ACT Webinar: The Cash Management Webinar | The Association of Corporate Treasurers

ACT Webinar: The Cash Management Webinar

Content-related questions and comments asked by attendees

  • Isn’t it the case that a corporate's interest costs only go up when refinancing or taking on new debt in a rising rate environment? Aren't existing fixed rate coupons unaffected?

(Bob) – Absolutely correct. 98% of corporate bonds are fixed rate and, in fact, have seen a decrease in bond prices as yields increase. Interestingly, for some treasurers, that has presented an opportunity to repurchase fixed rate debt at a discount to de-lever the balance sheet. However, our point in the presentation was to look at shorter term borrowing, which is 95% variable rate debt. Reducing the reliance on this type of financing is key. Many organizations have already looked to create more efficiency from intercompany and in-house banking programs alongside looking at working capital programs (accelerating receivables; delaying payables) to generate more cash for operations and to strengthen the balance sheet.

(James) – yes, I agree with Bob and I would add that: some organisations will be looking at extending debt maturities – before rates go higher; and that whilst many organisations have made great strides to optimise their cash, not all have and they might be the ones with the most to learn from sessions like these. 

(Fiona) - Treasurers need to manage their overall debt costs depending on their income flows.  The income for most companies will increase with the overall economy, but for some, like utility companies, income varies with inflation and so they should aim for their interest profile to reflect their income profile.  This can be done using swaps to adjust the fixed rates from bond issuance.

  • Forecasting is all about unknown numbers. How does API or past data help? Secondly, how do you forecast trade finance facility usage?

(Bob) – APIs offer two advantages: 1) unify data across the enterprise that may not easily be incorporated into forecasting today. James made an excellent point on the webinar that interfacing systems has not historically been easy. APIs simplify this process. 2) APIs connect data sources in real-time, accelerating the consolidation of data into your forecast.

(James) – an example I have is my recent use of Kyriba, where the system was interfaced to the ERP, Oracle.  All AP and AR data was streaming into Kyriba, which – ONCE UNDERSTOOD AND TRUSTED (a process in itself) gives a very tangible short-term forecast.  I have used past data to make very approximate future predictions.  This is very useful if you are unable to get pro-active responses from functions within the organisation.  An example is payroll.  Past data will indicate the payroll and tax amounts paid each month and the dates.  These can be extrapolated into the future.  I would extrapolate 12+ months.  Another example are receipts – easier to do if they are lumpy – BUT, I would then socialise the resultant forecast with various stakeholders – especially FP&A - to sense check and adjust. 

Re: forecasting trade finance facility usage - it depends on the facility type, but generally I have seen all drawings recorded with an issue date and maturity date – these have been used as the basis for a forecast and then overlaid with forecast usage (forecasts obtained from business divisions). 

(Fiona) – 1) API’s provide timely actual data: it is the skill of the Treasurer with knowledge of the underlying business that turns that into a useable forecast.  2) Forecasting trade finance usage requires a close working relationship with the sales teams, and knowledge of the factors impacting timing of cashflows (e.g. timing and availability of shipping and port access).

  • Are you seeing organisations looking at standalone cash forecasting systems or integrated into another solution like a TMS or an ERP.

(Bob) – At Kyriba, we rarely see the need for standalone cash forecasting systems. But in general, different TMS (or ERP) have varying capabilities. Ask the right questions to determine if the systems you have meet your needs. There are a lot of more modern tools – and dashboards integrated into these tools – that have launched systems forward in the past 2 years.

(James) – yes, I certainly see organisations looking at standalone cash forecasting systems – it depends on their circumstance – if they are using an ERP such as SAP, they might choose to use their TMS and forecasting functionality too.  It might be the company’s policy.  Other organisations might be using an ERP with no forecasting or TMS functionality.  They might choose to go for a standalone cash forecasting system and no TMS if they only have some simple debt, investments and few derivatives.  The standalone forecasting systems can be excellent at what they do.

(Fiona) – many organisations start with standalone forecasting systems, but when they realise the benefits of accuracy and timeliness they progress to integration with their ERP and TMS.

  • How important will API be in forecasting inflation risk within an organisation?

