TOP PRIORITIES FOR 2010
Ron Chakravarti
Managing Director
Liquidity and Investments
Global Transaction Services, Citi
Maximizing
the Value of
Your Treasury
Economic windstorms that have swept the globe
over the past few years show signs of subsiding,
although they continue to stir in certain pockets.
Swirling market volatilities, vagaries in capital
markets access, bank defaults, and safeguarding
Cindy Gerhard
Director
Liquidity and Investments
Global Transaction Services, Citi
cash buffers have shaped a full agenda for
treasurers in 2010.
Recent Citi research shed light on seven top
treasury management priorities among major
corporations as they shore up to seize growth
© Veer Incorporated
opportunities that are lurking around the corner.
I n d u st ry T r e n ds
Citi Perspectives
S p r i n g /S u m m e r 2010
#1 Establishing the right
level of liquidity
#2 Releasing cash trapped
in emerging markets
It’s indisputable and understandable: companies have been
Companies with extensive operations in emerging markets
hoarding cash. The cash-to-asset ratio for the S&P 1500
with capital controls, such as China or Brazil, face
hovered around five percent for almost a decade between 1994
continued pressure to get greater value from cash trapped
and 2003, while in the last five years it hit nearly 10 percent.
in these markets. While they are more actively managing the
By other accounts, United States, European and Asian firms
repatriation of profits, the best defense is a good offense.
collectively hold almost $300 billion more in cash on their
balance sheets than in 2007.
Putting in place accurate and efficient cash forecasting
systems helps avert costly missteps such as pumping liquidity
Looking forward, strong organic cash generation and liquidity
into a country where it will get trapped. Active inter-company
positions will separate the winners from the losers—setting
netting programs and advanced treasury structures such as
apart firms that are fueled for growth driven by capital
re-invoicing centers help restrain the build-up of cash where
investments and acquisitions.
repatriating funds is a challenge.
For treasurers, 2010 is a critical time to get their shops in order.
It also pays to work with relationship banks to get conversant
Toward this end, they must:
in local regulations and liquidity management structures that
• Understand how and where their companies plan to
restart their growth engines, so they can plan liquidity
levels accordingly
• Examine the global dispersion of cash across countries
and currencies, as well as the degree to which associated
inflows and outflows are well matched
• Optimize internal use of liquidity to fund activities and
reduce reliance on external funding
• Manage capital planning aggressively, given interest rate
can provide opportunities to release cash. Strong controls and
well-defined investment policies help ensure that trapped cash
is productive while onshore.
#3 Diversifying sources
of funding
Having faced issues with raising funds through the capital
markets, companies continue to diversify sources of funding.
They are looking externally to tap a broader range of sources
volatility and expected rate increases over the next
that include, for example, trade supply chain financing, asset
12 to 18 months
securitizations, and local bank borrowing in certain markets.
But there are internal sources to be tapped, too. Here,
knowledge is power. Global visibility of cash positions is critical
to maximize the value of internal cash. Treasurers can reduce
operating cash required to run their businesses by setting
up global liquidity structures to offset cash surpluses and
shortages across subsidiaries. Prior to the credit crisis, the
perceived cost of working capital was low due to abundant and
cheap credit. Now, improved working capital management is a
top priority. Firms should dissect processes and policies across
their entire order-to-cash and procure-to-pay cycles to extract
funds trapped in working capital.
I n d u st ry T r e n ds
Citi Perspectives
S p r i n g /S u m m e r 2010
#4 Improving risk
management practices
#5 Proactively tackling changes
in regulations and tax laws
Risk management continues to be a top priority as
Globally, many countries have stepped up legislative and
companies deal with volatile FX and interest rates,
regulatory activities that impact cash management,
in addition to challenges in managing counterparty risks.
weighing heavily on treasurers to assess pending changes
and take action.
Capital preservation is the mandate for excess operating funds.
