Cash & Working CapitalRegional

Obstacle Course: Cash Forecasting Challenges in Latin America 

By July 14, 2020 No Comments

Treasurers in Latin America are coping with the pandemic, M&A activity and working capital needs.
 
Many of the cash management challenges currently facing treasurers in Latin America are being complicated by a variety of factors, including the omnipresent COVID-19 crisis. But also in the mix is recent M&A activity in the region (think integration and its opposite, divestiture), along with difficult financing conditions affecting working capital management.
 
COVID chaos. Latin America is no exception in regions contending with the difficulties brought on by the pandemic. As in other parts of the world, work from home (WFH) processes have had to be invented on the fly and then executed.

  • This has led to some turnover, part of which stems from the paradoxical situation where WFH often means more work and burnout; this then leads to companies onboarding new people either virtually or in person while maintaining social distancing protocols.
  • Members pointed out that this highlighted the importance of written, up-to-date policies and procedures. 

M&A chaos. Acquisitions, and in one case a divestiture, bring their own challenges to accurate cash forecasting. Integration of the entities involved must take place country by country. The message here is that there is a lot to do, in multiple tax and regulatory environments that generally do not allow cross-border solutions. Of course, the whole forecast philosophy can vary—forecast as needed vs. regular forecasts. Also, the need to repatriate regularly or leave the cash where it is requires major adjustment and training.

  • Where treasury management systems are involved (and the accounting systems that feed them), there is the need to reconcile different approaches to the requirements of the new combined (or separated) entity. 

Working cap scrutiny. Communicating the expected cash needs of the new company is an important issue to management ahead of earnings calls. Going along with this is the focus on working capital, and in particular short-term assets like accounts receivable (DSO’s) and inventory (months of sales).

  • Often overlooked is the opportunity presented on the liability side. Companies with historically strong cash flow may have slipped into a practice of just paying the bills as presented.
  • By paying according to terms, or negotiating payment terms to industry benchmarks, companies can add to cash on hand the same way collecting sales faster adds to cash. 

Cash rules. Treasury needs to work closely with in-country managers to identify where there are opportunities to increase cash on hand and then determine how to get that cash to where it is needed, whether to pay down debt or pay equity investors.

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Antony Michels

Author Antony Michels

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