Corporates focus on cash flow

Corporate treasurers are finding that funding remains expensive and hard to obtain, despite recent stirrings of activity in the capital markets. A panel of treasurers at a Finance & Treasury Association conference in Sydney agreed that their best option in the medium term was to manage their cash flow better.

Treasurers talked about how they reduced the cost of working capital; reduced their debt load by harvesting idle cash; building better cash flow forecasting systems and rationalising banking relationships

Caltex Australia assistant treasurer Jonathon Hirst said there were encouraging signs in the corporate debt and securitisation markets, but for companies needing to refinance or find new debt capital the situation was still volatile and uncertain.

Hirst said: "Most of our funding needs are supported by banks. Bank debt costs will remain elevated for some time.

"Faced with that situation we set about reviewing our approach to managing working capital and reviewed our cash management."

Caltex went through the usual steps of slowing payments to suppliers, speeding up the collection of debts, reducing inventory and making an earlier start on refinancing proposals.

[ ]

Leighton Holdings group treasury manager Nick Osler set out to reduce the number of bank accounts the group operated. "Leighton is a project-based company that is involved in a lot of joint ventures. We also make a lot of acquisitions, which brings legacy systems.

"While 90 per cent of cash flow goes through four pooled accounts, we had accounts that were set up as part of joint ventures and alliances and others that were part of businesses we acquired. Some accounts were there to meet the needs of state-based structures.

"We have a project to bring that down to 50 and we have an Oracle project that will allow us to operate an internal bank account structure."

Treasurers had different views about whether it made sense to centralise with one transaction account provider or manage risk by having several banks.

ANZ global head of payments and cash management, Nigel Dobson, said that before 2008 there was a trend to consolidate transaction services with one provider but since the financial crisis that was no longer considered best practice. He said ANZ's experience in Asia was that companies were working with four or five banks.

Caltex's Hirst said companies with regional operations might need to manage risk by having diversified banking relationships but there was no reason why companies operating in Australia should not give their transaction banking to one provider. It would save them money.