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SPONSORED STATEMENT
In Pursuit of the
Ideal Single-Account Structure:
POBO and COBO Can Take You There
By Martin Runow, Head of Cash Management Corporates, Americas, Deutsche Bank,
and Joe Mauro, Head of Market Management, Trade Finance and
Cash Management Corporates, Americas, Deutsche Bank
A
single-account
banking
structure?
Everyone knows that
large corporations
operating around the
world can’t reduce
their typically complex
bank structures,
with the associated
movement of cash
through physical and
notional pools, down
to a single account.
Foolish, right?
Today, maybe.
But someday — still
years from now —
companies conceivably could boil down
banking structures that encompass
thousands of accounts at hundreds
of banks, involving a wide range of
currencies, into just one account.
It would be sort of a cash
management nirvana: complete
control over global liquidity.
But how do you get there from here?
How do you reach a place where you
can eliminate complicated external
account structures? With recent
advances, payments-on-behalf-of
(POBO) and collections-on-behalfof (COBO) structures have become a
much more achievable treasury goal.
START WITH POBO AND COBO
POBO and COBO, widely recognized
as the most efficient of all global cash
management structures, are typically
implemented as the last stage of
an in-house bank. These structures
enable corporates to channel payments
and/or collections through a single
legal entity, so they can rationalize
their accounts and simplify cash
management structures by eliminating
physical and notional concentration.
In traditional setups, payment
factories automatically initiate outgoing
payments from accounts owned by the
participating group entities. The group
entities instruct the payments, with the
payment factory acting as a technical
and operational processing hub.
When payments are instead routed
through a payments-on-behalf-of model,
both instruction for and settlement of
payment is made from external accounts
centrally owned by Treasury. The group
entity is noted in the payment reference
field as the ordering party on whose
behalf the payment factory initiates
the transaction.
The external bank
accounts operated
by the payment
factory are replaced
by internal accounts
operated by the
payment factory in
the group’s enterprise
resource planning
(ERP) system. The
payment factory then
initiates a payment
to the third party.
Collections-onbehalf-of is similar,
with the collections
factory collecting
on behalf of the group entities via a
centrally owned external bank account.
POBO and COBO structures are being
driven by the emergence of technology in
ERP systems and treasury workstations,
as well as a greater understanding of
local legal, tax and market practices.
The Single Euro Payments Area (SEPA),
with its ability to include ultimate debtor
and creditor information that conveys
which of a company’s business units or
subsidiaries the payments/collections
are on behalf of, has been a major
driver of these structures in Europe.
Meanwhile, efforts to implement them in
other regions, such as Asia, continue.
Will POBO and COBO deliver you to
the promised land of single-account
banking? With so many hurdles to cross
in so many countries, certainly not
anytime soon. But as understanding of
local practices grows, POBO and COBO
can enable more existing cash
management structures to be
replaced by a single account.
In countries where these
structures aren’t viable today,
treasurers are wise to continue to
pursue traditional goals around
cash visibility and concentration.
FILL IN THE GAPS —
GLOBAL CASH VISIBILITY
After years watching
their companies expand
Martin Runow
Joe Mauro
internationally, open accounts
Deutsche Bank Deutsche Bank
and establish new bank
relationships, treasurers received
a wakeup call when the financial crisis
those structures to cover all shortfalls
struck. CFOs became intensely interested with longfalls in your group.
in the whereabouts of corporate cash,
More complex cash concentration
and many treasurers got to work
structures benefit from efficient inharnessing an array of technology
house banks. When evaluating the
tools to enhance global cash visibility.
effectiveness of your in-house bank,
They started leaning more on banks
start by asking whether you are running
and sophisticated ERP and treasury
it using the most efficient technology and
management systems, which today
process. For instance, we’ve seen clients
automate the process of consolidating
who have centralized banking processes
account data and centralizing that
at a single shared services location, but
information. Indeed, with the aid of
they still have an inordinate number
technology, many treasurers today
of people, in a roomful of computers,
can click a button on their computer
managing accounts at a host of banks.
dashboard in the morning and know
In-house banks also need to be
to a reasonable certainty where most
as transparent as possible to ensure
of their company’s cash resides.
adherence to arm’s-length principles
In countries not covered by POBO/
related to rates, as well as all regulatory
COBO, such efforts to optimize cash
and tax compliance requirements.
visibility remain critical, because good
If you have an in-house bank, revisit
data drives good decisions, and you need physical pooling structures to make sure
that visibility in order to mobilize cash.
they remain necessary. For instance,
in Europe, due to SEPA, your in-house
FILL IN THE GAPS —
bank can now manage a position in
CASH CONCENTRATION
euro centrally. Given that, do you still
AND IN-HOUSE BANKS
need some of the legacy structures you
Once Treasury knows where the cash
have in place today, with subsidiary
is — especially the cash outside of
accounts in different countries, and
the POBO/COBO structures — the
notional and physical cash pools? Can
next steps are determining what cash
you convince your salespeople to allow
to concentrate and how to maximize
you to directly debit customers so you
in-house bank effectiveness.
can eliminate existing accounts and even
In order to improve access to cash
entire existing cash pool structures?
and foreign exchange risk management,
cash concentration structures should
LEVERAGE REGULATIONS
include all of your large cash positions
TO FREE UP ‘TRAPPED CASH’
and biggest currency exposures.
As you pursue the ideal cash
Also, it is essential, in order to fund
management structure, it’s important to
yourself, to ensure you are using
take advantage of changing regulations
around the world that eliminate
restrictions on cash mobility.
One of the best examples
is looking to benefit from the
internationalization of the
Chinese renminbi, which has
created growing opportunities
for companies to concentrate
cash across borders using
two-way automated sweeps
of RMB that was once
“trapped.” Under the evolving
currency regulations in
China, companies no longer
need to have a Chinese RMB
position and an offshore
RMB position. You can have a single
position, which makes it much easier
for Treasury to manage the currency.
As more US multinationals not
only produce goods in China — but
sell a good portion of them there as
well — this becomes an even more
important development. The ability
to conduct trade in RMB, hedge the
currency and move it across borders
offers a cost-efficient alternative to
converting all China trade receipts
into US dollars and absorbing the
associated foreign exchange costs.
In another major breakthrough, India,
traditionally one of the most restrictive
countries when it comes to regulation,
has relaxed restrictions against
intercompany lending, opening the door
for companies to concentrate cash.
A DESTINATION NOT SO FAR AWAY
The ultimate goal of a single-account
banking structure is within reach. By
implementing POBO and COBO where
possible today, and continuing to
enhance cash visibility and optimize
cash concentration and in-house
bank structures, you can move your
corporation closer and closer to the
ideal cash management structure.