Cash Management 2010 Transcript

From Treasury & Risk's 15th Annual Alexander Hamilton Best Practices Awards

TOM DUGGAN: Again, welcome back. One of our top categories every year is Cash Management, and this year our sponsor once again is Citi. So joining us to present the awards in this category and moderate the panel is Michael Fossaceca with Citi.

Michael is the managing director and regional head of client sales management for large corporates, for Citi’s Global Transaction Services organization in North America. He’s also responsible for GTS client management for key subsidiaries of foreign multinationals based in North America. Michael has over 20 years of experience in treasury management and has developed and implemented innovative treasury management solutions for clients globally.

Mike joined Citi in 2009. Prior to that, Mike was a large corporate treasury executive in the global treasury services business at Bank of America, as well as with JP Morgan Chase. Michael holds an M.B.A. in management from Columbia University and a B.A. in finance from St. Bonaventure University. So now I’d like to turn things over to Michael. Thank you.

MICHAEL FOSSACECA: Thank you, Tom. First, I just want to say it’s a real privilege for me to be here representing Citi as a sponsor. I’ve always loved this event, because it brings together in one place so many people that have great ideas. The ideas -- although in and of themselves they’re fine -- what I love is that these ideas have been implemented and executed, and so I always learn a tremendous amount, and I’m sure you all do as well.  Speaking of people with great ideas, I’ve got several here with me and I just want to introduce them briefly. 

I’ve got Kim Leary from Honeywell, Ronni Horrillo from Google and Jeff Carnicelli from Amtrak. So just a quick round of applause for them, because it’s great for them to be here.

I was asked to kick off this session and just give a perspective on the treasury profession and where we see it heading post-crisis. It’s interesting because when you really think about the crisis with its disproportionate levels of risk -- liquidity drying up and financial markets being in chaos -- it’s caused all of us to really have to step back and think about what we do every day. If you think about employing best practices and really looking at how do we preserve capital to reduce our reliance on external sources of funding, it really required us to look at the cash conversion cycle in a different way -- and actually the processes about purchase to pay and order to cash -- to really become a strategic advisor to the business, and Donna [Miskin] mentioned that this morning.

Really, I think one of the things coming out of the crisis is that the folks in our profession -- all of you sitting in this room -- have had to be elevated to a certain extent, and treasury has become much more relevant and much more important to the corporations that we serve.

There’s a great quote by John F. Kennedy that I saw in an article I was reading a couple of weeks ago. He wrote -- and I love this because I think it really provides an apt description of treasury -- he was speaking about crisis and he said that when the Chinese write the word crisis they use two brushstrokes. One represents danger and the other opportunity, and if you think about that, he says, it’s important when you go through a crisis to recognize the danger but also to realize that there’s opportunity. That was one of the things that Lewis  Booth mentioned this morning -- that even through the crisis, Ford saw the opportunity and took advantage of it.

When you think about that quote, it also embodies the spirit of the Alexander Hamilton Awards and everyone in this room, because I think it’s the people that have really created these solutions that have seen the challenges they face but also recognized that opportunity and have taken advantage of it.

So there’s no doubt that treasury has become much more relevant, and there’s no doubt that we’ve all been raised -- in the eyes of the organization have really been thought of as strategic advisors -- advisors to the business. But it’s also -- there’s a question around the profession -- is that sustainable? Will it go back to the old way?

And there was another article I read last week in a treasury magazine and it was interesting because it was a European treasurer quote. He basically says, ‘You know, the treasurer’s office is always full of people when there’s a financial crisis or market headache. When things go well or when the world appears safe, we’re all alone with our Reuters and Bloomberg terminals.’ I thought that was interesting, and the whole article was questioning, ‘Is this sustainable? Is it really sustainable for treasury to have that amount of relevance?’ I think it is, and I think it is for a few reasons.

There are really three market forces that I see that are going to drive what we all do going forward and they’re going to continue to make treasury very, very relevant. They’re really around technology and innovation, and that’s how it’s changing what we do. It’s really about the economic realities that we all face, particularly with regulation and what’s going to happen with Dodd-Frank and Basel III, and it’s globalization.

If you think about it, what company is not global today? What company doesn’t either purchase or sell some way internationally?

