Amy Goldstein, Managing Director, International Cash and Liquidity Management Sales, about the benefits of centralising USD in the United States and how it is often particularly compelling due to its status as an international trading currency and the high volume of cash involved.

Centralisation has been a key theme in corporate treasury for some years, with many corporations successfully operating regional centres to support particular geographies. Increasingly, however, we see a trend towards centralisation by currency. Corporate treasurers have created account structures to centralise critical balances by currency in the ‘home market’ for that currency. The benefits apply to every currency; however, the value proposition of centralising USD in the United States is often particularly compelling considering its widespread use as an international trading currency and the high volume of cash involved.

According to estimates by Capital Economics earlier this year, US companies are holding $2.5tr offshore: an increase of nearly 20% over the past two years, and equivalent to nearly 14% of GDP. In addition, non-US headquartered corporations, particularly from Asia, Africa and Latin America, frequently denominate and settle in USD. Given the scale of balances involved, and the ubiquity of the currency for world trade, optimising USD is critical for all companies operating internationally. Comparable value may also exist, for other major currencies such as EUR, GBP and JPY, depending on the materiality of balances and the nature of the organisation’s business model.

Keeping close to home

There are a variety of reasons why companies may consider centralising their USD (or other currency) balances in the currency home market.

• Liquidity management
  Looking first at US-headquartered corporations; many larger companies have regional treasury centres to support cash and liquidity management, while activities such as group financing, FX management, investment etc. are more often located at headquarters. As a result, there can be significant benefits to centralising USD in the US: keeping USD cash pools and residual balances close at hand and in the same time zone while benefiting from later cut-off-times to meet investment deadlines. For non-US headquartered corporations there are investment and payment efficiency benefits of centralising USD.
• Investments
  Having centralised liquidity, investment options are deeper in the currency’s indigenous market, with more access to markets and liquidity. This allows treasurers to meet investment and risk objectives and potentially provide value generation. At the same time, treasurers can manage counterparty risk more precisely by maintaining central visibility and control over exposures.
• Payment and collection efficiency
  There is also an opportunity to reduce costs of cross-border payments and collections, depending on the company’s supply chain, customer base and where suppliers are located. Cross-border flows are typically more expensive, take longer to settle. As value dating is sometimes unpredictable, companies often need to maintain a higher cash buffer or put in place larger than necessary intra-day overdraft lines. Reconciliation of incoming customer flows can also be more time and labour-intensive as remittance data is frequently omitted or truncated as part of the cross-border payment process. In contrast, by centralising a currency in its home market, the number of cross-border payments and collections can be reduced, allowing companies to leverage local clearing systems that result in reduced costs, improved reconciliation and greater efficiency.

Managing the pressure

Given the pressure on treasury to ‘do more with less’, centralising funds on a currency basis can be an attractive proposition. Furthermore, the benefits of doing so are not limited to cash, liquidity and investment. For example, treasurers face a range of risk and regulatory challenges, including event risk, such as bank exits from certain product lines or markets. Managing the outcomes of this can be very taxing for corporate treasury and creates business continuity risk. Holding currency nearby at lower costs with access to the depth and breadth of the home market ensures that companies are best positioned to deal with market events. KYC requirements can also be complex and onerous, with differences in requirements between banks and markets, so centralising currencies into a single geographic location and therefore simplifying global account structures can reduce the compliance burden.

One question, however, is why treasurers have not chosen to centralise cash balances into each currency’s home market in the past. One reason is perhaps that the opportunity to do so has not always been clear. For example, in Europe, while the euro as a single currency has existed since 1999, the Eurozone effectively comprised multiple domestic markets with the same currency until the introduction of SEPA (Single Euro Payments Area). Therefore there were often either actual or perceived market or regulatory barriers to centralisation. Since SEPA payment instruments have replaced most domestic payment types, with a harmonised legal framework, more companies operating in different euro-based countries are now centralising euros into a single location. Although some domestic payment instruments remain and clearing systems in each European country have different characteristics, such as cut off and settlement times, these should not result in treasurers opting to fragment euro cash balances.

Many US companies believe that centralising funds held by offshore entities into the US creates a tax event. There are two areas of focus to consider here: co-mingling of funds and opening non-resident accounts on a stand-alone basis. Co-mingling of funds between entities registered in different jurisdictions creates a taxable event; the key is to confirm what that taxable event entails, be it double taxation treaties, thin-capitalisation rules or other issues. The opening of USD non-resident accounts in the US on a stand-alone basis is less clear and open to interpretation. There is corporate treasury precedence for both. Whenever considering these options, it is critical always to obtain independent expert tax advice.

