Putting global cash to work: Building a smarter liquidity model
The challenge
A global retail company was holding cash in many parts of the world while borrowing in others.
Its decentralized international operations allowed cash to accumulate within local entities. Moving those balances across borders posed logistical challenges and potential tax consequences, so much of the cash remained in place earning minimal interest. Meanwhile, the company continued to use costly external borrowing to meet funding needs elsewhere in the organization.
Treasury also lacked centralized governance over cash, hedging, and payment controls due to a fragmented banking footprint spanning nine regions globally. Foreign exchange practices varied by region, and intercompany activity was difficult to track and reconcile.
Creating a centralized structure would involve more than selecting a technology. The company needed to decide which entities could participate, establish lending and borrowing agreements, address legal and tax requirements, and define how treasury and regional finance teams would manage the process after launch.
This was an operating model challenge as much as a systems challenge, and Clearsulting led both sides of the work.
The approach
In partnership with the company’s financial institution, we redesigned the physical cash pooling process with a newly deployed multicurrency notional pool covering nine currencies in one global liquidity structure. The structure allowed participating entities to lend and borrow notionally at favorable rates, enabling more efficient capital deployment and more operational resiliency.
Clearsulting then implemented Kyriba’s in-house bank and cash accounting capabilities. The solution automatically tracks intercompany transfers, maintains intercompany balances, and sends interest accrual journal entries to SAP S/4HANA.
To proactively address regional liquidity needs, Clearsulting designed a regional cash forecasting import workflow in Kyriba to provide corporate treasury with critical visibility to expected payables.
Our team tailored workflows, reports, and training for corporate treasury and each regional controller so that the new model would work in practice, not only on paper.
We also coordinated with internal and external stakeholders required to establish the liquidity structure and form a new legal entity. Treasury, accounting, legal, internal and external tax, regional finance teams, and the company’s bank all had a voice and role in the initiative.
The results
The new model changed the way the company funded its global operations almost immediately.
- More than $50 million in external borrowing replaced with centralized liquidity during the first month
- More than $385,000 in interest expense savings during the first month
- 60% of global cash exposure brought into the centralized structure
- Centralized cash forecasting for corporate treasury in each region’s functional currency
- Ability to rationalize non-strategic banking relationships and accounts
- Unified FX hedging standards across participating entities
- More than $200 million in hedging executed within the first 90 days after go-live
Put your global liquidity to work
Holding excess cash in local entities while borrowing elsewhere can sabotage working capital and prudent risk management. Clearsulting helps global organizations design liquidity structures that work across treasury, accounting, legal, tax, and technology.
Connect with our team today to explore how multicurrency pooling and in-house banking can reduce external funding needs and give treasury greater control over global cash.