J.P. Morgan On The Digital Transformation Of Corporate Liquidity Management

The rise of the coronavirus has spotlighted the need for corporate treasurers to make real-time decisions about cash management.

J.P. Morgan’s Head of Global Liquidity Product Solutions Specialists, Lori Schwartz, told PYMNTS in a recent Masterclass that the very nature of liquidity management is changing — and leading treasury management professionals to pivot to digitization and move from physical to virtual accounts.

As the pandemic has caused stress across financial markets, interrupted supply chains and shut down businesses (some of them permanently), Schwartz said that for any business “that operates, day to day, in moving  money, taking in payments, making sure supplier payments happen, it’s extraordinarily important to know where your liquidity is.”

That means chief financial officers and treasurers must constantly monitor how much money is in corporate accounts, know exactly what’s available, and where receivables and payables activity stands at any given time (which of course affects those accounts). They must also be able to reconcile those accounts and address funding requirements in a proactive, strategic manner.

For executives to have that holistic insight, explained Schwartz, visibility is key.

“Visibility leads to control, which enables optimization,” she told PYMNTS.

In an age of digital information flows, we’ve become used to instant access to data. That’s especially true in our day-to-day lives as consumers. Mobile banking apps mean we can check bank balances and pay bills on the fly.

But it’s not so simple for global corporate treasurers, given the complexity and sheer number of accounts, and sometimes millions of dollars in fund flows with which they grapple daily.

Though technology is accelerating and improving access to information, maintained Schwartz.

“A lot of new technology is coming to the forefront to help that information exchange,” she said, noting that application programming interfaces (APIs) can give firms real-time visibility into banking activities. Not so long ago, linking cash account statements across far-flung systems or operations would have taken days or weeks and extensive testing to synthesize all that data into one centralized presentation.

The Advantages Of Centralized Access

Centralized access to information is critical as treasury management requires managing liquidity across jurisdictions and across currencies. She noted that cash positions can be more easily managed through virtual accounts, which segment, forecast and address cash positions (and set controls) across an integrated online platform.

Virtual accounts (provided to corporates by banking partners such as J.P. Morgan), she said, eliminate one of the biggest inhibitors of high-tech solutions — chiefly, the risk/fear of losing information.

“The beauty of a virtual account is it marries the centralization of liquidity while retaining the integrity of all that underlying information. You can direct and separate different activities, different entities and different projects,” continued Schwartz, “but ultimately all of that cash is still centralized immediately and together. It’s the best of both worlds.”

To get a sense of the benefits tied to virtual accounts, she offered the example of intercompany lending, which traditionally would require a complex, manual system of comparing and contrasting individual accounts, determining excess and surplus cash positions, and creating payments to address funding issues, if necessary.

“You’ve got to adhere to currency cut-off times. You’ve got to think about potentially if there’s cross-bank relationships in the mix, or even if you need to do cross-funding across currencies,” said Schwartz. “When you adapt that into a virtual account, you have that intercompany lending happening at the transaction level because all of your entities would have accounts within the virtual account structure. That funding essentially is available immediately.”

Schwartz said technology deployments, done thoughtfully, can take on at least some of the activities done manually by financial professionals, freeing them up to add value to their companies through insights and robust, strategic thinking.

She cautioned that virtual accounts are only part of a holistic cash management strategy — a tool in the digital transformation toolbox.

The corporate treasurer, she said “is an important part of change — and now, they can become the enabler of the products their businesses are offering.”

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