Crossing the border? Navigate international cash management rules.

• Author: Pierce, David
• Position: Money Talk

In today's tough economic climate, many businesses are looking to expand beyond the local U.S. market in order to grow. Conducting business overseas can provide more challenges than some business owners expect. One of the most overlooked aspects of doing business internationally is effectively managing cash flow.

Domestically, companies put tremendous time and effort into maximizing their cash, reducing their outstanding loans, speeding up collections and reducing the cost of making payments. When companies venture into the international arena, they discover a whole different world when it comes to managing cash flow. We are the beneficiaries of the largest and most efficient economy in the world. One of the biggest pitfalls treasury managers face when beginning to expand internationally is mistaking our own good fortune for the status quo. One must realize that every country's banking laws, regulations and payment systems are different. This means business owners may need to have different banking relationships within each country.

A perfect example is the Eurozone, which was created to facilitate more efficient trade and treasury functionality. Many of the major banks in each country market their abilities throughout the whole Eurozone. But an astute cash manager will not assume that cash management services that span the Eurozone are similar to those crossing state lines in the U.S. Though the countries use the same currency and share some common clearing mechanisms, each country has its own rules and fee structures. There is no one-size-fits-all system.

It is imperative that treasury managers understand the most important issues facing their company and make sure that the international financial institutions are capable of providing the services necessary. Additionally, as companies do business in less developed nations, it may be wise to have relationships with several banks in different geographic locations.

Finance executives will also need to consider other variables when managing cash flow for a global company. For example, consider a U.S. manufacturing company that recently opened subsidiaries in England, Germany and France. The U.S. parent company manufactures products that the European subsidiaries will sell in each of their respective countries.

The company now has several issues to deal with including two additional currencies to worry about: the British Pound and the Euro. Best practices in global cash management suggest that...