Lloyds TSB: Cash Management is King - Roger Hill and Gavin Stewart

For companies to ensure that cash is managed to minimise costs and maximise returns, they must clearly identify the categories of cash they control. Roger Hill and Gavin Stewart of Lloyds TSB Corporate Markets tell FDE that it is crucial to find banking partners that understand the different product solutions for operational, core and strategic cash.

With global markets in turmoil as a result of the liquidity and funding crisis, companies are at pains to make the cash they have work harder. They have a pressing need to ensure the right funds are available in the right place, in the right currency, at the right time.

While cash management services are widely available, the troubled global economy and constraints on the flow of capital through financial markets mean that many companies are looking for banking partners that do more than provide standard solutions for cash on deposit. There is demand for banks to not only show that they understand the layering of money within an organisation but to also tailor cash management solutions more closely to the needs of individual corporate clients.

'We've looked to ensure that we understand our client companies' cash management needs, in terms of protection of capital, maximising returns on cash and having the liquidity to meet short-term objectives. We help them to get the best advantages from offsetting cash and debit balances, but we also try to minimise administration and banking costs,' says Roger Hill, liquidity management, Lloyds TSB Corporate Markets.

'We are working on all of those issues and it is useful for us to talk to companies about what they need by way of operational, core and strategic cash. Then we can identify the right solutions to reduce cost and maximise return,' he adds.

Lloyds TSB's acquisition of HBOS, which led to the creation of the Lloyds Banking Group in January, created the UK's largest retail bank and a robust partner for corporates.

The merger combines the capability of two institutions that prioritise cash management as a service for corporate clients.

The right product solution

For each category of cash there is a range of standard product solutions on the market, and companies are looking for banks to advise on how these solutions might best fit the needs of their business.

For operational cash, which is cash required in the immediate term (within three months) an organisation will use current accounts, instant access deposit accounts or short period term accounts.

For core cash, which is cash required within three to twelve months customers will look to generate a higher rate of return using solutions such as fixed term deposits and liquidity funds.

Finally, when looking at strategic cash, which is cash not required within a twelve-month time horizon, structured investment products are available.

Hill stresses, however, that corporate clients are beginning to look beyond the level of return and prioritise other criteria when choosing their cash management solutions. Transparency and security of cash have become far more important.

'Wrapped around all product solutions is the need for corporate clients to have better visibility of the cash in their business. They want to see where cash is and how it can be concentrated to reduce the cost of overdrafts or maximise the return on credit balances. That is why we offer multi-currency sweeping and balance pooling services,' says Hill.

'Protection and safety of cash are also increasingly important, especially as funds on deposit start to grow. It is essential that companies realise that not all cash vehicles are the same. They do not all have the same capital underpinning as core bank deposits,' warns Gavin Stewart, head of liquidity, Transactional Banking, Lloyds TSB Corporate Markets.

Calling the cash consultants

Lloyds TSB Corporate Markets' approach to cash management is firmly founded on helping clients to optimise financial performance by enabling them to securely monitor and control the cash in their accounts. They offer a secure online service for day-to-day management of funds – whether the accounts are held by Lloyds or by another bank.

Through the service clients are made aware of all same-day UK CHAPS payments and international receipts and can receive electronic statements and balance report data directly into accounting or ERP systems. At the same time companies can transfer money between accounts to reduce overdraft costs or maximise interest returns.

On top of this, there is the ability to search transactions, and generate and review balance reports for the last year. This transparency is one of the service's most appealing features as corporates try to improve the visibility of their cash.

As the world's economic health has declined, companies have sought more advice from their banks on improving transparency and, above all, protection of their cash. Never before has the safety of funds on deposit been such a hot topic.

'The conversations we have with clients have changed a lot in terms of what they look for in deposit solutions. Rates have been subsumed by the need to understand how safe their cash deposits are. As a result we are talking to our clients more about Treasury policy,' says Hill.

It is clear, therefore, that companies want a deeper relationship with their banking partners to ensure they are putting their cash to work in the most beneficial way.

'They need to look at what is in that policy and at how regularly it is refreshed. They also need to consider what sources of information they include when they are getting quotes. The conversation between bank and client is now much richer,' adds Hill.

One of the major trends emerging from these discussions is a more thorough approach to the enforcement of Treasury policy, which is not always in need of a major overhaul, but may need to be applied more strictly.

'In larger corporations we are seeing more rigorous application of what were previously background Treasury policies. There may not be big changes in policy, but there is certainly better governance to ensure adherence to the policies that are in place,’ says Stewart.

The rise of relationship banking

Companies looking for more in-depth advice from their banking partners, going beyond product solutions to assisting with Treasury policy and transparency issues, need a financial institution that can offer a bespoke blend of products as well as a more open, two-way relationship to generate tailored approaches to cash management.

It is easy to spot the forward-looking banks that have prioritised the development of cash management services and have embraced this trend by developing solutions for different types of corporate client. Lloyds TSB Corporate Markets has, for instance, focused on the issue of managing client monies, recognising that the cash some organisations hold for their clients must be treated in a different way to their own operational, core and strategic cash.

'There is a big difference between the cash a corporation owns and the cash it is holding for other beneficiaries. We have recognised the need for client cash management solutions and have developed a range to meet those needs. If a company has a fiduciary relationship then safety is the paramount issue,' says Stewart.

'You need to ask yourself how slick your communications are with your banking partners. For a long time we have been working on maximising the safety and business efficiency that comes from working with a high street bank,' he adds.

In the bank's approach to cash management there is a strong recognition that the quality of the relationship is key.

'It's part of our culture to work in partnership with our customers. There is little to be gained from clever solutions if they are not grounded in customer need,' says Stewart.

'The placing of cash on deposit was commoditised, but now there is more interaction between banks and their corporate clients. We put forward structured solutions that go beyond the usual transactional discussion,' adds Hill.

Engaged relationships, reliability and a robust market position are what companies need from their banking partners, and it is clear that Lloyds TSB Corporate Markets is committed to providing all three.

Roger Hill, liquidity management, Lloyds TSB Corporate Markets.
Gavin Stewart, head of liquidity, Transactional Banking, Lloyds TSB Corporate Markets.