If there were one type of company that you would expect to be on top of global cash management, it would be a company like Chiquita Brands International Inc. Although located in Cincinnati, the fruit producer and supplier has operations worldwide, from farms in Latin America to distribution centers in Asia. Daily, its treasury operations deal in dozens of currencies. But if you ask assistant treasurer Lynn P. Younger, she will tell you that even Chiquita’s globalization efforts are a work in progress. While the number of its corporate overseas bank accounts has been slashed in half over the last couple of years, it still stands at around 380, well short of its target of 100 to 150 accounts by the end of 2004. “We’re making a big push to centralize things and reduce our huge number of legal entities,” she says. Why? Because Chiquita’s cash, sitting around the world in a variety of accounts, could be better used elsewhere.

It is not an uncommon tale even among the biggest multinational corporations. Although standardize, centralize and globalize have been the mantra for cash management for the past decade, most efforts to date have been essentially treasury tinkering, the bottom-up inspirations of lean treasury staffs looking to gain productivity and take advantage of new communications technology and banking services.

A Directive from Upstairs

Today, in the wake of accounting scandals at WorldCom Inc. and Enron Corp., the impetus, urgency and, to some extent, objectives have all taken on a distinctly new flavor. Cash management globalization has now become a top-down directive from CFOs–and even CEOs–who want their companies to be able to mobilize liquidity, bolster their reputations and access to capital markets and prepare for rapid response to crises wherever in the world they may occur. “People at the highest levels now want to be able to go into their financial system and see at a glance the current corporate cash position worldwide,” says Elizabeth St. Onge, manager of global client development for Vancouver, British Columbia-based Selkirk Financial Technologies Inc. “They want to be able to react quickly to threats and opportunities. And they don’t want to be surprised by being caught short. Everyone is talking about enterprise cash management.”

While talk is often cheap, this time senior executives suspect that inaction might turn out to be quite expensive. Cash management consolidation is not just about saving a buck on administrative costs and transactional fees anymore. Having prompt access to up-to-date, in-depth knowledge of all enterprise cash throughout the globe is seen today as vital for the survival of both an enterprise and its senior managers. “After Enron, people are nervous. CFOs, CEOs and even boards are paying more attention to details and signing off on what is done,” says Susan H. Griffiths, principal of Global Cash Management Ltd. in Lake Forest, Ill. “Andy Fastow resonates.”

Translation: While everyone always knew global cash management made sense, no one felt the need to proceed with any haste. That seems to be changing.

Pressure for action is also being applied by the investment community, which is attuned these days to how flush companies are. CEOs and CFOs, searching for ways to boost their companies’ stock prices, realize one pivotal element could be the ability to accurately present their corporation’s cash position and potential. “There’s a lot of emphasis now on cash flow, cash forecasts and secure funding for the future–and on making sure analysts appreciate what you have done,” observes Martin Boyd, executive vice president for strategy and enterprise treasury at SunGard Treasury Systems in Calabasas, Calif. “Executives want to be able to see the current consolidated cash position of the enterprise and then drill down to see specific sources of exposure and risk and be able to take appropriate action quickly at the local level,” he reports.

The first step to accomplish this is to push for even greater centralization. In fact, you might say that getting control over global liquidity has become the Holy Grail for most multinationals. “It’s less acceptable now to have idle cash sitting around in subsidiary bank accounts,” notes Nick Diamond, senior vice president in Bank of America’s global treasury services unit, responsible for service to U.S. multinationals operating in Europe. Instead, concentration accounts or notional pooling can be deployed to put that cash to work, reducing borrowings whenever possible.

But claiming cash as an asset that belongs to the enterprise rather than operating subsidiaries in various countries has to be done very carefully since it involves stripping local managers of their control. “What’s seen as best for the enterprise is not necessarily seen as best for the local operation,” explains Diamond. In fact, until recently, subsidiaries of many multinational corporations considered cash generated by their own operations to be their property. “They’d only report the cash they wanted corporate to know about,” Selkirk’s St. Onge says.

Achieving the Results

To achieve global liquidity management, Diamond says financial executives are doing three things:

o They’re building global liquidity pyramids in which a computed net cash position is consolidated at the national level, then at a broad regional level and finally at the enterprise level.

o They’re leveraging the capacity of their ERP systems and treasury workstations to get more complete and timely reports of cash balances everywhere in the world.

o They’re reducing the number of bank players they must coordinate to get results.

