Rethink Treasury III
In the third part of our rethink treasury series, Damian Glendinning interviewed Matt Wreford, CEO of Demica to demonstrate practical examples of how his company has used APIs, workflow management and several other new technologies to help customers change how they work, while still using the existing IT systems.
The session was recorded, but followed by a confidential Q&A with our senior treasurer panel who then gave their reactions after Matt had ‘left the room’.
In our first session in the CompleXCountries rethink treasury series , the comment from many members was that they agree the new technology, mostly based around APIs, can transform business and treasury processes. But, as treasurers, we are usually at the end of a business process we do not control, and we rely on systems, such as ERPs, that we do not manage, and cannot change.
In this session (please listen to the recording below), Matt Wreford, CEO of Demica gives us practical examples of how his company has used APIs, workflow management and several other new technologies to help customers change how they work, while still using the existing IT systems. The particular area Demica work in may not be of use or interest to all treasurers: they run a platform which brings together people with assets to sell – often receivables – and the acquirers of those assets. As part of this process, they manage the reporting which the acquirers often require for effective transfer of title, and to ensure that the assets meet specified criteria. However, the principle can be applied across many areas: Demica have an example of a customer who no longer uses the platform to sell assets, but they found the Demica reports gave them useful management insights their internal systems could not provide, so they still send all their data to produce a reporting dashboard. During the call, several treasurers saw opportunities to apply the approach to other areas, including factoring intercompany receivables and managing an in-house bank.
The other key benefit of this approach is flexibility. Traditionally, factoring or asset securitisation has been very “sticky” business for banks: the systems and reporting requirements of changing partners are daunting. Using a platform, and having flexible reporting tools available, makes it relatively simple to access a large number of funders – and these are not only banks.
Bottom line: this is an excellent example of a situation where the new technology is actually available, and providing benefits which often go beyond what was initially expected.
CONVERSATION & PRESENTATION WITH MATT WREFORD
Q&A BETWEEN TREASURY PANEL & MATT WREFORD (Not in the recording)
The Chatham House Rule (confidentiality) was applied to this part of the session
Question 1: When the receivables transactions are happening, is the system also generating accounting entries that can be used in the ledger of each subsidiary?
Answer 1: We have the ability to create all of the journal entries so you could mark the receivables as sold in your systems, and we create all the journal entries within the Bank or factoring organisation to show that they bought them, together with the accrued interest and conditions, etc.
Question 2: So if I just wanted my in house bank to buy receivables from a subsidiary, can you create accounting entries for both sides of that transaction?
Answer 2: That is exactly what Huber is doing and why we were left in even though they implemented Kyriba.
MW: You probably recall back in the day it was possible to factor receivables at different discount rates and therefore move profit to low tax jurisdictions, that was the original genesis of some of the stuff we were doing 15 years ago. But obviously no longer possible today under BEPS.
DG : And if I may, I think Matt you have something like sixty or seventy funders in the platform?
MW: Today we have 41 live and about 75 where we have a close relationship. Some people use it more on a spot basis. We’re very used to moving into third parties as well as making payments everywhere.
DG: Thanks. But again, the point is that going back to what [redacted name] was asking is that you can also be your own funder.
MW: Yes, you can be one of the funders on the platform. For example in a dynamic discounting programme, you might choose to fund the long tail suppliers and at the same time get a bank to fund the large strategic suppliers.
Question 3: Regarding file transfers, I have some entities that are not exactly in major countries and they use ERPs that are less popular. As you get into some of those fringe areas what level of cover do you have?
Answer MW: We’ve integrated with 240 different systems and have transactions live with debtors in 134 countries. It depends on how you structure the deals. Sometimes it’s not cost effective if the funders want to get a true sale opinion to support the transfer. And in that case, if you’ve only got a few hundred thousand dollars of say Kazakh receivables it probably isn’t worth it. But from a technology perspective it’s all feasible. We might work with you both on a tech perspective to connect to that unusual Kazakh ERP and also on a structuring basis to find a way to make it more economic. We are doing a transaction at the moment for an APAC firm that is triple B plus rated, and they are going to sell receivables in the Philippines, Indonesia, Pakistan, and Kazakhstan. And we’ve come up with a structure to do that, that is incredibly efficient and the transaction will be funded by one of the world’s largest insurers, because they didn’t want to absorb credit lines from their banks.
DG: But also, Matt , would I be right in guessing that should these programmes actually involve a local Kazakh bank, as long as the Kazakh bank has interfaces to receive the data you could also take the data, format it and send it to them?
MW: Yes and they wouldn’t need interfaces: some of the banks aren’t technologically advanced and they can specify a report in excel format and the platform will automatically create that report and send it to them on behalf of the client. The bank will re-key it on their side if they aren’t very sophisticated.
Matt Wreford left the session at this point.
TREASURY PEER PANEL COMMENTS
The Chatham House Rule applied to this part of the session. Each panel member is represented by a number. Some details have been redacted to maintain privacy.
DG : Obviously hesitated a little bit from the potential sales side but for me the real thing here is, it’s amazing what you can actually do.
Response: Yes. And if the IT piece of this is as simple as it seems, this approach gets rid of all that is involved in sending files back and forth between systems….
DG: I can give you my perspective on that: I come back to how I got involved. In [redacted] we were selling receivables to some company whose name I forget, and they decided to exit the business. Today what’s going on is that we are still using that company’s system and downloading the file to Demica and they’re using it to generate the reporting using Excel. It’s a nine megabyte Excel file. As we need to move away from the system, we talked to Demica, and they said it would actually be much better if we just went straight into the billing systems. That’s what triggered my interest. Already the Excel reports and spreadsheets are very helpful but analysis is very painful. If you can actually get all of this out of a dashboard, you’re looking at a very different animal.
DG [redacted,name], if I may, I repeat I’m not trying to do a sales pitch, I just happened to be struck and impressed when we were talking to them.
But two things. First is yes, obviously this is a question of approach: you may not need asset securitization, but the approach is something you can apply in many areas. The other thing is in terms of banks, they have 75 different financial institutions that they’ve worked with. One thing that Matt didn’t say is that there is actually one major bank that is looking to renew its internal asset financing systems: they gave up trying to achieve it internally and have outsourced it to Demica. So, these are absolutely valid points but I do think everybody is beginning to understand that there’s a benefit to just going to somebody who does these things
Response: I think so too. And also for the internal bank, and to use this as an internal funding vehicle, is also quite interesting.
DG: Obviously, it would be able to provide the data support for your internal funding.
*MW pointed out (after reading this report) ‘Trade receivable securitisation was designed for that situation – our programmes for large [redacted industry] all have hundreds of thousands of debtors with low values. The cost of funds for these types of programmes is L+90-120.’