COVID-19 Puts Spotlight on Strong Liquidity Management, Antifraud Practices
- Keywords:
- covid-19
We can all agree that this is a time like we’ve never seen. And the uncertainty of the situation means it’s crucial to make sure you’re practicing sound cash flow management.
I recently hosted a discussion with four BMO experts to discuss the financial environment many businesses are facing, and why managing liquidity and keeping your eyes open for potential fraud are especially important now.
Listen to the full conversation here, or read the content below that describes what is in the podcast.
Optimizing Liquidity
COVID-19-related business closures, job layoffs and furloughs, along with stay at home orders, are having a devastating impact on the U.S. economy. As Michael Gregory, BMO Capital Markets Deputy Chief Economist noted, “the 25% annualized contraction we’re expecting for Q2 will be the worst in history.”
“With the economy hitting the coronavirus wall last month, Q1 growth is going to be pulled into negative territory as well,” Gregory added. “We look for the economy to contract at least at a 5% annualized rate in Q1. Bottom line, we’re in a recession.”
On top of that, the Federal Reserve cutting short-term interest rates by 150 bps for a federal funds target range of 0% to 0.25%. And as more businesses shutter and more workers lose their jobs, Gregory said he doesn’t expect the Fed to reverse course for a long while. With that in mind, companies need to assess which liquidity solutions work best for them.
“We’re seeing a very large buildup in cash, where companies both large and small are looking to shore up as much cash as possible to navigate through these challenging times,” said Jim Santoro, BMO Capital Markets Liquidity Specialist. “They’re also looking to make sure they can continue to operate their companies seamlessly, and that their working capital and cash management remains prudent.”
The ideal solution is one that affords principal protection while enabling companies to access necessary cash within 90 days. That’s why Santoro said he’s seeing an influx of cash going to bank deposits, especially current accounts offering immediate access to funds.
Santoro said companies are looking into U.S. Treasurys and other government paper. Thinking about these vehicles is logical, but Santoro noted that as recently as the first week of April, Treasurys have traded negative amid outsized demand. “While these do provide a safe harbor, for those looking to generate additional yield on their cash, short-term Treasurys and government money market mutual funds may not be the most attractive alternatives.”
With that in mind, Santoro said there’s been a large influx of cash to banks over the last several weeks. “Unlike 2008, where the instability of the banking sector precipitated an economic crisis, banks—especially those highly rated and well-capitalized—are in infinitely better shape than they were in 2008 and are proving to be an extremely safe harbor for cash,” he said. “Even in light of a 150 basis point reduction in yields, you’re still seeing some return on bank deposits.”
And given that Fed Chair Jerome Powell has indicated that he doesn’t anticipate negative interest rates to be “an appropriate policy response,” Santoro said bank deposits should continue to be an attractive option.
Enhanced Security
In ordinary times, the need to focus on cash flow management should include strong security and antifraud measures. In the current environment, it’s absolutely crucial. We’ve seen a wave of cyberfraud since the COVID-19 pandemic started, especially as more businesses are shifting to a remote workforce, expanding their vendor relationships to new partners outside of their current supply chain, or using and accepting new payment types than they would under normal operations.
“Prior to this pandemic, no one in the security industry envisioned the remote access environment we’re all operating at on this scale,” said Larry Zelvin, Head of BMO’s Financial Crimes Unit. “Business processes are also changing quickly and creating new risks. At the same time, there’s more money in the system than ever before, including trillions of dollars from the U.S. government. These funds are important for companies and individuals alike, but they also present a huge opportunity for cybercriminals.”
Zelvin noted that the FBI, the Department of Homeland Security, the Canadian Centre for Cybersecurity and the International Association of Chiefs of Police are just some of the organizations that have issued stern warnings about new security threats. Some security companies are detecting threats at 600 to 800 times greater than before the COVID-19 crisis.
“Cybercriminals are making use of the widespread fear associated with the coronavirus to prey on unsuspecting victims who are merely trying to rush to execute their organizations’ business continuity plans,” Zelvin said. “Through this urgency to execute, organizations tend to miss or bypass processes that are typically in place to prevent fraud attempts. Slow down. Many of these mistakes are made because people are going too quickly. Stop, think and then connect.”
Coronavirus-related Attacks
We’ve encountered several examples of fraud in recent weeks based on feedback from our customers and our front-line teams. Here are a couple of examples.
