Currency-Differentiated Liquidity Planning – Best Practice

A reliable forecast is a good basis for decision-making. Since securing liquidity is an important element of the finance process, it makes sense to implement a robust and efficient methodology to predict financing needs. Weaknesses in the process arise when gaps or errors in the collection of the data lead to expensive planning errors and, in extreme cases, even bankruptcy. If you create your overviews in a (complex) spreadsheet, subsidiaries usually report their financing needs by e-mail or they collaborate with you via a shared spreadsheet, allowing you to determine a ‘financial status’ once a week. Since many companies are financed with external funding, liquidity is often tight. To prevent unnecessary liquidity bottlenecks due to the interest associated with borrowing, tailor-made planning makes sense.

In addition to cash optimization, there are many other aspects that speak in favour of professional liquidity and financial planning:

  • Avoidance of errors and double entry

    An integrated Treasury Management System (TMS) is used to map all payment flows in the company correctly based on the value date. "Integrated" means that all cash flows from the financial transactions managed in the TMS are automatically available in the planning without having to be re-entered. This applies to one-off guarantee commissions as well as to all interest, redemptions and fee payments related to loans. Trinity also offers modules for managing financial transactions (internal and external financing and investments, interest rate derivatives, currency hedging, guarantees and letters of credit) as well as for mapping cash pools and multilateral netting of internal receivables and liabilities.


  • More complete database and time savings

    You already get a better overview by concentrating the financial cash flows in one system. Further planning data can be regularly and automatically imported from various sources via interfaces (web services), e.g. from accounting or purchasing.


  • Decentralized use and simple consolidation

    Foreign subsidiaries can also use a web-based TMS such as Trinity for their defined area, e.g. to carry out their own planning or to manage financial transactions.


  • Inclusion of intercompany planning

    Receivables / payables can be recorded by one party (or also imported automatically) and then automatically mirrored by the TMS to the other party.This way, differences in consolidation and double entries with the risk of errors are effectively avoided. Before the consolidation, completion reports can be used to ensure that all parties involved have entered their data in the system for the most current and complete status possible.


  • Inexpensive internal financing

    If the companies see a financing requirement, they can apply for this directly in the TMS via an intercompany credit request by specifying the amount, term and currency, and all the resulting cash flows are directly in the planning of the lenders and borrowers. This in-house bank function eliminates the need for e-mails, calls and multiple entries, saving valuable working time and potential errors.


  • Audit security and improved rating

    Thanks to the orderly workflow and the automatic recording of data entries, changes and approval steps (audit trail) by the TMS, it is always clear who has added which information and when. This unambiguous revision security helps with troubleshooting and also makes a good impression on auditors as well as on lenders and investors.


  • Conversion of foreign currencies at the push of a button

    Foreign companies can plan in their currency. By regularly importing exchange rates, the views can be quickly switched to another currency. The conversion into the group currency at the holding level takes place automatically in the multi-currency planning.


  • Basis of exposure management

    The currency-differentiated view on a daily, weekly, monthly or quarterly basis allows the foreign currency hedging to be monitored in accordance with Group guidelines. Expensive over-hedging or risky under-hedging compared to the specified hedge ratio can be quickly identified and remedied. Accordingly, a TMS offers modules for mapping and evaluating currency hedging transactions. The cash flows are automatically reflected in the planning.


  • Security and independence

    In order to have a complete basis for decision-making, it is important that everyone involved enjoys working together. Therefore, the currency-differentiated liquidity planning should be intuitive and as easy to use as the previous spreadsheet, but offer significantly more functions, automatisms and security. In addition to revision security and error avoidance, the independence from individuals also plays a role in this context, who, for example, have set up planning in MS EXCEL over years with a lot of work that only they themselves can see through.


  • Continuous improvement of the forecast quality

    Regular target / actual deviation analyzes can quickly identify and deal with the causes of incorrect planning. Simulation functions with various assumptions about exchange rate and interest rate developments, sales or commodity price fluctuations allow worst / best case scenario considerations and help to rule out unpleasant surprises.


  • Starting point for new technologies - Improvement of the forecast quality

    "Predictive Analytics" breaks down existing data more precisely for derived forecasts, artificial intelligence is supposed to recognize patterns that lead to better predictions of the currency-differentiated company liquidity. Under certain conditions, both processes can improve quality. The most important requirement is the correctness and completeness of the database. System shocks, such as the Covid-19 pandemic, make the laboriously collected data worthless in many industries, as the purchasing and sales side has changed completely.


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