If we touch on those just for a minute. Think about technology. I’m going to give Google a little plug here right -- with technology -- but when you think about it, 15, 20 years ago, the Internet, mobile telecom, all of these things didn’t really exist. And with the amount of information, iPhones, iPads, PDA devices we all carry, it’s not only changing how we’re exchanging information, but it’s actually changing the business models that we all execute against -- and treasury plays a key role in that.

We were speaking with a chief innovation officer with a major technology company in Silicon Valley and one of the things that he said -- and I can’t prove this stat, but I’ve used it in a couple of places recently, so I apologize for people that may have heard this, but I think it’s fascinating -- he basically said if you took all of the information that’s been exchanged from 1 A.D. until today -- now, granted, population was smaller, there was no technology in 1 A.D., not that I know of, anyhow -- and added it up and put a figure on that, then in the next 24 months we’ll have doubled that, based on all the information that’s flowing over the airways and over the Internet, and through PDA devices and what have you. And then he went on to say that basically, it’s not about information storage anymore. It’s about information retrieval and how we use it, and I thought that was fascinating because if you think about what we do -- trying to leverage our ERP systems, what we’re doing in terms of standardization with ISO, XML, TWIST formats. Think about some of the things that folks here are going to speak about -- about process reengineering, SEPA, multilateral netting and how we deploy that.

When you think what we need to do to effect the cash conversion cycle by being advisors to the business, around the purchase-to-pay cycles, the order-to-cash cycles, liquidity structures, treasury is going to play a very prominent role in how we use technology as we go forward. And then if you think about the economy, as we come off life support with government intervention, there are still a lot of challenges out there.

We see huge government deficits, a very slow recovery, interest rates that are flat and people still question where are they going to go and then, as I mentioned, regulation, which is the elephant in the room. If you think about Dodd-Frank and Basel III in particular, the cost of capital is going up, and banks are going to be required to hold more capital on their balance sheet against their assets, and that’s going to have implications for everyone in this room, including banks themselves.

When you think about investment-grade and non-investment-grade companies, they’re going to have to think through how they access the capital markets, and these regulations are going to impact that. And you can look at over-the-counter derivatives and some of the rules and regulations and how it’s going to change how we all operate. Treasury is going to play the key role in navigating all of this -- and again everyone in this room.

Finally, I think the third market force around globalization is fascinating because it’s not just globalization, it’s also urbanization. If you think again what we’re doing, what we’re driving and not just here but also in the emerging markets, if you just take five countries -- Brazil, China, India, Indonesia and South Korea -- those five countries alone in the next 24 months will drive about 35% of the world growth, while OECD countries growth will be very tepid. It’s going to slow down.

If you think about urbanization, this year for the first time 50% of the world’s population live in a big urban center, in a city, and by 2050 we predict that 75% of the world’s population will be living in an urban center, and if you look at the 25 fastest-growing cities, 22 of them are in the emerging markets.

So the question is: Where does treasury come in? It’s about how do you enter these markets, how do you operate, how do you understand the regulations, and how do you actually manage liquidity-trapped cash -- and you can go on and on.

So my point is that I think those market forces that are driving this are actually going to continue to make what we all do for a living even more important, more relevant to the companies that we serve.

With that, I want to introduce our award winners, because I think everyone in this room -- being here, hearing these presentations -- the folks up here all realize the importance of our being strategic advisors and, as I said earlier, Kennedy’s quote, they really do understand the challenges or the dangers but also recognize the opportunities.

I’ve personally read all of the submissions. I didn’t get to vote, but I did read them all, and I don’t know how they picked, because they’re all great. So what I’m going to do is introduce each person. They’ll come up like we did in the previous session, and they’ll go through a brief presentation and then we’ll open it for a Q&A session.

So first up, we have Jeff Carnicelli, who is assistant treasurer of National Railroad Passenger Corporation, better known as Amtrak. I did check and Jeff took Amtrak here today, so that’s good, and Jeff is our Bronze award winner. So let’s give Jeff a round of applause.

Jeff manages Amtrak’s treasury operations group, which is responsible for daily cash management, cash forecasting, investment and bank compensation, 401(k) and pension fund management. Prior to joining Amtrak, Jeff spent over 30 years in the treasuries of Exxon-Mobil, where I met him for the first time installing their treasury workstations a long time ago. In fact, he was a pioneer in setting up a regional shared-service treasury center, also setting up the first one in Europe for Mobil. At Exxon-Mobil he led similar projects in the Americas, Europe and Asia.

