Organisation leaders need to keep an eye out for cash management and treasury management for the optimisation of their financial resources and effective management of financial risks. Proper implementation of such measures can go a long way both in the company’s short-term and long-term goals.
As mentioned, one key area in treasury management is cash management as this focuses on the short-term goal of ensuring that an organisation has enough cash on hand for its obligations.
RGE, a Singapore-headquartered group of resource-based manufacturing companies with global operations, detailed how the treasury and cash management functions are being performed within the group to maximise resources and address issues gearing towards excellence in such areas.
RGE’s Treasury and Cash Management
RGE’s businesses produce sustainable natural fibres, edible oils, green packaging and clean natural gas spanning Indonesia, China, Brazil, Canada and Spain. Based in Singapore and Hong Kong, the company’s Group Treasury department centrally manages RGE’s cash, forex, financial risks, banking relationships, funding, and trade finance functions.
They are supported by other treasury centres in Jakarta, Guangzhou, Beijing, and Sao Paulo where RGE’s Cash Managers are located. The Treasury Managers, who report directly to the Group Treasurer and the Treasury Committee, perform cash management functions.
Challenges to Work On
In the course of driving excellence in treasury and cash management, the company identified two main challenges: liquidity and operation risks.
"Considering that RGE has substantial operations in China, the flexibility of cash deployment to and from the country, along with overseas cross-border funding is crucial to boost liquidity," said Patrick Ng, group treasurer, RGE Group.
In response to these challenges, RGE devised two projects: Cash Pooling and SWIFTNet.
Cash Pooling
In 2019, SAFE announced Notice No. 7 (2019), allowing international companies to centralise cross-border funding management. RGE set up cross-border cash pooling in 2021, involving dozens of companies in China and overseas, with quotas for foreign inflow and outflow in Renminbi or US Dollars.
RGE needed to select the right banks suitable for the companies covered to maximise the benefits of the project and sort out conflicts in operations against other existing cash pooling mechanisms promulgated by the People’s Bank of China and the Shanghai Free-Trade Zone.
Meanwhile, on operational aspects, communication sessions were conducted with finance personnel to ensure that all parties have a good understanding of the project.
SWIFTNet
RGE launched the SWIFTNet for Corporates, aimed at reducing operation risk and improving efficiency by allowing the finance team to communicate with banks through a highly secured single channel called SWIFT for payment execution.
This has been challenging as the group had to convince banks to participate when not all banks have their workflow ready and are willing to cater for corporate payments via SWIFTNet. However, following various discussions, most of RGE’s banks with high payment volumes were willing to participate.
RGE also selected a solution with intermediary service provider Bottomline Technologies Pte. Ltd. that provides IT infrastructure support and connection services to put investment costs under control and speed up SWIFTNet’s implementation.
In addition, a comprehensive SOP was designed to monitor the channel’s workflow and controls, with coordination with other involved functions such as IT, legal, and treasury. An authorisation matrix and internal control system to administer bank-authorised signers, including hundreds of bank accounts and companies were established and managed by the team.
Meetings were organised with the finance teams of different business units to explain the benefits of the SWIFTNet payment system in comparison to existing default practices. During the implementation stage, RGE Hong Kong served as the global coordinator and acted as the help desk to assist with any queries after the live run.
Positive Feedback
SWIFTNet users have provided positive feedback and are urging for the system’s expansion. Considering this, RGE is planning to further extend the project to cover more business units.
With the implementation of SWIFTNet, RGE was able to reduce/eliminate the following risks:
- Forgery risk on payment authorization
- Non-execution of payment risk due to failure/delay of paper delivery
- Human error risk. As part of the system design, payment details are directly interfaced from the ERP system (i.e., SAP) into the SWIFT payment platform so that input errors can be eliminated.
On top of these, high data security was delivered as they experienced no case of SWIFT messages lost in transit. The project achieved continuity of payment processing during the COVID-19 lockdown and social unrest which required offsite/WFH arrangement.
The SWIFTNet initiative also introduced environment-friendly practices with paperless transactions.
Future Plans
According to Ng, RGE is looking at targeted liquidity improvements and interest cost savings to significantly increase in 2023.
"The group seeks to increase the number of participating companies for its cash pooling to boost liquidity benefits. It also aims to increase the Renminbi-granted overseas loan outflow quota in the same time frame, with the loan inflow quotas to increase in proportion as more companies join the scheme," he continued.
RGE also aims to conduct a feasibility study on SAFE’s advanced version of cross-border cash pooling and will upgrade it accordingly.
Further, the cash pooling scheme in China enabled RGE to proceed with CNY LPR hedging and USD IRS hedging onshore, along with trade and overdraft facilities.
As for SWIFTNet, the company is planning to expand the project to business groups beyond its APRIL and Asia Symbol business units. The jurisdiction for the system is also planned to be expanded to more from the existing ones in Hong Kong and Singapore. SWIFT payment coverage is targeted to increase significantly.
RGE is also exploring MT940, a SWIFT message showing bank movements and balances that can potentially improve security and flexibility for the authorisation matrix. A software program is poised to be launched to boost control of the authorisation limits and signing arrangements.
* Editor’s note: RGE is the winner of the FutureCFO Excellence Awards 2023 in the category of Excellence in Treasury and Cash Management.
* Editor's note: FutureCFO is inviting submissions to the annual FutureCFO 2024 Excellence Awards. Click here for more information.
