BofA: CFOs and Treasurers Need New Approach to Liquidity Amid Interest Rate Volatility

Despite the interest rate cuts by the Federal Reserve — 0.5% for the first go-round in September, with more cuts widely expected — the fact remains that the era of low interest rates is, arguably, over.

One mainstay? Volatility will be a hallmark of interest rates in the weeks, months and years to come.

Adrienne Bloom, managing director, head of Asia Pacific financial institutions, corporate banking at Bank of America, said chief financial officers and treasurers will have to rethink how they manage liquidity risk for their companies. They’ll also have to grapple with new approaches to their B2B payment strategies.

For a long time, “how they’ve acted in this environment is to be cautious,” she said.

Liquidity management in the current environment “is an issue for everyone,” Bloom said. There’s no company or vertical immune from the vagaries of interest rates.

Her remarks came as part of Outlook 2030, the October B2B payments event hosted by PYMNTS.

There has been much going on with interest rates, said Bloom, who added that foreign exchange (FX) rates have been volatile, too, presenting challenges for corporate treasurers as they navigate supply chains and vendor relationships that move across markets and currencies. It’s hard on a good day to forecast what interest costs will be — and by extension, how cash flows can and might be affected.

Against that backdrop, treasurers have opted to borrow at floating rates rather than fixed rates, while keeping an “extra” amount of cash in the corporate coffers, so there’s additional liquidity on hand if needed, Bloom said.

The Long and Short of It

The best opportunities are uncovered when treasurers take a deep dive into examining where liquidity exists, with particular countries and particular currencies, she said. There’s also a boon in examining where they have long versus short balances, namely where they are earning interests versus where they are paying interest costs that could conceivably be reduced.

Judicious management of both “can increase your terms of the net cash that you have,” Bloom said.

At the end of the day and in a perfect world, treasurers would love to have zero cash balances, with all accounts and data enabled in one accessible place, she said. There are providers — Bank of America among them — that offer such tools, with cash sweeps that can done by country, currency and even company, so that all accounts are “reduced” to one balance, and the enterprise is not paying additional fees.

Automation, through services like the bank’s CashPro offering, is a tailwind for reducing costs, stopping fraud and eliminating manual processing errors.

“Using one bank, you can aggregate all of your long balances and your short balances … while maintaining the integrity of the cash within the company” and avoiding the costs of converting FX, she said. CashPro has logged more than half a million individual users and 40,000 companies across the globe.

Liquidity management will prove especially critical as payments gain speed and become instant worldwide, Bloom said. Bank of America has been working with financial institution clients to change their processes and systems to adapt to the demands of real-time payments.

New reconciliation processes are needed to recognize real-time receipts, said Bloom, who added that her firm has several intelligent receivables offerings that use machine learning to track and “fast track” receipts and give better visibility into cash that settles into accounts.

“It’s important to have access to that real-time data while having it in a single source that is visible,” she said.

“The role of the treasurer and the CFO has evolved and will continue to evolve,” she told PYMNTS. “Now they need to be cash managers, and they need to be balance sheet managers … It’s becoming a bigger and broader job.”

Register now to access all streaming and on-demand videos from the B2B Payments 2024 event series.

The post BofA: CFOs and Treasurers Need New Approach to Liquidity Amid Interest Rate Volatility appeared first on PYMNTS.com.