(Bob) – As I answered in the webinar, if you can find the data, then an API is likely available to integrate that into your forecast. Every forecasting tool can help you leverage that data once you find it.  Sometimes, though, if you’re looking in the FT at inflationary percentages, for example, it may be just as easy to type that number in.

(Fiona) – This will only be of benefit if inflation information is available from e.g. sales data.

  • What impact do you see of ISO 20022?

(Bob) – ISO20022 makes it easy for IT folks to standardize files in and out of the systems they manage. TMS providers, like us at Kyriba, are largely unaffected. We’ve dealt with ISO20022 and hundreds of other formats for decades. It makes no difference to a good TMS provider; but if IT is trying to integrate ERP to bank connectivity by themselves, they will very much appreciate the reduced number of formats to manage. One cautionary note, though, is understanding that XML Pain (for payment formats) still have hundreds to thousands of different variations – even within how a single bank supports ISO20022. It is important to remember that ISO20022 is a standard and not a single format but rather a guideline on how to manage their inventory of format requirements.

(James) – ISO 20022 has been around for a while I think and has been the file format to agree with all banking partners if possible. As Bob says, the standardisation and simplification it brings is very helpful but there are nuances that can still make integration a challenge.  Ready-made connections to banks, such as offered by Kyriba, are very helpful.  (Bob - I hope I’m correct in saying that Kyriba has ready-made connections…)

  • How do you see Fintech companies in the treasury future? How important is it for the treasury team to look beyond the typical cash investment opportunities besides the typical ones, e.g.?

(Bob) – APIs make it easy to integrate FinTech apps into your treasury network. Whether your treasury data is managed in the ERP or a TMS (or both), there is a need for additional apps such as sanction lists, bank account validation, fraud prevention, cryptos and NFTs, x-border payments and so many more use cases. APIs make it simple and easy to connect FinTech innovation into your world securely and easily. Any TMS provider will already have a marketplace of these apps so you don’t have to do a lot of legwork to figure out how to compose a labyrinth of integration.

(James) – re ‘the importance of looking beyond the typical cash investment opportunities…’, I think the organisation looks to the Treasury team to assess the various products available and to make justified recommendations that they be incorporated into the Treasury policy if they are deemed worthwhile.  I heard of Tesla investing a certain % of funds into Bitcoin and incorporating this into their policy, although I haven’t seen the business case they made for this...

(Fiona) – Fintech companies are not hampered by legacy systems, so can often provide innovative solutions more quickly than traditional banks: but, they still need access to the data, with relevant API’s to integrate the data.

  • what is the cost associated to these AI/machine learning solutions (eg implementation %2B ongoing costs)? and are these available via TMSs?

(Bob) – Many AI/ML solutions are built into TMS already. But there are lots of external options too and they vary in cost depending on complexity. I’ll go back to my earlier point, though. APIs make the integration much easier. A FinTech offering AI can build into a TMS’ open API easily – so you don’t have to worry about the how. Treasury should focus on what they need, not how it integrates.

(James) – I defer to Bob on this – and I agree that Treasury should focus on what they need, not how it integrates, although historically, integration (for me) has been a key criterion as to whether a product is viable.

  • We see periods when forecasting is reliable and at other times when less so (like now). How do you incorporate this additional variable in an automated rather than a manual way?

(Bob) – We could answer this in many ways, so perhaps let me offer this. Data-driven forecasting allows us to incorporate confidence intervals into our forecasting so we can predict a range of possibilities. This is a different approach than “the old way” of forecasting where we looked at a probability of a certain amount coming on a certain date. Confidence intervals are smarter and any treasury business intelligence dashboard will offer that, typically accompanied by machine learning.

(James) – I have not had experience of using confidence intervals for forecasting or even probabilities!  Bob has perhaps seen more cutting-edge methods.  I can imagine that if receipts are high volume, low value, then a statistical / probability approach would add value, but in a low volume, high value environment, ready channels of communication with the AR, sales and FP&A teams are helpful and from within sales and AR, communication with the customer is helpful.  The same applies to the payment side.  I’m a great believer in the necessity of Treasury to communicate with other functions in the organisation to be effective.

