The concept of big data — large sets of data that may be analysed by computers to reveal trends — can appear intimidating. But it is an emerging asset for many companies and will likely grow in effectiveness.
The array of what businesses can do with all the data they collect is amazing, such as predicting buying habits of customers, segmented by age and geography. The data sets also can help with key business applications, particularly in corporate treasuries.
Uses of big data could extend to cash flow forecasting, foreign exchange, and liquidity planning. The data can help corporate teams move beyond the manual aggregation of hundreds of Excel-like templates to view potential cash flows in a more centralized way. And what if the data patterns could help your company make more advantageous decisions about timing payments to certain vendors? The possibilities are appealing.
Harnessing big data for a range of cash management applications may not be widespread yet, but things are moving fast. Some of the technology available today allows software programs to learn and update continually and develop their own logic. This necessitates having a treasurer and relevant staff nearby to guide and drive the tools to meaningful conclusions, and it may involve corporate infrastructure changes and executive buy-in, which takes time.
The appetite is growing, nonetheless. The International Data Corporation (IDC) predicts revenue from the sales of big data and business analytics tools to corporations will increase more than 50% between 2015 and 2019, as reported by InformationWeek.
Some companies already appreciate the value big data can bring to analyse flows in payment processing and inventory. One example, a leading online fashion platform, uses a dedicated team of mathematicians and physicists developing data analysis models to help with decision-making and boost learning on such variables as the impact of weather on sales.
Another example is a global paint company, which is using big data to analyse varying flows in payment processes. It enables the corporate treasury team to identify payments that use the wrong instruments and take action to correct them.
These examples of applying machine learning suggest what’s to come as businesses innovate to make their cash management processes more efficient. It’s an exciting trend to watch!
Sources: Bank of the West, CIB
How to automatically get the best exchange rate
Companies working with several currencies often want to avoid exchange rate risks and administrative hassle. That is why the bank has come up with a behind-the-scenes solution: the 'embedded FX' service.
Embedded FX? You don't even need to remember the name, because the system works automatically, without you even having to think about it. FX doesn't stand for Hollywood-style special effects, but for Foreign Exchange, sometimes referred to as Cross Currency. You are guaranteed to come across this at some point if you make international payments, since they are not always executed in the currency of the debit account (referred to as 'mono-currency payments'). Sometimes, the currencies of the accounts the payment is being debited from or credited to may not be the same. These are FX payments. During such payments, an exchange takes place: one currency is sold and another bought, without you having to lift a finger.
The volumes on the FX market might be greater than you'd think. To put it plainly: they are enormous. Every day, more than 5 trillion American dollars are traded. That is 5000 billion American dollars, more than the volume involved in global equities trading...in a single day. The FX market operates day and night, and only closes over the weekend from 10 pm on Friday until 10 pm on Sunday.
Wim Grosemans (Head of Product Management Payments and Receivables at the BNP Paribas Cash Management Competence Center):
'On the FX market, banks essentially play the role of a wholesaler: they buy and sell currencies on the international market, and then sell them on to the customer with a mark-up. BNP Paribas is one of the biggest players, ranking among the global top ten. There is no official market rate in this over-the-counter market. Each bank determines the rate at which it wants to buy and sell currencies itself. Unofficial market rates can be found in publications from a number of public institutions (such as the European Central Bank) and private organisations (Reuters, Bloomberg etc.). These are based on the average rate offered by a number of major banks.'
The rate is always determined per currency pair, for example the euro versus the American dollar: EUR/USD = 1.1119. The most traded pair is EUR/USD, which represents 25% of daily trade. Second on the list is the pair American dollar/Japanese yen
(USD/JPY) with 18%, with British pound/American dollar (GBP/USD) coming in third at 9%.
Alwin Vande Loock (Product Marketing Manager Payments and Receivables at the BNP Paribas Cash Management Competence Center):
'As for the rate, banks offer a number of options. The rate can be a live market rate that is continuously being updated. The EUR/USD rate, for example, is adjusted more than 50 times per second. Another option is a daily rate. In this case, a rate is offered that will apply for a certain period.'
For many companies, all of this hassle with exchange rates is a real headache. Too complex, too expensive in terms of administrative costs and too many exchange rate risks. For those customers, banks have a solution: embedded FX.