Jeff is the first Alexander Hamilton Award recipient for Amtrak, and he’s going to tell us about how Amtrak transformed its national railroad station banking structure into one that is now efficient, cost-effective and well-controlled. He’s a real winner in many ways, and this project that he’s going to tell us about has also been recognized as a best-practice banking solution by the [Association for Financial Professionals] and within Amtrak, actually received the President’s service award, which honors employees and external partners who have made exceptional contributions to the company. Thanks, Jeff.

JEFF CARNICELLI: Good morning, everybody. It’s a great honor to be here today to talk about how Amtrak really restructured its railroad station banking. Of all the years I’ve been working in the treasury and cash management area, this is probably one of the most favorite projects I worked on and, hopefully, at the end of this discussion you’ll have a similar feeling.

At any rate, what I want to do is bring you back in time to talk about how the railroad station banking was structured and the changes we made that, as we’ve mentioned, really make it a state-of-the-art best-practice solution.

On the old structure, Amtrak had no uniform banking practices, procedures or controls in place to process station cash, coin and currency deposits. This represented around 15% of our receipts, approximately $3 million per week. We had 215 manned stations that received cash, coin and currency, in addition to credit and debit cards.

At the time we had 35 banks, 145 bank accounts, and we outsourced some of the bank reconciliation function to a third party and reconciled several others in-house. The interesting part from a cash management perceptive was that all of the cash that was out in these stations was concentrated either by the treasurer’s department or some station operators, and I’ll get into more of that in a few minutes about the problems that created.

As far as bank deposits apply, I’m talking about cash bags to put money into the vaults, your deposit slips, endorsement stamps, they were ordered by each station, either through the bank or vendor and typically at a higher cost.

Deposit practices -- we had 84 stations who used armored car service for transportation. Transportation means they come and pick up your deposit and take it to the vault or they drop off coin and currency. We had no primary armored car carrier that we were using, no uniform service contract or fee schedule. The arrangements for the armored cars were either made locally by the station managers or through our procurement department, and deposits were picked up daily, whether or not it was cost justified, and we’ll talk about that more in a few minutes, but it’s pretty expensive to have an armored car show up every day.

The remaining 131 stations did not use armored car transportation. So instead we had our employees take the cash and checks to the bank for deposit, and they were paid overtime. So this was an extra source of income for them. The frequency of the deposits and the day they were making deposits, we didn’t know when that was going to occur. It was left up to the discretion of the station manager. So we were uncertain when cash would be available, and we would put drawdowns through and either we overdrew accounts or we had high balances.

So the goal of the project was to establish a nationwide railroad station depository banking structure that’s efficient, cost-effective and well-controlled. We wanted to reduce the number of banks in bank accounts, observe uniform banking practices and procedures, automate cash concentration and, hopefully, generate greater interest income, use armored car services for transportation at all stations in a cost-effective manner, obtain bank deposit supplies from one vendor, and simplify and improve bank reconciliation. And this was a project that the treasurer’s department led. We worked in a collaborative effort with many parts of the company and everybody was welcoming such a change to the process.

The first thing we did prior to the request for proposal, we benchmarked with other retail companies what were they doing as far as stores across the country that had coin and currency, and we wanted to see what they had done. Were they able to consolidate banks and use armored cars in an effective way. And we learned that our theory really held water and other companies were doing something comparable.

So what we did was we drafted RFPs to focus on our specific business requirements and the selection criteria were the proximity of these stations to the bank vaults, the vault deposit cutoff times, availability of funds, did they operate with virtual or partner vaults, and their fees. As a result, we awarded the business to two banks, JP Morgan, who’s our primary bank, and also Wells Fargo Wachovia. Originally we had three. Now, it became two.

As far as armored car carriers, we sent an RFP out to three national carriers, again, for transportation services only. The criteria were the same-day pickup and delivery of funds to bank vaults and branches. The other critical part was that we needed to know the specific time the armored car service was going to come to the station. We wanted to make sure that when they showed up, the deposit was ready. Some of our smaller stations one-manned, and if they came in when the train was there, they couldn’t give them the deposit and they would go away.

The armored car had to provide national coverage, either directly or through subcontracting, and they had to have a centralized dispute-resolution system and fees. As a result, we awarded that to one primary armored car service. And bank deposit supplies, again, we created an RFP and sent it out to three companies, and our selection criteria focused on providing all the banks with one style of deposit bag, deposit slips that they would all accept. Also, we wanted the vendor to be the manufacturer of those supplies to keep costs in line and to have a centralized ordering and billing system. Again, it was awarded to one bank deposit supply company.

