Confirmed: Latin America can participate in your in house bank

Dec 15th 2016 |

The Panalpina Group is one of the world's leading providers of supply chain solutions, combining their core products of Air Freight, Ocean Freight, and Logistics to deliver globally integrated, tailor-made end-to-end solutions.  With some 500 offices in more than 70 countries Panalpina works with partner companies in over 90 countries. 

Corporate Treasury Manager, Michael Finkelstein flew from HQs in Switzerland to his native Brazil to speak at our conference on “International Treasury, Cash and Risk Management for companies in Brazil”. We asked him about the challenges he faced introducing Latin America into a centralized treasury model that includes Shared Service Centres and in house cash.

The name of your presentation in Brazil was “Not  the perfect treasury, but the right one for you” What does that involve?

What does “perfect” really mean? There are “state of the art” processes and tools, but what really matters is the company’s strategy and having the appropriate processes and tools to support it, taking into consideration the tax & regulatory environments and costs/benefit aspects. What is perfectly OK for a big company may not be right for a small or mid-size company.  Therefore, it is a matter of having the “right” Treasury for each company.

Latin America is a particularly complicated region when it comes to standardizing and centralizing. You have a presence in 70 countries and have implemented in house cash. Tell us about the challenges.

We encounter certain limitations in the case of Latin America due to tax & regulatory aspects. Our experience is that certain processes, for example, the multilateral netting scheme, can be rolled-out to all countries in Latin America. However, issues such as “trapped cash” or the requirement, particularly in Brazil, that each transaction must be properly backed up by documents/invoices, constitutes a limit to how much we can “push the envelope” in certain countries.

What were the lessons learnt during the implementation process?

You must work closely with the countries you have in your sights to clearly understand their business needs and particularly their tax & regulatory environments. Managing change is key! Ensure there are enough “face-to-face” meetings so that there is common ground and an understanding of what needs to be achieved, not just the concept and strategy, but also process level details.

Did you have any surprises? Any countries where you discovered you could or could not do things as you expected?

The devil lies in the detail! It took us some time to ensure that our people in the countries raised the right issues and to involve the auditors in order to get clearance! Secondly, we were realistic enough to know that standard processes could be implemented in over 90% of the countries, but that we would still need to handle the remaining 10% differently. The solution Panalpina devised is flexible enough to handle exceptional cases such as Brazil or Russia.

You have a Shared Service Center, an in house bank, a single ERP a reduced number of core banks and you use Swift. How many countries fully participate in that package?  What is your strategy in countries with restrictions?

Panalpina is currently moving its companies into a single ERP.  Nevertheless over 90% of countries fully participate in the “package”. This is a result of our clear strategy regarding which banks we wanted to operate with, how we connect to them and aligning the whole process around Purchase to Pay, Order To Cash and Record To Report processes.  However, at times, we do need to operate with banks that cannot support us, particularly in Africa or parts of Asia, and in such cases we evaluate whether we can onboard more core banks.

What is your hedging strategy and what role does the in house bank play?

Panalpina has centralized FX risk management with clear limits on how much each subsidiary can carry in terms of  FX exposure on its books. The in-house bank plays a pivotal role as it allows each subsidiary to achieve a“natural hedge” thus transferring the FX risk to the Group’s internal in house bank. This company then hedges the residual FX balance with banks. One big benefit of handling the FX risk in such way is that the compliance reporting is kept to a minimum.

Risk of fraud is high in LATAM , do you apply any special or different measures to prevent it? 

We have segregation of duties in place with a clear approval matrix. For example, the person who handles master data must not release payments. Secondly, we are pushing for standard processes e.g. payment-run done out of ERP instead of e-banking, allowing better control. Thirdly, we promote management awareness and encourage sharing of information about fraud attempts. It is important to share the stories!

Latin America is a region characterised by regular, often radical change. What structures need to be in place for a treasury to be able to adapt and react to sudden shocks?

Panalpina has regional treasuries in place that work very closely with each country. Our tools and processes have so far been robust enough to handle changes in the tax & regulatory environments.

Has the exit of some banks from the region affected you? What is your ideal bank partner?

Not so far. It is part of Panalpina’s strategy to set-up banking solutions that are as bank agnostic as possible with regards to connectivity or what a payment instruction should look like. However, there is a limit to how quickly we can react bearing in mind how time consuming the KYC process can be.

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