Chapter 4 Integrating cash and trade
Introduction
Every corporate treasurer has slightly different
objectives when managing working capital or
establishing a new transaction process. Given
the complexities of many organisations, it is
often appropriate for a treasurer to view cash
management and trade finance as discrete
activities. Improving an inefficient liquidity
management structure, for example, will often
deliver significant benefits to the company as
a whole. So too will making each activity as
efficient as possible.
Yet cash management and trade finance
can be viewed as part of a wider working
capital whole. It is possible to identify
ways to improve the efficiency of both
cash management and trade finance by
understanding how the two activities interact
and relate to each other, with a potentially
boost to working capital. Integrating systems,
for example, provides the opportunity for
information to flow more smoothly through an
organisation, resulting in better decisions and
less scope for error.
Yet this approach to integrating cash and
trade only supports the company in isolation.
It does not reflect the fact that companies
need to interact with other parties on a
regular basis just to achieve their objectives.
In today’s environment there are opportunities
to look beyond a company’s own direct areas
of control to provide greater efficiencies and
therefore value across the whole supply
chain. On the one hand, improvements in
technology provide opportunities for suppliers
and customers to view the same information
about invoices, for example, in real time. On
the other hand, the experience of the 2008
contraction in available credit in Europe and
North America led all companies to consider
the strength of their own supply chains. For
both reasons, companies are increasingly
looking to work with their suppliers and
customers to make efficiency savings along
the length of the financial supply chain.
Whether the treasurer looks to improve a
single process, to integrate cash and trade
or to look at the whole financial supply chain
with suppliers and customers, there are
three core objectives which can be targeted:
improving liquidity, mitigating risk, and
enhancing sales.Improving liquidity
The first objective is to improve liquidity,
whether for the individual company or along
the entire length of the supply chain. As
a result of the 2008 contraction in credit,
almost all European and North American
companies experienced a reduction in the
availability of liquidity or, at the very least, an
increase in the cost of funds. Asian markets
were less directly affected. Most Asian
companies did experience some form of
indirect effect, however, either through their
European or North American customers, or
as part of the consequent downturn in world
trade levels. The changes in 2008 were
sudden and dramatic. In the following years,
the availability of credit began to improve,
although bank lending remains relatively
stringent following widespread re-regulation
of the banks to make them safer.
The circumstances surrounding the
banking crisis forced all companies to
refocus on ensuring the robustness of
their liquidity streams. The impact was
particularly marked on those companies
which had previously enjoyed easy access
to credit. Many companies also experienced
problems when their suppliers or end