Every country is subject to its own tax rules, so a centralised currency model cannot simply be replicated for every currency. Consequently, treasurers need to engage tax and legal departments, and their banking and other third party providers to understand the opportunities and benefits in each case. This includes exploring the way in which currency flows and exposures are currently managed, including payment and collection instruments used, the financing and investment products in place, and the applicable costs. The home market opportunities can then be explored, including optimal payment, financing and investment instruments, and any cost, liquidity or risk management advantages. This also involves looking at where customers and suppliers are located, and the potential impact on them.

Future planning

Treasurers need to anticipate and be prepared for disruptive events, and those that plan ahead by minimising risk in key currencies and maintaining centralised, flexible banking and treasury structures are likely to weather these events most successfully. Visibility and control over major balances is essential through good times and bad, and centralising cash in the currency home market can be a very valuable way of achieving this. There are a number of considerations to take into account, looking end-to-end across the supply chain, in which banks and service providers can offer advice and expertise. Investment in this process can reap considerable benefits, allowing treasury to increase its value to the enterprise and manage major currency balances cost- and risk-efficiently.   

(Source: BNP Paribas Cash Management)

The bill to introduce this obligation in Belgium has been submitted to the Federal Parliament. If the draft bill is approved, B2B e-invoicing will become mandatory from 1 January 2026. Our experts explain why Belgium wants to introduce these new rules, what the implications are for your company and how we can better support you.

“The bill is consistent with international developments and initiatives at the European level,” says Nicolas De Vijlder, Head of Beyond Banking at BNP Paribas Fortis. "Europe's ambition is a harmonised digital standard. Structured e-invoicing between companies will also reduce the administrative burden of invoicing, enabling companies to work more efficiently and increase their competitiveness. The automation of VAT declarations will also help governments prevent tax fraud and adjust economic policies based on more qualitative data.”

Evolution rather than a revolution

“The new legislation is an evolution rather than a revolution,” adds Erik Breugelmans, Deputy Managing Director at BNP Paribas Factoring Northern Europe. "Digitalisation is becoming pervasive at all levels of society, as we have seen with the increase in electronic payments, as well as the additional obligations in recent years regarding electronic invoicing to the government. In this sense, the bill for mandatory electronic invoicing between companies is a logical next step. Our bank is happy to contribute to this process, although we do not intend to offer the same services as accounting software or fintechs. However, we are happy to help our customers with payments and financing."

The impact on businesses

“Customers need to be aware that the new regulations will have an impact on their internal and external processes,” continues Erik Breugelmans. "The majority of Belgian companies mainly serve an international market, which means that the introduction of electronic invoicing will be more complex for them than for companies operating in the domestic market. As the legislation will be introduced in one go, they need to start preparing now."

“The new rules will affect a company’s accounting department as well as its IT department,” emphasises Nicolas De Vijlder. "The procedural requirements are key, otherwise the automated process will not work. However, one of the main benefits of advanced automation is that everything can be done faster and more efficiently. The time between sending an invoice and paying it will be shorter and cash flows more predictable. In addition, it will also reduce the risk of error and fraud, as all transactions will pass through a secure channel."

Ready to offer you even more and better support

“Thanks to the far-reaching digitisation resulting from the new regulations, we will be able to further optimise payments,” concludes Erik Breugelmans. "As a bank, we need to finance our customers’ receivables as quickly and efficiently as possible, so that they have easier access to their working capital. In addition, because we have already gone through an entire process in terms of large-scale automation, we will be able to adapt quickly to the new rules. We can also draw on the expertise of the BNP Paribas Group, which is currently developing an e-invoicing solution for large companies."

Want to know more?

Listen to the episode on B2B e-invoicing :

• French version
• Dutch version 

How can you keep your working capital healthy while incorporating the requisite financial flexibility? Factoring helps you to finance your cash requirements in a proper, timely and suitable way.

Securing liquidity is the key to financing your working capital requirements and keeping your business running smoothly at all times. That's exactly what factoring offers.It is a structural solution for optimising working capital. In the video below (in Dutch) in less than half an hour you will gain a clear picture of what factoring has to offer.

If you prefer to watch the video in French, click here.

Factoring: a tailored structural solution

In exchange for transferring your invoices to an external factoring company, you can count on fast, flexible financing, monitor the collection of your invoices, and protect yourself against potential bankruptcy among your customers. Each factoring solution is tailored to fit the needs of your business. This includes companies operating at international level. In Belgium, one in six companies currently outsource their invoices to an external factoring company. The same trend is evident in other European countries.

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, 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.

Conclusion

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.