Cash is king, never more so than in the current climate. But what is the company, and importantly the treasurers within the company, doing to optimise their liquidity and cash flow. The liquidity action plan session during International Treasury Week, looked at 3 key areas that treasurers were focusing on:
Liquidity has increased to the top of the agenda. Businesses are looking for faster, better and more frequent reporting on liquidity and looking at cash flow forecasting and the drivers within the business – who are your suppliers, what are your collections policies, what are your FX positions. With clearer visibility, the company is better informed and therefore better able to make quick decisions.
Irrespective of your industry there is a strong desire to ensure that the business is working with suppliers – and that this relationship is sustainable. Within the current situation there is a softer approach to customer management than there has been during other periods of crisis and many are employing tactical decision making – for example, around rent. Teams are checking their supply arrangements, with some permanent and some temporary changes in order to protect and secure the supply chain, and customers. Treasurers are leading on this – they are taking a strategic role in helping to manage the liquidity and working at the heart of the wider finance team.
An important aspect in this is automation – time is being spent on analysing data and no longer on collating date and if automated systems were not in place before the crisis they are being worked on now.
When looking at liquidity some of the factors that you need to consider include:
Cashflow and debt
Weekly reporting of cashflows has become more critical than ever. The company needs greater clarity on cash and on debt, with an assessment on risks and an ongoing assessment of risk shifting. In addition, the company would also look at how the government initiatives can help – for example, can employees be furloughed, what opportunities are there to defer tax etc.
Debt markets
In the early stages of this pandemic euro finance costs increased from 2-10% within a 2-week period. They remain elevated at 5% and this needs to be taken in to account when making decisions.
Covenants
There is an increased focus on monitoring covenants. Scenario planning has become a key priority here, if x, y and z pressures come up what will this mean for the business.
Foreign exchange
What exposures does the company have and what exposures does it still require? FX risks have cash flow implications and greater market volatility may affect liquidity Looking at the markets that you want to be in helps to drive the FX contracts conversations.
Cash management
The biggest change with regard to cash management has been the case for automation, which has increased visibility and also had practical implications such as allowing cash to move between banks more easily and quickly.
And finally, what time horizons are most businesses working on? Most are looking at two time horizons:
The ACT would like to thank the speakers Neil Cotter, Treasurer, GVC Holdings, Wolfgang Koester, Chief Evangelist, Kyriba and David O’Neill, Partner, RTS Vice President, McKinsey.
International Treasury Week took place online on 11-14 May. Current delegates can access recordings from the event until 11 June.
Details of our next online event - The Festival of Treasury Transformation, 13-16 July, will be announced soon.