So under the new structure, we have 215 stations working with two bank relationships, and as far as the treasurer’s department is concerned, we see two bank accounts. There may be other subaccounts at the banks, but we only see two. We have uniform banking practices, policies and procedures in place for the first time. Cash, coin and checks are deposited at bank vaults and branches or by mail, and I could talk about that, too.

Our armored car carriers, the primary carrier we have services 176 stations. That company could not hit some of the remote locations, so we subcontracted that in an RFP for another 20 stations to a second company. Each station follows an optimized pickup and delivery schedule so that its costs are operationally justified. What that means is the number of pickups per week and specific days of the week and we have a uniform contract and fee structure in place for transportation services. Similarly for bank deposit supplies, one company provides all deposits.

Implementation was a challenge, I must say. What we did was we went to a phased process, and we created teams at each of the banks and the armored car service and also the deposit supply company. We wanted a central focal point to work with at each of these, and we decided that we would start off with a pilot program. We picked four stations at random, geographically. As a result, as you may expect, the pilot did not run smoothly, which was the reason why we only went with four stations, and that identified issues that we worked out with the banks and the armored car service. We proceeded to implement the second pilot, to take those lessons we learned and to see how it would work. We fine-tuned everything after the second pilot, and then we went out and worked with the banks and the armored car for implementing the remaining stations over the next 10 months. The key here was that we had weekly status meetings with everybody. Prior to rollouts, we would have a meeting a week before the rollout at the station and constant communication with everyone.

We also had some stations that had unique requirements. I mentioned that a certain number of them could not be serviced by the lead armored car carrier due to the location. So we, again, had a second RFP where we satisfied their requirements. We had 19 stations that could not use armored car, reason being they operated at night -- armored car service does not come to pick up cash at night. And we had other stations that were in remote parts of the country, like some of the national parks, and again, it was too far away to have anybody come and get the cash.

So what we did was we worked out putting together a bank drop deposit at branches, or in certain situations the stations took their cash and went to a local bank, got a cashier’s check and they mailed that check along with any other checks they received to the bank central check processing area.

So the benefits of the project -- cash management controls, we have fewer banks, bank accounts. We automated cash concentration. Wells Fargo Wachovia was sweeping it to our main JP Morgan account. JP Morgan would sweep their station cash to a main concentration account. No more did we not know how much cash was going to be available to use.

Again, we have uniform banking practices, procedures and policies. We improved internal control and employee security. Employees no longer really take the cash to the bank. Even though we hit their pocket -- they weren’t pleased with it, but there’s no more risk. Bank reconciliation is performed in-house, and we have central points of contact at the bank, at the armored car service, and the bank deposit supply, and uniform fee schedules and uniform contracts.

So the cost savings: When we did the project, we said it’s over $500,000 but I know it’s more than that because of the fragmentation I described earlier. We knew it was $500,000 from the stations that had armored car and the bank supplies that we could identify, but there was no way we could identify what they were saving. But over $500,000 is a real good estimate. We eliminated employee overtime, and then we have lower bank fees, armored car service fees and bank deposit supply fees.

And, quickly, I mentioned we did an armored car optimization. What does that mean? That means that we looked at the cash flow at each station and the number of days a week [we needed] that cash [to be] deposited in the bank vs. the cost of the armored car service. We have a number of stations where we may pick up once a week now because the cost of the armored car exceeded the interest that we would earn on the bank. So we have stations once a week, twice a week, three times, whatever. It depends on business requirements, but we performed this optimization for each station.

Lastly, for bank deposit supplies, we created this system where for stations getting pickups once a week, they have to close out their cash drawer every day, so there’s a daily deposit bag. What happens is if it’s once a week, they throw everything into what we’re calling a consolidated bag. It’s a bigger bag. So when the armored service comes, they pick up one bag and they’ll take it away. And also we developed new deposit slips.

So it was a very interesting project. It’s made a great impact to Amtrak, and I’ll be happy to answer any questions at the end whenever that Q&A session opens up. Thank you very much.

FOSSACECA: Thank you, Jeff. Next we have our Silver Award winner, Kim Leary from Honeywell. Kim is going to tell us about an ambitious global multilateral netting solution for settling intercompany trades at Honeywell, a company with 590 business units around the world. As director of finance at Honeywell, Kim focuses on mergers and acquisitions, corporate funding, leasing, and managing banking relationships.

