Liquidity and working capital is a large source of concern for corporate treasurers in a world where cash needs to be mobilized across increasingly global operations. To complicate matters, the regulatory landscape, FX exposure and counterparty exposures have a significantly different colour today than they did before the crisis of 2008. It is in this environment that treasurers have to navigate in order to steer the company ship to achieving its corporate objectives. However, there are some proactive tools at their disposal in this task, some of which are outlined below:

Improved analysis in cash flow forecasting and management creates more visibility for corporates to manage liquidity and deploy capital to attractive opportunities in a shorter lead time. The leading banking advisors in working capital and liquidity management today are striving to innovate tools that not only increase visibility across geographies, but also allow for real-time viewing, integration of all accounts and data streams and greater insights into the characteristics and mobility of the liquidity. A research study conducted by a management consulting firm recently concluded that of all the daily operational activities, corporate treasurers spend the maximum amount of time in cash flow forecasting. With this liquidity management process becoming more and more vital in a world where more players are chasing the same number of profitable opportunities, Big Data has become more than just a buzzword: it is actively being harnessed and deployed to provide richer data flows to aid in accurate forecasting.

Another newer service being offered is cross-currency cash concentration where clients are now able to consolidate all their currency denominations into their preferred base currency and hold it in a single account. What this ultimately does is reduce operational risk of settlements on the same day and subsequently, the financial burden that is paired along with it. It also allows for greater reporting transparency and an opportunity to optimize FX flows by participating in hedging tools such as Automated Rolling Collars, which allow the company to mitigate volatility and lock liquidity in at a fixed rate. Some banks have even rolled out a cash pooling mechanism where the corporate’s cash can be grouped into one central account, allowing the company to minimize funding costs, thus enhancing return on investment. However, this is currently restricted by the parameters of the regulatory landscape. Lastly, the concept of notional pooling refers to the virtual netting of balances through treasuries in specific, pre-defined locations. This allows for interest calculations on the cumulative debit and credit balances without having to undergo the costs of transferring funds. The main benefit of this for the corporate is an ability to have a centralized liquidity management position and increase interest income while retaining all autonomy over cash management.

It is not uncommon for companies with a low liquidity profile to use one or a combination of the above mechanisms to optimize liquidity, minimize funding costs and mitigate volatility that arises from counterparty and FX risk across geographies. Companies with lower liquidity face business consequences steeper than ever before as access to capital is characterized by a bottleneck in the capital markets post 2008. Lower access to capital or expensive access to capital is a handicap both to debt capacity as well as overall profitability and shareholder return. With innovations in big data as well as a better visibility profile offering, corporates can now look to accurately forecast cash flows, thus mitigating unbudgeted and unexpected increases in non-cash working capital that directly impacts free cash flow. On the other hand, the banks in this scenario stand to gain substantial market share if they are able to tailor their offerings to clients with inadequate liquidity. Indeed, the advent of financial technology has catalyzed some of these innovations, but over the course of the next few years, banks are likely to continue increasing technology capital expenditures to provide an enhanced offering to corporate treasuries.