If you represent a large international business or multinational that works with high volume and high-frequency payments, chances are you’re looking for a way to streamline processes for increased efficiency.
Now, while treasury functions may differ between organizations, the answer tends to always be the same… remove friction, bank connectivity, focus on speed, and deliver security and visibility across all cross-border payments and platforms.
Of course, one simple solution is to centralize everything. But what might this streamlining of group treasury operations, improvement of accounting, treasury management and financial transaction management efficiency, look like?
In come POBO and ROBO…
Adopting a Shared Service Center model for greater peace of mind
As the global financial system moves towards standardization of payment systems and formats, companies are undergoing massive treasury transformations – centralizing all subsidiary-level financial and accounting processes under one Shared Service Center (SSC).
An SSC will primarily utilize payments-on-behalf-of (POBO) and receivables-on-behalf-of (ROBO) mechanisms to make and collect international payments for participating companies via a central group account.
All payments and collections are reconciled and consolidated centrally and are booked on the relevant subsidiary’s internal accounts.
The key benefits of POBO and ROBO for international groups
The POBO and ROBO frameworks are becoming increasingly popular and widespread worldwide, particularly in the Eurozone, where companies benefit from a high degree of currency and regulatory synergy.
So, what are some of the ways in which centralizing payments and receivables can give large, complex organizations peace of mind?
1. Increased transparency:
The treasury has a central and real-time overview of the group’s financial transactions and cash flows, allowing a better analysis of company-wide finances, improved financial compliance, and greater control across the organization.
2. Reduced risk of fraud:
With increased transparency into all financial transactions, management can identify, detect, and combat fraud more easily.
3. Reduced costs:
Centralized collections and disbursements enable bundled payments using the most cost-effective payment methods and systems. This saves the company hefty transfer costs and transaction-specific foreign exchange risks.
4. Improved efficiency:
The centralized treasury integrates local processes and expertise and reduces the organization’s number of bank relationships to make payments cost-effective and efficient.
5. Greater control:
With a centralized payment and collection process, the group management also gains more control over individual subsidiaries, monitoring the movement of funds and intervening promptly to avoid fraudulent transactions or risky financial practices. They can also quickly implement consistent payment and credit terms for all group companies to refine credit-risk taking, improve visibility, and ensure efficient decision-making.
6. Simplified reconciliation:
The ROBO system uses virtual accounts to enable sending organizations to provide the recipient with the critical transaction and account details specific to the final entity, which in this case is the group subsidiary. The virtual account information enables streamlined reconciliation of each receivable and makes it possible for the company to identify and post each payment received to the individual entity’s account.
Transforming your treasury operations
Implementing an SSC treasury model or treasury management system that uses POBO and ROBO frameworks is easier said than done. Organizations need to overcome several challenges before benefitting from centralized treasury operations.
The primary obstacle in successfully transforming your treasury functions is that banks, clearing systems, and payment hubs in different parts of the world use different messaging formats to manage and exchange transaction information. It requires your organization’s treasury management system to connect and communicate with disparate systems. Any errors in message translation and processing can lead to incomplete payment and remittance information and delays, rendering POBO and ROBO useless in enabling the reconciliation of payments.
In comes Axletree…
We’re helping multinational groups circumvent this issue and achieve a smooth centralization of treasury operations through our market-leading financial messaging translation and solution, Symmetree. By integrating your internal system with Symmetree, your central treasury can communicate with financial systems and counterparties around the world in the required messaging formats.
And what do you get in return? Data for back-end general ledger entries accompanied by speed, ease of use, security, and complete peace of mind across all your payments and collections. Click here to get in touch with us to centralize your treasury operations and improve your group’s financial health.
May 13, 2022
