Q&A on practicalities of digitising cash management for large corporates

As some of you may already know, over the past few months we have been working closely with Adjoint Inc; a market leader in digitising corporate cash management services. Combining our legal expertise in intercompany agreements with Adjoint’s real time treasury provision, we have collaborated to create a novel and holistic offering for MNE’s which we discussed in our recently published article, The Digital CFO: LCN Legal and Adjoint join forces to help digital acceleration by Corporate CFOs.

This article generated a lot of questions about Adjoint and the various cutting edge solutions they have developed in the digitised corporate treasury space – we decided to put some of these questions directly to Adjoint, and this is what they told us:

1. What kind of organisations might need Adjoint’s treasury solutions?

Adjoint Treasury is a great fit for any organisation with over $500 million of in-and outflows (e.g. sales, transaction brokering, etc.). Many of our clients are multinationals with operations across many countries, but the product is also used by a multi-divisional company in just one or two countries. We work across sectors, having clients in, amongst others, finance (banking, insurance, asset management), manufacturing, pharmaceuticals, technology and services.

2. Presumably there’s a size or complexity threshold for corporates, below which digitising cash management would not be worthwhile. How would you define that? Does it relate to revenue, number of entities, number of transactions, number of countries or all of the above?

Any organisation with more than $500 million of in-and outflows is a great fit, as are multinational or multi-divisional organisations. The product can be used by the entire corporate group or within one or two divisions of a very large company.

Another good diagnostic metric is the number of commercial bank accounts used by the organisation – across locations, currencies, banks, etc. This is often a very good indicator of complexity and fragmentation in their current set-up. We have worked with companies or divisions who have tens, hundreds and even more than a thousand such accounts. As they use Adjoint Treasury to digitise their process, they can consolidate these accounts for large efficiency gains.

3. What’s the specific pain which digitising cash management solves? Why does this matter?

There are several key areas in which an organisation can improve its performance using Adjoint Treasury and digital cash management. The core proposition is built around real-time information and digital process flows.

Lack of real-time information has been acutely felt by companies during Covid-19 lockdown. Treasures and CFOs have been scrambling to shore up liquidity but the information they got was almost always stale and therefore not fully reliable. Similarly the number of steps and touchpoints between decision and action hampers their ability to respond to new situations.

These issues also lead to a drag in the – ‘business as usual’ – scenario. Most of our clients, even pre-Covid-19, got an 8-10x benefit-to-investment ratio from using Adjoint Treasury. Typically, a corporation with over $1bn of annual transaction flows can save $4-5 million a year.

The benefit comes from:

a) Reduction of external costs: Having lots of accounts typically goes hand-in-hand with a larger number of transactions (payments, liquidity management, foreign exchange, loans). All of these have a cost associated with them (e.g. banking fees, FX margins, SWIFT fees, systems costs, etc.). Consolidation and internalisation reduces these costs.

b) Improvement of staff productivity: A large number of accounts, manual processes and reconciliations means more staff doing less valuable work. This can usually be improved by a factor of up to 30%, sometimes more.

c) Improvement of controls: Lots of accounts and ledgers with manual reconciliations increases the risks of mistakes or susceptibility to fraud.

d) Reduction of capital needs: Real-time, automated tracking of liquidity and capital is used by all organisations, be they cash-rich and indebted, to reduce the working capital.

e) Enhancing client satisfaction: Real-time financial processes are a bedrock for a real-time client-facing process. This is especially true in financial services (e.g. an insurer is able to settle claims faster), but also in managing the financial supply chain for manufacturing industries.

f) Improvement of return on capital: Real-time tracking of liquidity and capital means better investments, made faster. This improves returns on liquidity and capital.

4. Are there any cost saving benefits from digitising cash management? How could you quantify them? Would your solutions enable corporates to reduce or redeploy headcount?

Yes, costs are saved both externally (fees, margins) as well as internally (staff productivity). We have worked with a number of companies in many industries to help our clients achieve these outcomes. We have published a white paper on these benefits with a leading treasury consulting company on this topic. This paper is available here.

5. Are there any specific sectors which tend to get the biggest ROI from digitising cash management?

We have offered Adjoint Treasury successfully in many sectors. The most rapid roll-out and benefit cases have been in the insurance sector (e.g. for billing and settlements) and in manufacturing (e.g. for intercompany and supply chain agreements as exemplified in these case studies for a Global Insurance Company and for a Fortune 100 Manufacturing Company.

6. How long does it typically take to implement?

We typically aim for a two to three month initial pilot, followed by monthly or quarterly iterations to scale up the usage. However implementation times can vary, depending on their IT infrastructure (e.g. use of cloud), business systems (e.g. integration capabilities of enterprise resource planning installation), banking partners and procurement practices.

7. How much does it cost to implement? And to maintain?

Commercial investment may vary depending on the number of entities and integration points. We offer an all-inclusive subscription cost model which covers license, maintenance, upgrade, support, training and documentation. We also upskill internal staff on administrative and maintenance activities. Usually our clients get an 8-10x benefit-to-investment ratio, i.e. for every $1 license paid to us, their benefit is up to $10.

8. What level of management commitment does it take to implement? What level of internal resource would need to be set aside?

Our sponsor is usually a senior person in Treasury or Financial Control, sometimes also the CFO. They will have support from functions like IT, procurement, commercial, legal, etc. As we follow a Software as a Service model with standard integrations, the level of IT resource required is usually lower than other business software initiatives. However a strong management buy-in is very important.

9. How do the intercompany agreements fit into this process?

A large number of companies suffer from slow, manual, email-based processes for their intercompany supply and lending agreements. This leads to high cost, weak controls and sub-optimal use of capital. This is the digitisation opportunity, which Adjoint is tackling for companies in a number of industries and geographies.

Adjoint and LCN Legal are pooling their respective expertise to help with digitisation in this area. Please see here for more information.

10. What could go wrong? What are the pitfalls to avoid in implementation?

New technologies often make new business models and ways of working possible. One possible pitfall is when users look to automate current processes blindly, rather than use the opportunity to standardise and consolidate as well. This can lead to too much customisation and erosion of possible benefits from digital. This pitfall is often called “paving the cowpath” in project and change management and should be avoided.

11. Are there any particular triggers which might make a corporate want to get started now, as opposed to putting it off? What are the costs of delaying?

Digital ways of working are very important for most companies and CFO, especially as they prepare and execute recovery plans from the Covid-19 lockdown. The impact of delaying is high cost, high risk, excess capital and unhappy customers.

12. How can people get more information about this?

Please contact Adjoint at info@adjoint.io and LCN Legal at info@lcnlegal.com.

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