Webinar Report: Surviving the liquidity crunch

Crisis-first’ response
For HP, the treasury team anticipated early on that the COVID-19 situation could unfold in a similar way to the 2003 SARS epidemic in Asia.

“When the first lockdown was announced in China, we reached out to our banking partners to make sure they were ready, engaged and had business continuity plans in place to support us. We also had to initiate our own business continuity plans (BCP). We were already well-prepared in treasury, as we regularly tested and practised our BCP. However, we also had to make sure that local teams were equipped to support business-critical local operations, particularly as the level of manual processing was often higher.”
Loh Kuai Kee, Senior Regional Manager - Treasury (Asia Pacific & Japan), HP

HP monitored its supply chain stakeholders proactively to ensure that mitigation strategies for labour, materials and supply shortages were in place to minimise supply chain disruption. Treasury also created a dynamic forecasting process to help manage cash and liquidity in a fast-changing environment.
For Nokia, the key challenge was to ensure that their network operator customers had sufficient capacity during the crisis, despite facing a peak in demand and supply chain constraints. From a treasury perspective, Nokia shared the importance of digitisation and relationship banking during the early stages of the crisis,

“We were already encouraging our employees to work from home before various countries started to lockdownand this applied to the whole treasury team and our colleagues across the business. We therefore had to rework some of our processes with our banks, especially for payments and FX transactions in regulated markets. In some countries, processes can be very manual and paper-based, so we planned alternative work flows with our banks.

In the past few years, we have rationalised our banking platforms, which made it far easier to access consistent data across all bank accounts from anywhere around the world, which has proved essential during difficult times like this. In addition, we found that some of our relationship banks were highly flexible and responsive in digitising processes to adapt to a new business scenario.”
Wendy Chan, Head of Treasury for Asia Pacific and Japan, Nokia

Like many other corporations, Nokia quickly discovered where manual processes existed in their business, such as cheque payments in some countries. When lockdowns took effect, cheques effectively became obsolete overnight, so there was considerable pressure to shift to electronic payments at pace to meet payment obligations to suppliers.

“What quickly became clear – across business functions, corporations and countries – is how resilient people could be, managing personal anxieties on one hand whilst adapting quickly to an entirely different business environment, in which interactions suddenly moved from face-to-face to completely digital. Treasurers triggered BCP and quickly digitised manual processes, but also activated liquidity structures and backup funding mechanisms across geographies to increase liquidity resilience and manage working capital dynamics that changed almost overnight.”
Shailesh Venkatesh, Group Head of Liquidity & Liabilities, DBS Global Transaction Services

Five Steps to Optimising Cash and Liquidity for Business Continuity
Effective cash and liquidity management is business-critical at any point, but it becomes more urgent during a crisis. Many of the techniques and approaches that treasurers had put in place over recent years clearly demonstrated their value during the crisis, e.g.

1. Centralisation

“Companies that had centralised their treasury activities, including policies, processes and systems, have been in a better position to work through the crisis and adapt quickly. In        particular, these companies have typically had better visibility over cash at a global level, and automated the flow of cash, therefore enhancing their ability to manage cash and liquidity effectively.”

Shailesh Venkatesh, Group Head of Liquidity & Liabilities, DBS Global Transaction Services

2. Digitalisation

Digitalisation of processes and controls has proved essential to adapt and support the business without interruption during the crisis. However, looking ahead, companies of all sizes and industries have recognised the value of enhanced data, visibility and analytics. Consequently, digitalisation in treasury continues to be an essential priority as treasurers look towards recovery, restoration and a ‘new normal’.

“In the past, it was tempting to stick with existing processes on the basis that ‘if it’s not broken, don’t fix it.’ The crisis has shown us the importance of testing and future-proofing our operations, centralising, digitising and standardising wherever possible to create resilience, adaptability and economies of scale.”

