Cash management in Latin America

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Cash management
Treasurers Handbook
Gustavo Casanovas Latin America Region Head for Payments, Receivables and Commercial Cards, Citi
Odette Izquierdo Latin America Region Head for Liquidity Management Solutions, Citi


Latin America is currently facing a challenging economic and political outlook, with growth forecasts expected to be cut and downgraded throughout most of the countries, including the largest markets. For example, Brazil’s GDP is expected to contract this year by 1.4% after four consecutive quarters of decline. Even though the region has grown in the past decade and has established itself as an important global economic force, Latin America is in the midst of a labyrinth and must navigate several global and domestic obstacles, including lower commodity prices and new types of financial risks, to ensure strong and sustainable growth. The region’s dependence on commodity exports and the recent decline in trade dictate that countries must make fiscal adjustments to avoid higher debt without compromising gains of past years.

The sub-regions have notable growth differences mainly due to Central American trade relations with North America and South Americas’ previously mentioned dependence on commodity exports. Local macroeconomic trends in South America have contributed to the slowdown, including modest growth in Argentina led by public spending but hampered by double-digit inflation and weak soy prices. Brazil has been impacted by China’s slowdown, political turmoil, inflation and low export prices. Venezuela is living through declining oil prices, inflation and currency and price controls. On the other hand, Mexico and Central America are growing by 2.4% supported by high demand from the US and record-level tourism in Dominican Republic and other Caribbean economies. In financial markets we have seen international banks not willing to lend due to the balance sheet restructuring of recent years. During 2015 attractive pricing and terms for borrowers have made cross-border lending gain ground. Having the lowest rates in the last ten years in 2014, equity issuance is likely to remain low as uncertainty in the region persists. Regional currencies have depreciated against the dollar in nominal terms, particularly in Argentina, Brazil and Peru. However, high rates of inflation caused them to appreciate in real terms in 2014.

Treasurers’ priorities

Latin America’s potential has attracted many multinational corporations to the region and prompted those already operating – as well as multi-Latinas – to expand their operations. Treasuries must cope with the challenges of supporting the business in an environment of uneven growth and increasing complexity. Efficient funding is an important priority for treasurers in Latin America. If a corporate operates in multiple markets across the region, it is essential to take decisions in a timely manner in order to optimise working capital and liquidity. Increased visibility over cash balances and accurate, frequent cash flow forecasting are essential to fulfil these objectives and enable the business to achieve its strategic goals. Better visibility and control of cash also reduce the need for external funding and enable idle cash to be deployed, resulting in increased balance sheet efficiency.

A second priority for treasurers in Latin America is managing market changes. These include the migration from paper-based to electronic processes as well as staying well informed of regulatory changes. There has been a huge range of new global regulations since the financial crisis of 2008, such as Know Your Customer (KYC) and Basel III requirements. Also, domestic regulations continue to evolve. For example, in Mexico a fiscal law requires tax deductions of $150 or above to be made directly to the beneficiary rather than to a third party. Corporates must comply with relevant regulations wherever they operate.

Corporate treasurers’ third major priority in the region is treasury transformation, including intelligent centralisation and the changing role of the treasury. Increasingly, multinationals are using Shared Service Centres (SSCs): Costa Rica is a favoured location while Brazil and Colombia are also gaining in popularity. By centralising payment processes in a single location, for example, using a single Enterprise Resource Planning (ERP) tool, costs can be dramatically reduced through automation and decisions can be made faster and better informed.

A fourth priority for treasurers in Latin America is the desire to leverage technology, by using data and analytics to improve decision-making (for example, for liquidity management,) or convenience. The use of mobile technology makes it easier for treasury personnel to authorise transactions remotely, helping to increase productivity and efficiency. Corporates also want to use technology to enhance their ability to service their customers by accepting mobile payments. For example, Citi is working with a local consumer bank in the Dominican Republic and has built an eco-system to facilitate mobile collections for small grocery stores and other retail businesses to replace cash payments to their providers with mobile transactions. A similar initiative is set to go live in 2015 in Guatemala in partnership with a microfinance institution in order to extend credit lines to retailers and facilitate mobile payments to corporates.

