most important real-time system innovation is that of electronic data interchange
(EDI), a cross-industry standard format for data transmission between customers,
suppliers, and firms. EDI involves the conversion of paper documents such as pur-
chase orders, invoices, checks, to electronic form. This electronic transmission ex-
pedites the processing of all stages of not only the settlement process, but more
comprehensively the entire business process. In addition, EDI allows for more ac-
curate and timely information on interfirm transactions, as well as for traditional fi-
nancial and market data for balance reporting and cash management between the
firm and its domestic and foreign banking business partners. Most importantly, EDI
has allowed many firms to reduce funds invested in inventory, improve cash dis-
bursement forecasting through more accurate and timely shipping notices, and al-
lowed more disbursement forecasting through more accurate and timely shipping
notices, and allowed more precise prenegotiated payment terms with suppliers and
customers.
The second real-time innovation is that of electronic funds transfer (EFT) systems.
These systems, such as the automated clearing house (ACH) and the corporate trade
payments (CTP) systems, allow a much more efficient use of capital resources. These
systems, in conjunction with the Society for Worldwide Interbank Financial
Telecommunications (SWIFT), allow efficient utilization of financial resources re-
gardless of their physical or time-zone locale. The ability to routinely access and ma-
nipulate capital market information and balances—although still somewhat an ideal
rather than a reality—can potentially allow the modern treasury to add value by al-
lowing the business to support the same basic operating cash flows with fewer finan-
cial resources (financing cash flows).
The final force driving treasury change is globalization;the globalization of the
organization, the business, and the financial markets themselves. Outside of the pre-
viously identified risks associated with international operations—currency risks—the
financial management requirements of the multinational enterprise have essentially
doubled the stakes of adequate treasury management.
5.3 INTERNATIONAL TREASURY MANAGEMENT. Multinational firms develop
their international treasuries as business demands. As the scope of the firm’s global
operations expand, so do the specific functions and structures of international treas-
ury. Again, although there are no rules as to the stages of global treasury develop-
ment, a simple three-stage approach captures much of the variety of developments.
(a) Stage 1. Representative of firms with active exporting and/or importing of
goods, the early stages of dealing with international operations typically includes two
primary areas:
1.Foreign exchange management
2.Basic international cash managementThe establishment of only one or two foreign affiliates initiates the need to pursue
improved cash management as the firm explores repatriation of profits and other cash
flow-based decisions. International tax management is often added to the scope of
work of the domestic tax management division of treasury, although issues of inter-
national taxation are complex and material to the firm’s financial results. (For more
on international taxation, see Chapter 30.)
5 • 10 INTERNATIONAL TREASURY MANAGEMENT