Analytic tools are moving downmarket from large corporations to the middle market, Chayt reports. "Middle-market treasurers want the facts," she says. "Then they want the analysis. Then they want the options about what they can do about it." While many midsize treasuries rely on a primary bank with which they have a long-standing relationship, there is growing demand for multibank reporting, Chayt says. Companies want their primary bank to feed a dashboard with information about their balances at all their banks, she explains.

The terms "large" and "multinational" once went together, but not any more, as global sales and sourcing have spread quickly through much of the middle market. A case in point is Biomet's streamlining its global cash flows.

Middle-market treasurers are driven equally by cash management concerns–conserving liquidity, establishing greater control over the timing of cash outflows, buying at discounted prices, earning rebates–as well as process efficiency concerns, notes Robert Clarkson, vice president and general manager for American Express commercial cards. "Many lack sophisticated systems that can track their spending, so they use a consolidated billing service that can do this for them," he says.

Clarkson also notes that treasury and risk are much more integrated at middle-market companies now. "We used to work with treasury primarily, but now we're hearing more from the risk side of our clients. They want reports that show compliance with policies and how well policies are working. They want tools that satisfy both treasury and risk concerns."

Interest is particularly high around automating AP–using bank payment engines to take a single payments file and execute all the payments using the most appropriate payment type–check, wire, ACH or card, Trotter says.

Going Global on a Budget

As more middle-market companies go global, handling cash flows in many currencies and geographies and doing it efficiently is becoming a requirement for treasuries that have only small staffs and limited budgets. But the tools are there. Just ask Mike Hodges, corporate treasurer and vice president at $2.7 billion Biomet, a medical device manufacturer in Warsaw, Ind. Efficient deployment of cash is critical for Biomet, which was taken private in a 2007 leveraged buyout that left the company with $6.2 billion of debt. And with a growing share of its cash flow coming in more than 20 currencies, creating an efficient banking infrastructure was the key to tight liquidity management on a global scale and cost-efficient multicurrency banking. For Biomet, that has meant moving to a notional cash pool and multilateral netting.

"We weren't doing any multilateral netting when I arrived," says Hodges, who joined Biomet in 2008. "We had euro debt and debt service, so our CFO was asking how we could get our euro cash out of Europe and back to the parent company to service our debt.

"Netting has been instrumental in streamlining intercompany flows," Hodges says. "Now that it's centralized, we only make one netting transaction per month, per currency, which has really streamlined our settlement.

"Previously if our European affiliate was billed in dollars, it had to sell euros and buy dollars to pay the invoice. Then at headquarters, we would turn around and sell dollars and buy euros to make our quarterly debt service payment on our euro term loans," he explains. "With the netting, which we run completely in-house, we've eliminated all those unnecessary conversions. We can take the euros and pass them through to the parent without using a bank for currency conversions."

The result has been fewer transactions and lower fees. "We saw a huge reduction in the number of transactions, from around 275 to less than 40 a month. And we saw a corresponding drop in banking fees," Hodges says. "All in, we probably save around $300,000 per year." Netting also protects against currency risk, he adds.

Biomet complements its netting with a multicurrency notional pooling structure with Netherlands-based Bank Mendes Gans. Approximately 40% of Biomet's revenue comes from outside the U.S., and the company, which has no treasury workstation and no SWIFT connection yet, does not see the cash balances daily in its affiliates' depository accounts, which are scattered across 70 banks in 35 countries. The majority of affiliates are cash pool participants and on average they keep on 90% of their available cash in the pool. Hodges and his team, including two staffers in The Netherlands, have full visibility into the pool.

Visibility was just part of the reward from setting up a notional cash pool. Better still, the consolidated balance of the pool was available centrally for immediate use. Within five months, Biomet was able to pay off foreign borrowings of more than $50 million, realizing annual interest savings of over $1.2 million.

Underneath the pooling structure, Biomet's pockets of foreign cash are "still pretty decentralized at the affiliate level," Hodges says. "We use a lot of local providers. We're going to take a careful look at our banking structure abroad and look for ways to consolidate providers. We think that [the Single Euro Payments Area] provides opportunities for us."

Rigorous domestic cash management is also important. "We had just gone from no leverage to highly leveraged when I arrived," Hodges recalls. "The big focus was on getting our arms around our global cash flow, mobilizing it and getting it to where it was needed."

Locating and mobilizing Biomet's cash meant consolidating its business with one lockbox provider, Wells Fargo, which processes and reports about $100 million monthly, approximately 75% of the incoming cash. The company uses one disbursement bank, Bank of America, which is also its concentration bank and the lead bank in its revolvers.