The cash management environment

The chief characteristic of Latin America in terms of cash management is its diversity. Unlike in Europe, for example, each country has unique rules and regulations. While it is possible to manage some processes centrally, the requirements of every individual market must be addressed. Some markets in Latin America offer important opportunities. Brazil, for example, uses a unique automated receivables instrument called Boleto for the vast majority of collections. Each bill has a bar code containing reconciliation information. Payments can be made at any bank and are sent electronically to a clearing house, which distributes the funds to the beneficiary’s bank. By facilitating the electronic reconciliation of payments with outstanding receivables, efficiency is increased. In other markets, corporates must be aware of local requirements.

Mexico’s real-time gross settlement Sistema de Pagos Electronicos Interbancarios (SPEI) operates in a similar way to many other high value payments systems, such as the US Federal Wire. However, it has multiple payment types that can make the process more complex. Another Mexican peculiarity is the requirement for tax payments to be made via a government website. Nevertheless, this functionality is incorporated directly into electronic banking platforms using an Application Programming Interface (API), which enables different pieces of software to work together. In some countries, significant challenges exist to efficient cash management.

In Argentina, restrictions on foreign exchange mean that every transaction requires explicit permission from the central bank. Moreover, the approval process is manual and time-consuming. One unusual feature of the payment environment in Argentina is the widespread use of standardised post-dated cheques for payments. These cheques are often discounted by banks for early payment. In many countries within Latin America, it is becoming easier for companies to achieve their cash management objectives.

In Peru, the payments system has advanced significantly in recent years, with Automated Clearing House (ACH) payments and transfers now reaching much more of the country than in the past, helping to reduce costs and risks. Ecuador has recently released a country-wide mandate for electronic currency, forcing banks of a certain size to participate in the system by opening a wallet account and disbursing remittances. Meanwhile, Costa Rica’s low cost, high skill labour base, robust communications and power infrastructure and political stability have made it an increasingly popular location for SSCs.

Shared service centres

The experience of implementing an SSC depends on the type of company. Multinationals tend to have internal experience, dedicated resources and a clear corporate mandate for SSCs — Latin America is simply another region for them to roll out. In contrast, many Latin American companies will be centralising functions for the first time; it is unlikely that there will be internal understanding of SSCs or dedicated personnel (instead treasury staff are used); implementation may take two or three times longer than for multinationals as knowledge and experience are gained. The SSC “Buy In” process has to be made at Corporate level first and then on a country by country basis. The mandate within the company’s organisation is not that strong and extended at all levels as it is in the case of European and American Multinationals.

Companies implementing an SSC in Latin America typically adopt one of two models depending on their scale and regional footprint. Some choose to take a horizontal-treasury process approach where a specific function, such as payments, is implemented for all countries in the region before additional functions are added. Others take a vertical-geographic approach and consolidate multiple functions for a single country before moving to additional countries. Regardless of the type of company implementing an SSC or whether they adopt a horizontal or vertical model, the drivers underpinning the decision to adopt an SSC model are broadly the same.

Mobile money

While worldwide mobile payment transaction values reached approximately $325B in 2014, there is still room for growth in Latin America, particularly for the unbanked. In a region where 50% of adults are unserved by the formal financial system, according to GSMA, there are currently 37 live mobile money implementations across 19 markets. Adoption is very promising. Of those implementations five have over 1 million registered accounts. There are 14.9 million registered mobile money accounts, of which 6.2 million are active on a 90-day basis.

On the regulatory front, in 2015 there are six markets with enabling regulation including Brazil, Peru, Paraguay, Nicaragua, Bolivia and Guyana. Additionally there are three countries in the region that are in the top 15 in the world in terms of adults using mobile money – El Salvador, Honduras and Paraguay – which highlights the successful evolution of the technology in the region.

The network support for mobile money is also prevalent, with nearly 63,000 registered agents, a 129% growth, and 74% of services are integrated into existing ATM networks. This all adds up to a robust groundwork for mobile money in the region.