Wendy Chan, Head of Treasury for Asia Pacific and Japan, Nokia

This applies to ‘core’ treasury tasks such as liquidity management, but also business functions that sit alongside or complement treasury, such as payments and collections, as part of the broader working capital agenda that directly impacts on liquidity.

3. Working capital optimisation

Treasurers have often looked first at what makes the biggest contribution to working capital, whether payments, receivables or inventory, and focusing on this area.

“For example, if you can plan and schedule payments processing, rather than making urgent or ‘just in time’ payments, managing liquidity is more straightforward. Receivables financing can be a valuable working capital lever, even though companies might not have used it before.”

Joseph Lee, Group Head of Working Capital Advisory, DBS Global Transaction Services

However, having addressed the immediate priorities, treasurers and their colleagues more widely across the business, such as procurement, sales, accounts payable and receivable need to take a wider view of working capital and identify points of operating or financial inefficiency.

4. Increasing access to liquidity

While digitisation plays an important role in streamlining bank connectivity to maximise cash visibility, enabling digital signatures and documentation, automating of cash and treasury processes, and delivering enhanced analytics, digital banking solutions also help to ensure access to cash across the enterprise.

“This can involve traditional cash pooling but also balance sharing, leveraging group surpluses in one entity to fund deficits in another, without the need to transfer funds physically between accounts. Increasingly, treasurers are looking across their portfolio of liquidity tools and setting up new structures and back-up structures in different geographies to prepare for unexpected situations.”

Shailesh Venkatesh, Group Head of Liquidity & Liabilities, DBS Global Transaction Services

5. Managing counterparty risk

The crisis has impacted on risk as well as liquidity. While the COVID-19 crisis is not a financial crisis in the same way as we saw in 2008-9, its economic implications, and effects on organisations of all sizes globally, will continue to resonate. Consequently, companies in all industries seeking to diversify bank, customer and supplier risks, reduce credit exposure, and avoid supply chain disruption. No longer is monitoring credit risk a monthly or periodic assessment, but a dynamic process as new stresses resulting from the crisis emerge.

Preparing for a new normal
As many countries and companies move from the immediate impact of the crisis and explore what the ‘new normal’ might look like, treasurers are keen to learn the lessons from the crisis and prepare their organisations for a new ‘business as usual’. At the same time, they are also using the experience of the crisis to equip the business for new, and unforeseen challenges ahead.

“We can summarise our situation in terms of disruption, digitisation and transformation. The COVID-19 crisis has disrupted our business – and our lives – to an unprecedented degree in recent history. Digitisation has been at the heart of our ability to meet this challenge – but also the challenges that will undoubtedly come in the future. We need to see the crisis as a catalyst for business transformation, re-engineering the way we work and the way we think.”
Loh Kuai Kee, Senior Regional Manager - Treasury (Asia Pacific & Japan), HP

This digital transformation should not only touch on treasury’s internal operations and banking connectivity, but also the wider business, in order to provide true end-to-end visibility over liquidity.

“Actively manage your liquidity by drilling down to the very ends of your organisation linkages with customers and suppliers and use that data to properly manage the risk and drive priorities within the organisation.”
Shailesh Venkatesh, Group Head of Liquidity & Liabilities, DBS Global Transaction Services

The crisis has illustrated the critical importance of treasury’s role in every company, and the essential role of digitisation to meet fast-changing business challenges. In the past, it was often difficult to attract senior management attention and budget for treasury digitalisation initiatives. Today, this should no longer be the case. As we move from the immediate crisis to a longer term ‘new normal’, treasurers should leverage the opportunity to address digital ‘gaps’ in their processes and controls, and work with colleagues to identify friction and delay across the working capital cycle. By doing so, they equip their teams to optimise liquidity and risk during ‘business as usual’ and prepare for crisis situations in the future.

This DBS Business Insights Webinar on Surviving the Liquidity Crunch was organised by DBS Global Transaction Services and held on 18 June 2020.

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