Transcript Slide 1

The Balancing Act of Cash Management:
Optimizing the Financial Value Chain
TEXPO Conference April 3-5, 2011
Gail Angel, FIS Commercial Treasury Solutions
SVP and Business Line Executive
Nanette Crocker, BBVA Compass
Senior Vice President, Corporate Treasury Management
Session Description
The Balancing Act of Cash Management:
Optimizing the Financial Value Chain
The events of the global financial credit crisis have had a ripple effect on the economy and
thrust cash management - and the need to gain greater visibility and control
over cash and liquidity - to the forefront of corporate strategy.
A recent survey from Aberdeen Research found that 82% of companies have
increased their focus on cash management over the past 12 months.
The purpose of this session is to highlight best-in-class company strategies for
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streamlining and accelerating finance business processes
reducing operating costs
managing risk
ensuring compliance
improving visibility, control, and efficiency
Includes Industry trends, study data, reference sources and practical suggestions for taking action
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Setting the Stage
Financial Supply Chain
Definition
Integral components of a supply chain, connecting trading partners from order
placement to receipt of payment. It carries the flow of financial information and
money in the direction opposite to the flow of goods and services.
BusinessDictionary.com
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Setting the Stage
“balancing act” noun
n [usually singular]
Definition
a situation in which a person tries to give care and attention to two or
more activities at the same time
dictionary.cambridge.org/dictionary/british/balancing-act
Economic downturns
Shifting priorities
Multiple
responsibilities
Changing business
climate
Unpredictable
market conditions
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Streamline and Accelerate
Finance Business Processes
Best Practices: Streamline Business Process
Processes
• Migration to electronic payments/processes
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– Check conversion
– Remote deposit capture
Moving to straight-through processing
– Integrated Receivables and Payables
– Generate CCD+ or batch wires from ERP System
– Eliminate download or “fetch”
Bank consolidation/rationalization
– Technology capabilities – smart safes
– Based on credit participation
Going Green…
– Electronic billing, payments and statements…
http://www.payitgreen.org
Founded by Financial Institutions
Accessible through NACHA site
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Best Practices: Streamline Business Processes
Pitfalls and Constraints
• Executive Buy-In
• Budget
• Resources
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Aging North American (and European) work forces
Smaller financial teams
17% fewer COO’s in S&P 500 firms than in 1999 (*)
CFO’s assuming broader range of responsibilities
33% play active role in developing and defining strategy
• Supplier/Vendor Buy-In
• Other Pressures
(*) Source: Crist Associates
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Trends: Streamline Business Processes
Increased Pressure
%
Source: Aberdeen Group, Optimizing
Financial Supply Chain
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Trends: Streamline Business Processes
Cash Management Strategies
Best in Class Companies – Top 20%
21 Days Sales Outstanding
84% accuracy of cash flow forecast
34 Days Payable Outstanding
Laggards – Bottom 30%
72 Days Sales Outstanding
52% accuracy of cash flow forecast
56 Days Payable Outstanding
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Source: Aberdeen Group, Optimizing
Financial Supply Chain
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Reduce Operating Costs
Best Practices: Reduce Operating Costs
Efficiency
• Increase staff productivity through better tools, processes & training
– Explore business process optimization (Six Sigma)
– Eliminate non-value added functions and expenses
– Web and SAAS/Cloud-based systems
• Move from paper to electronic
– Work flow
– Record keeping
– Transactions
– Payments
Consider outsourcing non-core competencies
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• Reassess treasury costs
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Bank fees
Working capital carrying costs
Take advantage of existing options
Perform internal TM Review
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Best Practice: Reduce Operating Costs
Constraints and Pitfalls
• Staff Resistance to Change
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Purchase Card Processing
Posting from Images vs. paper records
Automating GL updates using STP
“Letting Go”
• Negative impact to customers and/or service
– Determining when enough is enough
– Professionally compromised
– Learning Curves
• Impaired agility/innovation
– Penny wise and pound foolish
– Tunnel vision
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Trends - Reduce Operating Costs
Ongoing Focus
• Reducing costs constant focus for
last 2 years
– Only 19% of companies not trying to
reduce cost … status quo?
• Best in Class
– Investing in processes, tools and
training to achieve greater productivity
– Focusing marketing efforts on better
serving most profitable customer
segments
– Seeking better commercial terms from
partners
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Source: http://www.EY.com Competing for Growth: Winning in the
new economy – Cost competitiveness
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Manage Risk
Best Practices: Manage Risk
Internal Process
• Establish clearly defined role and responsibilities
• Document and adopt methodology
– Identify, characterize, and assess threats
• Financial
• Technical
– Assess exposure and vulnerability of assets
– Determine the level of risk associated with threats
– Identify how to handle/manage risk
• Avoidance
• Reduction
• Sharing
• Acceptance/Retention
– Prioritize risk reduction measures based on a strategy
• Monitor and confirm adding value
• Perform Compliance Reviews (Audit Enforcement)
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Trends: Manage Risk
Top 10 Global Risks (*)
1. Regulation & compliance
2. Access to credit
3. Managing talent
4. Slow recover or double-dip recession
5. Emerging markets
6. Cost cutting
7. Non-traditional entrants
8. Radical greening
9. Social acceptance and responsibilities
10.Alliances and transactions
What
about
FRAUD?
