Cash Management

Cash Management
Marco Ligonzo
Indice
Why Cash Management?
Definition, Purpose and Potential Customers
Benefits for Customers
Types and Methods of Cash Management
In-depth Analysis: Cash Pooling
Cash Management Methods: Sum Up
Cash Management in the UBI Group
SCORE - Standardised Corporate Environment
Agreement between banks – requirements to exchange MT101
Bilateral Agreement and Designation Account Sheet
Examples:
 Passive Cash Management at the customer’s initiative
 Active Cash Management at the customer’s initiative
 Active automated Cash Pooling
2
Why Cash Management?
Companies operate in a market environment where the management of liquidity and financial
requirements is a critical success factor for maintaining profitability and, sometimes, for the very survival of
the company.
In recent years, companies have found themselves having to operate in markets that are characterised by
the following features:
Lack of market liquidity
Difficulty in accessing credit
Excessive costs of loans
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Purpose
What is it?
Definition, Purpose and Potential Customers
Cash Management is the set of services, ancillary to the current account, which support the systematic activities of
liquidity management by a business Group (or individual company with a number of accounts).
The Cash Pooling service is essential for this purpose; this consists of centralising to a single legal entity the management
of cash availability of a corporate group with the aim of simplifying the management of corporate cash in relation to
relationships existing between all companies belonging to the group and the credit institutions.
Cash Management services target corporate Groups (or individual companies) with a number of accounts at one or more
Banks, in Italy and abroad, that need to:
manage their accounts remotely
concentrate cash flows into a single account to optimise their daily cash position
Cash Management enables companies to measure and more easily manage the cash required to fulfil its commitments
through:
i.accounts reporting services: receive information relating to balances and account movements
ii.order services: send payment orders
Potential
Customers
* Accounts reporting and order services can be used to perform cash pooling
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By way of example, some types of customers that may be interested in these products are:
Groups strongly focused upon foreign markets (which are therefore highly likely to have account relationships
with foreign banks)
Corporate groups with foreign subsidiaries
Multinationals
Italian and foreign companies with a permanent establishment (i.e. branches, representative offices) abroad
or in Italy
Corporate groups, even medium-sized, characterised by strong delocalisation
Companies using multiple banks
Companies with a number of accounts at the Group Banks
Benefits for Customers
Availability of a single tool for receiving prompt
information and sending payment orders on current
accounts held with Italian and foreign banks
account 1
account 2
Full control of cash liquidity at central level
account 3
Optimisation of financial management
Possibility of covering deficit situations without having
to use a bank loan with consequent reduction in costs
Improvement in efficiency of the administrative
structure of the Group and Control of the assets of
decentralised organisational units
account 2
account 3
Account 1
Reduction of costs and risks and increased efficiency
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Types and Methods of Cash Management (1/3)
With reference to the role of the UBI Group Bank, Cash Management can be classified as follows:
The customer decides to use a third party bank as manager of its Cash Management.
The customer decides to open any so-called master account (“centralised” cash
account) at the third party bank.
PASSIVE
Cash Management
ACTIVE
Cash Management
The UBI Group bank (passive Bank) provides the third party bank with information
relating to the current account held with it. The third party bank makes that
information visible to the customer which can consequently send outgoing payment
orders to the current accounts held at UBI.
The customer decides to use a UBI Group bank as manager of its Cash Management.
The customer decides to open any so-called master account at a UBI Group bank
(active Bank).
The customer arranges for information relating to the current accounts held at other
banks to be sent to the UBI Group bank.
UBI makes that information visible to the customer which can consequently send
outgoing payment orders from the current accounts held at the UBI Group bank to
other banks
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Types and Methods of Cash Management (2/3)
With reference to the initiator of the orders Cash Management can be classified as follows:
Cash Management
Customer’s Initiative
The customer manually sends both requests for information and payment orders
in relation to its changing needs
Automated
Cash Management
The customer contractually establishes all the rules that regulate the service of
requests for information and sending of payment orders. The bank automatically
performs the orders, complying with pre-established rules.
With regard to the time of implementation of the requests for information, Cash Management can be classified as
follows:
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Cash Management
End of Day
The accounts reporting service of balances and movements is completed at the
end of the day via exchange of MT 940 messages.
Cash Management
Intraday
The service of reporting on balances (MT 941) and movements (MT942) is
performed at pre-established times during the course of the day via exchange of
messages. This service follows the request for information sent to the bank via MT
920.