During the credit crisis, firms focused on the safety of cash
Multinationals that operate in-house banks in tax havens
and strengthened investment policies to guide diversification
or concentrate cash in tax-favorable markets, for example,
and ensure scrutiny over bank counterparty exposures. In
face proposed tax reforms by the United States and other
2010, treasurers will need to expand focus to all counterparties
Organisation for Economic Cooperation and Development
to which their firms have significant exposures—including
countries, in addition to increased scrutiny and changing
key buyers and suppliers, outsourced systems and services
incentives to relocate these activities.
providers, and partnerships and joint ventures.
In Japan, for example, SOX-like legislation is forcing companies
In addition, due to underlying business uncertainties, many buyers
to meet new compliance requirements. But, other countries are
and suppliers have been forced to renegotiate contracts. In this
dismantling capital and currency convertibility restrictions—for
environment, firmly committed FX exposures from contractual
example, within Asia, those imposed after the 1997 economic
obligations in non-functional currencies are no longer so firm.
meltdown—to make it easier to do business and release
To tackle this, treasurers should consider reducing hedge ratios
trapped cash.
to counteract risks in the underlying business transactions.
Many companies may benefit by moving to layered hedging
Treasurers need to stay abreast of changing winds and
rather than a rolling 12-month hedging technique.
work with relationship banks’ in-country experts to reassess
current treasury structures and take proactive action
To deal with the myriad risk scenarios, many companies need
to capture opportunities, minimize risks and manage
to better integrate cash and risk management processes and
funds efficiently.
structures for more holistic approaches to identifying risk levels
and mitigating exposures.
I n d u st ry T r e n ds
Citi Perspectives
S p r i n g /S u m m e r 2010
#6 Integrating global
banking partners who are employing the latest technology
advances, companies can reap huge operational cost-savings
treasury processes
and control benefits. A sampling of developments that are
reshaping the way companies manage treasury include:
A continuing focus in 2010 will be further functional
centralization of treasury to gain a “single” view of firm-
• Deploying a single instance treasury workstation or ERP
wide liquidity and risk, which proved to be so essential in
treasury module across all treasury functions globally to gain
times of volatility. This requires establishing comprehensive
a consolidated view of liquidity, trapped cash, FX risk, and
policies, standardizing global processes, setting common staff
counterparty risk
performance indicators, rationalizing and centrally managing
banking relationships, and a strong technology infrastructure.
By integrating global processes, treasury also gains scale and
flexibility to be embedded in working capital and supply chain
management activities. Citi research indicated that, in 2009,
only around a fifth of treasury departments provided advice
to businesses on working capital management on a systematic
• Adopting standard global payments mechanisms to increase
straight-through processing. By using global industry
standards and connectivity, such as XML and SWIFTnet,
companies can simplify information exchange and systems
integration with their banks while retaining the ability to
switch to alternate providers when necessary
• Implementing automated procure-to-pay solutions, with
basis. However, a significant majority indicated initiatives for
features such as integrated supplier databases and electronic
2010 to achieve this integration. The most common purpose
invoicing, to eliminate paper processes and streamline
was to equip treasury to provide state of the art support to
receivables and payables cycles
businesses towards achieving the firms’ commercial objectives.
#7 Investing in technology
One of the most critical ingredients to improving processes
and procedures is the technology that both drives efficiency
and stitches together far-flung operating centers.
Companies should stay current, investing in a well-designed
and integrated “technology topography” to coordinate global
treasury processes across the firm. By also aligning with
Citi Treasury Diagnostics
Gauging Performance
and Priorities
Maximizing strengths, minimizing weaknesses
The recurring themes for 2010 are not new. Treasurers’ top
priorities continue to revolve around risk management and
efficiency, as they look for more reliable ways to view and
mobilize liquidity and fund their operations.
What is new, however, is the need to position their companies
for growth and new business opportunities as the global
economy continues to improve.
n
Citi, a treasury services provider to many of the most complex and demanding institutions in the
world, captures comparative data to help treasurers measure and improve their operations. One
of the tools used to do this is Citi Treasury Diagnostics. It benchmarks performance in six critical
areas: liquidity; risk management; working capital; subsidiary funding and repatriation; policy
and governance; and systems and technology. Our analysis of top treasury priorities for 2010 is
gleaned from recent Citi Treasury Diagnostics results.
I n d u st ry T r e n ds
Citi Perspectives
S p r i n g /S u m m e r 2010