The big, big interview: international cash management

A hundred years ago, the largest private company in the world in terms of number of employees was Siemens with a respectable 87,000 people. Today, that number would barely be enough to breach the top 200.

The lesson here is that businesses have become increasingly larger and, more importantly, more global. Having offices dotted around the world is a source of pride, and our supply chains are now so globalized that even small businesses leave a footprint around the world. It means that a large percentage of businesses are dealing across borders, utilizing multiple currencies and leveraging the global banking infrastructure to get business done.

With this comes the challenge of international cash management – how do you efficiently manage all your globalized bank accounts and currencies to optimize both cash flow and, ultimately, revenue?

We sat down with Jonathan Church, Global Accounts Product Management at TransferMate Global Payments and financial expert, to explore how businesses can make international cash management a competitive advantage, not a daunting challenge.

Q. Hi Jonathan. Let’s start at the fundamentals – how would you define international cash management?

International cash management is all about getting money in the right place, at the right time, and in the right currency. Everything else flows from this basic principle.

Q. And then what are the traditional ways of going about it? What have large enterprises been doing over the last couple of years or decades?

Traditionally, and especially if you’re a big organization, you would probably have lots of accounts with lots of different banks in lots of different places and likely in lots of different currencies.

So, you'd have resources dotted around all over the place to support lots of local transactional needs, and then you would need to link that up with a large global bank to help you join up those dots and optimize management across that infrastructure as much as possible. It requires a lot of legwork on behalf of the business. If, for example, you wanted to start doing work - in any new country - your accounts department would have to choose a bank, go through the KYC (Know Your Customer) process, then you might need to secure a credit line to pay staff and suppliers before the business is able to get meaningful liquidity in the country… and this could all take weeks, if not months. 

We’re trying to break that cycle – it’s slow to set-up, complex to manage and not agile enough for companies wishing to do business in new markets, both quickly and at scale.

We’re trying to break that cycle – it’s slow to set-up, complex to manage and not agile enough for companies wishing to do business in new markets.

Q. Obviously it’s all dependent on which country you choose, but what is the rough timeline to get set-up in a new country?

Nowadays with all the regulatory and compliance requirements, you would be very, very lucky to be able to open a bank account in a new country in less than a few weeks. To give an example, all of the banking infrastructure that we have opened to support the global accounts solution took us about five months end-to-end to open with a large transaction bank across multiple territories, regions, and through multiple bank entities.

And that's coming from us as an organization that works in financial services, is adept at navigating the bureaucracy, and has, we'd like to think, a reasonable amount of clout and persuasion and buying power with banks. So, if it takes us five months to open all of that account infrastructure, it would perhaps be longer for smaller organizations, particularly if they've not got the time and resources focused on it.

Q. That must be a real barrier to doing business, particularly for rapidly growing companies…

Yes. Absolutely. It’s also not just about time – you’ll almost certainly end up getting hit with costs in the process too.

Let's say I was a UK corporate and I suddenly have a new opportunity to start selling to Australia.

It would probably take me weeks to open an Australian dollar bank account with my UK bank, and probably months to open an Australian dollar account in Australia with an Australian bank. In the shorter term then, I'm going to have to make international cross-currency payments through a traditional player, which means I'm going to incur all of the friction, time, cost, and poor FX rates of managing payments that traditional way.

So, basically, if you can't get set-up quickly in a new country, you'll end up incurring a lot more time, cost, and resources while getting it done.

Q. I want to focus the subject of risk. Where do the big risks lie in international cash management? What are those big-ticket items? Is it lack of visibility? Is it a currency crash?

Well, firstly, you've got the risk and the cost of inefficiency. If you get it wrong and you don't have funds in the right place at the right time and in the right currency, you're going to basically borrow that money - and it's not going to be cheap or planned for you to do it.

So, you will have a liquidity cost of using a working capital facility or a settlement line to make payments. Not dissimilarly, you may have the FX cost. If you haven't planned it and you have to execute a transaction unexpectedly, you will end paying the prevailing bank FX rates, which will never be the best one. If it’s a big transaction, especially, that ends up being a big hit on the bottom-line.

That’s the inefficiency piece.

There's also a kind of counterparty risk in it, which is ‘who are the institutions that you're working with?’ Have you got confidence and reliability on the financial institutions that you're using to process those payments? If you're using a small local bank in just one market, in just one currency, how reliable or secure are they as a provider versus someone who does this on a much more global, broader-reach basis for you?

