All Eyes on Treasury

The function that no one likes to think about is now getting plenty of attention, and even a little respect.

While Blackboard has not switched banks, Stanton decided not to present a request for proposal for a new “operating bank.” Explains Stanton: “The managing directors we talked to said they would love to have our business but they had unprofitable account relationships that they were trying to clean up. Normally we would have had 20 banks pitching.” In the end, Blackboard stayed put, deciding there was greater risk in moving its accounts.

Ultimately, treasurers want what consumers want: an ironclad guarantee for their cash accounts, says Scott Horan, a senior vice president in liquidity management at PNC Bank. “Businesses are looking for some kind of government guarantee for their short-term cash — they want safety and liquidity but no one considers yield as a criterion,” he says. Enter the Federal Deposit Insurance Corp. In addition to the U.S. Treasury Department backing money-market funds, the FDIC is guaranteeing non-interest-bearing transaction accounts at U.S. banks through 2009. Given that guarantee, the earnings credits that companies can apply toward bank fees, and the low yield on Treasuries, Horan says that for some companies it makes sense to park cash in a checking account.

Monitoring banks has value to corporations beyond just guarding cash. Zurich Financial Services, for example, relies on bank letters of credit and trusts to mitigate customer and other third-party credit risk. “Treasury has to actively manage that in light of some of the weekly changes in the health of some banks,” says Vibhu Sharma, CFO of the North American commercial business of Zurich Financial. “We have to have the ability to change out the collateral if a bank heads toward insolvency.” Thus far Zurich has avoided what Sharma calls “double jeopardy” — when a customer and the bank that posts its collateral go into simultaneous tailspins.

Numbers don’t tell CFOs and treasurers the whole story about a bank, though. That’s why Cypress Semiconductor holds monthly calls with its banks and money managers, a practice its financial-services partners willingly submit to. “I like to hear their voices. In these times you need to talk to people,” says CFO Buss.

Top-flight treasury departments do more than simply communicate with their banks — they also leverage the relationship. Some companies are choosing to help shore up the balance sheets of upstream partners, for example, by aiding them in obtaining credit, says the NACT’s Liebert. In such instances, the supplier transfers the customer’s receivables to a bank, which then provides lower-cost financing to the supplier based on the customer’s credit rating. “That can help the business and banking relationship while improving the working-capital management of the higher-grade company,” explains Liebert.

Prospecting for Cash

The management of working capital is an area in which many treasury departments can be more active. Uncovering extra cash in this economy is like finding gold. World Fuel Services, a $13 billion seller of marine, aviation, and ground-based fuels, has spent several months reeducating its global team on working capital’s impact on cash flow and overall return, says CFO Ira Birns. “It makes even more sense as record-breaking crude-oil prices earlier in the year resulted in an increase in our net working-capital investment,” he says. The company set internal targets for working-capital performance by business segment and is including such targets in its incentive compensation schemes. The heightened discipline paid off in increased margins and a decrease in the company’s net trade cycle in the third quarter, he says.

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