In-house bank

Set up your own banking terms and harness available cash to work for your business. In-house banking is a concept that grows with your needs. Start off by reconciling your subsidiaries’ balances, continue with interest calculation and internal payment processing, and complete your solution with payments-on-behalf and collections-on-behalf and internal financing.

In-house bank should be geared into your payment factory. You can manage in-house banking as easily with one or multiple ERP systems, or with one or many banks.  While our recognized design guarantees that the solution is easy to deploy and maintain by you.  This means that companies of all size and form can benefit from in-house bank.

Balance reconciliation

For international companies widely available cash pooling techniques offer a bank standard solution to collect and centralize your liquidity. But while the cash concentration on a group level increases, subsidiaries positions tend to become blurry in the process. In-house bank completes your setup by automated balance reconciliation and reporting, enabling real-time full visibility to all cash positions.

Better grip on trapped cash and subsidiary transactions has a clear impact in liquidity. Customer examples have shown that the share of working capital tied to operations can be reduced from 10% of net sales nearly down to 1% of net sales with the increased visibility and control.

Internal financing & interest calculation

For many it comes as a surprise how much in-house bank can automate your back office routines. Cover your short-term financing needs with set credit limits in subsidiaries’ internal account balances and get rid of otherwise complex process of lending and depositing cash by loan agreements for each debt.  When the margins, interest rates and credit limits have been agreed upon in the in-house bank account contract, there is no need to create loan papers on a monthly basis.

Management of internal financing in the in-house bank will also ease bookkeeping procedures and speed up the month-end reconciliation activities. Calculating the interest is a basic functionality in an in-house bank. It eliminates the need to process the transitory items for each, internal short-term loan. The interest can be simply calculated and added to the internal account at the end of each month. Centralizing the internal financing to the in-house bank provides an easy way to document the processes for compliance.

From a group perspective, the in-house bank setup provides visibility to the aggregated cash of the entire organization, eliminating the in fact not-so-rare situation where one subsidiary is forced to use its account credit limits all the time while another subsidiary has surplus cash idle in its account. This diminishes the need for lending altogether, as the net sum of the whole group can be used for payments and investments.

Payments-on-behalf-of

Payments-on-behalf-of (POBO) will eliminate the need for external bank accounts from subsidiaries. With POBO subsidiaries continue to process payments largely in a same way as before, but treasury steps in and determines what external bank accounts are used when making payments. And of course everything is set to happen automatically with easy to control rules.

All POBO transactions can be automatically allocated and posted to bookkeeping just like external transactions. Also the information about the ultimate debtor can be maintained in payment material so that the creditor can stay on track from whom the money comes from.

POBO will help to eliminate unnecessary external bank relationships, which gives higher cash concentration. The solution will also increase the control of all payments leading to two kinds of benefits. First of all you increase the mitigation of cybercrime and fraud by fully controlling all payment flows in one place. And secondly choosing the right bank for right payment and currency will help you to cut external credit facilities and cut FX spreads.

Collection-on-behalf-of

Payments arriving to subsidiaries can be received through the parent company’s external bank accounts as well, and directed to the correct in-house bank accounts, eliminating once again the need for external bank accounts.

The collection-on-behalf-of concept requires powerful matching, either by reliable creditor reference standard and payment discipline or by assisted matching rules. In case the original creditor and transaction can be identified, the reconciliation of incoming transaction can be fully automated while cash was automatically received to group account.

Centralizing the cash and collection of receivables at a group level can have a formidable impact on the working capital management of the entire organization. Meanwhile subsidiaries are offered an efficient tool and process for reconciliation and exception management on top of their AR.

Internal payments

One payment process is all you need. Work with group internal payments exactly like with external payments. When internal payments stay internal but do not require receivable driven netting you gain many advantages compared to traditional solutions.  Your bank account statements are always up-to-date while reconciliation of internal transactions is of course fully automated task.

In-house bank conditions are fair and real-time. So subsidiaries do not lose value dates and their month end closing routines can be automated. The transactions are visible as expenses in the paying company’s account and as receipts in the receiving company’s account.

You will gain clear visibility to overall net positions per currency. This enables you to manage and hedge FX risk at a group level. You save in bank transaction fees since internal transactions do not have to go through external banks.

 

Read more about:
Cash management
Payments
Liquidity
Collections