Types and Methods of Cash Management (3/3)
With reference to the credit institutions involved Cash Management can be classified as follows:
INTERBANK
Cash Management
The accounts involved in the service are
all held with a UBI Group bank
account
1
account 2
account 3
INTERGROUP
Cash Management
The accounts involved in the service are
held with a number of banks all
belonging to the UBI Group
account 1
account 2
account 3
DOMESTIC
Cash Management
The accounts involved in the service are
held with banks belonging to the UBI
Group and with other Italian* banks
account 1
account 2
account 3
INTERNATIONAL
Cash Management
The accounts involved in the service are
held with banks belonging to the UBI
Group and with other banks including at
least one foreign* bank
account 1
account 2
account 3
* In order for the service to be activated with a bank, it is necessary for the Bank in question to be able to process incoming
and outgoing information messages and orders and to have signed a bilateral agreement with UBI Banca
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Cash Management in the UBI Group
Accounts reporting services
(MT 940 / MT 941 / MT 942)
Accounts reporting services that send information on accounts held by the customer at
its own member institutions. In particular:
MT940: balances and list of movements at end of day
MT941: intraday balances (at pre-established times during the day)
MT942: intraday movements (at pre-established times during the day)
Order Services (MT 101)
Cash Pooling
SCORE
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Request for funds transfer exchanged with Italian or foreign banks via Swift
message
Incoming MT101: payment order received with debit to the account held
with UBI
Outgoing MT101: payment order with debit to the account held with the
third party bank receiving the message
Automated service targeting Italian and foreign companies that need to
create a centralised and automated cash pool, with cash flows concentrated
on one or more accounts to optimise its daily cash position or that of its
establishments (branches, affiliates, subsidiaries), without the need to
complete transactions each time
A service that allows Italian and foreign companies which have a connection to
the Swift network to use that channel to exchange messages sending
information and/or orders, rapidly and securely and with any bank connected
to the same network and subscribing to the service. This service occurs via two
protocols:
FIN
XML20022
SWIFT SCORE - Standardised Corporate Environment
The Score Service is provided by Swift and enables Italian and foreign companies (even unlisted) that have a connection to the Swift
network to use that channel to exchange, with any bank connected to the same network and subscribing to the service, messages with
information and/or orders on banking relationships held by the company. That service is possible through the following two protocols: (i)
FIN and (ii) XML20022
Interface for all messages and Swift files
Benefits for companies
Maximum reliability and security
Accessibility to all Swift participants on a global scale
Optimal, completely automated processing thanks to use of standardised formats
Reduced costs and risks
Receive daily accounts from UBI reporting via Swift messages in FIN
format
UBI Banca Offer
This is the standard XML format that
enables a reduction of costs
compared to the FIN format and to
manage multiple orders in a single
message
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Send payment orders to UBI via Swift MT101 FIN messages
Send payment orders to UBI in XML 20022 format
Agreement between banks – requirements to exchange MT101
To allow mutual end customer to send or receive MT 101 (Request for Funds Transfer), banks have to establish communications roles.
UBI Banca normally signed with Foreign Banks a Bilateral Agreement, based on the Service Level Master Agreement (SLMA) and its
Schedule roles of SWIFT with additional specific conditions to govern the bilateral relationship between the Signatories when participating
in a Request for Transfer.
The MT 101 “Request for transfer” is a specific SWIFT service under the “Service Level Master Agreement” (SLMA), developed to support
the need for centralised cash management services. Because of the quality of the Request for Transfer Service, UBI Banca has accepted
and signed the roles of the SLMA and the “Request for Transfer” of SWIFT in order to provide common and equal roles to Customers, in
particular with respect of the execution times, remittance information and charging arrangements.
The Bilateral Agreement is an essential requirement for the following services:
1) Order Services:
Incoming MT101: payment order received with debit to the account held with UBI
Outgoing MT101: payment order with debit to the account held with the third party bank receiving the message
2) International Cash Pooling:
Automated service targeting Italian and foreign companies that need to create a centralized and automated cash pool, with cash
flows concentrated on one or more accounts to optimize its daily cash position or that of its establishments (branches, affiliates,
subsidiaries), without the need to complete transactions each time.
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Bilateral Agreement and Designation Account Sheet
The body of the Bilateral Agreement reports the following structure:
1.General condition:
The Executing Bank will provide the Forwarding Bank information only in so far as the Originator has given its explicit authorisation to do
so, provided that the information necessary to duly execute the Request for Transfer are given.
