Your Liquidity

With external sources of liquidity tightening and the cost of credit rising, the importance of 'recycling' cash within a company has never been greater. As a result, businesses are increasingly centralising the management of cash positions in order to self-fund and reduce reliance on external sources of finance.

Accelerating centralisation

In addition to the current market conditions, a number of trends are encouraging the drive towards centralisation. First, treasury operations are moving from in-country to regional and even global models to reflect the expanding nature of business and the resulting need for full visibility over an increasingly complex web of transactions.

Second, advances in banking technology are facilitating the automation, outsourcing and centralisation of cash and liquidity management. Today's automated liquidity management tools - including sweeping and multi-bank cash concentration - improve visibility of a company's net cash position and enable Treasurers to invest surplus cash centrally, reducing their dependence on local finance.

As the regulatory environment evolves, it is likely that more businesses will use automated tools to create a centralised liquidity and investment structure.

Models for centralisation

The size and nature of a business, together with factors such as the level of control they desire, will determine which model is the most suitable to adopt.

The first step taken by many companies is what might be called an 'arm's-length approach'. Although largely decentralised, this model involves some internal transactions – for example, a subsidiary might choose to place excess cash with the central treasury, using it as an internal bank – but on a purely ad-hoc basis.

At the other end of the spectrum is a multi-currency centre, where daily cash balances are swept via a fully automated process into one global liquidity structure, without any action by individual operating companies.

Compelling benefits

The potential benefits of a more centralised approach to liquidity and investment management are compelling:

• netting cash balances against debts reduces interest paid as well as improving a company's balance sheet
• deficits across the organisation can be self-funded in a timely way through access to surplus working capital
• deficits across the organisation can be self-funded in a timely way through access to surplus working capital.

Finding the right solution

The trend towards centralised liquidity and investment management is accelerating, as companies see the potential to use excess liquidity for internal funding and to increase visibility and control of cash.

Our extensive range of liquidity management solutions enables the full automation of the process and frees up Treasurers to concentrate on more strategic tasks, such as risk management. With the technology now available to integrate liquidity positions across countries and regions, companies have a compelling opportunity to increase the efficiency and performance of their operations.