What does Likwidity do? Automated cash optimization

We often get asked what exactly does Likwidity do? Let's run through this scenario to illustrate:

What is automated cash optimization?

Assume that you're an organization that often has surplus cash.

So what are the typical questions a CFO/Treasurer/Director asks or should be asking?

• Where should we invest our cash?

• Which bank is paying the best interest?

• What is the credit rating of the banks we deal with?

• How much should we invest per bank?

• How long should we invest our funds for?

• Can we have access to our funds?

• What is the difference between bank deposits and money market funds?

• What happens when the investment matures?

A Typical Scenario

1. Company ABC. You only have 1 bank relationship, maybe 2 or a few at best If you leave your cash funds in your transaction account, you may earn below market and possibly 0% interest on surplus cash The best you can do is to move the funds into a higher rate savings or a Demand account or a CD/Fixed Deposit/Term/Time Deposit account with the banks. You could also evaluate investing in Money Market Funds

2. The other option is that organizations use a broker/intermediary to do the cash optimization. Brokers may get paid a commission ranging from 0.05% up to 0.50% by the banks and some banks also have volume rebates that are not always disclosed. In that case, this is how it would work:

   1. The bank rate is, say 4.75%

   2. Broker commission is 0.50%

   3. You as the client will then get a final rate 4.75-0.50=4.25%

How much are you losing in this scenario? See our ROI calculator to get a sense.

As can be seen above, your organization could be losing out on substantial interest income if your bank was offering the median rate. You need automated cash optimization

Our role:

1. Likwidity is NOT a broker and is a pure software tool charged on a fixed monthly fee. So no hidden commissions or rebates and client gets the full quoted rate by their bank.

2. Likwidity does not interpose between client and bank. We are a software tool, and organizations retain full control and engagement with their own bank and relationship managers. We aim to be invisible.

3. Likwidity does not receive or have access to organization cash funds or bank accounts.

4. Think of us as a plug-in between the accounting/ERP/Treasury systems

   
   
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An ideal state of what should happen?

1. The organization builds up cash and forecasting tools will indicate cash requirements/surpluses over the next 1-12 months

2. The board of directors have agreed on the following policies. (Example)The organization must have 3 banking relationships [Remember SVB and recently issues with TD Bank?] 2 banks must be A+ rated (Fitch/S&P/Moody's) They can only allocate a maximum of 40% with any 1 bank All investment transactions must have comparatives and an audit trail to evidence acting in the best interest

3. If no tools are available, then this is the typical process/workflow of what needs to happen:

4. The majority of organizations hold approximately 55% of short-term investments in bank deposits (AFP Liquidity Report).

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By far the majority of banks do NOT publish their corporate bank rates so organizations are in the dark about market-related rates. The available rates are for retail clients and will be different for organizations.

• Finance teams then either call or email each of their banks to request a quote on bank deposit (Time deposits).

• This will be repeated for each deposit that needs to be placed with banks.

• Once the banks have responded, the information will be collated and compared to the following:

• Are the rates within budget?

• Will the best rate be within limit policies?

• Once decided, the organization advises each of the banks on their decision

• In some cases, a bank reference number is provided to link the deposit, rate and client.

• The funds are transferred to the selected bank

• The information is be recorded on a spreadsheet to keep updated and calculate interest

• The calendar is updated to remind when funds will mature

• For month end purposes, the interest is calculated and graphs prepared for management accounts When funds mature, the organization will decide on what action to take, i.e. roll over the funds or withdraw

• So how does Likwidity help

Likwidity will automate ALL of the above processes quickly and efficiently, except any settlements or transfer of cash funds. Automated cash optimization

This is how Likwidity automates.

This dashboard will show:

• How much additional interest earned vs other rates

• Funds allocated by bank to reflect diversification

• Funds by credit rating to illustrate risk diversification

• Funds maturity profile to show when funds are available

• Limit utilization by bank to show adherence to limit pol

In addition, organizations will also get:

• Notification of rates offered by each bank

• Automated interest calculations

• Automated notifications of maturing deposits with option to roll over or withdraw funds

• Detailed audit trail of all transactions

• Ability to advise banks of early withdrawals

• Ability to request banks to re-price (improve) on quoted rates

Collectively, Likwidity achieves 6 key outcomes:

1. Optimized interest income through price discovery and price tension. Tangible ROI and no more FOMO on best bank rates

2. Complete automation of processes and significant time saver

3. Enhances bank relationships

4. Visibility over risk

5. Full auditability, governance and compliance over organization cash funds

6. Automated reporting