Centralisation frees up cash for treasurers

by Graham Buck

Published: 27 September 2018

Companies like Vestas Wind Systems and OpenText are using centralisation to free up millions of dollars of cash. Mariel Barclay and Graham Buck report.

Under pressure to simplify myriad banking relationships and cash balances spread out across the world, treasurers are rationalising their internal structures, unlocking cash in the process, according to presentations at the International Treasury Management conference in Geneva.

Mumtaz Dole, Vestas Wind Systems

Vestas Wind Systems, a multinational wind turbine company based in Denmark that makes €10 billion a year in revenues, says it unlocked €150 million by centralising its treasury systems.

According to Mumtaz Dole, Vestas’ director of treasury, “We unlocked approximately €150 million by implementing zero balance accounts (ZBAs). Our cost saving over four years was €4 million”.

OpenText, a Canadian enterprise software company freed up $25 million in working capital as a result of such a rationalisation, according to group treasurer Jonathan Burkhead.

“We put in pooling structures where we can settle intercompany transactions quicker and have extracted 25 million dollars of working capital that we can now use for acquisitions or investments”, he said.  “We also generated savings of over $2 million dollars a year and operational savings over $400k per year from rationalizing the bank network.”

When Vestas started its project to reorganise treasury, it had more than 50 banks with over 700 accounts. “We reduced the number to four banks and 330 bank accounts out of which 197 are in a zero balancing cash pool”, Dole said.

Jonathan Burkhead, OpenText

Vestas built an in-house bank alongside its four external banks with a payment factory handling payments-on-behalf-of (POBO), payments-in-the-name-of (PINO) and inter-company payments.

“We elected 12 favourite currencies and set up 12 cash pools and we have POBO set ups for 10 of these currencies”, Dole added. “This gives us great visibility and control over our liquidity and payments. We have reduced our payments team from 30-plus to one.”

However, the pace of acquisitions can result in such initiatives falling behind schedule as the experience of US electronics component distributor Avnet shows. The company ranks 128th on the Fortune 500 list of the biggest US companies, with annual revenues of $22 billion.

According to the company’s assistant treasurer Karen Van den Driessche, Avnet has been able to create a successful Asia in-house bank in Hong Kong to complement its existing one in Belgium, reduce the number of banks it uses and implement an updated treasury management system (TMS) with Swift connectivity.

However, she admitted “We’re on track for many of our goals, but some system upgrades haven’t yet started, the integration of a major acquisition has been delayed and treasury’s role as a business partner has yet to evolve.” It was decided at the outset that treasury should be a “centre of excellence” rather than a shared service centre.

In addition, tax issues have prevented Avnet from combining its US cash management operations with those in the rest of the world.

Additional reporting by Bija Knowles