Navigating an Uncertain Economic Environment

If you’re a treasurer with limited experience dealing with uncertain market environments – you are not alone.  Here are some of the key challenges that companies face:

• Forecasting challenges and cash flow volatility: Uncertain interest rate direction requires corporates to have plans in place for different rate scenarios and be able to adjust their forecast models quickly.
• Capital allocation: Uncertainty around tariffs, and the economy in general, will put capital investment and international expansion under review or on hold.  The resulting increased cash levels will require strategies on how to manage that excess cash.  Conversely, supply chain disruptions and inventory management can increase the cost of unplanned funding shortfalls. Treasurers may need to adjust short term funding needs or use supply chain finance solutions.
• Flexible liquidity structures to optimize return on cash: As rates change, treasurers may be unsure about how to continue to optimize the value of cash balances and fall back on “safe” approaches, which may not be flexible enough to keep up with the changing economic environment.  They will need to reassess where they hold cash and how they structure intercompany lending and repatriation.  This may require re-evaluating cash concentration and notional pooling structures and diversifying or consolidate bank relationships. They will also need to review and adjust risk and governance policy.
• Cross border business: As corporates may need to re-route their supply chain to different suppliers as well as different countries, foreign currency swings and capital flow restrictions will require a reassessment of country and counterparty risk and FX hedging strategy.  These changes may also impact their existing intercompany funding model. Hence, they need to review whether their current liquidity structure is still relevant.  They will need to manage country risk based on their internal risk guidance and adjust the in-country cash holdings accordingly.

• Are you prepared for multiple-rate-decision outcomes, such as higher for longer, additional hikes or rate cuts?
• Do you have the necessary cash or working capital where it is needed most?
• Is there room to further optimize or automate your treasury structures and/or operations?
• Have you considered testing your current systems to determine how they may perform in response to different interest rate levels and cash flow scenarios?
• Do you have a liquidity strategy for all your currencies?

The good news is that there’s a range of treasury management solutions to lessen the impact that changing rates can have on your business. As an experienced international partner, Bank of America can help optimize treasury processes, increase capital control and mitigate market uncertainty through:

• Digital solutions: Streamline processes and avoid fees that may be triggered by manual errors with innovative technology like CashPro® — our best-in-class treasury management platform that can help set up automations, alerts and other ways to avoid overdrafts.
• Automated liquidity solutions: Optimize liquidity and increase global visibility of cash positions through automated solutions.
• Cash concentration for larger companies (physical & notional): Consolidate cash balances and manage liquidity across multiple accounts in different currencies.
• FX solutions: Make the cost of managing multiple currencies more predictable with automated FX solutions.
• Earnings Credit Rate (ECR) products: Use liquidity to help offset service fees.
• Supply Chain solutions, such as Supply Chain Finance and Card: Extend payments terms and increase working capital.

Still have questions?   Having a trusted advisor to guide you through economic or market challenges can make all the difference. Contact your Bank of America liquidity expert for more information.