How to Earn Excess Liquidity from Collections

This international checklist, based on
From Collections to Excess Liquidity - Risk in the Supply Chain
by Arthur Payens and Peter Smulders of Rabobank, GTNews, August 1, 2006,
confirms our experience and know-how.

The first two paragraphs are especially pertinent for Central European countries. Please don't hesitate to ask us for detailed elaboration to these points

With the friendly permission of Rabobank

Centralizing Collections

Centralizing collections reaps significant cost benefits to the corporation. With information being centralized, central treasury is able to monitor the collections process end-to-end. This improves the mitigation of associated risks in the collections process because the company can establish effective company-wide policies rather than having local entities conducting the trade transaction and funding these through their local banks.

Establishing In-house Bank / Central Treasury

In some companies, the central treasury or the in-house bank is taking over the receivables function, funding the subsidiaries and controlling the whole funding portfolio.

Implementing Receivables Securitization Programs in Larger Companies with Good Rating

Large companies with high levels of receivables outstanding, and good customer credit ratings, can sell their receivables to a bank, which will securitize them using a special purpose vehicle. This eliminates some risk because the company receives a guaranteed amount of money (although it is not the full value of the receivables). It is mostly used as a financing tool but it does change the risks within the company.

Factoring in Smaller Companies

If a company is not large enough to set up a securitization program, it may use factoring, in which the company sells its receivables to a factoring firm, which pays a specific amount for the receivables and then collects the receivables on the company's behalf. This can be with or without recourse.

Lockboxes for Companies with Cheque Payments

These are usually used by larger companies with a lot of cheque receivables who want to optimize their days sales outstanding. The cheque is collected much more quickly and the company has a centralized view of the flows and a better overview of the information, so it is better equipped to deal with any associated risks.

Full article (registration required, free)