One example of aggressive management can be seen at Halliburton Co., the Houston-based oil services supplier. Wherever cash can be legally pooled, Halliburton pools it, leaving Edward Eichelberger, manager of cash operations, with about 25 pools to safeguard. Money flows into the pools, which are either true concentration accounts or notional pools, from about 400 accounts. When banking regulations don’t permit pooling, local affiliates still manage their own cash, Eichelberger says.

To channel all the balance reports into one stream, Halliburton uses Citibank’s InfoPool. “We avoid dealing with multiple bank platforms, but a few of the bank reports have a one-day lag, so it’s not perfect,” Eichelberger says. Althought Halliburton does a lot of business in the troubled Middle East. Eichelberger doesn’t worry about cash management disruptions. “Even an invasion of Iraq won’t disrupt the operation of our cash pools,” he says.

At FMC Technologies Inc., a $2 billion Chicago-based machinery engineering company, Joe Meyer, the director of treasury operations, dedicated himself two years ago to overhauling his company’s overseas cash management. Back then, funds were moved out of a Brussels coordination center by three high-paid treasury professionals. Each funds movement had to be crafted as a discrete transaction. It was clumsy and expensive, recalls Meyer.

Today, a shrewd pyramid of linked bank accounts in the London office of Bank of America has been designed to make it happen automatically and efficiently for many of FMC’s operations in Europe. Inevitably, because of timing issues, a little cash sits in local disbursing accounts, but most cash is swept to London and then transferred back when it is needed to fund disbursements, he explains.

FMC books the transfers as inter-company loans and avoids notional pooling because that arrangement presents the fewest hassles and the greatest savings, Meyer explains. By using a Dutch company as the effective in-house bank, FMC avoids taxes in most cases; Meyer says Holland has tax treaties with all the other countries except Canada, where FMC operations pool cash in London. Notional pooling would require cross-guarantees that are troublesome and legally questionable, he adds.

It has become common to put in place a European banking overlay to orchestrate cash management for that continent, BofA’s Diamond notes. All cash from European operations is swept daily out of local zero-balance accounts into one or more accounts at a single bank where it is managed, often under an outsourcing arrangement with the bank, as an in-house bank that funds affiliates daily as needed, charging them interest and giving them credit for surplus cash. This practice is spreading to Asia and beginning to catch on in Latin America, where obstacles are greater, he adds. The next challenge will be moving from a regional to a truly global solution, he observes.

After years of working to streamline payables, attention has shifted to receivables. Companies are trying to get cash in more quickly and cut days sales outstanding (DSO), says Richard Martin, head of cash and payments business management at ABN AMRO Bank. To that end, U.S.-style lockboxes are being introduced in countries where checks are used frequently, he notes.

Ideally, corporates would like complete visibility of cash worldwide, which means all banks reporting balances through a single channel. The technical tools for doing this–notably a Swift MT 940 electronic message format–are improving, and the number of banks that can’t report this kind of snapshot are shrinking. The second wish–to move cash across borders to where it will be most productive–is harder to do. A Swift MT 101 can be used to move money from bank to bank across borders but only among banks that have executed bilateral agreements. “If all of your banks have ‘bilats,’ you have a mechanism for sweeping your cash to a concentration account,” says Michele Allman-Ward, managing partner of Allman-Ward Associates in Los Angeles.

However, local laws and banking regulations as well as tax consequences limit the practical ability to move money to where it can most efficiently be used. Here are the three major obstacles:

o Regulations that still prevent the free movement of money across political borders.

o The complexity of managing cash in multiple currencies and time zones.

o Foot-dragging, if not sabotage, on the part of international subsidiaries that want to hang on to local control of cash.

The good news: Even these roadblocks are gradually being demolished. Although some countries still have regulations against repatriation or even pooling, the trend is toward removing such rules and letting money move freely across borders, says Michael Fossaceca, senior vice president for large corporate sales at J.P. Morgan Treasury Services.

International banks, of course, have been eager to parlay the new emphasis on global liquidity management into new sales. A project organized by the European Bankers Association to upgrade Target, the current electronic funds transfer network of the European Union, to something closer to a pan-Europe ACH, is proceeding, Martin reports. Such a system would make cross-border transfers easier and cheaper, he notes.

