Cash management in a volatile business environment

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It is a long time since cash management meant checking the return on bank deposits. That represented a static position in stark contrast to the fluidity of the dynamic markets in which treasurers deal nowadays. The movement of cash throughout the business cycle is what now drives the corporate world.


In addition to the new technology driving cash management, treasury departments are also having to deal with major regulatory reform around the world. Add the pressures of global political tensions and there is little wonder that treasurers are burning the midnight oil.




It is clear that managing cash in these volatile times is going to be a challenge but there are a number of things treasurers can do to mitigate the impact of external influences on cash flow. Market fluctuations can exponentially affect cash flow in even the most organised department and the best laid plans can be derailed. The role of the treasurer in these circumstances is to ensure that they keep a close eye on cash availability and that the company has access to it as it needs it.


The fact that departments are centralised and have to keep an eye on global markets is one of the problems, and this is where technology can help in the absence of a physical presence around the globe.


The appropriate technology can calculate a company’s cash requirements and ensure that it can be moved to where it is needed and payments processed in whichever currency is required. This will serve to reduce FX risks which is a boon to any treasury department.


Investment in these new technologies offers corporations additional value and has been proving its worth in hazardous times. Those times, as we have noted, affected by regulatory change, FX risks and multiple currency management are testing ones for treasurers, but the right technology decisions will minimise these risks.


One of the other benefits is the increased efficiency of transactions which means that the treasurer often only has to deal with one overriding account. Hedging and funding are areas which will also concern treasurers in the volatile markets but cash management remains the key concern. Although the substantial cash reserves which many companies have recently accumulated would traditionally have been on deposit, increasingly treasurers are reconsidering how to manage their reserves.


At the same time, Basel III is having an effect as to how banks themselves look at short-term cash deposits and their appetite for them may be waning. They are offering a lower yield as they are challenged by their own capital requirements which the new regulations demand.


Money Management Funds are themselves going through changing times which is why treasurers are looking at different options in the context of their cash placement. US and European regulations are driving MMF funds into government money market funds. Constant Net Asset Values will be something that treasurers will be keeping an eye on in the current market, and especially in the light of the new regulations. Volatility NAVs are being monitored in Europe and other regulatory authorities are likely to follow. The focus on shorter-dated investments will inevitably put a downward pressure on yields.


Cash investors’ reaction to this will dictate changes in cash management strategy. The possibility of lending cash and receiving gilts as security will also come into play as the gilt repo market makes a mark. This an example as to why excluding bank involvement may influence the activity of treasurers, as it can benefit both parties in a repo transaction.


This remarkable environment is being driven by regulation and market conditions, potentially leaving major banks playing catch-up in an ever-changing financial landscape.


Treasurers may feel that they are ahead of the game if they deal with reverse repo counterparts which are not a bank. The attraction for treasurers is the possibility of gilt security and added liquidity with no impact on yield and maintaining a CNAV. This is an indication as to how new regulation, designed to control reckless bank behaviour, is opening up new possibilities for the smart treasurer.




What is becoming clear is that new regulation is creating the possibility of smart cash management and the new Fintech programmes can only enhance this. Corporate treasurers have more opportunities than ever before to improve their liquidity agility. The first cracks in the traditional wall are appearing in Europe but are sure to develop around the world.


This opportunity for corporate treasuries to not only stay ahead of regulation but take advantage of the new legislation will be very much driven by their choice of technology.



Simon Lynch is the owner of Treasury Talent.

Treasury Talent is a specialist treasury talent, recruitment and search provider solely focussed on the treasury market with offices in Sydney covering Australia, Singapore covering Asia, and San Francisco covering California and the USA. To make contact

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