Prior to joining the treasury team of Honeywell 10 years ago, she was in the banking industry. She started her banking career as an accountant at JP Morgan Chase and was later a global relationship officer at HSBC Bank USA, as well as Mizuho Bank.

Honeywell treasury operation is certainly no stranger to the Alexander Hamilton Awards. In fact, it has been on the podium a number of times over the years. I believe it’s been 12 times, and actually after the next two days, it will be 14 times. In fact, it won the Overall Excellence Award two years in a row, and Kim was on the podium last year when Honeywell took the Silver Award in that category. Welcome back.

Honeywell is without a doubt a company committed to innovation and to best practices, and I’m sure that Kim has many lessons learned to share with us. So welcome, Kim. Congratulations.

KIM LEARY: Good morning. No matter how many times Honeywell has been here at the podium, it’s always an exciting time for us to be able to share what we’ve done and provide solutions and just exchange ideas with our peer group in the industry. One would think that Honeywell, being such a large company, wouldn’t really have a lot of the issues that some of the other peer group [members] in the treasury team here would have.

However, as we get larger every year, the complexities of the organization keep increasing and we’re constantly challenged with finding new solutions. What we looked at in the past few years was what had become of our internal cash flows, and this has become much more sophisticated and numerous, as over the past few years Honeywell has continued to go through many, many mergers and acquisitions, with the last one being the one that was just closed about a month ago in France for $1.4 billion. Where the complexity comes from is this company we bought had 100 legal entities as well as did business in well over 100 countries around the world.

To give you a quick background on Honeywell, prior to this whole crisis that all of us are sitting through, Honeywell had reported revenues of about $38 billion. It dropped down to $31 billion last year, which is a significant drop across all four business segments that we do business with. The four -- just to quickly summarize for those of you who don’t know Honeywell -- the four business units are in aerospace, and you know what’s happened there, as well as automated control systems, transportation systems and the specialty chemicals.

Even without the mergers and acquisitions that Honeywell has embarked on continuously, the legal structure of Honeywell is extremely complex, only because doing business in over 100 countries does require separate legal entities. This amounts to hundreds of legal entities dealing across borders with a lot of foreign exchange regulations. Obviously to everybody, cash remains king, and that’s no different for Honeywell. With such a dramatic drop at the top line, it obviously hurts each of the businesses.

We looked at what we can do to help each of the businesses as well as streamline our intercompany payables and receivables. To just give you a good sample of what we were faced with when we embarked on this, on a monthly basis settling between intercompany units/subsidiaries or separate legal entities were about 4,000 invoices generated on a monthly basis, about $800 million -- converted dollars -- exchanging hands. This was a tremendous amount of work as well as inefficiencies going across the globe on a monthly basis. It got to a point where we really felt that it became unmanageable, and we looked at a certain solution, which was how can we net across regions within different currencies and just really, really streamline the process.

So if we look at the problem statement that we have, we felt that we can definitely reduce the number of invoices. 4,000 invoices per month is just not manageable. This really relates to when you end up settling, you’ve got enormous amounts of wire transfers. This definitely is a charge for each of the businesses. Every charge for a wire transfer, no matter how nominal that is, does add up when you’re looking at wire transfers, settling 4,000 invoices. On top of that, dealing with well over 100 currencies, there’s a lot of foreign exchange risk, a lot of exposure and trading that needs to be taken care of, and we just felt that if we could reduce not only the number of wire transfers but also the foreign exchange exposure, this is really a substantial savings to the company.

What we did was, instead of building some solution in-house -- we looked at that. It would take an enormous amount of capital investment, training. We had already done business with a Dutch bank, Bank Mendes Gans, or BMG. We had done business with them on a smaller scale and didn’t really do an RFP because we’ve always known them to be one of the best providers for our needs, and they knew us very, very well. Because Honeywell is so global, most of our business operations where we do have a lot of these foreign exchange trading and services being traded would be overseas. In Europe, we have our in-house banking center in Brussels, and it just married very, very well with our choice of BMG.