What’s more, the unpopular cross-border “lifting fees” some banks charge on funds transfers should soon be a fading memory in EU countries once a low-cost electronic transfer system is up and running, Allman-Ward reports. Responding to corporate outrage over the persistence of the fees, the EU has mandated a low-cost ACH-like system by July. The mandate covers only transfers under 50,000 euro, so it remains to be seen whether banks will still levy these fees on large treasury transfers, but corporate ire already has caused banks to cut the fees, she reports.

Legal barriers (primarily over cross-guarantees and potential bankruptcy) continue to block effective cross-border notional pooling (accounting offsets without actual funds transfers). But global banks in euro countries physically transfer balances to one center, often in the U.K. or the Netherlands, and then apply a notional pooling overlay so that credit balances can offset overdraft balances without creating tax snags, ABN AMRO’s Martin explains.

One thing has not changed: the inevitability of taxes. International cash management continues to be driven by tax strategists, not treasury strategists. The ability to move cash across borders to where it is most valuable exceeds the desire of most corporations to avoid tax consequences. Still, Global Cash Management’s Griffiths says, Uncle Sam loses: Rather than repatriate cash to the U.S., most companies keep pools offshore to reduce U.S. taxes.

For years, online foreign exchange trading was supposed to be the hottest thing since sliced bread. But so far–judging by the volume various platforms have been able to attract–no one seems that hungry. Analysts estimate that less than 15% of corporate FX trading currently takes place online.

Is all that about to change? Based on recent developments and trends, one can make the case that now more than ever online FX trading makes sense–and not only for the biggest multinational corporations.

One reason: Online FX trading has matured enough to provide treasuries sufficient choice and stability to take the plunge. The key news here was the demise of multi-bank platform Atriax last April and the entry of FX trading behemoth State Street in November. Analysts suspect corporations were waiting to see which platforms would survive before signing on, and the sense in the marketplace now is that the weakest player has been eliminated and an 800-pound gorilla, State Street, has entered the fray.

State Street’s FX Connect is reckoned to see more trading than any other platform, but until now, the bank has marketed it only to institutional investors. In November, State Street teamed up with SunGard Treasury Systems Inc. to make its platform available to SunGard customers, who will be able to trade FX from special pages on their treasury workstations.

Finally, straight-through processing (STP) has arrived. And the State Street product is not the only one with STP.

It was a long time in coming, but the deals the FX platforms are striking with treasury systems providers promise corporations the STP that treasurers have sought in vain and analysts have always considered the real impetus for online trading. In addition to the State Street/SunGard alliance, the other two foreign exchange trading platforms catering to corporates, FXall and Currenex, have both announced connectivity arrangements with an array of treasury systems providers.

With straight-through processing, corporations can finally realize the “tangible benefits” of online FX trading, like the “cost savings from the reduction in errors” possible when the details of a transaction are keyed in just one time, rather than multiple times, says Tim Sangston, an analyst at Greenwich Associates.

Meanwhile, analysts report a renewed interest in single-bank trading platforms, like those offered by Wells Fargo and UBS Warburg, and more investments by the banks in those platforms.

“The reports about the death of the single-bank platforms were a bit premature,” says Sangston. Many banks, he adds, are putting money into “developing more functionality and value-added” on their proprietary trading sites.

Analysts contend that the single-bank platforms are an attractive alternative for corporations that aren’t required to get or don’t need multiple quotes for forex trades and thus aren’t as interested in the multi-bank platforms. On the single-bank platforms, “there’s data, there’s monitoring and audit capabilities, there’s connectivity with cash management solutions, there’s just a wider array of things that you can do that add value to that online FX capability,” says Fritz McCormick, a senior analyst at Celent Communications.

Given the current demand for real-time cash flow and visibility, McCormick argues that online FX becomes a much more attractive proposition when it is “part and parcel of an overall service.” Analysts say that while the single-bank platforms are likely to appeal more to companies that do less FX trading, it’s also possible that larger corporations could split their trades between the multi-bank and single-bank platforms.

With straight-through processing a reality and single-bank platforms providing advantages of their own, corporations may finally be ready for the switch to online FX trading. Robert Iati, an analyst at Tower Group, says that although the adoption of online FX trading hasn’t happened as quickly as expected initially, that should all change over the next several years. Iati predicts that as much as 25% of corporate FX trading could migrate online next year and up to 75% within three or four years. –Susan Kelly