Liquidity automation: The time is now

David Rego Global Head, Payments

4 May 2020

With COVID-19 spreading devastatingly fast around the world, the global economy had essentially ground to a halt by Q1-end. And while fiscal and monetary reactions have been swift, corporates are nonetheless facing huge supply and demand shocks as a result of business inactivity from widespread lockdowns globally.

For corporate treasurers, this is having immediate negative repercussions. Indeed, according to a March-2020 survey by EuroFinance¹, liquidity/funding is the aspect of treasury most impacted by COVID-19. The task of managing global cash and liquidity when there is such unprecedented supply chain uncertainty is mammoth. With so many corporate personnel working from home globally, access to the people and information needed on a daily basis to generate cash forecasts and manage positions has been muted. Moreover, liquidity fire-fighting will be an increasing problem, putting a heavier strain on already-stretched resources.

We cannot know when normal economic activity will resume. For treasurers, the immediate need will be to maintain liquidity control. Yet the best response will be one that does not just fix for this current crisis, but one that helps future-proof a corporate’s liquidity position against future shocks. And without automation, this cannot be achieved.

A new era for liquidity management

Liquidity management has come a long way in recent years, and automation tools – and increasingly rules-based solutions – are now relatively commonly adopted. Solutions range from cash concentration and interest optimisation to notional pooling, typically depending on the size of the corporate and their degree of sophistication.

In addition to firm cash control, such solutions enable optimisation of internal liquidity, enhancement of yield and better management of FX exposures and counterparty risks.

Many banking providers offer such automated solutions that provide end-of-day optimisation; these solutions have been increasingly accepted as the norm for corporate treasurers. Yet in these uncertain times – and in planning against future shocks – more instantaneous automation will be increasingly needed.

With new solutions to enable faster cash movements and entity funding/de-funding, Standard Chartered is here to support clients through ever-changing and uncertain times. Our ‘just-in-time sweeping’ is unique in that our automation tool is triggered on an event basis. That is, when a debit for a payment fails, the funding sweeps then run across a client group’s configured accounts in compliance with intercompany limit rules to fund the insufficient position. We offer this service on a domestic and cross-border basis for high-value payments and plan to extend this to low value payments. Not only does this allow for more nimbleness, it removes the need to monitor, manually fund or maintain idle cash for funding.

And unique to market, our new ‘multi-bank direct-debit-sweep’ solution enables concentration of funds from local banks via domestic clearing-house-provided direct debits. This is particularly useful in (typically developing) markets where banks manually process, which causes delay in responding to transfer requests.

As market structures move towards same-day direct debits, or even open-banking systems, this solution can be an effective tool to centralise cash, not to mention reducing counterparty risk. Both solutions are rules-based; we work with our clients to set the appropriate parameters based on their needs. And the adjustability of these rules allows treasury teams better control over liquidity, ultimately freeing them up to focus on more vital issues at hand.

Beyond recovery

As corporates globally re-evaluate short-term liquidity and consider their financial and operational risks, alternative liquidity solutions can help to address constraints, not just in these challenging times, but also as we move into an economic recovery.

It has become clear in recent months that instant, remote access to the solutions we all need to do our jobs will be critical moving forward. For treasures and their liquidity management, this won’t just be about the automated solutions they deploy. They will need self-service tools to manage these solutions in the palm of their hands. To that end, our new liquidity portal will provide our treasurer clients with access to self-service tools for control of intercompany limits and interest setups, the ability to suspend sweeps, and online simulation of sweeps using latest balances.

Treasurers should partner with trusted banks that provide an automated liquidity solution set, have experience in co-creating solutions, and possess in-depth knowledge in their markets. This will set the foundation for stronger cash and liquidity management disciplines, that will provide resilience long after the COVID-19 pandemic is over.

¹ https://www.eurofinance.com/news/before-and-after-covid-19-what-can-treasurers-expect/

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