We set up a process with BMG where what you see on the chart is just X minus 3. X is just a settlement date. To get to this point, we did ask each of our businesses to get buy-in from them because every business had to anoint a finance manager to get access to the system and input what their invoices are, what their trade outgoing balance is going to be as well as incoming balance, identifying each of the currencies. So we really, really required so much work from Honeywell personnel across the board. It included 1,500 users at the end of the day, which is enormous, and that represented about 500 business units/legal entities. Everybody would then report and then through BMG their own in-house proprietary system would just net out each of the different currencies.

Let me just forward two slides. Okay. Before netting, you can see each of the legal entities with the different currencies. If you’re looking at a [U.S. Dollar], that’s going to be a separate trade. A payable to an entity versus a receivable to an entity, if it can be netted out, it just streamlines it so much more.

The result that we ended up with was after this was implemented, we were able to reduce the number of wire transfers by 90%. That is just enormous -- per month 90%. So we’re looking at 2,500 wire transfers: Reduce that by 90%. You can imagine the cost savings associated with that just from the wire transfers alone. We estimate it to be roughly $700,000 annually, and from the foreign exchange trading side, we’re looking at a monthly volume of $800 million. That also was reduced significantly by 90%. Foreign exchange spread that the banks were settling with us over many, many regions, many different banks involved, is estimated out to be roughly $5 million annual savings.

We were not just looking at the savings, it really improved cash flow visibility for us because what we had done was on a calendar basis with the buy-ins of each of the businesses as well as each of the controllerships -- a calendar was placed out there for two years running so that everyone would know this is the date on a monthly basis that we’re going to settle the charges that all the businesses would need to report their payables and receivables.

So once everything gets netted on the settlement date, the cash visibility position for every single unit, every single country was dramatically improved because you really know at the end of the day, with the report generated from the bank, what is it that you have to make payments for as well as incoming receipts. It just provided a much better tool for cash visibility, and obviously we look at the enhanced process efficiencies, because this really allow for accurate cycles.

Everybody knew what they were supposed to do on each cycle, and you don’t have the inefficiency of people forgetting what needs to done, what needs to be reported, and it ends up being traded on a gross basis rather than a net basis. Obviously with the productivity gain, what we can see is really the savings that we can provide to the business units, and this goes right to their bottom line.

What makes this project so exciting is typically treasury is known as an expense center -- and sometimes process improvements alone without the dollar savings attached to it -- it doesn’t really win anything with the businesses, but by really showing them the reduction in the wire transfers, with their cooperation, of course, and also with what we can execute on the foreign exchange and then passing on the savings margins to the businesses, this really affects their bottom line. So it ends up being a win-win situation for everybody, the businesses as well as treasury.

I will open it up to questions later if anybody has any other questions to ask on this one. Thank you.

FOSSACECA: Thank you, Kim. So last but not least, we will hear from our Gold Award winner, Ronni Horrillo, the assistant treasurer for Google. Ronni has been with Google since 2003 and is credited with development of Google’s revolutionary transferable stock options program and 2009 option exchange program. She’s currently responsible for cash management and treasury operations, business risk management and equity programs.

Google’s evolution is truly amazing. The company had an office in a garage in 1998, went public in 2004, something that kept Ronni very busy, and today has revenues of nearly $24 billion. So my quote earlier about information doubling at Google is obviously a big part of this. With a growth story like that, it’s easy to see why Ronni and the treasury team at Google show up at conferences like this all the time. As a matter of fact, I believe that this is Google’s eighth award, and they’re also receiving two more. So it will be 10 by the end of this, and Google really defines precedent setting and best practice.

Ronni is going to tell us about yet another pioneering journey for Google into SEPA credit transfers and how they’ve enabled Google to standardize processes and to enhance efficiency in risk management around its euro denominated payments. So congratulations.

RONNI HORRILLO: Thank you. I echo the comments of my co-panelists. It’s really exciting to be here and to have our work recognized. I think that the 2008 crisis was interesting -- I’ll use interesting as my term -- in many respects, but I do think on the cash side it really has brought attention to what all of us do every day. You know, it’s easy to get caught up in the investments, in FX, but at the end of the day, cash is king. And that’s what we do, and so we really, really can drive value to our companies.

So Google -- everybody is probably familiar with Google. We’re a very interesting company in many aspects because are we a technology company? Are we a media company? What a lot of people don’t know is we’re actually a payment company as well. We process payments for hundreds of thousands of people around the world every month, and the key for us is really to provide a localized payment experience. So a Google customer could be a very large multinational in Germany who is running an ad campaign, but a Google customer can also be a very small business -- a person -- the flower shop on the corner who’s decided that they want to advertise through our AdWords product as well. So the challenge there is really to find a solution that serves both purposes, so that you’re able to work with those multinational companies but you’re also able to provide a very nice local payment experience for those individuals.

