Feb 2014

10 Major Treasury Misconceptions


The article was published on several international plattforms. (www.bobsguide.com, www.treasury-management.com)

1. "We have no currency risk, because we invoice in our local currency only.” Be careful! For strongly export-oriented companies, even a small shift in exchange rates can have a serious and uncontrollable impact on market prices in the respective country. If they are also under high competitive pressure, then sales losses are to be feared.

2. "Liquidity Planning is useless, it is never correct anyway.” Liquidity planning is not about predicting the exact financial status on a particular date, but about estimating financing volumes required in the future and open foreign exchange risks. Such planning is essential for proper funding and hedging.

3. “Individually tailored derivatives from my bank adequately hedge my FX risks.” You need to know the exact extent of hedging required for your exposure and find suitable hedging instruments. Innovative banking products are often obscure or even speculative. Someone always wins, but with such instruments usually it is the bank.

4. “All our companies use an integrated ERP system.” Are you sure? Have you thought of the holding company, the sales offices and any recently established foreign branches? Mergers and acquisitions are also common means for corporate growth. If a single ERP system manages central group functions, there is the danger of being blind in one eye.

5. “Netting is not worthwhile for us, we invoice only in one direction." Wow! Any company with more than five subsidiaries maintaining a commercial relationship with each other has to be very well off to afford not having a netting process in place.

6. “Our intercompany accounts are always balanced because we enter transactions on the accounts of both companies simultaneously.” Be careful. Booking entries across client or company codes too often creates a kind of “shadow finance” in which both balances mirror each other but do not give any information about whether the invoices were approved and authorized. Transparency in the reconciliation process would have the advantage that all employees involved in these intercompany processes are on board and assume responsibility.

7. "There is no potential for payments optimization." If Henry Ford had listed to the advice of his contemporaries, he would have tried to breed faster horses instead of developing automobiles. In a world where we have adopted the 5th dimension in payments processing, potential for optimization is almost everywhere.

8. "We already have the best bank rates." A treasurer convinced that current conditions cannot be improved is a probably blind in one eye. Whoever is open to new approaches, even in bank relationship management, is doing a good job.

9. "SEPA does not concern us." Well, then this company, its subsidiaries, suppliers and customers are not located in the euro area. There are not many companies that have nothing to do with Europe. For everyone else, SEPA is an important topic, no matter how often the implementation deadline will be postponed.

10. "Cash pooling always makes sense." To have no cash pool does not need to embarrass anyone. There are plenty of cash pools whose usefulness is doubtful. It is important to analyze organizational and legal aspects, including settlement account management, interest scale calculation, master account planning, and the fiscal and legal framework before making a decision on cash pooling.

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