduced investment income to meet Rothesay's pension liabilities, and a negative return on capital that could remain for up to 40 years ahead.

Kensington Mortgages does not charge early redemption charges so not only is Rothesay exposed to reinvestment risk, it is not going  to be compensated for it with early redemption charges.

Financial options can be hidden within contracts so it is essential to read the fine print and thoroughly understand the contracts and the cash flow of assets and liabilities over the entire term of the exposure.  Only then can a Treasurer or Fund Manager be sure cash flows are genuinely matched or that they are, contrary to first impressions, mismatched and so the company remains exposed to financial risk.

To discuss cash or Treasury management, including interim Treasury management, funding, and financial risk management, contact me for a free, confidential chat without obligation.

TMC (a deep sea miner of commodities useful in manufacturing) did not get the cash it was promised by investors so now its strategy of getting a licence to mine is in doubt (Financial Times).  TMC says it would prefer the missing $200m cash in its bank account but says it has enough cash to get the licence to mine by 2023. 

It is suing the investors in default, but there is no certainty the promised cash will be received or when.  It also has to contend with potential buyers of its metals who've refused to buy (except Glencore) because the environmental impact of its mining is not yet certain. 

Companies survive on cash to fund operations and they work on the expectation they will receive cash from sales.  TMC has no certainty of sales and no certainty of funds.

TMC faces many cash and operational risks.  Will buyers buy its output? Will it have sufficient cash to get it through the months and years ahead and get the licence in 2023?  Will its application be approved in 2023?

A short seller claims TMC overpaid for an asset and that it inflated costs to give a false impression that its scale of operations was large – both denied but the raft of bad news has not helped its share price, down from £10 to around £4.

To discuss cash or Treasury management, including interim Treasury management, funding, and financial risk management, contact me for a free, confidential chat without obligation.

WFTV Channel 9 aired a story "Inside the collapse of Zillow" that illustrates the importance of cash and the consequences of forgetting that markets go down not just up. 

The company's strategy was to exploit the market demand for US homes.  With multiple offers to buy a home coming within hours of it being put on the market, the company wrote an algorithm that offered the seller a sale price at the click of a button (i-buying).  It made, for example, an offer (accepted) of around $430K (according to a local resident) for a house that had been marketed for $285K. 

in 2019, Steve Eisman of Big Short' fame said Zillow had one of the most flawed business models he had seen in a very long time, adding that it did not think the business understood the property market risks it faced.

The company's strategy was to buy, refurbish and sell ("flip it" using US slang) homes in a rising housing market and so recoup the cash outlay to make a quick cash surplus (profit). All very well until the rising market started to dip but, crucially, the company continued to pay "top dollar" for houses in a cooling market.

Perhaps because the company has lost so much cash or it thinks the market will continue on a downward trajectory for longer than it can sustain negative cash flow, it has decided to pull out of the market.  It is, however, left holding a stock of hundreds of houses for sale.  It hopes to sell these and cut its losses when  seasonal demand returns (or is expected to return) in 2022.

Zillow's "get rich quick" strategy backfired perhaps because of poor market research, greed, poor algo programming, or a combination of these. or perhaps its cash reserves might have been unable to sustain more cash going out than coming in (overtrading). 

It is a truism, that a corporate treasurer will do well to remember, that companies fail not because they don't make a profit, but because they don't have cash.  For Zillow, it made neither profit nor cash, so not surprisingly, it collapsed.

Basic Treasury Management 101 tells the Treasurer to manage company cash, because without it a company will suffer a liquidity crisis and then collapse. 

Cash forecasts should be prepared and updated regularly, and checked for their reliability using variance analysis.  Cash buffers should be held either as cash or committed lines of credit, to avoid insolvency or prolonged financial distress.  Markets must be monitored and the probabilities of rises and falls estimated and their consequences for cash levels.

To discuss cash or Treasury management, contact me for a free, confidential chat without obligation.

Treasury Today gives some pointers on what to think about when setting up a cash forecast process within Treasury:

Ask the question "To make these specific decisions, how accurate does the cash forecast need to be?"  If it is a strategic decision, perhaps rounding to the cash forecast figures to the nearest £5m or quarter is OK.  If it is to hedge a specific exposure, figures to the nearest £1K or day might be essential.

Make business units accountable for the quality of the figures they must provide and the variances between forecast and actual figures.  Incorporate KPIs.

Reassess the cash forecasting process when change occurs (e.g an acquisition) to ensure the cash forecasting process is still fit for purpose.

Using the services of a Treasury Consultant can be a worthwhile investment not only for the time and cost saved but to help mitigate financial risks and ensure the Treasury provides an excellent service to the company.

To discuss improving your Treasury management, contact me for a free, confidential chat without obligation.

Here is a good overview of the issues and what to do, from Treasury consulting firm, Redbridge Group.

Why bother with cash pooling?

• Reduce bank funding and increase available internal cash resources
• Increase visibility of available internal cash
• Reduce the number of currency conversions and so reduce transaction costs and administration
• Increase operational efficiency across the group and at each subsidiary

And here are a few reasons of my own:

• Encourage employees to think of cash
• Improve cash forecasting and so increase return on investment and/or reduce cost of funding and so increase RoI
• Reduce the number of banks, bank accounts, and so fees and administration.

Knowing which countries and subsidiaries to include in the pooling structure, whether to adopt a hybrid pooling structure (zero balancing and notional pooling), the strengths and weaknesses of banks to be possibly included in the structure, and the legal, tax, accounting, and regulatory requirements of pooling cash cross-border and across legal entities, are major factors that determine the optimum structure used in practice. 

Using the services of a Treasury Consultant who understands the market and keeps up with changes, can be a worthwhile investment not only for the time and cost saved but to ensure the treasury is adopting best practices and so providing the best service to the company and its subsidiaries across the globe.

To discuss improving your Treasury management, contact me for a free, confidential chat without obligation.