For its monthly financial closures, one of our clients, a large international company that handles transactions in around fifteen different currencies, used to require the full-day involvement of two employees, particularly for calculating its currency conversion variances. Thanks to the DeftHedge solution it recently implemented, its finance department has seen this timeframe reduced to just a few minutes, while also eliminating the risk of input errors.
The general profile of the client
- Subsidiary of a large publicly traded corporation
- Annual revenue exceeding 2 billion euros
- Exposure to around fifteen different currencies
- Close to 60 international bank accounts
The initial observation
Present on all continents, this French client generates approximately 70% of its revenue in US dollars (USD).
« The remaining balance is distributed among about fifteen other currencies, including the euro, of course, but also the British pound (GBP), the Polish zloty (PLN), the Czech crown (CZK), the Hungarian forint (HUF), the Tunisian dinar (AED), the Australian dollar (AUD), the Singapore dollar (SGD), the Canadian dollar (CAD), the Mexican peso (MXN), and the Japanese yen (JPY),” explains its Director of Finance and Treasury.
In order to hedge its foreign exchange risk, the finance department regularly employs hedging instruments, primarily forwards. With the aim of optimizing its treasury management, this company has implemented a cash pooling strategy. For the funding of its country entities, it favors intra-group loans.
These transactions are also hedged. “Working with the trading desks of multiple banks, the operational coverage of our foreign exchange risk presents no difficulties,” says the Director of Finance and Treasury. “However, the management of our exposures could be significantly improved on an accounting level.»
To meet the expectations of its parent company, the company indeed carries out a monthly financial closure. Its financial statements must be submitted no later than the 3rd day of the following month.
«Starting from the first day of the month following the relevant period, we must perform all bank reconciliations and calculate the conversion variances resulting from the revaluation of foreign currency debts and receivables,” continues the financial manager. “Considering the roughly sixty bank accounts we hold worldwide and the high transaction volume to process, this task is extremely time-consuming.»
The implementation of the DeftHedge solution
It was to address this challenge that the finance department turned to DeftHedge in late 2022.
«Our goal was to have a secure and reliable solution that would enable us to calculate conversion variances almost instantly,” explains the Director of Finance and Treasury.
Among its various features, our solution allows for the consolidation of foreign exchange rate exposures and/or commodity exposures into our clients’ account currency. It provides the capability to generate financial position reports, value hedging portfolios, and assess accounting gains or losses from currency exchange.
As a SaaS application with a high level of security**, DeftHedge can be directly integrated, through an API, with a company’s IT tools, whether it’s their accounting ERP or treasury management system (TMS). However, considering the specific requirements set by this client, a customized solution was developed.
«For internal compliance and financial policy reasons, the client preferred not to fully automate the process in order to retain control for potential manual interventions in the files,” explains Karl Courant, Chief Product Officer of DeftHedge.
We then developed a structured file into which the financial data from the client’s TMS and accounting ERP is loaded. Conversion variances are then calculated in a matter of seconds before being imported into their information system.
« From the design of the file to its implementation, including the testing phase, only a few weeks were required,” informs Karl Courant.
What are the results?
Using the DeftHedge solution since February 2023, this client is already reaping several significant benefits.
« Until now, we had to allocate two full-time employees for an entire day to perform this task, which was both exhausting and offered no added value to those executing it,” says the Director of Finance and Treasury. “Now, just a few minutes are sufficient. As a result, we can focus our efforts on analysis rather than data entry. Another substantial advantage, the risk of input errors, which was real due to the extremely tight deadline for submitting our monthly accounts to our parent company, has now been eliminated. »
* This client wished to remain anonymous for compliance reasons.
** The DeftHedge solution is hosted on Microsoft Azure.