Although considered a relatively mature market, Payments’ business environment, processes and best practices continue being one of the areas of increased dynamism. From a Treasury and Payments trends perspective, there are six major areas driving change, creating opportunities, as well as bringing challenges:

  • Standardisation and convergence of payment rules and formats
  • Modernisation of Payment Systems and Infrastructure
  • Increased development and importance of currencies and new markets, as trade and commerce flows evolve
  • Digitisation and surge of new alternative payment channels and currencies
  • Big Data and Analytics
  • Regulations, Taxes and focus on Risks/Controls

Several markets are experiencing diverse set of initiatives towards further development of Payments infrastructure towards increase usage of Direct Debits origination, development of online/faster payments, further support of different type of Tax Payments/Social security flows, and increased use of XML and SWIFT agnostic formats.

We also see clear focus from major global Multinationals, Multi-Latinas and top local companies towards deepening the development of Shared Service Centre models and centralised Payment Factories, increase the integration and automation of ERP/Account Payables processes, evolve into better and more sophisticated connectivity and electronic banking integration, as well as to improvements to security, entitlements, risk management and controls.

At Citi, we strive to continue very engaged in leading the evolution of the payments space in the region, supporting recent ACH developments in Costa Rica, Paraguay and Uruguay, as well as providing end to end Payments and Connectivity Solutions oriented to support the needs of our global, regional and local clients in terms of Domestic Payments to vendors/suppliers, International FX and X-Border Payments, Payroll and Taxes.


Collections in Latin America are more challenging to centralise than payments, although efforts by corporates to rationalise their banking relationships are accelerating and some activities are being moved to SSCs. While the shift from paper to electronic payment and collection channels continues, there are less than fifteen countries where ACH debit is available. Even in those countries where it is present, market practice is against debiting payers’ accounts, mostly in B2B scenarios. Consequently, automated collections remain problematic and therefore limited in volume. In addition, ACHs usually truncate the remittance information that banks receive for incoming payments, making it challenging to find the minimum required details for reconciliation. Moreover, a large proportion of Latin Americans remain unbanked. Thus, in many instances collections remain cash based, which is costly, prone to fraud, high risk and requires companies to work with banks that have a large footprint. The search is on for a way to reach the large numbers of people not covered by existing banking infrastructure so that collections can be made more efficient and Days Sales Outstanding – a key element in working capital optimisation – can be improved. However, so far efforts by mobile companies to partner with financial institutions have produced limited results. Other collections trends include increased concerns related to risk management associated with corporates’ clients and bank counterparty risk. Companies’ expectations regarding collections are increasing. Comprehensive coverage and generic information are no longer enough. Instead, corporates want a bank provider that has a deep understanding of the end-to-end collection process from Purchasing Order (PO) receipt to cash application. By taking a holistic view of the collections process, banks can uncover new efficiencies and identify processes that can be streamlined. There’s no "one size fits all". As result, the best approach to Accounts Receivable requires companies to work hand in hand with banks to find the best solution to collect from each of their different client segments. This could involve either over the counter deposits for cash and checks, remote check deposits - where permitted by regulation, electronic payment methods and digital solutions like eIPP - Electronic Invoice Presentment and Payment - to aggregate collections information and channels in order raise STR (straight through reconciliation) and streamline reconciliation through the integration with each company's ERP.

Liquidity management

Perception regarding liquidity in Latin America has changed over time. Transforming from a fragmented regulated economy to a diverse, challenging and profitable region has created greater emphasis on clients regarding liquidity. The financial crisis post 2008 and the weakness of many banks in the years that followed placed a greater emphasis on liquidity and capital preservation over yield in many companies. More generally, liquidity management has become critical given periods of scarce or expensive credit and treasury is focusing on rationalising the banks that they work with. As a result, corporates have sought to optimise their liquidity by reassessing the focus on the credit quality of their partner banks, generally using a main regional bank and some local banks to support their operations.

