Treasury Management: Going PoBo and (Maybe) RoBo
Corporates recognize the benefits of channeling payments and collections through a single legal entity or paying and receiving/collectiong on behalf of (POBO and ROBO/COBO). At a recent The NeuGroup GCBG meeting, members discussed ways to leverage these types of structures for increased efficiency with global accounts and cash management structures. Although many in the group like the POBO and saw its benefits, others weren’t sold on ROBO.
One of several takeaways was from a member company that created a corporate structure that launched at the start of the summer. Although the initial set up of such a POBO structure requires close coordination with legal and tax, the ongoing benefits thereafter are well worth the initial legwork. Some of the most important legal and regulatory considerations include the careful definition of the business role of the service entity (header entity), thorough understanding of all local restrictions concerning “on behalf of” transactions, and clear consideration of central bank reporting requirements and exchange controls.
The benefits can be many when consolidation happens, according to the company presenting. That’s because when setting up a POBO structure, one of the immediate savings is associated with the significant reduction in disbursement accounts. Based on the POBO Project Summary presented by the company, it will see a net reduction of 14-15 disbursement accounts for ten European entities based in Germany, Netherlands, France, Italy, Belgium, Switzerland and the UK, with payment currencies of EUR, GBP, CHF and USD.
Other benefits include the removal of “cushion” balances associated with the closed accounts of approximately $10mn, which allows greater cash efficiency and added investment income. A simplified monthly cash-flow forecasting process, streamlined reconciliation and reduction in bank account maintenance allows them an additional savings of more than 300 man-hours per year.
But one thing realized amid discussions: ROBO is not as popular. That’s because with the advance of automated daily reconciliation functionality between ERP or TMS and the associated bank account, a Receipt-on-Behalf-of structure is not a popular solution among members. Most do not see this as a viable solution for their company.
As many more organizations are implementing in-house Banks, consolidation structures like POBO are becoming more popular as next-generation solutions for the continuation of treasury evolution and the advancement of process efficiency. Even though the initial set-up of such structures takes significant effort, the ongoing payback is significant and will last well into the future.