UPS: Managing its cash on time

UPS, one of the world''s largest delivery companies, has a regional treasury centre in Singapore which manages its operations in more than 40 countries.

UPS established an Asia Pacific regional office in Singapore in 1988 to serve more than 40 countries and territories in Asia. Today, UPS employs some 2,500 employees in the region and makes 204 flights a day. The company has a shared service center in Manila and a regional treasury center (RTC) in Singapore.

Why did UPS decide to set up a regional treasury center? "UPS was had very decentralized operations," says Michelle Ho, senior manager of finance and accounting for UPS' region treasury center. "We wanted to lower our costs and employ treasury specialists. With our parent in the United States, the time difference was a problem. Now we can minimize foreign exchange exposure by accessing short term funds in short term money markets in Asia." Ho found that by centralizing, the economies of scale achieved meant UPS could obtain better pricing from the banks and also reduce banking charges. Further, UPS found it was able to maximize returns on interest earning assets. "We were also able to identify cheap local funds and use a parent guarantee to secure those funds," Ho adds. All this is managed by a grand total of three full-time treasury staff.

When setting up the RTC in Singapore, UPS first assessed each cash position in the 40 countries in which it operates in order to maximize their assets. Cash balances are monitored daily and funds are put into investment instruments. "It is not our policy to speculate," says Ho. UPS uses one overlay bank and supplements the structure with local banks where required. "There may be regulations that require a company to have a local bank for paying tax or various duties," says Ho. When choosing the overlay bank, Ho says that the bank must be able to act as an advisor in relation to all the different countries, currency restrictions and repatriation procedures. In addition, Ho recommends that the bank have one point of contact and be able to suggest the best structures for the company in question.

UPS set up a local Singaporean dollar pooling structure between entities and across banks accounts. Where convertibility is an issue, UPS deals with the agents to try and negotiate a common currency such as the US dollar, says Ho. In a country like Malaysia, the company will try and ensure that the transaction is related to trade in order to ensure convertibility. Any long-term surplus funds are then repatriated back to the UPS' parent company in the US.

UPS also operates a shared service center in Manila. Whilst the RTC takes care of treasury and fund management and financing for projects, the SSC looks after billing, accounts payable, accounts reporting and the general ledger. With regards to payables, the center processes the invoices and payment instructions are sent to various local bank accounts for accounts to be debited and payments made. With regards to receivables, Ho admits that the process is still currently decentralized during to different currencies and languages.

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