Even though Coca-Cola is a worldwide multibillion-dollar business, the company recently did some soul searching when it came to its finances.
The parent company, Coca-Cola Enterprises, has been in the process of gaining greater visibility and control over its cash and liquidity. "There were some hard lessons and good lessons learned in the last 18 months," says Sharon Petrey, corporate director of treasury at CCE.
Certainly Coke is not alone. The global financial crisis has had a ripple effect on the economy and thrust cash management to the forefront of corporate strategy. In a worldwide survey of 130 companies, including CEOs, CIOs, and CFOs, Aberdeen Group Inc. found 82 percent have increased their focus on cash management over the past 12 months.
At its core, the survey found companies have been forced to diversify their financing options and squeeze liquidity from within.
But it's not as desperate as it sounds. Aberdeen found organizations can gain real-time visibility into their global cash position by leaning on automatic reconciliation of bank accounts, interoperability across all banks' Websites and financial systems, and automated reporting on cash held and forecasted.
However, in practice, only 24 percent of average performing companies have fully automated reporting of cash held and forecasted, while 26 percent of top performing enterprises have achieved interoperability across all banks' Websites, Aberdeen notes.
For meeting these challenges more effectively, the report revealed a widely used best practice: online access to balance reporting, forecasting, and account reconciliation, along with setting up controlled disbursement accounts. The downside, of course, is that banking partners each have proprietary connections and/or systems, making it time consuming for enterprises to work with as many financial institutions as possible.
Having a single point of access to all banking partners may mean you need to use standardized message and file formats for integration with a Treasury Management System (TMS) or Enterprise Resource Planning (ERP) system, Aberdeen's report found.
Coca-Cola uses a group of banks that provides $2.5 billion of committed credit if needed. But operating worldwide, the company began to recognize the increasing risk of potential supplier and customer failure and decided to take a hard look at the financial health of both its suppliers and their customers.
"Certain direct materials exposure, previously managed by procurement, was shifted over to treasury to hedge with financial instruments," Petrey says. "The financial hedges were entered into with certain of our bank group members, counterparties we knew well, but expanded metrics for monitoring these exposures. Where at one time tracking the ratings of the banks was enough, now we were focused on, for example, CDS spreads, tier one capital, and VAR."
In doing so, the company says its credit department added headcount, enhanced evaluation tools, and improved the knowledge of key credit and risk management staff. On the supplier side, Coke says it did receive requests to accelerate terms, and the soda maker partnered with the businesses to negotiate the appropriate discount.
Given the nature of the recovery -- and does anyone expect to return to the glory days? -- it seems a safe bet that prioritizing control of your company's financial management systems and cash liquidity is the soundest fiscal advice your enterprise can swallow.
Source: Internet Evolution
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