Developments in Liquidity Management: Seeking New Working Capital Solutions

October 22, 2008

Abstract

New York, NY, USA October 23, 2008

Developments in Liquidity Management: Seeking New Working Capital Solutions

The pace of change in liquidity management is picking up, and corporations are clamoring for unified solutions. Corporate treasurers can expect further advances in integration of general ledger systems, ERP systems, specialty workstations, and solutions offered by specialty integration providers through 2010.

Given the ongoing credit crisis, tighter lending practices, and greater risk aversion, the old adage that "Cash is king" is not only in vogue, it is the rage. Access to and oversight of cash are becoming increasingly important. Corporate treasurers are focusing on how best to manage liquidity as well as examining the role technology can play. Cash needs to be invested, but the challenge is how to best manage the daily liquidity flow and how to implement best practices when making short-term investments.

A new Celent report, Developments in Liquidity Management: Seeking New Working Capital Solutions, focuses on the high-level challenges and trends in liquidity management. The Holy Grail of liquidity management is one consolidated view of all funds available and the ability to act on the data in a timely manner. Within the next five years, Celent predicts that the technology will be developed for that goal to be achieved. More interestingly, that goal will be achieved by different constituents in different ways, benefiting a wide array of corporate clients. ERP providers, workstation providers, and banks will all work toward providing corporations with a global view of cash positions, the tools to analyze the data, and the tools to manage liquidity.

What Corporate Treasurers Want to Better Manage Liquidity
Key Need What It Means
Data Consolidation Stage 1 Fewer sources of data from more dependable providers.
Standardization Stage 2 More uniformity in data languages used to transmit financial information.
Global Solutions Stage 3 Vendor solutions that can handle all currencies and connect with all key banking providers.
Integration Stage 4 Ability to tie transaction data to their general ledger and enterprise resource planning (ERP) system more easily
Analysis Stage 5 Ability to use analytical tools to better understand their options; better data paves the way for better analysis.
Execution Time Stage 6 The maximum amount of time to analyze data and then execute investment decisions based on the data
Source: Celent

"Treasurers are finding themselves more involved than ever before in the business of carefully managing their corporation’s cash, with a keener eye than usual on balancing the desire for respectable short-term investment yields, and attention to the balance between risk and yield," says Enrico Camerinelli, senior analyst with Celent’s banking group.

"In these uncertain times, some treasurers are investing cash almost exclusively in treasuries or near-term cash equivalents and shying away from many kinds of commercial paper or asset-backed securities," he adds.

The first section of this report provides an overview of the current corporate treasury market, with a focus on the increasing role of cash and cash equivalents. The report then briefly reviews developments in pooling and cash forecasting. It provides an update on SWIFT’s Standardized Corporate Environment (SCORE) solution, which is poised to change the day-to-day operations of large corporate treasurers. Finally, the report updates Celent’s 2006 Case Study of Microsoft, in which Microsoft’s "Fort Knox" treasury transformation project was featured.

The report is 48 pages long and contains six tables and 20 figures. A table of contents is available online.

of Celent's Corporate Banking and Finance & Risk research services can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.  

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

New York, NY, USA October 23, 2008

Developments in Liquidity Management: Seeking New Working Capital Solutions

Executive Summary 3
Introduction 7
Divergent Views of Cash and Short-Term Investments 9
Looking Back: Shift away from Cash 10
Looking Forward: Non-US Cash Favored 11
Short-Term Investments: More Conservative Attitudes 14
Revisiting Physical and Notional Pooling 17
Cash Forecasting: An Ongoing Challenge 24
Role of Workstations in Liquidity Management 26
SWIFT: An Aptly Named Solution 28
Microsoft Case Study: Phase 2 of "Fort Knox" Project 35
Conclusions 45
Conclusion 33

 

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