(Fiona) – I agree with Bob on the use of confidence intervals: this is standard in cash forecasting for large projects, where you need to assess the likelihood of very large, but uncertain cashflows. 

  • How does Treasury system AI (to implement cash operation) take account of corporate's internal control (e.g. approval mandate)?

(Bob) – I really like this question. As we talked about on the webinar, APIs will connect the systems together. Inside those systems is where the approvals and other workflow controls take place. The API delivers the automation so your task automation (single task within a single system) can extend to process automation (multiple tasks in one or more systems).

(James) – from what I have seen, I agree with Bob.  Some corporates can be overcontrolled and the implementation of effective technology / master data management, can demonstrate to the corporate that some of their controls may not be necessary.  What I saw with Kyriba was that controls could be set within the system to meet the corporate’s needs – and removed if requested.

  • Bob makes an excellent point that adding some science to the art of cash management/forecasting is part of a treasurer's toolbox. How do we quantify the business case for more tech?

(Bob) – Every investment in technology should have a business case of some sort. At Kyriba we call it value engineering, but whatever the terminology, it is important to quantify the impact of not doing something well (e.g. forecasting) to then properly document the benefit of a feature that delivers a better business outcome. For short term cash forecasting, that can be as easy as a) eliminating 8 person hours per day and b) reducing idle cash by 47%. Both have numbers attached to them that can be captured in an easy Excel sheet or PPT slide.

(James) – I agree with Bob and have written business cases myself.  Benefits covered the quantifiable – mainly savings (i.e. reducing idle cash should be quantified using the business’s cost of capital) and also the less quantifiable, such as a reduction in fraud risk.

(Fiona) – I agree with Bob that the most important and often overlooked cost is that of not doing anything. 

  • When Forecasting with API and AI, is it possible to include calculations or models for FX hedging?

(Bob) – 100% yes! I like the thinking as it illustrates a gap many treasurers have. Treasurers need more data and automation to reduce the cost of hedging. As mentioned on the webinar, the cost of hedging has increased 3x in the past 12 months due to tremendous volatility in the market (for reference look at an indicator such as the FX VIX). The volatility in currencies is actually higher right now than at any point in the last year, which includes the tremendous run the USD has had against GBP and other world currencies. For many, their hedging budgets have already run out for this year and the need to be more efficient with their hedging has hit a critical level. The result is to use tools that help organically reduce net exposure and/or measure VaR on a portfolio level – to reduce the number of transactions needed and increase the efficiency that the hedges you do make cover your balance sheet and income statement exposures. The old way of managing FX is just way too expensive and won’t protect against the volatility.

(James) – I defer to Bob on this one!  However, Bob has mentioned how the cost of hedging has gone up and how many organisations have already used their hedging budgets.  Forecasting is required to enable FX exposure visibility to be achieved.  Once done, then an organisation can decide how to manage the exposures.

(Fiona) – this subject warrants a webinar of its own!

  • Can we integrate next day cash receivables from bank in API for projection?

(Bob) – if the bank offers next day in their reporting, absolutely yes. Not every bank offers this data (in fact, very few do outside the USA where data such as float is more common in daily bank reporting). Many treasury teams look at AI to manage short term predictions, including receivables. That can help, alongside internal data if they are managing a receivables finance program – and hence gain more certainty from incoming customer payment data.

(James) – I defer to Bob on this one.  My experience on forecasting receivables is that the ease of this depends on the business.  Retail businesses with many small inflows, differ to businesses making large chunky sales to a few customers.  Real estate was an interesting case, whereby several drawn RCFs were run, maturing each day and repaid to the extent receipts were visible by 9am each day.  It doesn’t answer the question, but it perhaps suggests that some businesses might be interested in this functionality more than others.

  • Does regulation in Asia allow API or is Asia predominately host 2 host?