Wim Grosemans (Head of Product Management Payments and Receivables at the BNP Paribas Cash Management Competence Center):
'When you make a payment in a currency you do not hold an account in, the bank will immediately retrieve a good exchange rate from its colleagues in the dealing room of the Global Markets department. The rate is usually confirmed within one hour after the customer has sent the payment. Unless large amounts are being transferred, the entire process is automatic. The IT systems used are much more efficient than they were just a few years ago, meaning that the bank is less exposed to volatility and can offer its customers a competitive rate. Embedded FX is an efficient and simple alternative for anyone who doesn't want to hold accounts in different currencies and run the exchange rate risks that entails. For the customer, it no longer matters what currency they use: the process is exactly the same. What's more, it gives them peace of mind, because they know that they'll always get a great rate.'
Working capital: far more than just an accounting term
Working capital, also known as net operating capital, presents a picture of the operational liquidity of a business. But there is more to it than meets the eye.
The success of a business actually depends to a significant extent on how it deals with its working capital needs.
The difference between working capital and working capital needs
Within the financial analysis, working capital is just one of the indicators that present a picture of the operational liquidity of a business. It not only affects general management, but also the access to bank credit or the valuation of the business, for example. This is calculated as follows:
Equity capital and other resources in the long term - fixed assets
This allows you to see whether sufficient long-term funds are available to finance the production chain. Where there is a positive result that is indeed the case, whereas with a negative result it is actually the production chain that must safeguard the long-term financing.
It is therefore useful to calculate the working capital needs as well:
Current assets (excluding cash) - current liabilities (excluding financial liabilities)
The result shows the amount the business needs in order to finance its production chain, and may be both positive and negative:
- where working capital needs are positive, the commercial debts no longer cover the short-term assets (excluding the financial). In that case, a business can rely on its working capital. If this is insufficient, it will need additional financing for its operational cycle in the short term;
- where working capital needs are negative, a business can meet its short-term liabilities without any problem. Nevertheless, it is advisable to reduce working capital needs (further).
In short, working capital presents a picture of the operational liquidity of a business, whereas working capital needs represent the amount the business needs in order to finance its production chain.
In other words, it boils down to limiting working capital needs as far as possible, thus increasing liquidity. This is crucial, especially in times of economic or financial difficulty. After all, customers tend to pay later then, while your stocks are increasing and your suppliers are imposing stricter payment terms. As a result, more and more working capital gets 'frozen' in your operating cycle, precisely when circumstances make it more difficult to attract additional financing.
Optimising working capital is not only a question of long-term considerations. In the short term, too, the business can release cash that is not being used optimally, or is being used unnecessarily, more specifically in the purchasing, production and sales processes within the operating cycle.
The working capital and the working capital needs must, above all, be geared effectively to each other. The working capital needs must be structurally less than the working capital itself, preferably with an extra buffer. However, there is no mathematical truth regarding the amount of working capital and working capital needs. Sector, activity and business model can affect this, for example.
Could your intuition help you make better decisions?
All of us have heard that little voice in our ear quietly persuading us of a new idea or a different way to tackle a challenge at work. But acting on that voice is another thing altogether. And yet...
Marcel Schwantes, an expert in workplace culture based on "servant leadership*", is well placed to recognise his intuition speaking. This small voice inside us has a tendency to bring out, from the deepest recesses of our beings, feelings that can be buried under rational layers of logical thinking.
People who are emotionally intelligent are more readily able to listen to this internal compass in order to keep themselves on the right track. But not everybody has this capacity.
How can we recognise the voice of our own intuition?
Here is some practical advice:
- If the voice signals a danger, it is undoubtedly your intuition speaking.
- Intuition speaks to you in a way you cannot ignore.
- First of all, we tell ourselves the voice is wrong.
- It gives us a message that is not particularly comfortable.
- We do not really want to act on its advice, or we tend to put off doing so.
- It seems counterintuitive!
- We allow ourselves to put it out of our minds...
Intuition and integrity – a perfect partnership
The reason why many of us still disregard this voice is that it can sometimes be unsettling. It pricks our consciousness and challenges our convictions, habits and belief systems. Yet it can hide precious inner resources just waiting to be revealed.
But to be able to utilise them, we must demonstrate integrity. When activated by the necessary bravery, this partnership between integrity and intuition can become a superpower that allows us to handle tricky workplace situations – or even run a company!
*Editor's note: Liberated leadership, as opposed to authoritarian leadership.
