Prioritize Cash Visibility and Management

Every treasurer knows that cash is their insurance policy against uncertainty. Knowing how much cash is available, where the cash is, and how quickly it can be accessed and moved when needed is of paramount importance.

With continuing volatility in the financial markets, the ability to move cash where needed at the last minute is more important than ever.

At the same time, it is essential to calculate the potential effects of both supply-and demand-side shocks to cash availability. Any disruption in normal buy-sell activity has the potential to have significant impact on your expected cash availability. What’s more, debt markets are extremely tight. Companies without existing on-demand facilities may not be able to find additional cash when needed, particularly if banks are approached when the business is already stressed.

Model your liquidity requirements under multiple business stress test scenarios.

Use your modeling results to determine if extra facilities are needed or holding more cash for longer periods would be prudent. Above all, make sure your models confirm you have enough on-demand facilities and liquid assets to support normal demands of the business and maintain a buffer.

Calculate your cash position early in the day and make sure it’s complete.

The more places you do business around the world, the harder it will be to know where your cash is, especially in this period of market disruption. Best practices hold that treasurers should know where near 100 percent of the company’s cash is at any one time. Accurately tracking where available cash is located makes it much easier to move it where it needs to go.

Time-zone overlaps and market cut-off times around the world could limit your ability to move cash to avoid a bad outcome. Put whatever processes you need in place to provide enhanced cash visibility, including intra-day updates if necessary.

Validate the accuracy of your cash forecast, revisiting assumptions and rerunning the numbers.

During this time of market instability, you may need enhanced visibility into AP/AR ledgers, as well as more frequent communication with the procurement and sales teams to ensure you are getting the information you need to maintain a sustainable cash position. Forecast frequency needs to be increased, assumptions rechecked, and sensitivities explored.

If your company receives and/or pays out cash in foreign currencies, be sure cash forecasts take potential exchange fluctuations into account.

There is more to forecasting FX cashflows than converting local currency to a reporting currency. The forecast must consider the actual sources or uses of cash, and the FX rates at which those cashflows will be made.

If your scenarios show a risk to your cash position or debt covenants, schedule discussions to negotiate contingency plans with banks or funding providers.

Your negotiation position will be stronger the sooner you discuss your needs with your banks; ideally long before the situation becomes critical. The goal is to have an optimal buffer overdraft in place that you can access should it become necessary.

Consider outsourcing operational treasury tasks.

You need information faster to react faster to changing market conditions. Tapping into additional resources from either within the company’s finance team or from your treasury management system vendor to help you perform operational tasks can free up time for treasurers to focus on the analysis and decision-making required to come out strong on the other side of this crisis.