Liquidity: Easing The Corporate Treasurer’s Pain Points

Every business is unique, and every corporate treasury has its own set of pain points, depending on the company's size, structure, complexity, reach, and distribution. However, what rings true for all treasuries is the need to have the right amount of cash liquid or available in the correct product, jurisdiction, currency and entity or department to enable business operations to continue seamlessly and optimally.

Corporate treasurers must also balance the need for working capital against earning the best return on surplus or excess funds. To do this effectively, they need real-time visibility of their funds, whether operational, short-term lending, and/or investments.

In Africa, there is also a recurring theme of trapped cash, which comes on the back of increased regulatory restrictions. A current example is Mozambique, where there are constraints on foreign exchange (forex, or FX) and therefore businesses are unable to repatriate funds. Added to this are the macro headwinds in some African markets, where factors like inflation, interest rate hikes and geopolitical instability have made liquidity planning a real challenge. Treasurers are facing tight cash positions, which translates into higher borrowing costs and a shift towards more conservative debt strategies and a heightened focus on cash management solutions.

At Absa, we work closely with our clients on the cash management side, optimising their operational accounts and ensuring that they have the right cash in the right place – and liquid, so that they can utilise it effectively.

In today’s challenging operating environment, our clients are becoming increasingly sophisticated in the banking products they use to optimise their liquidity. One of these solutions is Self-service Sweeping – the automated moving of funds between operational accounts. This is used in conjunction with limits (be that overdraft, payments or intraday limits), where the client can ensure that accounts are funded or defunded at a chosen frequency.

While sweeping is the physical movement of money between accounts, pooling is done at a notional level. Here the goal is to reduce the company's interest expense. In notional pooling, all balances of operational accounts within a structure are notionally netted off and interest, debit or credit is accrued on this balance at the nominated account level.

Thus, accounts with credit balances are set off against capital-intensive accounts, either reducing or fully expunging debit exposure, and thereby reducing the interest charged by banks. This can be done at multiple levels: at a department level, a subsidiary level, or at an entity level. Interest can be applied and left at the top nominated level, or it can be apportioned back to member accounts in their structure based on their contribution to the net group balance.

Our digital channel, Absa Access, enables our clients to set up their dashboards to suit their particular business structure – by product, by currency, by legal entity or by jurisdiction, if they are in multiple countries. This balance reporting tool provides real-time feeds, which allow corporate treasurers to know exactly what they have and where to make critical operational decisions.

What underpins these liquidity management solutions is a combination of technological innovation and a focus on both today's challenges as well as the business’s future growth. At Absa, it’s all about digitisation and real-time reporting. In the past, we found that our clients were limited by their inability to see their cash positions in real-time. Today, no bank can afford not to provide real-time, digitally powered cash management solutions.

At a time when corporate treasurers are being called on to navigate market uncertainty and macroeconomic volatility, it is essential that businesses partner with their banks to enhance their visibility of and real-time access to their cash positions, improve their forecasting and planning abilities, and deploy advanced liquidity optimisation structures.

No matter what industry you’re in or what the market is doing, one thing will never change: businesses will always need their treasurers to optimise their cash and make their money work for them.

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