Q: What is one of your major challenges?
A: Running a very large dollar volume with a small team. What we try to set up is a very automated set of systems to be a lean as possible.
Q: How are you achieving that?
A: We have a market and operations team selling the product. When they conclude a transaction they enter the data into the ERP [enterprise resource planning] system. The invoicing and payment process flows directly from that. The system was designed really to automate as much as possible both from a control perspective and also a credit perspective.
Pricing is formulaic so the pricing data is fed in automatically on a daily feed from a pricing aggregator. The only significant input after that is when the bill of lading is executed and then there’s a review process before the invoice is issued.
Q: Did you have any legacy issues?
A: The business started from scratch so we didn’t have legacy systems in place where you would have to implement something new and run it in parallel, for example. Your choices become far more limited because you have to address the legacy system and may be writing off significant investments. Coming at it from a blank sheet is so much easier.
Q: How do you stay lean?
A: The company was designed for the purpose of generating value for all the oil producing entities in Qatar. Our principal aim is to maximize revenue back to the producers, one of which is Qatar Petroleum.
Because of our unique position there are a lot of governance-related structures in place. We have an independent review which a law firm conducts to make sure governance is all in order; independent audit conducted by the oil producing entities themselves; and then of course the normal external audit and an internal audit.
Q: How advanced is the Middle East’s treasury systems?
A: It seems many companies are still very much in a environment where they are still doing manual payment instructions to the bank). When I talk to other people in the Gulf we are quite a way ahead. Largely because we started with a blank sheet and could build out a sophisticated environment immediately.
Q: Describe your receivables financing process?
A: The producers, our suppliers, are required to sell to us. We do that on standard credit terms which are back to back with our sales side.
On our sales side we underwrite any counterparty risk principally through letters of credit. We will occasionally discount invoices or LCs to fund any cash flow mismatch for example. In four years we have never been late on a payment. So we have to make sure we deliver on that undertaking.
Q: Will you discount for any other purposes?
A: We may also discount when we want to spread our bank concentration risk. We obviously have limits with our banks. So if we were over exposed to an individual bank then we may discount a particular LC to another bank to spread that risk.
We tend to try to prevent this and require the customer to use another bank to issue the LC but, of course, they may not have a line with them or it’s tapped out.
Q: Do you sell receivables in order not to be overexposed to a particular customer?
A: We haven’t done that. We manage within the credit limits with our particular customers. We will manage the timing of what and when they buy from us. Or they must take out security for any surplus. So, if they have an open credit limit with us—and only a few select customers get that—and that limit is tapped out, we would then ask for them to take security. Again, with a bank that is acceptable to us and within our bank exposure limits. We are pretty conservative.
Q: How many bank relationships do you have?
A: We have four cash management bank relationships, although we use two as our principal banks. But of course security is issued by multiple banks. That number is much higher. So I would say we had a relationship with dozens of banks. It’s also about horses for courses in given markets. Some banks are better at certain things in certain geographies than others.
Q: How do you monitor all you bank accounts with a lean treasury team?
A: We strive to keep as much electronic as possible. The treasury team can monitor our bank balances at any point in the various e-banking platforms. We also have a direct data feed from the bank into our SAP system allowing for automated receivables clearing and automated bank reconciliations
On the payments side we obviously approve payments in the banking system in addition to the approvals within the SAP system. There is an additional layer of control in the banking system where the signatories review and authorize payments. A dual system is in place: A checkpoint to get into the building and a checkpoint when the cash leaves as well, if you like. From a detective control perspective, reports are fed automatically to relevant staff.
Q: You praise automation highly. Are there any pitfalls?
A: Automation does away with the need for a large accounting staff but then again you need to have strong IT support. In a wider conceptual context, one wonders occasionally whether these IT efficiencies deliver all the value they say they do! They do, but there is an element of substitution rather than an elimination. Overall it’s cheaper. You have less error and error creates a lot of work and hence cost.
I think that one of the risks with these big ERPs is that the knowledge people have of the guts of the system is often limited and there are only a few people who really know the inner workings of the system. That’s a risk, I think. Because a lot of people view it as a black box; and poor understanding of how something really works is of course problematic when operating controls or when something goes wrong.
Q: What word of advice can you offer a treasurer?
A: You must try to be aware of blind spots. You should stay connected into the wider community. You can become quite myopic in your own company; or within a particular region. Make sure you know what systems and techniques the industry is using to try to identify your blind spots.