Alastair McGill discusses the latest Cashfac Operational Index with East & Partners

What is the Cashfac Operational Index and what insights does it provide?
This index follows on from the Asia Pacific research that we carried out with East & Partners earlier in the year. It focuses on Europe, Middle East and Africa (EMEA).

In the increasingly complex environment of corporate cash management we discuss multi banking relationships, decentralising distribution operations, complex and fragmented processes.  Cashfac wanted to shine a spotlight on challenges that exist for Corporates when trying to manage their operational cash and the delta that exists between the systems that are currently provided by banks.

The Index showed that there are very low levels of ability for treasurers to see the real-time consolidated view of their balances, and an inability in forecasting cash flows.  For example, only 20.9 percent of EMEA Corporates have a real-time consolidated view of their balances and transactions across all banks and only 16.3 percent have the ability to forecast cash flows – both quite low percentages.

A major element demonstrated in the research was that banks’ service offering is relatively equal in the region.  Banks can differentiate themselves by providing services that really add value to their client’s operations, demonstrating that they understand their business model and the requirements of any specific industry vertical or corporate.

Also worth highlighting is the complexities of the multi-banking relationships that exist, and the contribution of those relationships to the inability to forecast and get an overarching view of cash holdings.

How is the multi-bank relationship impacting Corporates?
Initially we believed that we would receive feedback in the results that would be similar to the Asia Pacific study, however we saw a substantial increase in the number of relationships Corporates in EMEA are managing.  We all know that no Corporate puts all of its cash with one bank, but some are dealing with up to 17 banking relationships across EMEA. This, it is a significant operational challenge for the corporate.  Corporates want to achieve a complete view of cash across their operations, to know their actual position today, intraday position and forecast position. To try to do that across 17 banks is incredibly challenging, and this is one area which Cashfac can help them.

What level of cash visibility and forecasting do CFOs and corporate treasurers currently have in these countries?
The report indicates that it is low at 20.9 percent. It shows a poor line of sight for cash positions across the region.  If a treasurer thinks about what they really want, it is to possess that ability to have a complete view. When around 80 percent of organisations aren’t achieving that, investment opportunities and internal cost savings are being missed. It’s not an ideal position for any of those organisations to be in.

Regulatory impacts also need to be taken in to account.  We often deal with firms that have regulation around the management of client money. Corporates have to prove to the regulators that they have a clear view of their cash holdings, so when they read those kind of statistics, I believe it’s probably concerning for many.

Are Corporates’ current transaction banks providing the right solutions?
The short answer is solidly no. A gap exists between where the solutions are incomplete and not meeting the client’s requirements.  The analysis that we have done ahead of the research shows that while there are technology refresh cycles, investment and innovation into cash management technologies has been quite slight over the last couple of cycles compared to innovations in areas such as payments.  With developments such as Apple Pay and Bitcoin, a number of innovations exist in payments, but there hasn’t been that same level of investment on the other side, that being the management of that cash.  Unfortunately payment technologies are improving without the equivalent levels of investment in cash management, and provision of control to CFOs and treasurers. We believe there are many Corporates who think they need to do something, and the banks are an obvious place to turn to for that support.
Banks are the nucleus for many cash operations, and an obvious participant to help corporates manage their cash better. There is a recognition that they need to do something, and many of the leading banks that we deal with, the innovators, are keen on making investments in that space. They are looking to provide Corporates with better cash management technologies and develop stronger relationships by providing tools and services that are fit for purpose.

What are the most important cash management factors highlighted by E&P’s research?
Receivables management is one area which stands out in the survey results. Which marries well to the large number of banks we speak to who are interested in putting a better receivables management solution in place for their corporate and business banking clients. For many of these firms it’s a real pain trying to manage the daily and monthly reconciliation process which places considerable strain on the business.

Also, we have seen that bank provided cash management functionality scored low on satisfaction ratings. Significantly, it’s a service which companies rely on banks to do day in and day out.

Corporates also gave the set up process for ‘on boarding and account opening’ a low a satisfaction score – indicating that they aren’t happy with the way bank accounts are opened. There can be delays of up to months in some countries, which is obviously not a good experience especially for those firms which require a large number of bank accounts. Accelerating the process and enabling self-service creation through the use of virtual accounts can have an enormously positive impact.
To download the latest round of the Cashfac EMEA Operational Cash Index, click here.

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