11
Citi Perspectives
| Q1/Q2 2015
service center arrangement, where
it may benefit from tax efficiencies
by making its receivables “cross-
border.” A fully global company may
be under competitive pressure to
drastically innovate and overhaul
its product line, distribution and
sales model. This situation could
impact its legal and account
structures, payment and collection
channels, and its payment methods.
In the end, it comes down to asking
the right questions.
Process improvements
Overall, improvements to payments
and receivables processes can
yield numerous benefits. Potential
benefits include a reduction in
expenses, as well as improved
cash flows and working capital
management.
Efficient accounts payable
processes can lower operating,
interest and foreign exchange costs,
and also increase days payables
outstanding (DPO). The later money
can go out, the longer it can be
used internally to support business
activities, reducing both borrowing
needs and the amount of debt on
a company’s balance sheet. Plus,
having the ability to accurately
monitor and shorten payables
cycles increases the availability
of working capital and enhances
overall liquidity positions.
On the accounts receivable side,
reducing the risk of outstanding
payments is a common priority
among companies looking to
improve cash flows. Efficient
receivables management can
reduce operational expenses,
collapse days sales outstanding
(DSO) and increase control.
The faster money comes in,
the faster it can be reallocated
or converted to cash, which
effectively increases assets on
the balance sheet. Mitigating
receivables risks can drastically
impact financial standing.
Ensuring liquidity is essential
Another point of focus in any
assessment of treasury operations
is centralization. Centralizing the
management of cash, generally
speaking, fuels liquidity optimization
and investment performance, as
well as strategic and daily working
capital operations.
Many large multinationals maintain
very sophisticated investment
policies that stipulate “qualified”
instruments, investment limits for
different obligors (government,
bank and other institutions) as
well as the credit rating limits for
instruments and certain financial
ratio requirements. Depending
on its treasury management
philosophy, a corporation may
