An international professional services firm, positioned in a highly regulated environment such as the Asia-Pacific Region, went from a manual process of centralizing its funds to an automated solution where it can access its liquidity daily.

The AFP Treasury Case Study series is designed to help you build up key treasury capabilities and skills by sharing examples of how leading practitioners have tackled challenges in their work and the lessons learned.

Presented at an AFP Treasury Advisory Council meeting, this case study contains elements that are anonymized to maintain privacy and encourage open discussion.

Insight: An automated cash pooling structure can help an organization reduce surplus cash balances, automated accrual and posting of intercompany interest.

Company Size:	Large
Industry:	Professional services
Geography:	Global
Topic:	Cash management and forecasting

Background

The presenter of this case study works in the Asia-Pacific region for an international professional services firm.

Challenge

Historically, the businesses centralized excess liquidity in the Asia-Pacific Region to an international notional pooling structure in Europe. Teams manually transferred excess funds into the international pool. It was not efficient; they needed a more automated international solution that would provide access to liquidity daily, rather than weekly or monthly, and not be dependent on the local operations manually transferring funds in.

The international pooling strategy was designed to automate the centralization of liquidity, rationalize banking partners, automate internal processes such as the accounting postings and lay the foundations for an in-house bank. The new strategy would also give them an opportunity to minimize operational exposure.

The pilot phase of the new international pooling strategy was to focus on the less restricted markets in Asia, i.e., Hong Kong, Singapore and Japan. The next phase is converting the existing international notional pool, and later phases will address Australia and New Zealand and the more restricted markets. The company is working with its regional banking partner to understand the capabilities in those markets. Generally, you can move U.S. dollars cross-border, but there are restrictions on converting local currency into U.S. dollars. However, those markets are, over time, becoming less restrictive.

Approach

The International Treasury team carried out a great deal of groundwork to scope the project. Because of the regulatory aspect of some of the businesses, they needed to ensure that there was no regulatory impact on targeted participants by adding them to the new structure. They partnered with their internal legal team to ensure they were compliant.

The project was managed with three key work streams:

1. The external workstream worked with the external banking partner to agree on the design of the structure, negotiate the pricing and manage the necessary documentation required to establish the cash pooling solution.
2. The cash management workstream focused on redesigning the regional cash management processes, automating the accounting entries and recording off the intercompany loan positions.
3. The regulatory workstream reviewed the structure and managed any necessary actions that needed to be taken with the regulator.

The structure they created was a multi-currency single entity notional pool. This is fed by physical sweeping from the Group’s operating companies to centralize Group funds daily.

The outcome

As a result of the automated structure, the company achieved a reduction in surplus cash balances, automated accrual and posting of intercompany interest and eliminated manual activities.

The biggest challenge, in terms of implementation, came from the regulatory side. “You need to build in enough time and start conversations with the regulator as early as possible,” said one executive.