Fifty percent of our revenue is outside of the U.S., and so the challenge is in moving the cash around various countries. It has been challenging, but with so much of that growth coming outside of the U.S. it was becoming more and more challenging.

What we were looking to do -- when we were looking at our problem -- was really to maximize the standardization of a payment process, and efficiencies. But what we didn’t want to do is lose the local feel of the payments. We didn’t want to have to work with 500 banks and go into local countries. We wanted to try to find a very standardized process, and Single Euro Payments Area [SEPA] credit transfer for us was a great opportunity to be able to do that.

Now there are a lot of good things about working at Google. One of the good things, I would say, that we have on the treasury side is that because payments are so integral to our business, we actually become part of the business and we get to work with the engineers and the product managers and help them develop these types of solutions.

The other thing is we grew very quickly, very, very fast, and we didn’t have a lot of legacy systems that we had to look at replacing. So that really was a benefit for us because we did not have to go through a traditional cost/benefit analysis, bringing IT resources in, looking to replace processes that already existed. We were really able to say, ‘Let’s step back. Let’s find a best class solution, and let’s move forward and implement.’

So SEPA credit transfer is the solution that we chose, giving us the ability to make these local payments in the [European] Union countries. There were some challenges with this, though. We were an early adopter, and whenever you’re an early adopter that brings its own challenges, and the biggest challenge there, of course, is a lot of the local banks aren’t necessarily complying with the SEPA regulations. So we went through a very, very highly disciplined testing process. In fact, our implementation went longer than, I would say, anybody who is implementing today, but because we were moving so early and because the customer experience is so important to us, we really wanted to make sure that we were not going to run into any problems.

We also worked with counterparty banks in Europe. Given the market practices, again, it was a challenge– to work through some of those issues, but we did work with the banks, and if we were seeing particular banks that maybe weren’t accepting the SEPA credits or if we had particular banks [for which] customers would come back to us and say that they were having challenges getting their funds, we would actually reach out and work with those banks and working with our partner banks -- and we partnered with Citi on this -- working together to really try to drive that standardization across the region and I know losing float was not something that anybody wanted to do, but it is important that this product is in place. People should really see the benefit of it, and I will say things got better.

The first couple of months, we did have some challenges in some very specific countries, but we were able to work through those issues. The Citi solution also gave us the same value dating and payment fees for non-SEPA payments. So sometimes we did run into issues with the banks not taking the SEPA credits, and City was a great partner for us and helped us work through those issues.

So on the benefit side, right now, Google has 98% of our Euro vendor payments are SEPA credit transfer. We have one single credit file format that goes across Europe. We were able to leverage our SWIFTNet solution to be able to pass the files. We’ve minimized transaction costs and, I think more importantly, we were able to prove to the business that this was a very viable payment process. While we focused on the vendor payments first, we moved into a next tier of partner payments. We have gone through that process and have been very successful in leveraging this, being able to show those cost savings to the CFO as well as the business units. Now we are in the process of leveraging this solution for other payments.

 And so I think when we step back and we look at this, it was a very elegant way to solve what was a very challenging process for us in terms of bank accounts and wire transfers and local ACH and different file formats and making our IT people crazy, as we kept needing them to refine and change files. We are very pleased with it and looking forward to expanding our SEPA credit transfer reach. Thank you.

FOSSACECA: Thanks, Ronni, and to all the panelists. What we’re going to do is open it up for a question-and-answer period, about five minutes. I’m just going to kick off with the first question. I’ll open it up to the audience, so think about your questions and then we’ll, hopefully, get a good exchange. I’m going to start out with you, Kim, with the first question. Actually when you filled out the questionnaire, you wrote that treasury was seen as an enabler and didn’t have direct authority to make changes. So how did you work with the business units and controllers to make all this happen in such a complex project?

LEARY: For any of the treasury solutions that all of us go through, we don’t work through silos. There’s finance teams. There are tax teams. There’s everybody else that needs to be involved. Collectively, everybody worked together at Honeywell but, yes, the question really is how do you have somebody who can enforce that and who can really make sure that things get done when we’re requesting it.