(Bob) – Fun question! Regulation isn’t really the issue in Asia; adoption of API technologies for applications we care about in treasury is the barrier. Large, global banks (e.g. HSBC, Standard Chartered) have invested heavily in APIs and generally offer them across all platforms. Many other institutions rely on traditional connectivity methods. And that isn’t a big problem so long as you get the automation you need. I always recommend speaking with your TMS and/or ERP providers to understand what automation you can get today and what additional benefit APIs deliver. To put in perspective, Kyriba connects to 1,000 banks around the world. Less than 100 of those support APIs for reporting and payments in any form – and a much smaller percentage of those have live customers. That isn’t unique to us; that is just where open banking is across the industry. Ask questions and you’ll get good answers, I promise J

(Fiona) – In my experience, some banks in Asia are leapfrogging Europe & the US with what they can offer.

  • Is there still a role for spreadsheets?

(Bob) – yes! Excel will always be there, it’s just a matter of for what role? I think spreadsheets are a bad idea for anything that requires workflow, controls, automation or complex formulae. There are just better options to automate cash and liquidity management, including some very flexible dashboards and visualization tools that offer much better graphing and analytics than Excel charts. But as James rightly stated in his answer to this question during the webinar, determine what you need and then assess what tools can support that.

(James) – I think I agree with Bob.  Excel is a tool that many of us can use, which means it can be deployed quickly.  I have seen it used very well for forecasting and variance analysis and reporting.  However, I am not convinced it is a long-term solution.  So, whilst it can get you up and running, I believe there are better alternatives to support liquidity forecasting and Treasury management.

  • What is the best advice you can give to a young treasury team, in a company that started running the business recently? What are the first steps you would follow to build a strong treasury team and treasury processes?

(Bob) – I favour asking questions and creating a mentor network so you can pick and choose best practices. Ultimately, you will create your own path of goals, roles & responsibilities, interpersonal skills within the team, and treasury processes (GRIP, for short). But there is a lot to learn from others’ mistakes and successes. I’ll also add that technology will be an enabler to introduce automation and avoid adding headcount to solve business problems. People are generally more expensive than treasury technology, so that is a big lesson that can be applied for young treasury teams too.

(James) – for me, I would make sure that the business had an approved treasury policy and that goals were set for the team (of which policy compliance is one).  Front and centre of the policy would be liquidity, the forecasting of it and the reporting of it, including the benchmarking versus the agreed liquidity KPI.  I might also add the real time monitoring of counterparty exposure headroom, since the risk of losing capital due to a counterparty collapsing is a threat to liquidity.  I would be looking at how this was done and be allocating responsibility within the team, such that each role had a defined structure.  I would be looking at the processes around this and the technology that would best enable the work to be done.  I would also make sure the team were working towards a relevant qualification of some sort.

(Fiona) – I would suggest investing time in getting to know people across the business and help them to understand the benefits for the business as a whole that Treasury can provide.  They will need to provide a lot of information, so they need to understand what they will get out of the relationship.

  • What is the anticipated timeline for APIs to replace the majority of historical host to host encrypted file transfer connectivity?

(Bob) – Most big banks are already there, although many of those offer APIs for new services (such as real-time payments) alongside other services delivered through file transfer and SWIFT. We see this in the UK and everywhere around the world. It will take years for a full takeover, so I’ll go back to a prior answer: understand the automation you need and then work with your technology providers to determine if that automation is possible today. It probably is, regardless of the API readiness of your banks.

  • With rising interest rates, are you seeing increased interest in cash forecasting as cash becomes more valuable?

(Bob) – Yes, yes, and yes. The cash forecast has always been important. 2008 saw a huge rise in the importance of forecasting as treasurers were launched into the spotlight to ensure that liquidity was available. That strategic importance never went away, especially as many CFOs and boards asked “how many days of liquidity survival do we have left” at the outset of the pandemic in 2020. Today, rising rates means that treasurers need the forecast to assess idle cash (to capture yield on it), reduce reliance on variable rate financing, and more strategically assess impacts of rising rates, currency volatility, needs to build cash reserves to anticipate recessionary impacts, etc. The forecast, alongside cash flow planning, is the most valuable tool a treasurer can have.

(James) – Bob might have a broader view than me.  I can’t think that there is any increase in cash forecasting demand over and above than at the onset of and during the COVID pandemic.  I would think that Treasury functions are looking to retain the skill they have built up and to improve on it if possible.  Perhaps demand is moving to a requirement for broader modelling skills that incorporate, inflation, interest rates, FX rates and commodity prices.

Scroll to top