(*) http://www.ey.com – Risk management:
The essential guide for fast-growth companies (*)
Best Practices: Manage Risk
Financial Risk
• Take advantage of bank offered fraud controls
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Positive Pay/Reverse Positive Pay (83%) (*)
ACH Debit Block (77%)
ACH Debit Filters (58%)
Payee Positive Pay (52%)
Post No Checks Restriction (37%)
Security administration and audit reporting
• Leverage Marketplace Solutions
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Out of Band Authentication
Mobile verification
Alternative notification
Locked-down Browser
Secure desktop
Transaction Monitoring
Low cost/no cost business changes
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Best Practices: Manage Risk
Technical Risk
FS-ISAC, NACHA & FBI Risk Mitigation Recommendations (2010)
Business Users
• Initiate ACH and wire transfer payments under dual control
• Execute all online banking activities from a dedicated, stand-alone, and completely locked down
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computer system – no e-mail or web-browsing.
Limit administrative rights on users’ workstations to prevent downloading malware.
Reconcile all banking transactions on a daily basis.
Financial Institutions
• Implement awareness communication programs to advise customers of current threats and
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fraud activities.
Implement appropriate fraud detection and mitigation best practices.
Consider using manual or automated Out-Of-Band authentication systems
… Plus 14 additional in-depth defenses, ranging from :
1. Perimeter router blocking of all unnecessary ports
to
14. Develop relationship with your local FBI and USSS Field Offices
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Trends: Manage Risk
Technical & Financial Risk
• Cybercrime
– March, 2009 – MacAfee reported analyzing 20 millionth piece of malicious software
– 2010 Discussions with FS-ISAC, FBI and high end incident response vendors indicated antivirus software less than 60% effective
– March, 2011 – EMC disclosed a recent cyber attack that exposed non-public information
related to RSA SecureID system
• 2010 AFP Fraud Study
– 73% of organizations experienced attempted or actual payment fraud in 2009
• 81% for organizations with annual revenues over $1 billion
• 63% for organizations with annual revenue under $1 billion
– 90% of the organizations that experienced attempted or
actual payment fraud in 2009 were victims of check fraud
– Electronic Transaction Fraud Chart
– Typical loss was $17,100
Best Practices: Manage Risk
Constraints and Pitfalls
• Organizational
– Lack of ownership
– Insufficient processes
• Attitudinal
– Not enough time
– Too expensive
– It won’t happen to us
• Insufficient resources
– Training
– Tools
– Personnel
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Ensure Compliance
Best Practices: Ensure Compliance
Best in Class Practice
• Focus on Trends
– Regulatory compliance one of top 10 Global Risks
– Rapidly changing and increasingly complex
– Internal compliance key to success of enterprise
programs like Supply Chain Management
• Suggestions
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Work with your Financial Institutions
Take advantage of training and educational opportunities
Establish a Vendor Management Program with Key Management Oversight
Document and communicate Vendor Risk Management Program
Monitor and make adjustments as necessary
Let’s look at an
example…
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Best Practices: Ensure Compliance
Vendor Management Program
FIS Approach
Vendor Management Life Cycle
• Provide enterprise-wide governance of
vendors to protect client-provided
consumer information and prevent a
negative performance impact due to
vendor provided products or services
• Establish consistent vendor acquisition,
Vendor
Selection
Due
Diligence
Continuous
Monitoring
Contract
Management
assessment of controls, on-going
monitoring and reporting requirements
• Validate vendors have deployed adequate
controls and processes for the protection
of client data and NPI from unauthorized
access, misuse or inappropriate disclosure
• Monitor financial health for financial
stability and continued viability
Program structure and activities based on key
objectives within regulatory and industry
standards:
– Gramm-Leach-Bliley Act (GLBA) 501.b
– FFIEC examination handbooks
– Federal Trade Commission (FTC)
– Health Insurance Portability and Accountability Act
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Best Practices: Ensure Compliance
Vendor Management Policy
FIS Example
• Ensure FIS consistently employs effective processes for procurement, risk
management, vendor assessment and ongoing monitoring enterprise wide
• Ensure vendors meet required minimum standards
related to:
– Technical competence
– Product quality
– Reliability
– Delivery performance
– Cost
– Financial soundness
• Ensure vendors selected align with FIS business objectives and maintain compliance
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with industry and regulatory requirements.
Policy re-evaluated on an annual basis to validate relevance and effectiveness.
