Last spring, after more than 18 months of work, Hewlett-Packard became one of the first nonfinancial companies to use Continuous Linked Settlement (CLS), a centralized, multicurrency settlement infrastructure built to help banks simplify their vast Web of foreign exchange settlements. HP is also the only corporate to have implemented CLS on a fully automated basis. "It has been an exciting project because it is very innovative," says Celia Chu, a vice president in HP's treasury. "Becoming the first corporate to have this capability has been a real challenge, but it has significantly reduced our settlement risk."

HP uses a monthly netting process to settle incoming and outgoing payments internally across the company. The netting process reduces the number of transactions, but exposes HP to a significant settlement risk on associated foreign exchange transactions and drives a high level of daylight overdraft facilities requirement. The 2002 merger with Compaq almost doubled HP's settlement risk and its daylight overdraft facilities requirement. By 2003, the treasury team decided that it had to find a more efficient way. "Switching to CLS was really a result of [our search] for innovative solutions," says Chu.

CLS enables the simultaneous settlement of payments between any two counterparties that use the process. Deciding to make the change wasn't difficult, she says–the company forecasted and achieved a reduction of over 50% in both settlement risk and the daylight overdraft facilities requirement. But getting CLS implemented wasn't a simple matter. To achieve a fully automated process, HP worked closely with its CLS bank Citibank, treasury workstation provider Wall Street Systems and software provider Misys. "It was a challenging project," says Chu, "but it has made a definite contribution to our bottom line through efficiency savings in cost and headcount."

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