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INTERNATIONAL CASH MANAGEMENT

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International cash management: International treasury

I recommend you to separate the money movements of your foreign activity in a separate bank account in order to be able to analyse separately the profitability, economic viability of your foreign business and to quantify how much financial resources it consumes. Subsequently, you must integrate your accounts abroad with those you have in your country with a centralised management.

Optimal treasury management may recommend the opening of centralised accounts in the countries to which exports are made. 

These centraliser accounts allow:

  • Reduce the costs associated with collections, by reducing the volume of incoming transfers and speeding up their receipt. 
  • More efficient cash management through more effective control of collections and available balances.
  • Convert the buyer's international payments into domestic payments. 

In order to extract maximum efficiency from the centralised account, it is essential to have timely, complete and online information on both the status and the movements in the account, and this is provided by any bank.

In addition, it is essential to be able to give instructions in a convenient, agile and efficient manner to dispose of foreign accounts in the same way as domestic accounts are disposed of. To address both needs SWIFT has standard messaging specifically designed to meet both the demand for information (MT94X) and remote instruction (MT101 and MT103+).

If your company receives frequent incoming payments from a particular country, opening a centralised account with a bank in that country can be very useful for you and your customers. To analyse the economic feasibility of your internationalisation and estimate how much money you need, we recommend that you apply these tips in each country 👉 here (+).

International cash pooling

Cash pooling is a cash management technique that seeks to manage the cash positions of several accounts as if they were a single account, offsetting debit positions with credit positions (and, if applicable, availability limits). 

Optimal pooling works best when the different accounts in the pool are located in the same bank, are denominated in the same currency, are held by the same account holder and are located in the same legal and tax environment. In the case of international pooling, some (or all) of these conditions are not met, thus increasing the inefficiencies of pooling. However, international pooling, is a composite and variable service.

In other words, the joint management of cash positions can be carried out in different ways, using different products or services and with varying degrees of intensity. Thus, the information needed to make a decision is obtained by means of SWIFT messages (which serve as an international standard).

The main ones are the MT940, which is the daily SWIFT statement, and the MT942, which is an intraday statement. These SWIFT messages provide timely and complete information on the status and movements of accounts held at any bank in the world. 

As for the tools for operating these accounts, SWIFT messaging again serves as the international standard. Thus, the instructions for drawing down the account are transmitted to the bank with which the account is domiciled by means of the SWIFT MT101 message. From the point of view of the bank's position in the cash pooling structure, we can distinguish between the role of treasurer bank and the role of participant bank.

In the case of a treasury bank, the bank's customer controls the pool; in the case of a participating bank, the customer is usually a subsidiary with treasury managed from the parent.

PRACTICAL EXAMPLE OF INTERNATIONAL CASH MANAGEMENT:

Let us imagine that a company has a significant export activity in several Latin American countries and receives payments from customers in different currencies such as the US dollar, the euro and the Mexican peso. The company can use an international cash pooling strategy to optimise its cash management.

The company opens accounts with the relevant banks in each country and denominates each in its local currency. It then centralises all accounts with a main bank in Europe, which gives it a global overview of its cash position.

The company uses a treasury management tool that allows it to monitor the balance and movements of each account in real time. It can also give instructions remotely and swiftly to dispose of accounts located abroad in the same way as it disposes of accounts in the country.

In this way, the company can optimise its treasury management, reduce costs and risks, and improve efficiency in its international operations. You can also minimise exposure to foreign exchange risk by converting international payments into domestic payments, which allows you to obtain the most favourable exchange rate and save costs on foreign exchange transactions.

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