And the final flag to raise is one of reputational risk. If you're consistently poor at cash management and it ends up costing you money to pay people accurately or you end up paying suppliers late, that can impact your credibility and often trading terms.

Q. And let's talk about the process once it is all set up (the traditional way). So, you're a global enterprise company, you've multiple bank accounts across the world in multiple currencies. Where do the problems lie when it comes to managing those currencies and those bank accounts?

That’s where you return to that original principle – can I get the right amount of money in the right place, at the right time, and in the right currency? When you operate the traditional way with multiple local bank accounts in multiple currencies, the risk comes to the fore when you go to use it in the real world.

Let’s take a manufacturing business as an example.

With manufacturing, you’ll generally have your raw materials come from a certain number of places, and you'll have to pay for them in a certain subset of currencies, but you probably sell them in other parts of the world and get paid in other currencies.

You are going to be consuming cash in one place and in one currency, and potentially selling it to another place in a totally different currency, and therefore, you've got to join all that up in terms of getting funds in the right place at the right time in those right currencies. How do I convert my receivables in one currency to help fund payables I've got and expenses in another currency?

And, if you can't join it up efficiently, you’ll often have to go the route of borrowing money to make up shortfalls. Which, of course, costs you more.

And this is where we get to the central crux of efficient international cash management; you don't want to have surplus funds sitting in one part of the world in one currency and then be consuming and borrowing money in a different place or through a different account in a different currency.

You're not using your surplus efficiently, and in practical terms, you're also creating a deficit that you theoretically don't need as an organization.

Q. And when we talk about visibility, is it a complex endeavor just to figure out what cash is available and where?

It can be. I've been at conferences in the past where you talk to group treasurers of large multinational corporates, and they say they have got hundreds, sometimes even thousands, of bank accounts globally. So, just getting visibility of what is where can be really, really tricky, particularly in decentralized organizations.

You may have delegated a local team in Hong Kong who run all things APAC for you, and they may have opened bank accounts with local banks in Hong Kong or Singapore and not even told you if you what they're doing. So, just getting that visibility of what you've got and what's it's being used for can be quite, quite challenging, and hence why goes back to a first principle of good international cash management is to get visibility of all of your cash.

Q. So, what's the difference between the sort of traditional corresponding banking approach we’ve been talking about up until now and the fintech sector approach to help facilitate international cash management? Where do they differ, in particular?

The big benefits of the fintech approach vs the traditional one is speed, cost and control. We remove many of the hurdles businesses need to get over when establishing a banking presence in the market, and reduce the costs both in setting-up an international banking infrastructure, and running it.

The big benefits of the fintech approach vs the traditional one is speed, cost and control.

The next step – and one we’ve made already – is about making the strategic management of international cash easier and more efficient for financial leaders. We do this through leveraging the infrastructure we’ve built up to provide speed and cost savings on the actual processes, and then combining it with easy-to-use platforms to provide visibility and agility.

This visibility and agility equals control for businesses over their international cash management.

Q. So what does TransferMate bring to the market? What’s your solution and what does it do?

Through our Global Accounts solution, we can allow a customer to open an operational global account in any one or all of 27 currencies in about 30 seconds. So, if you contrast that to days, weeks, months to open a traditional bank account, it's night and day. Even if you add a few days on for onboarding with us as an institution, it's rapid.

The platform itself is easy-to-use and gives central visibility on the global accounts. We've been very focused in our roadmap on the balance and transaction reporting that goes alongside the accounts because we're conscious that, as part of that visibility of cash, our customers are going to need to digest that data and information. We provide that both through the website and through our API suite.

We’ve spent time on making sure that we give as much visibility and richness of balance and transaction information as possible, and we really focus on the integration API side and allowing customers to digest that into whatever ERP or other in-house platforms they're using. So basically, it's all about trying to maximize being compatible with the systems and processes that our clients use.

Together with the extensive access to local payment rails our Global Accounts and payments network offers, the efficiency and transparency of what we do from an international payments’ perspective supports businesses speeding up and managing their international cash. So, we can help you get your funds to the place at the right time in the right currency faster and more efficiently and at lower FX cost compared to the traditional banking network.

Jonathan, thanks very much.

For more on how TransferMate can support you in creating and managing global bank accounts in multiple currencies, read more about our Global Accounts solution.