Reforestation and biodiversity in practice
Some causes are more important than the pursuit of EBITDA. Without trees there can be no biodiversity, and flora, fauna, soil, water and air are all affected. That is why WeForest is mobilising companies to plant forests.
Reforestation is neither a luxury nor a question for hippies. It is indispensable for the climate and biodiversity, the quality of our soil and water, as well as for food; it is thus vital for the future of all species.
The solutions, which remain under-recognised, are simply waiting to emerge. They are not technical, do not adhere to the logic of extraction and do not call on limited natural resources. They are tremendously effective, draw their inspiration from natural ecosystems and entail integrating trees into fields.
We have pinpointed two relevant non-governmental initiatives: Ecosia, a search engine launched by a start-up in Berlin, has attracted 7 billion users and plants one tree for every 45 searches made – the equivalent of some 27 million trees planted to this day; secondly, the non-profit organisation WeForest is utilising its expertise in this area, its basis in science and its business network to engage in sustainable reforestation. We went to meet Marie-Noëlle Keijzer, the founder of WeForest, to hear her story.
From carbon offsetting to corporate 'water footprints'
In the early days, WeForest was not convinced by carbon offsetting, which it regarded as too reductive. Yet it was a means to connect with its target audience: companies anxious to measure, reduce and then offset the carbon emissions that they are not able to avoid. Today, the objective of 'net positive emissions' has been set, which also aims to offset past emissions.
It is obvious that environmental concerns now extend beyond carbon alone. Many are beginning to examine their water footprint. A new vision is taking hold, which entails development aid via the promotion of reforestation. "Moving countries out of poverty and doing more than simply planting trees and leaving: this is how companies now wish to act in a socially responsible way", explains Marie-Noëlle Keijzer, CEO of WeForest.
Intervening on vegetation, carbon, water, air and employment
With the 270 corporate clients that have joined it since 2011, WeForest planted almost 17 million new trees and restored 13,000 hectares of land by the end of 2017, and aims to double these figures by 2020. It offers high-impact marketing materials to customer companies with messages such as 'one sale = one tree planted'.
In 2014, Brabantia decided to 'do something different'. It wanted to sell products, of course, but also give thought to global issues. Working alongside WeForest, the company entered into a joint financing project supporting reforestation. "Since Brabantia began to state on its website, on YouTube and on its packaging that one tree would be planted for every rotary dryer sold, it has seen a 25% increase in sales every year", explains the head of WeForest, citing well-substantiated case studies with certified benchmarks: "We go beyond the theoretical", she continues. "There is total transparency, with every customer receiving a GPS map of the hectares they have funded. We then ensure the forest is protected, approve our customers' projects and help develop the socio-economic activity of the entire region by initiating alternative revenue sources which create employment."
A tree is more valuable in the ground than on it
WeForest is not engaged in helping Zambia in order to maintain its reliance on international aid, but to educate the hundreds of farmers who chopped down all of their trees in order to sell them for firewood. By bringing them together, the association demonstrates that they do not have to clear trees to sell forestry chips, and that by selectively collecting biomass, they can provide heat without cutting a tree down. WeForest trains women to work as nursery growers, giving them a job, an income and an identity. It also supplies beehives to farmers who have begun to produce honey as a new source of income. Bees have other positive effects too, since they pollinate flowers, plants and fruit crops, for example. "It's really simple", affirms Marie-Noëlle Keijzer. "If we kill bees and birds by using pesticides and insecticides, we are preventing nature from doing its work."
Trees provide a habitat for animals and natural fertiliser for plants
In regions of Brazil where tree coverage is 3%, leopards have completely died out. Agriculture has supplanted forests wherever the ground is level. WeForest cannot operate across the entirety of the country, which is much too large. But they have created green corridors, and life has begun again. Trees and plants have been restored, attracting birds and animals that use them to move around, eat and reproduce.
Trees are also a natural source of fertiliser: corn grows more quickly when it is close to trees. They provide shade and retain water in the soil.
There are trees and trees
Not all reforestation projects are equal. Some trees boost the food supply or increase soil nitrogen levels (such as the lucerne), whereas others are detrimental to diversity. For example, no animals will live in palm tree plantations where the soil is also full of chemicals. "We won't solve the problem if we do nothing to change the causes of deforestation: intensive agriculture for the purposes of producing meat, for example", says Marie-Noëlle Keijzer, firmly convinced. Solutions exist, but everyone needs to accept their share of responsibility.