The New Cash Managers

Driven by the downturn, CFOs and treasurers are increasingly switching their companies' financial yardsticks from earnings to cash. As a result, they're tracking the flow of cash into and out of every nook and cranny of their companies' operations. And the cash-management buzzword of the day is "visibility."

But many companies have been ill-equipped to "see" into the bank accounts of their far-flung subsidiaries. Alerted by the disastrous credit crunch that's only now starting to recede, the difficulty in getting any yield at all for their investments, and the volatility of the U.S. dollar, treasurers and senior finance executives are reaching for more control of their cash management. One step: buying computer tools to be able to view subsidiaries' cash positions on the executives' desktops.

Indeed, companies such as Samsonite, the well-known, privately held luggage vendor, have dived into the market for cash-management computer systems. "Everybody wants to know where their cash is. Historically, this company used to have to wait for a monthly close to get a view on cash. But that's not quick enough anymore. You really need to know on a weekly basis, and part of your culture is making sure everybody understands where their cash is," says Kyle Gendreau, the company's CFO. Samsonite's U.S. retail unit is set to emerge from Chapter 11 protection by the end of this month.

Last November the downturn began to cut into the revenues of the travel industry on which Samsonite depends. With the company facing the likelihood of liquidity problems, it changed its guiding metrics from earnings and earnings before interest, taxes, depreciation, and amortization to cash flow. "We effectively shifted everybody's focus to cash management and cash forecasting. So at a certain point, your cash flow becomes a more important measure when you're in a crisis than a p&l," says Gendreau. "A lot of companies made that shift."

In tandem with the change in culture came the installation of new cash-management processes. Speaking to CFO from Luxembourg earlier this month, Gendreau said the company has integrated the cash management of the entire company, largely by setting up a 13-week cash-forecast system with weekly reporting. "It's become an encompassing way of how we operate today," he said of the system.

Although at first the tool supplied data in the form of Excel spreadsheets, the company is moving toward more automated software. Samsonite is replacing the spreadsheets with Cognos TM1, a Web-based tool that enables users to easily view forecast updates on a weekly basis. "As we put in this automation tool, it will take a little bit out of the busy work out of putting this stuff into Excel, and it will allow people to focus on the qualitative pieces" of managing cash, said Gendreau.

Similarly, spurred by volatile global financial conditions, Norsk Hydro, a New York Stock Exchange–traded Norwegian aluminum and renewable-energy giant, is integrating its treasury systems. "The increased volatility of [the U.S. dollar] has increased Hydro's focus on currency risk and currency management. Also, forecasting of cash reserves and managing counterparty risk are increasingly important," Peik Norenberg, the company's senior vice president of corporate finance, said in an e-mail.

Shedding cost is another factor. Set up in 1994, Hydro's custom-made cash-management system is costly to maintain and run, said Norenberg. And times have changed: the company has become more streamlined, unhitching itself from its fertilizer business and oil-and-gas activities. What's more, "significant changes have taken place in the financial market (e.g., introduction of the euro, improved European clearing systems, and bank solutions reducing transaction costs)," he wrote.

The company wants to bring its cash-management system up-to-date with those changes. Thus, it's switching to an application service provider supplied by Wall Street Systems, a treasury-services firm. The new system will run Hydro's banking, liquidity management, treasury, and portfolio management.

In the company's previously cumbersome centralized treasury system, it handled accounts payable and receivable on behalf of its subsidiaries. The new ASP-based system, in contrast, "is based on decentralized payment processing, where the different subsidiaries will be fully in charge of payments, collections, and bank account reconciliation," said Norenberg. Under the new system, he added, "global receivables and payables data are retrieved to improve the quality of short-term liquidity forecasts."

Long Time Coming
Counter to the widespread cost-cutting trend in Corporate America, quite a few finance chiefs have decided to spend money on cash-management innovations. For relatively modest dollars spent up front, they expect to get a grip on their cash that will help them invest it better, avoid unnecessary spending, and keep an eye on their counterparties in these treacherous times.

For some, it's a no-brainer. At Samsonite "it was a need do; it wasn't a discretionary kind of decision," said Gendreau. "There weren't massive amounts of costs associated with changing our internal process."

At other companies, tech spending on new treasury and cash-management systems is coming only after years of laborious deliberation — sometimes over a period in which the existing software grew clunky and out of date. As part of Hydro's cost-benefit calculations, Norenberg and other executives looked at bank-transaction fees, float, spread, and cost of manual operations.

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