Medical equipment scam. A company was experiencing a shortage of N95 masks because their existing suppliers could not fulfill requests within the required delivery timeline. The company located a new supplier online and sent wire payments totaling $110,000. However, there are indications this might be a fraudulent transaction, and the receiving bank has frozen the funds while this is being investigated.
COVID-19 phishing scam. In the latest version of a common email scheme, cybercriminals send an unsolicited email to potential victims. These emails are made to look like legitimate communications from health care providers, government offices, banks and other trusted sources. The emails offer information and advice about the coronavirus to coerce recipients to unknowingly download malicious software or provide personal information. So far, versions of these phishing emails have been disguised to look like official communications from the World Health Organization, the Centers for Disease Control and Prevention, banks and university health services.
Payment Hygiene
Incidents like these are why Megan Kells, BMO’s Head of North American Treasury & Payment Solutions Product, reinforced the importance of practicing “good payment hygiene,” especially because many companies have been forced to alter their normal operating procedures.
“With different individuals moving their work to different locations, and the potential for some individuals sharing roles they wouldn’t have performed before, I would encourage everyone to take another look at their controls,” Kells said. “Double-check your approvals for wire limits, ACH payments and electronic funds transfers. Ask your customers to reaffirm they’re using strong passwords. And double-check before acting on any external email instructions, such as supplier invoices.”
Kells noted that use of digital tools, such as biometrics and two-factor authentication, can mitigate your risk exposure. Additionally, she said it’s a good time to work with your clients and suppliers about sending or accepting digital payments, as they may be more receptive to alternative methods now than they were before. Mobile banking apps, meanwhile, can help you facilitate payments and approvals anywhere, anytime—especially important now that workforces are more distributed.
In a time when many people don’t want to, or can’t, pay by cash or check, digital payment vehicles can help optimize your payables and receivables while adding an extra layer of security. “Thinking about how to optimize sending and receiving money in these times is critical,” Kells said.
It’s also important to stay up to date on the latest threats, as they evolve quickly. As Zelvin put it, “What works today may not work tomorrow.”
Read more
Oscar Johnson
U.S. Head of Commercial Sales for Treasury and Payment Solutions
Oscar is the U.S. Head of Commercial Sales for Treasury and Payment Solutions for BMO Commercial Bank. His group is responsible for providing cash management, …(..)
View Full Profile >We can all agree that this is a time like we’ve never seen. And the uncertainty of the situation means it’s crucial to make sure you’re practicing sound cash flow management.
I recently hosted a discussion with four BMO experts to discuss the financial environment many businesses are facing, and why managing liquidity and keeping your eyes open for potential fraud are especially important now.
Listen to the full conversation here, or read the content below that describes what is in the podcast.
Optimizing Liquidity
COVID-19-related business closures, job layoffs and furloughs, along with stay at home orders, are having a devastating impact on the U.S. economy. As Michael Gregory, BMO Capital Markets Deputy Chief Economist noted, “the 25% annualized contraction we’re expecting for Q2 will be the worst in history.”
“With the economy hitting the coronavirus wall last month, Q1 growth is going to be pulled into negative territory as well,” Gregory added. “We look for the economy to contract at least at a 5% annualized rate in Q1. Bottom line, we’re in a recession.”
On top of that, the Federal Reserve cutting short-term interest rates by 150 bps for a federal funds target range of 0% to 0.25%. And as more businesses shutter and more workers lose their jobs, Gregory said he doesn’t expect the Fed to reverse course for a long while. With that in mind, companies need to assess which liquidity solutions work best for them.
“We’re seeing a very large buildup in cash, where companies both large and small are looking to shore up as much cash as possible to navigate through these challenging times,” said Jim Santoro, BMO Capital Markets Liquidity Specialist. “They’re also looking to make sure they can continue to operate their companies seamlessly, and that their working capital and cash management remains prudent.”
The ideal solution is one that affords principal protection while enabling companies to access necessary cash within 90 days. That’s why Santoro said he’s seeing an influx of cash going to bank deposits, especially current accounts offering immediate access to funds.
Santoro said companies are looking into U.S. Treasurys and other government paper. Thinking about these vehicles is logical, but Santoro noted that as recently as the first week of April, Treasurys have traded negative amid outsized demand. “While these do provide a safe harbor, for those looking to generate additional yield on their cash, short-term Treasurys and government money market mutual funds may not be the most attractive alternatives.”
