Setting up an in-house bank offers significant benefits for multinational companies, but is often perceived as complex and expensive to set up. Asking the right questions is a great start, says Nikolai Diekert
The logical progression is to a cash pool, where surplus cash is automatically centralised so that it can be put to best use.
It’s at this stage that the number of intercompany flows - and associated banking costs - can start to rise. Netting helps to reduce those flows, which can be settled on intercompany accounts rather than bank accounts.
By now, the treasury structure is starting to look a lot like an in-house bank, but there’s one more stage before it ‘earns’ that title: FX management can be centralised, either by aggregated hedging (leveraging natural hedges) or back-to-back dealing (for better margins), with the resulting internal deals settled, once again, on intercompany accounts.
With that, our multinational has a robust platform on which to build, and can start adding new elements such as Payments on Behalf Of (POBO) and Receivables on Behalf Of (ROBO). With these in place, the need for bank accounts at the subsidiary level almost disappears.
Even before we get to those extra benefits, the in-house bank can deliver cost savings by:
Improving risk management was a key objective of the project and, as Hamon himself says, ‘You can’t have good risk management without good cash management.’
Today, the Primetals Technologies Treasury team is made up of 10 professionals within a company with more than 60 locations with 40 entities in 20 countries. It has achieved greater independence from ERP systems as well as increased its independence from banks (see box), and is poised to go further by adding what Hamon calls a ‘trade finance warehouse’ into the solution.
For companies who want to follow in the footsteps of Primetals, asking the right questions is an essential starting point.
Jeremy Hamon of Primetals will be one of the guests at a Treasury Dragons Virtual Round Table on 1st July, convened to discuss this topic and supported by Coupa. Corporate treasurers can request a guest place here.