Corporates operating in Latin America face several challenges in employing efficient liquidity structures. While the regulatory environment in Latin America is diverse, it is generally more restrictive than in some other regions. For example, regulations in Argentina and Venezuela mean cash is trapped in-country while companies active in Brazil or Colombia are not able to move money automatically, making liquidity management more cumbersome. Notional pooling and intercompany lending are not widely used as they are perceived as costly or not traditionally regulated, which makes liquidity efficiency more complex. However, trends have evolved and companies are searching to create regional clusters where regulations, liquidity and tax treatments are similar. Treasury centres that serve a cluster of markets, such as Peru, Chile and Uruguay that have common characteristics or the necessary tax treaties to facilitate effective liquidity management are common. Similarly, economies with high levels of regulation can be clustered, with flexible investment policies implemented to overcome high inflation risks. This approach to liquidity management takes into account the challenges and restrictions that exist in the region but still enables companies to achieve their broader regional treasury objectives and to optimise efficiency. It also leaves open the possibility for further regional consolidation of treasury activities as regulations change.

Due to the high volatility of FX and interest rates in the region, companies traditionally maintain physical pooling in USD, typically in the US. Investment decisions are usually made and managed centrally from corporations’ head offices, even if local investment instruments are used. Typically, funds that companies plan to use for strategic investment will be kept out of country until they are required. However, companies have been finding local hedging structures, natural hedges or cluster synergies to improve risk management.

Risk management

Latin America’s diversity means that risk management for corporates requires great attention to detail. Each country presents different risks that must be understood, monitored and mitigated where necessary. FX risk is also a clear concern in these markets, given restrictions on movements of funds and a history of devaluations. More generally, while US dollars are the main trading currency within the region, corporates operating across Latin America will need to use local currencies and will therefore require advice and solutions for FX hedging. Macro trends in 2015 that may represent risks in the region include:

  • Insufficient macroeconomic adjustment in the regions’ largest economies
  • Financial volatility due to the regions’ dependence on the US dollar
  • Lower commodity prices for oil exporters and other commodity exporters
  • Slower-than expected recovery in the Euro-zone
  • Hard landing in China

Other risks that need to be considered and addressed by corporates include:

  • Credit and counterparty risk: buyers may not pay their debts
  • Financial crime: employees or others may embezzle funds or commit fraud
  • Interest rate risk: changes in interest rates can affect companies’ balance sheets and their ability to repay outstanding debt
  • Liquidity risk: assets, including investment instruments, may become untradable during times of financial stress
  • Market risk: investments held as part of a liquidity management strategy (or strategic stakes in other companies) may change in value because of market volatility
  • Operational risk: breakdowns may occur in internal procedures, people and systems
  • Regulatory risk: the Foreign Account Tax Compliance Act will affect most multinationals. It imposes new registration, reporting and other obligations

A bright future

The outlook for Latin America is extremely positive. The changes taking place in China’s economy, which is shifting from being manufacturing led to being consumption led, will have an impact on demand for Latin American commodities. Many countries within the region have used the opportunities created by the natural resources boom in the past wisely. Sizeable foreign exchange reserves have been built up – Mexico’s hit a record high in April, 2015 – and many countries have implemented sound economic policies that withstood the formidable test of the financial crisis.

Far-sighted social policies that will produce benefits for decades to come have also been introduced in many countries. As a result, access to education has dramatically increased. The growing number of people that are moving out of poverty creates huge opportunities, as consumption of a wide variety of products and services will significantly increase. This makes Latin America more attractive to investors from around the world.

Latin America remains a diverse region with some significant operating and regulatory challenges. For companies to achieve their strategic goals in Latin America – and harness its growth and dynamism – they need to work with a bank with solid experience and deep knowledge of local and regional conditions. However, regional knowledge is not enough. It should be combined with a global perspective and class-leading solutions, so that multinationals – and Multi-Latinas – can ensure their treasury is as efficient as possible and can be integrated into their global structures where required.


  1. El Economista México (The Economist), International Exchange Reserves, 2015
  2. World Bank, Global Economic Prospects, June 2015
  3. Inter-American Development Bank (IDB), The Labyrinth - How can Latin America and the Caribbean Navigate the Global Economy, 2015
  4. Gartner, Worldwide Mobile Commerce, PYMNTS, December 2014
  5. GSMA – Mobile Money for the Unbanked, May 2015
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