"Prior to the consolidation, we had four business units in the U.S., each of which managed its cash locally," Hodges says. "We went to one platform for all our disbursements, and one for all our incoming check payments."

With most incoming U.S. payments in the form of checks, the lockbox is Biomet's primary channel. Until 2008, checks were deposited at the lockbox and the remittance papers boxed and overnighted to Biomet's Warsaw office, where it took about three days for four dedicated employees to post the payments.

Moving to data capture at the bank and a nightly data transmission has been "a huge improvement," Hodges says. "We were able to speed up cash application considerably and redirect staff time from applying the payments to other activities, primarily collections.

"That's a good thing, because Biomet does not have a heavy receivables concentration with any one customer and therefore we must have an effective collections effort," he adds. "So far, our collection experience has been good."

Incoming wires, which account for 25% of payments, arrive at B of A, and Biomet's treasury sees their arrival through B of A's banking portal. Biomet has migrated the vast majority of its vendor payments to ACH, opting for efficiency and predictability over float.

As a maker of orthopedic products like artificial knees and hips, Biomet is dealing not just with globalization and its LBO debt; it's also feeling some impact from the global wave of healthcare reform. How that will affect demand may show up in Europe before the U.S. "In many countries across Europe, the public sector makes up the largest portion of our business, and everyone is trying to rein in costs," Hodges says. "So far, it hasn't had a big impact on our business, but the competitive landscape is definitely getting tougher."

So it's good that Hodges knows the medical field, having spent 18 years in the treasury of drug maker Abbott, where he rose to assistant treasurer. He then spent two years as corporate treasurer at Hyatt Hotels before joining Biomet. Hodges heads a staff of five.

The treasury initiatives were "extremely important as we swung from being a cash-rich, debt-free company to being leveraged at eight times EBITDA," notes Dan Florin, Biomet's CFO and senior vice president. "Mike and his team have done foundational things that give us much better visibility and control over our cash flow, which is now mission critical."

Treasury's moves align with a cultural shift to working capital awareness that includes tying bonuses to working capital measures in addition to revenue and profit measures, Florin adds. "We used to assume that if the revenue was there, the cash flow would follow. Now we've educated everyone to recognize the drivers of cash flow and use them effectively. And we reward them when they do."

As Hodges' team has made progress, it found enough cash to cover almost $500 million of annual interest expense and pay down the company's debt to $5.9 billion. Biomet's debt consists of secured floating-rate term debt and a public issue of senior unsecured notes maturing in 2017.

But mostly Biomet is hanging onto the $229 million of cash on its balance sheet.

"Our capital structure is very favorable. We're highly leveraged, but it's extremely cheap funding," Hodges says. "We have made small, opportunistic repurchases of almost $20 million of our bonds, but buying back our paper at attractive levels is difficult because investors like our name and our coupon. So mostly we're keeping cash as dry powder."

Paperless Payroll Pays Off

The SFN Group is a middle-market company with annual revenue of $2 billion. Yet its humming payments factory would be the envy of many Fortune 500 corporations. SFN makes 50,000 payroll payments every Friday. How many are paper checks? Usually around 50. SFN is a temporary staffing and recruitment company, with about half its workers in the lower-paid clerical and light industrial ranks, and the rest in the higher-paid professional ranks, such as IT, HR, engineering, finance and accounting, so its stake in doing payments well is huge.

"We make all those payments every week and get paid by our customers 45 days later," says Mark Smith, SFN's CFO and executive vice president. "We're all about velocity of cash flow and processing transactions economically."

SFN seized the economic meltdown as an opportunity to introduce a revolutionary change in payment practices. "We used 2009, the biggest downturn year, to convince customers and employees that we now had to do business in a different way," Smith says. "With that rationale, we were able to move virtually all employees and most vendors to receiving electronic payments."

The Fort Lauderdale, Fla.-based company moved other employee interactions to an electronic format as well, like applications, pay elections, IRS forms and time sheets, he says. "We now use no paper records."

At the start of 2008, about two-thirds of employees were paid electronically, Smith says. In 2010, more than 99.9% were. "We were able to eliminate the printing and mailing of nearly 17,000 paper checks each week," he reports. "We push direct deposit through the ACH as our preferred method for paying employees, but among the lower-paid workers, some don't have bank accounts, so for them we use the pay card."

Wages are credited and stored on the card each payday. The card is branded with the MoneyNetwork logo and can be used at any merchant where Visa is accepted or to get cash at ATMs, he explains.