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Best Practices: Ensure Compliance
Sample Vendor Risk Management Governance
Best Practices: Ensure Compliance
Sample Program Roles and Responsibilities
Vendor Risk Management
• Day to day operational responsibility of Vendor Risk Management Program
• Ensuring consistent processes are in place to manage vendors throughout the
relationship life cycle
• Ensuring the appropriate level of vendor due diligence is performed
• Performing an annual control environment review on managed vendors
Corporate Legal
• Understanding the legal and regulatory requirements for contractual
requirements
• Monitoring for regulatory change and communicating any updated requirements
• Ensuring contracts contain all necessary components to define the terms and
conditions of third party service(s) provided
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Best Practices: Ensure Compliance
Sample Program Roles and Responsibilities
Business Unit
• Ensure that the provisions as set forth in the Vendor Management Program are understood,
implemented and monitored
Information Security
• Ensuring that technical, physical and administrative safeguards are instituted for protecting
FIS and NPI
Physical Security
• Deploying controls and processes to help ensure that third party physical access to facilities
and resources that store, process or transmit NPI are restricted to only appropriate
authorized individuals
Procurement
• Ensuring all activities requiring the use of a third party providers follow the established FIS
policies and procedures
• Ensuring the procurement process contains adequate controls to manage vendor
relationships and support regulatory requirements
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Best Practices: Ensure Compliance
Constraints and Pitfalls
PITFALL
CAUSE
Ownership/infrastructure
• Number and
• Document structure/process
complexity of
relationships
• Fragmented or
siloed departments
•Unclear authority and
accountability
•Gate keeping/ineffective
management of relationship
• Lack of process or
discipline
Miscommunication
•Lack of communication
•Reactive communication
 • Sales cycle failure
• Change in
 direction/strategy
Uneven commitment levels
•Lack of trust 
•Conflicting priorities/values
People issues
•Resource constraints
•Inexperience / change-averse
•Unresponsive contacts
•Turnover and handoffs
Familiarity and Assumptions
CURE
• TPIIOTTCO (*)
(*) The proof is inherently obvious to the casual
observer.
• Come together
• Step back, reassess
• Secure executive commitment
• Unable, unwilling
or untrained
• Reinforce executive support
• Deploy stick or carrot … or both
• Monitor, measure, follow through
• Age/stage of
relationship
• Start anew
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Improve Visibility, Control, and Efficiency
Best Practices: Improve Visibility
Transparency
Automate wherever possible
• Bank information
– Multi-Bank reporting
– Treasury workstations
– SWIFT
• Internal interfaces
– Customized or standard utilities
– Electronic vs. paper
Routinely explore additional technology/new services
– Implement new Web-based solutions to link AP/AR and Payment systems
– Apply Internet technology to overlay remittance detail onto EFT transactions
– Leverage connectivity and data to improve trade terms
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Best Practices: Improve Visibility
Transparency
New Technologies
• SAAS/Cloud-based applications
– Trade networks
– Treasury workstations
• Bank portals
• Commercial card services
• XML EDI Formats
Align Treasury as a strategic partner
• Present cash management as a holistic process
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Trends: Improve Visibility
Knowledge = Power
“The organizations that most effectively weathered the economic crisis were those with
access to timely, accurate and usable information.”
Source: AITE Trends in Bank-supported,
Business-Initiated Payments , February 2011
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Trends: Improve Visibility
Significant Business Drivers
How do you compare?
Number of banks
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Business needs
Risk mitigation – counterparty and FI-based
Wallet sharing
Operational cost reduction
Limiting exposure to any 1 bank
Source: Treasury Strategies, 2010
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Trends: Improve Visibility
Leveraging Technology
Technology Solution
2011
2008
Treasury management system
57%
47%
Bank account management
58%
50%
Netting
26%
21%
Investment portal
39%
13%
FX portal
36%
8%
IDC Financial Insights Preliminary Findings from
Technology Trends Surveys, March, 1022
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Best Practices: Improve Visibility
Constraints and Pitfalls
• Lack of inter-departmental communication/executive support
• Complexity
– The bigger you get, the more complex the challenge
• Insufficient resources
• ROI
– The longer you wait, the harder it is to get done
• Cause and Effect Delays…
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Trends: Improve Visibility
Constraints and Pitfalls
AITE Supply Chain Finance: A Taxonomy, November 2010
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“ the difference between chess masters and ordinary players is not intelligence,
analytical ability or creativity …it is ‘structured knowledge.’ ”
Gtnews.com - “Becoming a Grand Master
in Cash Management” by Chris Nicols, 11/8/07
• Knowledgeable
• Focused
• Disciplined
• Practiced
• Confident
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“An ounce of action is worth a ton of theory.”
Fredrich Engels (1820-1895)
“You may delay; but time will not.”
Benjamin Franklin
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Q&A
Thank You!
Gail Angel
[email protected]
773 907-2400
Nanette Crocker
[email protected]
205 297-7218
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