Accessing Capital and Managing Liquidity Abroad

For midmarket businesses, charting the right course for treasury is key to successful expansion overseas.

If we needed any more proof that a successful business today is a global business, consider a recent Bank of America Merrill Lynch survey of U.S.-based middle market companies. In the 2013 CFO Outlook Midyear Update, more than three out of four executives said their companies are doing business internationally. That figure is even more incredible when you consider that 18 months earlier it was only 54 percent. Clearly, international markets have been important to these companies’ revenue growth during the economic recovery. And the number of midmarket firms looking to grow globally may continue to climb, as many of the business conditions necessary for expansion—such as access to low-cost credit—remain stronger than they have been in years past.

At the same time, the risks inherent in doing business overseas remain significant. It is vital for a company’s leaders to decide on a cohesive corporate strategy before entering international markets. By taking into account all of the risks and opportunities that overseas expansion might entail, an organization can reduce its borrowing costs, optimize its working capital and liquidity structure, and facilitate investment activity—all while navigating local clearing systems and currencies.

A multinational company that is trying to determine the best way to structure financing around the world needs to start by analyzing the strategic priorities for its overseas ventures. It should quantify the amount of capital it needs to fund each priority and rank them in order of importance. These strategic priorities should include funding day-to-day operations, funding growth and strategic investments, and optimizing working capital liquidity. Gaining operating efficiencies, protecting margins, and managing volatility and financial risk are also priorities for most businesses. Because every company and every country is different, taking the time to articulate corporate priorities before moving into a new market will help an organization make optimal decisions with regard to its banking needs.


Consider a U.S.-based business that wants to expand overseas by acquiring a company in the United Kingdom. The parties would set the acquisition price in British pounds, so a hedging strategy that maximized flexibility while minimizing obligation would be vital to the acquiring organization. For some pre- and post-acquisition expenditures, paying in the local currency and then hedging to mitigate foreign exchange (FX) risks would be critical, especially to offset the cost of unique, sometimes expensive, goods and services such as legal fees, advisers’ fees, and travel expenses for executives. In other cases, the acquiring company would want to use an integrated multi-payment channel to execute FX transactions, especially if the acquired company receives payments in British pounds via numerous small transactions.102213_Robbins_PQ3

Having one channel that can process different denominations allows for greater control and centralization of the treasury function. This can help lower costs by consolidating activities with a single group of personnel. And by using one set of internal protocols to manage the currency, including the FX transactions, business leaders can achieve greater visibility into day-to-day management of the company. They can also more quickly identify issues to address and favorable opportunities to exploit.

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