Firstly, we had to work through the business finance units, and everyone has their own divisions with finance levels. Those are the folks who we always work with -- socialize the idea and get feedback. Once that’s done, we’ll go to each of the different controllers in each of the different countries, because we’ll need the manpower and, as presented earlier, we ended up having 1,500 people involved with the identification and the inputting of the different receivables and payables on a monthly basis. Ultimately it comes back to the CFO, who we all report to.

Once the numbers were in and there were actually true cost savings that c be identified, we were able to just reach out and call that a new treasury policy that’s going to be implemented globally. And that worked out very well because there has to be a carrot and a stick. Obviously for the new people who joined or the new entities that join us, this is now our treasury policy, which is rolled out during integration phase to say that this is one of the things you must do for treasury.

So it does require a lot of buy-ins from everybody for it to work. Luckily for us, within the year, year and a half that we’ve implemented this full steam, we’ve been able to make it so successful with all of the savings that we’ve been able to generate.

FOSSACECA: Thanks, Kim. Questions from the audience?

Q: Terms?

LEARY: Well, the terms haven’t changed because it’s intercompany. Internally, we do report on a monthly basis, but for the external world it really has to be on a quarterly basis. That’s what really gets audited by our auditors, PWC. So sometimes it’s settled, and sometimes it’s not. That’s part of the cash flow process improvement, the efficiency, because by putting this together, we’re forcing everybody, ‘You’ve got to settle on a monthly basis.’ Then when you deal with far-flung countries like Venezuela, well, guess what? With Venezuela and Italy, that might be settled in two years time. We all know that, it’s almost impossible. So this forces everybody on the same platform. We didn’t track the metrics, but we know those two-year outliers don’t exist anymore.

FOSSACECA: Other questions from the audience? I’ll ask one. Actually, I’ll move right down the line here. So I’ll go to you, Ronni. You know, often one of the greatest challenges in a project is getting technical resources assigned and up to speed to really make these things happen and they sometimes can even kill a project. How does Google handle this? I understand from talking to you and just reading through the information that Google has a unique approach to technical resources, and I thought it was very interesting.

HORRILLO: Yes, we do. It was about three years ago that we decided to launch on a large automation project, and it was pretty clear to us that we couldn’t leverage our local IT resources and that we needed to figure out either internally or externally an IT team who would be able to support only treasury. So with the support of our CIO, there is a dedicated treasury IT team, and that team is really considered part of treasury even though they don’t report up to the CFO. We bring them with us to events. In fact, I have a table full of them out there. They’re all here. We couldn’t do it without them, and we make sure that they participate in continuing education events as well, to really help them understand more and more of what we do. It builds a really good relationship, and it allows us to be much more productive when we’re doing project implementations.

FOSSACECA: That’s a great best practice. Actually, I ran into some of them in Europe at EuroFinance, so it was very interesting. Questions from the audience? I’ll move down one more, to Jeff. Jeff, can you just get into a little greater detail and describe the key points and processes you followed for developing and implementing the new station banking structure?

CARNICELLI: I think the key element -- once we selected the banks and the armored car service -- was creating implementation teams and having constant dialogue with each other so that as issues cropped up we could have them solved quickly, so that we don’t encounter them going forward.

In fact, we also developed additional controls. At our request, the banks provided us with reports where we receive on a daily basis -- even today, after we’ve been implemented over a year -- where it shows how much cash has been deposited at each station, if there were any discrepancies with the deposit and any change orders issued. And that information is distributed to the station personnel themselves and to the station managers.

Armored car were very flexible to work with us to adjust schedules. Again, I had mentioned there are some stations where when a train arrives, they’re on demand. The agent’s focus is to work with the passengers coming off the train – [we had] to make sure the armored car service isn’t there. So we rescheduled some of their pickup times so that we were able to have the deposit ready and give it to them when they showed up. But really I think [it was] communication and working with the team that we put together internally and the banks and the armored car service we selected. Everybody worked great together, and I think that was really key for the success of the project.

FOSSACECA: Thanks, Jeff. Any questions from the audience? Everybody is shy. We have time for one more. Do we want to, or should we wrap it up? We’re good. Okay. I just want to thank you all. Again, you should be very proud of the awards. Great, great work, and we really appreciate it, so thank you.

DUGGAN: Thank you, Mike. Thanks Michael from Citi, and congratulations to Jeff and Kim and Ronni for your awards. Congratulations to you.

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