The shift to electronic is broad-based. "We've worked hard to get our outgoing payments as close to 100% electronic as possible," Smith says. "Last week we wrote just 45 physical paychecks. Everything else is done by ACH or pay card. Our AP payments are now close to 90% electronic. About 75% of our bills are now sent out electronically. We want to bill and collect as quickly as possible, and we want to keep the transaction costs down." He estimates that the move to electronic payments has saved the company over $700,000, and 5% to 10% in staff time.

SFN has about 12,000 incoming payments a month for over 80,000 invoice numbers. About 74% of the payments are checks and arrive at a Bank of America lockbox that is tied to a receivables-backed credit facility. As payments come in, they're quickly applied to reduce the loan balance; as more receivables are created, that balance may go back up.

SFN also receives about 2,500 ACH payments and a few wires a month, all sent to B of A and reported simultaneously with the lockbox data. B of A lets SFN know which invoices have been paid through a daily feed that is uploaded to SFN's PeopleSoft ERP for automatic posting. The feed includes invoice numbers and dollar amounts. Currently 76% of the incoming payments are automatically posted.

Collection velocity dictates ensuring that the invoices are accurate and delivering them quickly and electronically. For this, SFN uses a combination of channels that includes Ariba, e-mail, file transfer protocol transmissions and other methods. Its DSO has held steady at close to 45 days, Smith reports.

"Our receivables aging, even through 2009, has been as good as it's ever been," he says.

SFN uses online tools from its banks and has an internally maintained treasury workstation, but the workstation isn't directly involved in the payment process. The payroll and AP modules of the PeopleSoft system are used to transmit data directly to the bank, one ACH file for direct deposits and another ACH file to load the transactions on the reusable cards, explains Teri Miller, senior vice president of finance. The workstation is used primarily for record keeping, she explains.

In redesigning its payment factory, SFN went from three disbursing banks to just one, SunTrust. "When we were using all those paper checks, we needed banks that had large networks of physical branches for our employees to cash their paychecks," Miller explains. "Now that we're all electronic, the bank's physical footprint is irrelevant. We have just one bank for outgoing payments and one for incoming payments."

SFN funds its working capital need with an asset-based lending facility with a bank group led by Bank of America. All the assets are accounts receivable. "As the global economy faltered, our cash flow dipped a little bit but remained strong," Smith reports. But he faced a challenge: the facility was set to run until July 2010. "We did not want to get within 12 months of the maturity date, especially with the credit crunch so severe. So in the first quarter of 2009, we attempted to renegotiate the contract and push out the maturity."

Early 2009 was not a time any CFO or treasurer wanted to be renegotiating a credit agreement, but SFN got the job done. "We have a good, long-standing relationship with our lenders. They know and trust us," Smith says. "The credit quality of our receivables remained high. We were able to secure a new deal with a four-year tenor."

It didn't come cheap. "Of course we were forced to mark the whole deal to current market pricing," he says. "That pushed up our cost of borrowing by 275 basis points, but we had financing we could rely on. Then, a year later, we were able to renegotiate again in the second quarter of 2010 and bring the price back down ?150 basis points and add another year to the tenor." As of the end of September, SFN had about $30 million outstanding under the facility.

One of SFN's subsidiaries, Tatum, is in the business of providing temporary CFOs, treasurers, controllers and other finance executives to companies that need them. So some of those 50,000 weekly payments go to high-powered finance pros who are designing efficient payment systems for clients. SFN prefers to keep its hot shots out in the field, generating revenue, rather than helping it streamline its own treasury.

Nevertheless, "we have spoken to some of them about best practices they're seeing," Smith says. "The door to information sharing stays open."

Creating an Integrated System

A privately held $500 million company with a two-person treasury operation can find affordable technology and use it to achieve a high degree of automation and straight-through processing if it finds the right formula. For Chicago-based CareerBuilder.com, the first step was finding the right people. Director of treasury Philip Mattes joined in 2007 from PricewaterhouseCoopers, where he had spent eight years as a corporate treasury consultant, helping companies improve their treasury functions and choose and implement treasury workstations.

Then in 2008, Sunil Patel was hired as senior treasury analyst. Patel had worked at LaSalle Bank as an implementation manager and served as treasury analyst at Schwarz Supply Source before joining CareerBuilder. Treasury reports through vice president for corporate finance Bill Razzino to CFO Kevin Knapp.

With the team in place, it was a matter of choosing the right technology and configuring it for maximum efficiency. One key was replacing spreadsheets and a lot of manual entry with a new Kyriba treasury workstation. Another was moving to electronic file transmissions connected to a streamlined banking structure that uses Bank of America for international cash management and U.S. lockbox, and JP Morgan Chase for the rest of domestic cash management.