With that in mind, Santoro said there’s been a large influx of cash to banks over the last several weeks. “Unlike 2008, where the instability of the banking sector precipitated an economic crisis, banks—especially those highly rated and well-capitalized—are in infinitely better shape than they were in 2008 and are proving to be an extremely safe harbor for cash,” he said. “Even in light of a 150 basis point reduction in yields, you’re still seeing some return on bank deposits.”
And given that Fed Chair Jerome Powell has indicated that he doesn’t anticipate negative interest rates to be “an appropriate policy response,” Santoro said bank deposits should continue to be an attractive option.
Enhanced Security
In ordinary times, the need to focus on cash flow management should include strong security and antifraud measures. In the current environment, it’s absolutely crucial. We’ve seen a wave of cyberfraud since the COVID-19 pandemic started, especially as more businesses are shifting to a remote workforce, expanding their vendor relationships to new partners outside of their current supply chain, or using and accepting new payment types than they would under normal operations.
“Prior to this pandemic, no one in the security industry envisioned the remote access environment we’re all operating at on this scale,” said Larry Zelvin, Head of BMO’s Financial Crimes Unit. “Business processes are also changing quickly and creating new risks. At the same time, there’s more money in the system than ever before, including trillions of dollars from the U.S. government. These funds are important for companies and individuals alike, but they also present a huge opportunity for cybercriminals.”
Zelvin noted that the FBI, the Department of Homeland Security, the Canadian Centre for Cybersecurity and the International Association of Chiefs of Police are just some of the organizations that have issued stern warnings about new security threats. Some security companies are detecting threats at 600 to 800 times greater than before the COVID-19 crisis.
“Cybercriminals are making use of the widespread fear associated with the coronavirus to prey on unsuspecting victims who are merely trying to rush to execute their organizations’ business continuity plans,” Zelvin said. “Through this urgency to execute, organizations tend to miss or bypass processes that are typically in place to prevent fraud attempts. Slow down. Many of these mistakes are made because people are going too quickly. Stop, think and then connect.”
Coronavirus-related Attacks
We’ve encountered several examples of fraud in recent weeks based on feedback from our customers and our front-line teams. Here are a couple of examples.
Medical equipment scam. A company was experiencing a shortage of N95 masks because their existing suppliers could not fulfill requests within the required delivery timeline. The company located a new supplier online and sent wire payments totaling $110,000. However, there are indications this might be a fraudulent transaction, and the receiving bank has frozen the funds while this is being investigated.
COVID-19 phishing scam. In the latest version of a common email scheme, cybercriminals send an unsolicited email to potential victims. These emails are made to look like legitimate communications from health care providers, government offices, banks and other trusted sources. The emails offer information and advice about the coronavirus to coerce recipients to unknowingly download malicious software or provide personal information. So far, versions of these phishing emails have been disguised to look like official communications from the World Health Organization, the Centers for Disease Control and Prevention, banks and university health services.
Payment Hygiene
Incidents like these are why Megan Kells, BMO’s Head of North American Treasury & Payment Solutions Product, reinforced the importance of practicing “good payment hygiene,” especially because many companies have been forced to alter their normal operating procedures.
“With different individuals moving their work to different locations, and the potential for some individuals sharing roles they wouldn’t have performed before, I would encourage everyone to take another look at their controls,” Kells said. “Double-check your approvals for wire limits, ACH payments and electronic funds transfers. Ask your customers to reaffirm they’re using strong passwords. And double-check before acting on any external email instructions, such as supplier invoices.”
Kells noted that use of digital tools, such as biometrics and two-factor authentication, can mitigate your risk exposure. Additionally, she said it’s a good time to work with your clients and suppliers about sending or accepting digital payments, as they may be more receptive to alternative methods now than they were before. Mobile banking apps, meanwhile, can help you facilitate payments and approvals anywhere, anytime—especially important now that workforces are more distributed.
In a time when many people don’t want to, or can’t, pay by cash or check, digital payment vehicles can help optimize your payables and receivables while adding an extra layer of security. “Thinking about how to optimize sending and receiving money in these times is critical,” Kells said.
It’s also important to stay up to date on the latest threats, as they evolve quickly. As Zelvin put it, “What works today may not work tomorrow.”
What to Read Next.
A message from BMO on how we’re addressing COVID-19
David Casper | March 12, 2020 Addressing Covid 19, Business Strategy
We recognize this is an unsettling time, as the coronavirus (COVID-19) situation is rapidly evolving around the globe and the markets have been incre…
Continue Reading>
Tell us three simple things to
customize your experience.
