Say you are an organization spread across the world and have been making international payments to your many global subsidiaries or vendors. It is common practice for such organizations to make their payments well ahead of the actual value date. Banks typically have a two-day lead-time for processing payments. So once you have done the electronic fund transfer two days ahead of time, your system automatically creates a forecast for such date (or you manually create a forecast) and you rest assured that all is well.
Is this always true? Is there a possibility that you may still end up with wrong cash forecast for the date on which the payment is supposed to be made?
Say you make your salary payments, of USD 500,000 to your department in India on the 26th of every month such that the payroll gets processed in time. Following the schedule you made your January 2009 payroll funds transfer on the 22nd of January. Since you are aware of 24th and 25th being a Saturday and a Sunday you have made the payment well ahead in advance to get it processed on the 26th. Your cash forecasting system is also notified either by the system or a manual entry that an amount of USD 500,000 will be debited out of your bank account of the 26th morning.
All is well so far but January 26th is a national holiday in India, so the receiving Bank will processes your payment on the 27th. When you make your funds transfer on the 22nd, which is a Thursday, the debiting bank sends the payment to the receiving bank in India for processing, which in turn immediately notifies the sending bank that it will be processing the payment a day later on the 27th. Based on this communication the sending bank will only draw funds out of your account on the 27th and not the 26th. An end user may actually not be aware of this value date change and so could be the case with your cash forecasting system. On the 26th your cash position will show a figure that is less by USD 500,000. Similarly your cash forecast for the 27th also has figure that is wrong and you end up with a wrong cash position for both days.
Now what if you have payments being made to several countries across the globe? You may end up spending your working days tracking holidays in other countries.
The Treasury Sciences product suite ensures that you never have to think about these scenarios and ensures that your payments are made in time and you cash position’s accurate. The communication protocol used by our EFT module ensures that after sending the payment to the bank it is aware of the value date being adjusted due to a holiday. It then immediately notifies the integrated CMO module of this change and the cash position for the 26th is corrected seamlessly. On the 27th when the actual settlement is done the CMO module reconciles this payment with the BAI account statement sent by the bank ensuring a correct cash position.
The process described above is unique in that it does not even require you to maintain a Holiday Calendar for each country that you work with. Just another way we utilize Modern Treasury Management to solve age-old problems.