1.Appendix I:
Technical features. MT101 Format & Technical Specifications for each bank.
1.Appendix II:
The Bilateral Agreement is applicable to all offices/branches of the Signatories as specified in Appendix II hereto which may be amended
from time to time; Appendix II also contains details of contact persons for such offices/branches.
1.Appendix III
Designated Account Sheet to be exchanged by the Signatories for each customer.
Executing Bank / Payer Bank
Originator / Payer
Designation Account Sheet
Any Signatory will only start to process as Forwarding Bank (credit
institution acting for the Beneficiary) ”Request for Transfer”
instructions with any Instructing Party (Beneficiary), after it has
Beneficiary Bank
received from the Executing Bank (credit institution acting for the
Payer) the name and account number(s) of the respective Originator
(Payer). This information will be forwarded by the Executing Bank to
the Forwarding Bank by means of a separate account sheet listing the
account(s) of the Originator which shall be subject to the Request for
Transfer Service.
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Data of the payer
Payer Bank
Examples
Passive Cash Management at the customer’s initiative
Active Side
Passive Side
Auto France
S.A.
Auto Italia
S.p.A.
2
MT103
$
“Ordinary” use of
own accounts
MT940
i
MT101
d
MT940
French
Bank
1
i
UBI
MT103
$
MT101
d
MT103
$
MT 940: Information on balance at end of day
MT 101: payment order to transfer funds
MT 103: transfer funds on behalf of customer
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Other
Bank
Bon/MT103
3
$
1
UBI Banca sends the French Bank - via
Swift, and upon instructions from
Auto Italia - all necessary information
(statements/movements) relating to
the current account opened at UBI by
way of MT940.
The French Bank proceeds to make
that information visible to the
customer.
2
Auto France S.A., on the basis of the
information received, provides the
French Bank with debit orders (by way
of MT101 or MT103) for the current
accounts held both with the French
Bank and with UBI.
3
UBI completes the orders received,
making transfers or sending funds via
MT103 to another bank or to the
French Bank itself
Examples
Active Cash Management at the customer’s initiative
Active Side
Passive Side
Divani S.p.a.
Divani Polska
2
MT103
$
“Ordinary” use of
own accounts
MT940
i
MT940
1
i
MT103
$
MT101
d
Polish
Bank
MT103
$
MT 940: Information on balance at end of day
MT 101: payment order to transfer funds
MT 103: transfer funds on behalf of customer
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The Polish Bank sends UBI Banca, via
Swift, all necessary information
(statements/movements) relating to
the current accounts opened with it
(by way of MT 940).
UBI Banca proceeds to make that
information visible to the customer by
way of QUI UBI Imprese together with
information relating to the current
account held at UBI.
2
MT101
d
UBI
1
Other
Bank
3
Bon/MT103
3
Divani S.p.A., on the basis of the
information received, will provide
UBI with orders (by way of MT101
or MT103) on the current accounts
held with the Polish Bank.
$
The Polish Bank will complete the
orders received by domestic
transfer or by an MT 103 to
another bank or to UBI itself
Examples
1
On the basis of rules established with Auto S.p.A.,
UBI, via the Cash Management platform, sends an
MT920 Swift message to the Polish Bank and to the
French Bank containing the request to receive
information on movement and/or balance of the
accounts held with them. That request may be sent
during the day or at the end of the day.
Active Automated Cash Pooling
Customer/Active
Customer/
Bank
Auto France
Auto S.p.A.
Auto Polska
French Bank
Polish Bank
2
2
2
The Polish Bank and the French Bank send the
statements requested relating to balances and/or
movements to the UBI platform by way of MT940
/941/942 Swift messages.
MT101/103
MT101/103
3
1
3
1
3
PLATFORM
MT 920: Request for information on balance and/or
movement of current accounts during the day
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On the basis of the information received via
MT940/941/942, and the rules provided by the
customer, the UBI platform may:
1. send transfers (via MT103) to transfer funds
from UBI - Banco di Brescia to third party banks
(i.e. to replenish the current accounts with
balances lower than the target at the Polish
Bank and the French Bank)
2. send payment orders (MT101) to passive banks
to transfer funds between passive banks
themselves or to UBI.
The customer can view the end of day account
movements and balance received from the two
banks via the Qui UBI Imprese Service