Add a money-market investment portal, Institutional Cash Distributors (ICD), that interfaces with the Kyriba workstation, Axiom custom cash application software as part of the revenue system, and a lot of patient interface building, especially with the company's legacy Lawson accounting system, and the result is a high percentage of treasury and accounting transactions and reporting that never requires human intervention.

CareerBuilder has 22 U.S. and 14 international offices, and 88 bank accounts in 16 countries across North America, Europe and Asia. Depending on a location's requirements, there is one stand-alone bank account per legal entity per country or a zero balance account structure, with all reporting done automatically through Kyriba, Mattes says. "It used to be all Web sites, spreadsheets and paper, but now we get it all electronically through the workstation," he says.

It helps that CareerBuilder is a high-tech company with a bias toward technology solutions. Its online job site sells job postings and related services to employers, recruiters and staffing firms. Job seekers come to the Web site, enter their search criteria and review the listings that match their skills and requirements. "Globally, Monster.com is our biggest competitor," Mattes says. "We are the clear market leader in North America."

To automate receipts, Mattes and Patel chose a lockbox system from Bank of America that uses two lockboxes identified with legal entities but just one reporting and application stream. About 90% of the company's roughly 6,000 incoming payments a month are checks and 10% electronic payments. A nightly file transmission from B of A contains the check information.

"The lockbox captures the check and remittance information and passes it to us electronically," Mattes explains. "We then feed it through our revenue system, Axiom, which scans for invoice numbers and applies the payments to the customer accounts. We get about a 78% hit rate for automatic application."

For disbursements, CareerBuilder's centralized AP function exports daily files from the Lawson AP module to its banks. Two files go to JP Morgan Chase, one containing check information for outsourced check printing and the other the information on ACH payments, and a third file goes to Bank of America for international electronic payments. Outgoing payments are about 40% checks, 40% ACH and 20% international payments. "The file transfers are all done automatically using secure [file transfer protocol]," Mattes says. "There's no more logging onto Web sites."

Mattes, who was well acquainted with the various treasury systems offerings, says the choice of Kyriba was fairly straightforward. "We're pretty much a vanilla treasury operation," he notes. "We don't use derivatives. We don't have debt. We really liked their software-as-a-service delivery method, and the cost was certainly attractive."

Information reporting is daily, it's automated, and it's all done through Kyriba, Mattes explains. "We get all the bank account data for same day and the previous day. And we monitor our cash position on a dashboard."

The advantages of an integrated financial system based on Lawson and Kyriba are considerable. "Before Kyriba, for us in treasury it was a lot of logging onto individual bank Web sites for daily reporting," Mattes says. "Now it's all consolidated in one system. Everything is automated. We have on-demand visibility into all our bank accounts. That was our first goal."

But the benefits go far beyond treasury. "Once we had the treasury reporting automated, we worked to leverage that information with the accounting department and use the information in Kyriba to automate some of their tasks," he adds. "They were using spreadsheets and doing manual entry. By interfacing Kyriba with the accounting system, we saved them a huge amount of time."

The benefits came largely from an interface with the general ledger, the first part of which records issued checks. "When checks clear, Kyriba sends that information to the Lawson GL. That keeps our GL in synch with the bank records of what checks have cleared and what checks are still outstanding," Mattes explains. "The second part of the interface automatically assigns GL coding to cash transactions."

Mattes says Kyriba uses rules to code transactions for the general ledger. "For example, take the weekly payment we make to American Express for our corporate card charges," he says. "When that payment comes through Kyriba from the bank, the system reads the bank account number, three-digit BAI code and the keyword 'American Express' in the text. That's enough to trigger the rule for the American Express payment and to debit expense and credit cash automatically in the general ledger.

"We've created rules that result in 75% of cash flows being applied automatically in the GL," he adds. "The accountants only have to deal with 25% manually now."

One of the final steps in the automation process was linking Kyriba, Lawson and the ICD investment portal. CareerBuilder invests about $65 million of its cash reserves through ICD. "The treasury analyst buys or redeems investments through the portal," Mattes says. "The trades flow into Kyriba so that we can see the balance in our cash position and then [they] are journalized and passed on to the GL without any manual involvement. We did that about three months ago. It's really slick. It's working flawlessly."

To read about Sauer-Danfoss's use of a financial shared service center, read Outsourcing Supplier Payments, T&E.

To read about how MediaNews Group upgraded its purchasing card program, see Simplifying With P-Cards.